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Special Centennial Issue

No. 383

April 2016

Vol. XCVI

ISSN0019-5170

Contents


 
 

THE INDIAN JOURNAL OF ECONOMICS:
LOOKING BACK AT THE EARLY YEARS



J Krishnamurty*

 

This paper looks at the early years of the Indian Journal of Economics (IJE), which became the premier journal on Indian economics over the period from 1916 to about 1950. We briefly look at the predecessors of the IJE which came up , in the first couple of decades of the twentieth century, and show how the IJE carved its niche as an all-India journal linked to the Indian Economic Association.

We briefly examine some of the pieces that appeared in the IJE in the period , 191640. These include an excellent analysis of the food problem; an early and outstanding piece on environmental economics; an analysis of the limitations of growth without institutional change in tackling poverty; an estimate in 1935 of the employment multiplier and its implications to public works policy to tackle the Indian depression; and, the first application of the concept of disguised , unemployment to India, and indeed to less-developed countries in general. We also look at a fierce controversy in the pages of the journal between two eminent Indian economists on the topic of gold exports.

The central role of the IJE in providing a forum where such work was published cannot be denied. Given that the economics profession in India was young, its achievements were significant. Several of its articles displayed originality, analytical, and empirical skills and a desire to tackle the issues of the day.

  • * Visiting Professor, Institute for Human Development. He was earlier Professor of Economics, Delhi School of Economics and Senior Economist, International Labour Office, Geneva, Email: krishnamurty@gmail.com.

    Acknowledgement: I acknowledge my debt to Professor R. N. Lohkar, who has provided me with much information and clarified many points on the history of the IJE. I would like to thank the editor, Professor Nisha Srivastava, for helping me get access to several of the papers published in the lJE.

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POVERTY AND INEQUALITY IN INDIA


S. Mahendra Dev *

 

India embarked on big-bang economic reforms 25 years back in 1991. In the post-reform period, the country has done well in many macro indicators such as economic growth, exports, balance of payments, resilience to external shocks, service sector growth, significant accumulation of foreign exchange, information technology (IT), stock market, and improvements in telecommunications.

However, there have been concerns on inclusive growth, poverty reduction and growing inequalities. This paper examines dimensions, issues, and policies relating to poverty and inequality in India particularly in the post-reform period. It also looks at issues relating to poverty measurement.

Poverty declined faster in the decade of 2000s as compared to earlier periods. Still India has the largest number of poor in the world. Among other things, creation of productive employment is crucial for reduction in poverty. Inequalities have increased in the post-reform period. Income inequality is much higher than consumption inequality. The paper discusses the policies needed for reduction in inequality. The central government should play an important role in achieving higher growth and equitable development. However, apart from the central government, the policies of the state governments are essential for achieving these objectives.

  • * Director and Vice Chancellor, IGIDR, Mumbai; Email: Profmahendra@gmail.com.

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REGIONAL INEQUALITY COMPARED:
THE CASES OF INDIA
AND BRAZIL


Alexandre de Freitas Barbosa, Gerry Rodgers,
and
Vidhya Soundararajan*

 

In large countries like India and Brazil, differences between regions in wages, incomes, and productivity are an important component of overall inequality. At any point in time, such regional inequality may reflect diversity in terms of natural resources, capital accumulation and production systems, social structures, and urbanisation. However, many of these differences are constructed historically. In other words, they are a part of the growth regime of the country as a whole, the set of economic and social institutions which underlie the pace and pattern of economic growth, and the distribution of its benefits.

A comparison between two countries can help explore the nature and importance of regional inequality and identify some issues that are common, distinguishing them from others that are specific to one of the countries. This article therefore compares the current pattern of regional inequality in Brazil and India, and its dynamics over the last 30 years.

In order to make this comparison, it is necessary to use a broadly comparable regional model. In Brazil, regional analysis is generally based on a breakdown of the country into five large, distinctive regions. In India, there is no such tradition, since regional analysis tends to use states as units. Thus, for comparability with Brazil, this article aggregates states into a five-region breakdown which reflects patterns of output and expenditure per capita, poverty, and urbanisation.

