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No. 352

July 2008


ISSN 0019-5170



Assessing Stability of Money Demand in
India-Old and New Monetary Aggregates: 1996-2005

D. Ajit

This study investigates the long-run stability of demand for money in India for the post-liberalisation period (1996-2005) for a number of traditional (old) monetary aggregates (MI, M3) and new monetary (NM3) and liquidity (LI) aggregates using high frequency data. Using the unit root and cointegration framework, the study finds broad support for a long-term relationship between money, real income and short-term interest rate. The tests to evaluate the stability of parameters show no evidence of instability indicating that monetary authority could exploit these stable monetary relationships for the formulation of monetary policy.

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Real Exchange Rate Misalignment and Economic Growth in Nigeria

R. O. Raji and T. O. Akinbobola

This paper takes a cursory look at real exchange rate misalignment and economic growth in Nigeria. The paper captures both the short run dynamics and long run dynamics of the impact of real exchange rate misalignment on economic growth in Nigeria between the period 1986 to 2004 using the Johansen Co-integration test and the Vector Error Correction model.

It was observed that real depreciation improves export growth which in turn boosts the real growth in the Nigerian economy. It also found that money shock, output shockand absorption shocks are important sources of perturbations to real exchange rate in Nigeria.

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Rural-Urban Variation in Consumption in Pattern of Orissa

Bijaya Kumar Panda
Prasant Sarangi

Household budget have often been studied for a variety of purposes, for example constructing cost of living indices; analysis of consumption pattern and measuring absolute poverty and disparities in the level of living. Income; household size and composition; the level of education; occupation of the household members; taste and preferences of the household members; habit and customs and also a number of sociological and psychological factors can influence the pattern of household consumption expenditure. The study is based on the grouped cross- section data of 55th round (1999-2000) collected by NSSO during its sixth quinquennial survey on consumption expenditure. It examines the inter-sectoral variation in the consumption pattern based on the most suitable functional form of Engel curves separately for nine food items and five non-food items of consumption using Dummy Variable Interaction Ii Model (DVIM).

The study confirms the existence of significant inter-sectoral variation in the consumption pattern of milk products; meat, fish and egg; all food I items; clothing; durables and all non-food items which is due to significant difference in the marginal propensity to consume and the mean level of total expenditure in rural sector and urban sector of the Orissa. The overall variation of, in the consumption pattern of pulse and its products, and fuel and light is due to the variation in marginal propensity to consume in the two sectors. Finally, the overall variation in the consumption pattern of cereals, edible oil and vegetable is due to the variation in their mean level of expenditure in the sectors. But there is no such significant inter-sectoral variation in the consumption pattern of pan, tobacco and intoxicants.

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Emerging Scenarios in the Mobile Service
Industry in India: A Price and Game Theory Analysis

Sangeeta Mishra, Prabhav Sharma
Pratik Sethi

The Mobile Service Industry in India is growing at an unprecedented rate. The past few years have seen fierce price wars between the dominant players in the Industry which has resulted in slashing of the prices to a very low level. This has not only squandered the profits of the dominant players in the Industry but has also driven the smaller players out of the market. The industry has now reached a level when no firm has any incentive to increase its sales by decreasing the prices further. One possibility, which has been analyzed by using Game theory models, is the formation of a tacit collusion cartel. Another possibility is consolidation in the industry by means of mergers and acquisitions. The analysis reveals that with the formation of the cartel, both the dominant firms and the smaller firms will be benefited.

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Cobb-Douglas Production Frontier-Estimation of Input Demand Equations

B. Muniswamy

In parametric analysis based on a production frontier, estimation of input demand equations and a knowledge of the cost efficiency is reported. Without postulating and estimating closed form functions, cost efficiency of each production unit can be estimated. The underlying production is assumed to be piece-wise linear. The cost efficiency implied by the dual cost function, of a piece-wise linear production frontier is believed to be approximately equal to the cost efficiency of the smoothly continuous production frontier and its dual factor minimal cost function. It is also shown as to how the factor minimal cost of any production unit can be obtained by solving the liner programming problem.

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Social Sector Development with Special Reference to
Education in the Context of Globalisation

P. K. Bhargava

During recent past, Indian economy has witnessed spectacular success in terms of achieving a higher growth rate. However, the benefits of the same have not percolated and shared by the masses. The process of growth, therefore, has not been inclusive. Accordingly, the Eleventh Five Year Plan (2007-12) lay emphasis on providing basic facilities, specially education and health, to masses of our people to enable them to avail of the benefits of growth.

Education and health are the two most important components of social sector development. It is, however, unfortunate that expenditure on social sector continues to be around 6 per cent of the GDP and that during some of the years of the reform period, such as 1997-98 (5.5 per cent), 2003-05 (5.7 per cent) and 2002- 03 (5.9 per cent), it was below the level of 6 per cent. Such a low level of expenditure on social sector services manifests itself in various problems, such as poverty, unemployment and inequality. This arrests and also adversely affects the development and future growth of the economy.

