Friday, November 6, 2009

The Difficulties of the Chinese and Indian Exchange Rate Regimes

NIPFP Working Paper 62

Ila Patnaik and Ajay Shah
August 2009

Wednesday, July 1, 2009

Examining the Decoupling Hypothesis for India

NIPFP Working Paper 61

Shruthi Jayaram, Ila Patnaik, Ajay Shah
June 2009

This paper examines the decoupling hypothesis for India. We analyse business cycle synchronisation between India and a set of industrial economies, particularly the United States, over the period 1992 to 2008. The evidence suggests that the Indian business cycle exhibits increasing co-movement with business cycles in industrial economies over this period. Indian business cycle synchronisation is stronger with industrial countries as a whole as opposed to the co-movement found with the US.

Monday, June 22, 2009

Indian Capital Control Liberalization: Evidence from NDF Markets

NIPFP Working Paper 60

Michael Hutchison, Jake Kendall, Gurnain Pasricha, Nirvikar Singh
April 2009

The Indian government has taken a number of incremental measures to liberalise legal and administrative impediments to international capital movements in recent years. This paper analyses the extent to which the effectiveness of capital controls in India, measured by the domestic less net foreign interest rate differential (deviations from covered interest rate parity) have changed over time. We utilise the 3-month offshore non-deliverable forward (NDF) market to measure the effective foreign interest rate (implied NDF yield). Using the self exciting threshold autoregression (SETAR) methodology, we estimate a no-arbitrage bandwidth whose boundaries are determined by transactions costs and capital controls. Inside of the bands, small deviations from CIP follow a random walk process. Outside the bands, profitable arbitrage opportunities exist and we estimate an adjustment process back towards the boundaries. We allow for asymmetric boundaries and asymmetric speeds of adjustment (above and below the band thresholds), which may vary depending on how arbitrage activity is constrained by capital controls. We test for structural breaks, identify three distinct periods, and estimate these parameters over each sub-sample in order to capture the de facto effect of changes in capital controls over time. We find that de facto capital control barriers: (1) are asymmetric over inflows and outflows, (2) have changed over time from primarily restricting outflows to effectively restricting inflows (measured by bandwidths and positions); (3) arbitrage activity closes deviations from CIP when the threshold boundaries are exceeded in all sub-samples. In recent years, capital controls have been more symmetric over capital inflows and outflows and the deviations from CIP outside the boundaries are closed more quickly.

Tuesday, April 28, 2009

Financing Strategy for Achievement of the MDGs and Implementation of the Tenth Five Year Plan

NIPFP Working Paper 59

M. Govinda Rao, Anuradha Seth, Chewang Rinzin
March 2009

Monday, April 27, 2009

Fiscal Health of Selected Indian Cities

NIPFP Working Paper 58

Simanti Bandyopadhyay, M. Govinda Rao
March 2009

The paper aims to assess the fiscal health of five urban agglomerations (UAs) in India viz. Delhi, Hyderabad, Kolkata, Chennai, and Pune. Our sample consists of five corporations and sixty three smaller Urban Local Bodies (ULBs) dispersed in thirteen districts of five major states. The main objective of the paper is twofold. First, to review the status of revenue generation and expenditure responsibilities of the constituent ULBs. Second, to assess the magnitudes of their fiscal gaps by estimating the expenditure needs and revenue capacities and give some useful recommendations to reduce these gaps. Data on ULB finances for the financial year 2004-05 collected through surveys are used for the analysis. For estimation of expenditure needs the updated financial norms on the selected services specified by Zakaria Committee are used as benchmarks. For revenue capacity estimations Gross City Products (GCPs) are estimated from non-agricultural components of the District Domestic Products (DDPs). Revenue capacities are estimated by applying a tax-to-GCP ratio, which is higher than that existing in a ULB by a politically feasible margin, on the estimated GCPs. The main findings suggest that excepting five small ULBs in Hyderabad, the others are not in a position to cover their expenditure needs by their present revenue collections. All the UAs have unutilised potentials for revenue generations but with the exception of one UA i.e., Hyderabad, all the others would fail to cover their expenditure needs, even if they realise their revenue potentials. In all the UAs, except Chennai, bigger corporations are more constrained than the smaller ULBs. Besides, concrete evidence in support of the efficiency of parastatal agencies in sharing the burden of responsibilities cannot be established. The paper recommends better utilisation of ’own revenue’ handles of the cities, by improved administration of the property taxes, implementation of other taxes, and collection of user charges. The option of state governments to allow the local bodies piggybacking a small proportion on their VAT collections can also be explored. Another way to reduce the fiscal gap would be to earmark a portion of the sales proceeds from land and housing by state governments sold through their development agencies for improvement in the infrastructure of the cities. The paper also recommends that the State Finance Commissions (SFCs) should develop appropriate norms for estimating expenditure needs based on which transfers from the state to local governments can be decided.