The introduction to the article reviews some of the key features of the literature on regional inequality in low- and middle-income countries. The article then compares regional differences in the two countries with respect to a number of Key indicators, and how these differences have changed over time. The pattern of regional inequality is quite similar in the two countries, but the dynamics are quite different, with equalization in Brazil and increasing disparities in India. These differences in regional dynamics can be traced to differences in the growth regimes in the two countries.

  • *Alexandre de Freitas Barbosa is Professor of Economic History and International Economics at the Institute of Brazilian Studies of the University of Sao Paulo; Email: afbarbosa@usp.br.

    Gerry Rodgers was formerly with the ILO, Geneva. He has also been Director, International Institute for Labour Studies, Geneva. Presently he is Visiting Professor at the Institute for Human Development, New Delhi; Email: gerry.rodgers@bluewin.ch.

    Vidhya Soundararajan is Assistant Professor, Institute of Management, Bangalore. Earlier she worked at the World Bank, International Food Policy Research Institute and the Indian Planning Commission; Email: vidhyahere@gmail.com.

    Acknowledgement: This article was prepared as part of an IDRC-funded project on Labour Market Inequality in Brazil and India. It has benefitted from comments and inputs from several other members of the research teams in the two countries, notably Fabio Tatei, who compiled much of the data for Brazil, Maria Cristina Cacciamali, Janine Rodgers, Taniya Chakrabarty and Nandita Gupta.

    The wider study of which this article forms part is to be published by Cambridge University Press in 2017: Growth, and Inequality: The Contrasting Stories of Brazil and India by Alexandre de Freitas Barbosa, Maria Cristina Cacciamali and Gerry Rodgers.

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EMERGING WATER CRISIS IN INDIA:
KEY ISSUES AND WAY FORWARD


Ashok Gulati*
and
Pritha Banerjee*  



India is one of the water-stressed countries of the world and is going to become water scarce in due course. Unfortunately, the scarcity of water gets accentuated more by its inefficient use than by its physical availability. Currently, about 78 percent of water in India is used in agriculture. With rapid urbanisation and industrialisation, water demand for competing uses is going to rise sharply. It is therefore necessary that issues related to water use in agriculture are addressed in time. These issues briefly are: more than half of agricultural area is still dependent on rainfall for production; pricing of irrigation water and power remains woefully low; water use efficiency in irrigation practices is low; the costs of surface irrigation are high; ground water is depleting fast, and there is total lack of demand side management of water use.

To overcome many of these problems, we suggest rationalising water and power charges in sync with improvement in the quality of water and power supplied; direct transfer of irrigation and power subsidies to beneficiaries' accounts instead of subsidising them through price policy; speeding up the process of completing spillover projects in order to avoid further cost escalations; discouraging production of water-intensive crops in water scarce areas and encouraging drip and sprinkler irrigation to improve water use efficiency. It will also be wise to look at best practices in some selected countries that have been more successful in optimising the use of their scarce water supplies, especially by rewarding farmers for frugal use of water and power. Last but not the least, proper extension services are necessary for creating awareness among farmers to ensure optimum use of water.

  • *Ashok Gulati is Infosys Chair Professor for Agriculture at the Indian Council for Research on International Economic Relations (ICRIER); Email: agulati115@gmail.com, and agulati@icrier.res.in.

    *Pritha Banerjee is a Research Associate at the Indian Council for Research on International Economic Relations (ICRIER); Email: pb.banerjeepritha@gmail.com

    *Acknowledgement: The authors are thankful to Shri D.C. Sharma, Advisor, ISO, CWC and Shri R. K. Kaul, Consultant, power Division, erstwhile Planning Commission for providing data on public expenditure on irrigation (FY2007 onwards) and electricity subsidy (FY2000-FY2007) respectively.

