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Special Centennial Issue

No. 391

April 2018


ISSN 0019-5170



Exploring Causality between Infrastructure and
Economic Growth in India: The Cointegration and
VECM Approach

Abdur Rashid Ahmed1
Nissar A. Barua2

Growth literature is prolific with various theoretical as well as empirical evidence indicating conclusive positive relationship between infrastructure and economic growth However, these studies fail to capture the infrastructure growth relationship affecting each other in a loop indicating a two-way direction of causation. The paper examines the presence of causality among the level of infrastructural development, capital formation and economic growth in India using Cointegration and Vector Error Correction Model (VECM) over 25 year period ranging from 1990 to 2015.

While two-way causality between economic growth and power and also economic growth and railway was found to be statistically insignificant, however the analysis establishes the bilateral causality between road infrastructure and economic growth in India. This however, does not imply that power and railways are less important for economic growth,rather it merely underscores the fact that while the above two macro variables has a significant impact on economic growth, bul growth fails to induce investment in power and railways. In contrast, road infrastructure is critical asi positively induces economic growth while at the same time it is induced by the latter.

Key Words: Economic Growth, Infrastructure, Causality Cointegration and Vector Error Correction Model

  1. ICSSR Doctoral Fellow Department of Economics, Gauhati University
  2. Professor in Economics. Department of Economics, Gauhati University

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Delineation of Household Indebtedness in India

Anindita Mitra1
Tripura Sundari,C.U.2


Household indebtedness is established to have induced economic downturn and global financial crisis, especially after the 2008 recession. India's household debt has been rising since 1991 and it reached its first record high in 2006 07, after which it dropped and then again rose to the highest level in 2015-16. The National Sample Survey Office (NSSO) reported higher incidence of indebtedness in the rural areas of almost all southern Indian States, whereas in most north eastern States the incidence was higher among the urban population. Apart from institutional sources and urban populations increasing credit card debts. Indian household take large credit from a huge market of money lenders that mostly goes unrecorded, causing great concern. Moreover the government's move to help farmers through the loan bailout program at the backdrop of the great recession was a huge drain on the exchequer. Due to the high household debt burden in rural India and the rising number of suicide by indebted farmers, most studies by Indian researchers have concentrated on the rural and farm debt, the causes of taking loans and the consequences. But many researchers from various countries have studied the total household debt to keep a check on the financial health of those countries. Such studies at different time periods highlighted certain factors that would indicate plausible crisis or contribute to an economic downturn. Considering the rising household debt condition of India and the reviews of the earlier researches on crisis and pre-crisis scenario, this study has attempted to describe the household indebtedness in India at a macro level. Secondary data for a period of 25 years, from 1991.92 10201516 has been taken from the Reserve Bank of India (RBI) Handbook of Statistics and National Sample Survey office (NSSO) The factors determining household debt in India have been analyzed using multiple regression analysis the result of which reveals significant effect of Gross Domestic Product (GDP). household consumption expenditure and disposable personal income on household debt. The changing structure of household debt portrayed rising bank advances and the declining lending rate during the study period. Based on previous literature on developed countries, the Johansen Cointegration technique was employed to check the existence of long-run relation between household debt and GDP in India. As the results did not indicate any long run relation, Granger Causality Test was employed to check the causation between household debt and GDP The result indicates that changes in household debt causes changes in GDP. This is possibly because household debt increases purchasing power, demand for goods and services and thereby production leading to increase in GDP As identified by previous researches, the plausible indicators of crisis such as household debt to GDP ratio, the debt-asset ratio and the debt-service ratio have been estimated. Based on the results of the study, policy suggestions have been given.

Key Words: : Cointegration,debi-asset. debt-service Granger causality, incidence, indebtedness.

  1. Faculty, Department of Economics, Pondicherry University, Pondicherry. India,Email:
  2. Professor School of Humanities & Social Sciences, Thapar University, Patiala. Email:

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Economic and Environmental Impact of Thermal
Power Plant: A Study from West Bengal, India

Suchismita Mondal Sarkar1
Soumyendra Kishore Datta2


The paper attempts to assess the consequences of pollution on the rural communities residing in the vicinity of the Mejia Thermal Power Plant and examine its impact. Intensive study was carried out in the region through household survey using a structured questionnaire and focus group interviews The analyses of water and soil were done using the standard Testing methods. From the results, it is evident that the pollution created has massive socio-economic and environmental impact on the vegetation, animal habitat and human beings in the vicinity. The physiochemical properties clearly indicate that the power plant potentially deteriorates the environment by polluting the air. water and soil. The study also investigates the WTA compensation for the losses based on CVM. The results shows that WTA compensation was inversely related to the number of earning members in the family, education of the household head and good health status of the family. Finally the study concludes that the results based on WTA if implemented as a policy tool would enhance the welfare of the region.

