ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Articles by K N MurtySubscribe to K N Murty

Effects of Public Investment on Growth and Poverty

Counterfactual policy simulations of a sustained increase in public investment in infrastructure in India, financed through borrowing from commercial banks, show a substantial increase in private investment and thereby output in this sector. Due to increases in absorption, real private investment and output in all other sectors also seem to increase, resulting in several other macroeconomic changes. With a 20 per cent sustained increase in public investment in infrastructure, the government can accelerate real growth by 1.8 percentage points in the medium to long run, six to 10 years after the policy change. This will be accompanied by a 0.2 percentage point decline in the rate of inflation. The increase in income will lead to a 0.7 percentage point annual reduction in poverty in rural India. This shows the potential for achieving the much-debated 10 per cent aggregate real GDP growth in the Indian economy.

Foodgrains Demand in India to 2020-A Comment

A Comment K N Murty IN a recent paper, Bhalla and Peter Hazell (1997) [BPH here after] have projected the likely demand for foodgrains including teed demand in India in the year 2020 under alternative income growth scenarios. BPH have used the published National Sample Survey (NSS) data on per capita monthly consumption expenditure for the 43rd NSS round (1987-88) separately for rural and urban areas. Expenditure elasticities of demand are estimated tor cereals and several other commodities using long-inverse Engel curve separately for rural and urban areas Aggregate demand for foodgrains from human consumption is obtained by postulating per capita real income growth of 3 per cent and 5.5 per cent per annum untiI 2020, These projections are called "Baseline Scenarios'. In addition, two other scenarios called 'Poverty Removed' and 'Well-Fed India' are also attempted. The purpose of this note is to point out some methodological problems in the estimation of per capita demand projections 1 under the 'Baseline Scenario' which probably apply to other scenarios as well. As a result, we argue that the aggregate demand projections are abnormally high which might create avoidable scare in the minds of the public and the policy-maker about the foodgrain deficit in the Indian economy. We shall show that the aggregate demand for cereals for human consumption is overestimated by about 100 million tonnes, compared to a more probable trend estimate in the year 2020 under the 3 per cent income growth see- nario. Needless to say that the percentage error would be even higher under the 5.5 per cent income growth scenario.
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