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THE EUROCENTRISM OF ECONOMICS


Amitava Krishna Dutt*
 


Some fundamental characteristics of mainstream economics, sometimes referred to as neoclassical economics, appear to be methodological individualism, optimising behavior, mathematical rigor, and the absence of pluralism. -It is argued that these characteristics are closely related to some central elements of the European intellectual tradition, including the idea of rationality, individualism, conceptions of the scientific method, and monotheism and it is '-. suggested that these elements are not present or not as strong in Indian intellectual traditions. While it is unlikely that these characteristics of the European tradition provide a major explanation of the state of mainstream economics, they are argued to have an important role in making and keeping mainstream economics the way it is, and that a wider appreciation of non-European traditions, such as the Indian ones, can contribute towards improving economics.

  • Professor of Economics and Political Science, Department of Political Science, University of Notre Dame, USA; FLACSO, Quito, Ecuador; Email: Amitava.K.Dutt.l@nd.edu.

    Acknowledgement: I am grateful to Samir Bose, John Davis, Arnav Dutt, PanagisLiossatos, Alasdair MacIntyre, Wilson Perez, Charles Wilber and Catherine Zuckert for discussions on several aspects of the contents of this paper without holding them responsible for the views expressed in it. This is a shortened version of my unpublished paper, "The Eurocentrism of economics: Problems and alternatives", University of Notre Dame, 2016.

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EVOLUTION OF GOVERNMENT FINANCES IN INDIA:
EXPANSION, REFORMS AND PATH AHEAD
 

D. K. Srivastava*
 


The evolution of India's government finances in the post constitution period is a mix of perpetual under-performance, long-standing inefficiencies, and persistent imbalances punctuated by occasional bouts of half-reforms. Focusing on the combined finances of the central and state governments net of intergovernmental transfers, this article traces the evolution of government finances over the period from 1950-51 to 2014-15. It points out that the share of government expenditure in GDP is less than desirable. The main reason for this is the stagnation in the tax and non-tax to GDP ratios. Expanding government expenditure by additional borrowing proved to be counterproductive, leading to increased government debt and interest payments relative to GDP and a vicious cycle of fiscal imbalances. Within this broad canvas, India has nurtured three major fiscal fault lines in managing its government finances: first, an inefficiency and distortion-promoting distinction between plan and non-plan expenditure; second, a large volume of explicit and implicit subsidies in the public provision of private goods and services; and third, an extremely narrow base of tax payers. We now need to complete the stalled tax reforms, increase government expenditure relative to GDP, restructure it in favour of critical sectors like health, education, infrastructure and irrigation, and increase its inequality reducing impact.

  • *Chief Policy Advisor, EY India and Honorary Professor, Madras School of Economics; Email: dkscloud@gmail.com.

    Acknowledgement: Views expressed are personal. The author would like to acknowledge valuable inputs received from Muralikrishna Bharadwaj, Taming Kapur and Ragini Trehan.

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THE "ECONOMIC MAN" PREMISE  


Mark Lindley*
 


I cite some representative brief formulations of the "Economic Man" premise (EMP), show that scientific psychologists in the USA have now convinced eminent mainstream economists that it is invalid, and suggest why the psychologists hadn't focused earlier on this issue. I argue that to teach the EMP has become, in one way and another in recent decades, conducive to environmental and social trouble. I offer some thoughts on how it might be improved upon, and describe some likely academic implications of such a change.

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Human Development:
Changing Interpretations and Implications  


K. Seeta Prabhu*


Ever since the term human development was coined in 1990, it has acquired range and depth and revived the tradition of an ethical, value based assessment of development. The popularity of the term brought in its wake varying connotations emerging from theorists and practitioners who interpreted the concept from their own standpoints. This paper is an attempt to trace the historical roots of the human development concept and clarify its core principles of equity and sustainability. It also highlights the issues arising from the application of the human development approach in global policy initiatives such as the Millennium Development Goals and the more recent Sustainable Development Goals.