Key Words:Economic, Environmental Impact, Pollution Power plant, Contingent Valuation Method. Willingness to accept, Compensation.

  1. Assistant Professor, Department of Economics, University of Burdwan, Golapbag, West Bengal-713104,
  2. Professor. Department of Economics, University of Burdwan. Golapbag, West Bengal 713104,

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Prospect Theoretic Approach in Explaining
Underpricing of IPOs and it's Determinants:
An Evidence from India

Reshma Sinha Ray 1
Arup Kumar Chattopadhyay 2  

The study examines the nature of pricing of IPOs in the Indian primary market over the last one and half decades (2000-01 to 2015-16). During the study period, it is seen that in India the book building method is gaining importance over the years and like the developed and other emerging markets underpricing of IPOs exists with this method Further, we have tried to explain the rationality behind mispricing of IPOs. Using a prospect theoretic framework we have observed that in most cases promoters wealth gain is higher than the money value of underpricing (i.e money left on the table). So issuers prefer wealth gain rather than concerning about the magnitude of underpricing of IPOs. Apart from prospect theoretic approach, we have examined the effects of different factors in explaining underpricing of IPOs in the Indian context. Analyzing different determinants of IPOs on the basis of principal component analysis followed by multiple regression analysis, it is observed that all the selected determinants (namely, a few firm-specific factors as well as primary market specific factors) are statistically significant in explaining underpricing of IPOs in India.

Key Words: :IPOS. Book-building. PCA, Prospect Theory Global Economic Meltdown.

  1. Trainee Teaching Associate, Indian Institute of Management (Calcutta),Email:
  2. Economics of Department of University Professor Burdwan India,Email:

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Impact of Financial sector Reforms on financing the
Inclusive Growth in India: A Case of Uttar Pradesh

Karimullah1 and Tosib Alam2

The concept of Inclusive growth has been of major concern before the policy maker for ensuring the equal and sustainable development, which is highly required in the case of a country like India. Finance being a basic requirement for any development process, financial inclusion must have ensured for proper inclusive development. A proper financial inclusion can be ensured only through reforming the financial sector. Since last decade the Indian government has given high priority to ensure financial inclusion. In this scenario, the paper examines role of financial sector reforms in financing the inclusive development through ensuring financial inclusion in India. This is a case study of Uttar Pradesh, an important state of India. The analysis is done for the period of 2007 to 2017 (the period of major concern about financial inclusion) as this period includes the initiation of many government schemes for financial inclusion. The Data has been collected from the secondary sources, such as website of RBI and analysed with the help of appropriate statistical models (trend analysis and Kruskal Wallis (K-W) Test). The finding suggests that financial sector reforms have significant impact financial inclusion in India. Further. financial inclusion has served to advance the goal of inclusive economic development in India.

Key Words:Inclusive growth, financial inclusion, financial Sector reforms, K-W Test.

  1. Allahabad Economics University of Allahabad, Allahabad 211002 (U P) India Email:
  2. Assistant Professor. Department of Economics, Central University of Kashmir Srinagar O&K India

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Link Between Credit and Output-A Study of the Major
States in India  

Ramesh Chandra Das 1
Soumyananda Dinda 2

There has been a long back debate among different schools of economists on the issue of whether there has been any sor of linkage between the real sector and the financial sector of an economy. The debate becomes prominent when most countries of the world accepted the process of globalization by liberalizing their domestic economies to the rest of the world. The present paper tries to examine whether there is any sort of linkage between the real and financial sector of the major states of the Indian economy with respect to NSDP as the real sector variable and bank credit as the financial sector variable. Applying time series econometric tools, the study observes that in majority of the states both the sectors are interlinked with the exceptions of Delhi and Kerala.

Key words:Bank credit, NSDP, interlink, unit roots causality, cointegration error correction.

