Monday, September 30, 2013

Fiscal Multipliers for India

NIPFP Working Paper 125

Sukanya Bose and N R Bhanumurthy
September 2013


This paper attempts to present a framework for the estimation of fiscal multipliers for the Indian economy in the structural macroeconomic modelling tradition. Empirical estimates of short-run multipliers are obtained by giving shocks to a range of fiscal instruments - expenditures and taxes. As per our estimates, the values of capital expenditure multiplier, transfer payments multiplier and other revenue expenditure multiplier are 2.45, 0.98, and 0.99, respectively, while the tax multipliers are in the range of -1. Expenditure multipliers were also obtained in the presence of fiscal consolidation targets. These estimates again point to the strong multiplier effect of capital expenditure on output, and underscore the need to prioritize capital expenditure.

Thursday, September 26, 2013

Foreign investment in the Indian Government bond market

NIPFP Working Paper 126

Ila Patnaik, Sarat Malik, Radhika Pandey and Prateek
September 2013


A country witnesses currency exposure when locals hold a large amount of unhedged foreign currency denominated debt. However, India's capital controls continue to be guided by concerns about debt and its maturity, rather than its currency denomination. Even though the there is foreign appetite for rupee denominated debt, India has placed many restrictions on foreign investment in rupee denominated bonds. These include caps on the total as well as limits by investor class, maturity and issuer and have been implemented through a complicated mechanism for allocation and reinvestment. This paper presents the logic and rationale for why these restrictions fail to meet the objectives of economic policy today. It recommends removal of quantative restrictions on foreign holding of Indian rupee denominated debt and suggests ways to move to a more efficient framework.