It may be noted that during the decade 1997-98 to 2006-07 (Budget), the expenditure on health services throughout the period, excepting the year 1998-99, was less than 1.5 per cent of the GDP. Similarly, the expenditure on education continues to be extremely inadequate and we have been far away from the target of 6 per cent of the GDP as was envisaged long back by the Education Commission (also known as Kothari Commission). While it augurs well that expenditure on education during the Eleventh Five Year Plan is proposed to be raised to 19.36 per cent of the gross budgetary support (GBS) as against 7.68 per cent in the Tenth Plan, the situation at various levels of education-primary, secondary and higher-continues to be grim. Thus, steps need to be taken effectively at all levels to improve the situation as education continues to be the key input in any strategy of growth and development of a nation. Further, a number of issues also need to be addressed in view of the fact that India Is a signatory to WTO's General Agreement of trade in services, including education services.

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Industrialization and Development:
A Macro Economic Analysis

Vijay Kumar Sharma and Roshan La. Vashist
Nishu Sharma

The benefits of industrialization do not remain limited only to the economic sector of the people's life, but it implies an upward movement of entire social system with increased modem amenities of life. The present paper has been designed to study the impact of industrialization in the development of Himachal Pradesh. The study has been divided into four parts. The first part deals with the district-wise analysis of development with the help of composite development indices of 23 indicators. The second part is devoted to rank the districts according to their level of development with the help of composite indices, while in the third part an attempt has been made to explain the association between indicators of industrial development and overall development in the state. The last part has been devised to study the impact of industrialization on overall development in the state. On the basis of this study it can be safely concluded that there is an uneven and unbalanced development in Himachal Pradesh and industrialization has no significant impact on the economic and social development of the state.

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Informal Sector: The Inhibiting Constraints

Vinod Anand

A rapidly growing low skil1labour force with declining employment opportunities has made employment creation a policy priority all over. Therefore, a challenge is to provide employment for low-skil1labour through informal sector.

Research studies on informal sector are linked with their various facets like, ownership, geographical dispersal, cost structure, income and output patterns, employment potential, their role in the migration and urbanization process, and their effectiveness in meeting the legitimate requirements of the local community.

There is enough evidence to show that informal sector faces both exogenous and endogenous constraints in terms of risk aversion, additional demand, lack of innovation, bureaucratic red tape, and the policy of globalization reflected particularly in the context of the WTO regime. This Paper briefly looks at these inhibiting problems as faced by this sector. It also mentions the outcome of a case study on the State of Himachal Pradesh in India in the context of the various constraints.

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Foreign Direct Investment in India: Precarious Trends

Achal Kumar Gaur

Acute fiscal imbalance, mounting inflationary pressure and fragile balance of payments situation have been responsible factors for fiscal crisis in the Indian Economy during 1990. Accordingly, in July 1991, the Government of India adopted the policy of Structural Adjustment Programmes (SAPs) which is also known as New Economic Policy (NEP). Under the canvas of SAPs, comprehensive liberalization measures have been undertaken to improve the health of Indian economy. Reform in the foreign trade sector is one of the vital ingredient of SAPs, which was introduced with anticipation that trade sector will help integration of the Indian economy better with the rest of the world. Liberalizing foreign direct investment was another significant part of trade sector reform, driven by the belief that this would raise total volume of investment in the economy, improve production technology and increase access to world markets. Over the decade, India not only permitted foreign investment in almost all sectors of the economy (barring agriculture, and until recently, real estate), but also allowed foreign portfolio investment -thus practically divorcing foreign investment from the erstwhile technology acquisition effort.

In the present paper the impact of FDI on various macro- parameters of the Indian economy and the impact of FDI on output of various leading industries in India have been tested for the period 1991-2002. This paper also discusses the trends and concerns pertaining to the FDI in India that have emerged during the reform period.

The empirical findings of the present paper in terms of impact of FDI inflows on several macro/micro level parameters of the Indian economy are highly shocking and discouraging. For instance, FDI inflows in India were liberalized in 1991 with a view that it will promote and accelerate Gross Domestic Capital formation, Foreign exchange reserves, overall external assistance, Gross Domestic Capital formation, exports and it will reduce imports. Empirical results show that FDI has only raised the level of employments in private sector while it has exerted no impact on other vital ingredients of macro-economic parameters as mentioned above. Impact of FDI on output of eight major industries has also been estimated and the results are quiet disquieting. Facts show that excepting telecommunication sector where FDI has made significant impact on output performance of this sector, FDI has not shown any impacts on output performance of remaining major seven industries.

Thus, it has now become imperative to re-consider about the role of FDI inflows such that it would accelerate the pace of output, employment, export earnings, capital formation and Gross Domestic Product in the Indian economy in the future.

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