JEL Classifications: E51. E01, C22

  1. Associate Professor of Economics. Katwa College. WB 713130, India
  2. Professor of Economics. The University of Burdwan, WB. 713104. India

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Organic Tea Farming and its Performance in Sikkim  

Pradyut Guha1

Present study was initiated with the objective of understanding how organic farming practices have influenced green leaf output of tea produced in Sikkim and evaluation of performance of the ted sector during the organic farming period using secondary panel data of 17 independent tea growing farms of the state covering the period 20012016 Farm level performance has been evaluated with technical efficiency and total factor productivity (TFP) growth Influence of organic farming practices on green leaf output tea across the farms of the state has been examined by estimating a log linearised Cobb Douglas production function with interaction effect. The analysis of data a disaggregate level reveals that farm level Technical inefficiency of green leaf output of tea has increased in the state during organic farming period with mean inefficiency score of 0.36. The average value of TFP growth has declined across the forest, through the number of farms operating with negative TFP growth has reduced during organic farming period. Though application of bio fertiliser has not been fully successful in reversing the declining trend green leaf output of tea across the farms of the state, but the rate of decline in tea output has been arrested during the application phase of bio-fertiliser relative to the phase of application of inorganic fertiliser.

Key words: Bio-fertiliser, Farm, Organic farming period

JEL Classification : Q120

  1. Assistant Professor. Department of Economics, Sikkim University, Gangtok, Sikkim Email:

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Domestic Resource Mobilization and Aid Effectiveness in
Southern Africa Development Community: The Role of
Political Risk Factors  

Strike Mbulawa1

This study examines the linkages between aid, tax revenue and institutional quality in Southern Africa Development Community (SADC). establishes the contribution of institutional quality on revenue mobilization and investigates whether or not aid has a linear or non-linear effect on taxation revenue. The study uses a data set covering the period 1991 2014. Using Generalized Methods of Moments, overall findings show that the composition of official development assistance (ODA) matters in understanding the level of taxation revenue. ODA has a non linear effect on all forms of taxation revenue and this is Sensitive to the measure of institutional quality employed. Grants have both linear and non-linear effects on corporate income tax when using a composite and disaggregated measure of institutional quality respectively. Generally the Study supports the hypothesis that improved levels of ODA being supported by better institutional quality, increase the levels of taxation revenue. The study provides some policy implications.

Keywords: SADC, Aid, Institutional Quality, Taxation.

JEL Classification : F35, H24, H27. P48

  1. Faculty of Business and Accountancy, Department of Accounting and Finance, Botho University. Gaborone, Botswana, or

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Export Performance and Competitiveness of Indian
Engineering Goods Industry-Pre and Post Reform

Asheref Illiyan1  

Engineering goods industry has a pride of place in Indian Economy in terms of its significant contributions to the growth of output, employment and export Engineering goods export from the country constitute more than 25% of total Indian merchandise export in the financial year 2017-18 and is valued at U. S. Dollar 76.2 billion This paper is an attempt to examine the performance of Indian engineering goods export and its competitiveness in the pre and post reform periods covering the period 19732018 The study uses statistical and econometrics techniques such as simple average annual growth rate, semi log trend equations, Chow test, Balassa (1965) Revealed Comparative Advantage! analysis, Regression Analysis etc. Various facets of exports such as growth of export (annual average and trend growth rates), competitiveness are attempted in the paper. Problems of exports and various strategies needed for promotions of engineering export are also briefly attempted. The study finds that there is significant difference in the growth of exports of engineering goods in the pre and post reform periods. It has also recorded higher growth than total exports throughout the period. It also concluded that India has a comparative advantage in engineering export which needs to be strengthened through scientifically designed strategies. Further, the study draws the inference that there has been marked shift in the composition and destination of Indian engineering goods export over the period.

Keywords: Export Performance, Competitiveness, Indian Engineering goods Industry, Pre and Post Reforms.

  1. Associate Professor, Dept of Economics, Jamia Millia Islamia (A Central University) New Delhi-110025

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Docs Education Contribute to Economic Development  

Rekha Gupta 1

There is a general presumption among many policy makers and researchers that there is a strong and positive relationship between education and economic development. But the question remains that how can we analyse this relationship Does education contribute to economic development? The present work trying to explore the truth of the statement "Does Education contribute to economic development, with the help of literature reviews mainly with the context of India and a time series regression analysis. Many researchers have established a positive and significant relationship between education and economic development of India and also have found different levels of education pay more or return more as against investment in themselves which favoured the rarement that education contribute to nation in the form of development or increased earning.

  1. Assitant Professor, Department of Economics, University of Allahabad, Allahabad

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