India: Links for 24th June, 2019

  1. “Was the earlier system, based largely on ASI (Annual Survey of Industries) for manufacturing (registered and unregistered), perfect? No, it wasn’t. Is the MCA-based system perfect? No, it isn’t. Despite problems with MCA, is the MCA-based system superior to the ASI-based one? The consensus (I didn’t use the word unanimity) among experts seems to be that it is.”
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    Bibek Debroy’s article discusses Arvind Subramanian’s paper. That excerpt above is probably the best way of thinking about it – and as I’ve said before and will say again: if thinking about GDP measurement doesn’t give you a headache, you aren’t doing it right. By the way, two of the twitter threads this past Saturday were about the same issue: worth reading, in my opinion.
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  2. “In manufacturing, the increase in informalisation is due to two reasons, according to a 2018 study by the Indian Council for Research on International Economic Relations: first, because of dispersal of production from larger to smaller units; and second, because of the creation of an informal workforce subject to fewer regulations, the fact that employing contract (or informal) workers reduces the bargaining power of the regular or formal worker, suppressing wages overall.”
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    Indiaspend reviews the state of employment in the country, and finds that there is far too much informalization – but also that this is increasing  over time. In this regard, the best book, by far, to read is Bhagwati and Panagariya’s “Tryst with Destiny”.
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  3. “Indian macro policy has been operating under an implicit 2-4-6-8 framework, which are the targets for the sustainable current account deficit, the desired level of retail inflation, the consolidated fiscal deficit target embedded in law and the aspirational rate of economic growth. There is a need to take a fresh look at this macro policy playbook for two reasons. First, the individual targets have been decided at different points of time by different parts of the economic policy ecosystem rather than emerging from a common analytical project. Two, there are reasons to doubt its internal coherence given that India has rarely been able to meet all four targets simultaneously over the past decade.”
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    The always excellent Niranjan Rajadhakshya comes up with a useful framework to keep a tab on India’s macro levers: 2-4-6-8 is a very useful mnemonic. The rest of the paper speaks about whether this framework makes sense!
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  4. “This crisis has systemic written all over it because the market can no longer distinguish financiers that are illiquid from those that are insolvent.”
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    I’m calling it: there’s a major crash just waiting to happen in the Indian equity (not just equity) markets, no matter what is done. Speaking of what is to be done, the five suggestions here make a lot of sense. Andy Mukherjee doing what he does best.
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  5. “India’s firm size distribution is excessively small, even compared to other developing countries. Also, complementarily, the number of really large firms are also excessively small. We have a “small is bad” problem. What is driving the small-ness? Is labour regulations responsible for discouraging businesses from “placing too many workers under one roof”? Is there anything else driving or contributing significantly to this trend?”
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    Bhagwati and Panagariya once again. Also, urbanization matters! Artificial dispersion of industries or people (same thing) tends to not work. Gulzar Natarajan on what needs to be done to increase productivity in India.

Author: Ashish

Prof at Gokhale Institute, Pune, Blogger at econforeverybody.com, Podcaster at anchor.fm/backtocollege

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