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Union Budget for 1992-93-Much Ado about Nothing

Much Ado about Nothing Pulapre Balakrishnan Two objectives must guide the conduct of fiscal affairs at the present juncture. First, there is a need for macroeconomic stabilisation. Second, there is need for fiscal adjustment, meaning transition to a more imaginative use of the fiscal apparatus to promote development. It is on its ability to achieve these aims, along with the distribution across income groups of the costs of adjustment, that the budget for 1992-93 ought to be judged.

Savings and Growth

Pulapre Balakrishnan The Growth and Structure of Savings in India by B L Pandit; Oxford University Press, Delhi, 1991; pp xi + 139, Rs 190.
IN the grand manner of theorising about economic development savings is a variable that has been given much importance. When it came to studying the developing economy this was particularly emphasised. For instance, in the classical view contained in the model of Lewis, savings is a pre-requisite for investment, which is itself the engine of growth. Classically, the problem of development is seen as one of raising the level of savings to levels considered commensurate with the capital stock necessary to generate the targeted level of output. This is the origin of the notion of the savings constraint, a notion that is believed to have provided the organising principle for India's First Five- Year Plan If it is accepted that raising the level of savings thai an economy generates is crucial to its long run health, then attempting to understand its determination becomes a worthwhile exercise. B L Pandit's Growth and Structure of Savings in India is one such attempt. Arguing, correctly, that the factors governing the different sources of savings in India vary, the author analyses the determination of the savings of households, the private corporate sector and of the government as a whole separately. Starting with households, much attention is paid to testing the theories of household behaviour with respect to savings that were originally propounded for the United States economy after the Second World War. Both cross-section and time-series data are analysed. With respect to aggregate savings over time, Pandit appears concerned to establish his predilection that while the marginal propensity to save rises with income, the income elasticity of saving actually declines. This not entirely intuitive proposition, he points out appropriately, is a property satisfied by only a limited range of specifications; for instance, the semi-logarithmic S/X = a + bJogX, where S = the real value of savings and X real income With this as template a range of specifications is estimated (see pages 31 and 58). It is argued that, since the marginal propensity to save out of rural incomes is lower than that out of non- agricultural incomes, shifts in the income distribution that arc favourable to agriculture arc likely to reduce the ratio of aggregate savings to aggregate income. Thus the specification is widened to include the ratio of agricultural to non-agricultural income and the inflation rate (or in alternate runs the expectation of inflation) as independent variables. The estimate of such an equation is not unsatisfactory in that while the inflation variables are statistically insignificant, the other two variables are. However, the overall explanatory power is not par ticularly high at about 65 per cent.

Money, Output and Price Level

Pulapre Balakrishnan This paper presents some evidence bearing on the interest-sensitivity of demand for money and the role of money supply in the inflationary process which must be addressed by those who argue for a money-based monetary policy, especially in approaching the problem of inflation.

Current Deficit and Its Malcontents-A Consideration in Balance of Payments Adjustment

Macro-economic adjustment to deal with a balance of payments problem such as India faces today embodies in it an inherent inequity: a large number of those who did not benefit from the original import splurge are now called upon to face privation. It is crucial there fore that distributional concerns are not lost sight of as part of the adjustment process.

Union Budget for 1990-91

Pulapre Balakrishnan From a short-term perspective, notably with respect to resource mobilisation, the Union Budget for 1990-91 is somewhat disappointing. The increases over the previous budget in market borrowings of the central government and of subsidies, not to mention the increase in defence spending, hardly reverse the trends initiated by the previous regime. Nor is there reason to believe that the inflation rate is going to be lower despite the reduction in the estimated deficit. However, the budget contains the germ of sensible thinking on some longer term issues concerning the relationship between targets and instruments. Here the finance minister has shown himself to be pragmatic and refreshingly non-doctrinaire. But he cannot hope to maintain the present stance towards agriculture next time round.

Economic Consequences of Rajiv Gandhi

Economic Consequences of Rajiv Gandhi Pulapre Balakrishnan In terms of its macro balances, the Indian economy over the past five years has behaved exactly as would be expected of any open economy subjected to a similar stimulus. Thus an expanding budget deficit has predictably fed through into a current account deficit. However, what is more interesting is the nature of the growth process that has accompanied the economic policy instituted by the previous government THE government led by Rajiv Gandhi instituted substantial changes to certain aspects qf the economic policy framework. Notable were liberalisation of the foreign trade regime, which involved the dismantling of controls with respect to imports on private account, and the raising of limits for industrial investment not requiring a licence. It would not be inappropriate to describe this as a package aimed at the supply-side of the (non-agricultural) economy. As a complement, there was the reduction of the income-tax rate in the Budget of 1985, propping up the demand side of the strategy, as it were.1 With agricultural incomes remaining untaxed, the changes essentially concerned the non-agricultural sector.


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