  • *Tata Chair Professor and Programme Director, Prime Minister's Rural Development Fellows Scheme, Tata Institute of Social Sciences, Mumbai; Email: seetaprabhu@gmail.com.

    Acknowledgement: The article is a revised version of the keynote address delivered at the Indian Economics Association Conference at Hyderabad, India December, 2015. The author is grateful to Prof. Deepak Nayyar for his comments on an earlier version and to Ms. Toral Gala, TISS for able research assistance.

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SUSTAINABLE LIVELIHOODS
FOR THE NORTH EAST REGION:
GDP aka GREEN AND DIGITAL PROSPERITY  


Vijay Mahajan and Farah Rahman*  



The paper examines the context in which economic growth can happen in the eight states of the North East Region (NER) and asks what can be an appropriate developmental strategy for such states? Beginning with the postulate that the NER needs a sustainable and holistic approach that balances the need to promote increased livelihood options and development along with protecting and maintaining the region's fragile ecological balance and biodiversity, this paper argues that a combination of the "green economy " and the "digital economy " can help the NE states grow in a manner that is ecologically sustainable and yet links into the growth elsewhere.

The green economy spans agriculture, horticulture, plantations, forestry, animal husbandry, renewable energy generation and distribution, green construction and green manufacturing (both of which impose a light footprint on natural resource use and the environment), and green services (spanning everything from fair trade to eco-tourism). The digital economy on the other hand includes hi-tech manufacturing with light material components like electronics and watches, to financial services and IT-enabled services like business process outsourcing (BPO) centres.

The paper talks of five types of capital natural, human, social, physical and financial and recommends a sequential and balanced development and deployment of each type. The key lies in proper allocation of the government expenditure towards development, social sectors, and capital outlays. While the paper focuses, on what the state government should spend on, this should also broadly be the pattern for private investment in the NER.

  • Vijay Mahajan is the Founder and CEO of the Basix Social Enterprise Group; Email: vijaymahajan@basixindia.com.

    Farah Rahman is the Advisor, Northeast for the Basix Group; Email: farah.rahman@basixindia.com. Basix has worked with over three million low-income households to promote and stabilise their livelihoods. Basix works extensively in most of the NE states/regions, organising famers' producer organisations, linking them with inputs and markets, providing technical, skill and entrepreneurial training, running a chain of common service centres (IT kiosks) to offer government and banking services to citizens

    An earlier version of this paper was presented at a seminar on "Achieving Sustainable Rural Livelihood through Financial Interventions and Skilling India with Special Reference to the North Eastern Region"4 and 5 March, 2016, organised by Department of Business Administration, Tezpur University.

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DOES BETTER GOVERNANCE LEAD
TO POSITIVE OUTCOMES?
EVIDENCE FROM ASIA  


Kunal Sen*
 


The relationship between governance and economic development is one of the most important areas of research in international development. Much of the previous literature has focused on whether better governance leads to higher levels of income. In this paper, we examine the relationship between governance and broader development outcomes, with a specific focus on developing Asia. In our empirical analysis, we use disaggregated measures of governance to capture different dimensions of governance, and to allow for the possibility that different dimensions of governance such as administrative capacity, legal infrastructure, and state accountability can affect development indicators differentially. We find a clear role for governance in affecting most development outcomes except levels of schooling. This is particularly evident for state administrative capacity and legal infrastructure, and less evident for state accountability. However, we find that the benign relationship between governance and development is weaker for Asian countries for several of the development indicators. We also find that the key mechanism by which governance affects development is by increasing the mobilisation of domestic resources and by increasing the effectiveness with which these resources are spent on social sectors. Along with the fact that governance quality is lower in Asia than in other regions of the world (except sub-Saharan Africa), this suggests that improvements in governance along with the strengthening of the mechanisms by which governance affects social development can deliver clear gains in development outcomes in developing Asia.

  • *Professor of Development Economics, Global Development Institute, University of Manchester, United Kingdom; Email: kunal.sen@manchester.ac.uk.

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University of Allahabad