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India’s new licensing policy for laptops.

Two Qs have been raised in social media about this policy.

Q1. Can this be characterized as a return to License Raj?

Q2. Can this protectionism lead to lower productivity and lower growth?

Here, I share my views on Q1. 2/13

So, is this licensing policy for laptop production a return to License Raj, or not?

The answer, like most of economics, is conditional.

It has two parts.

1/
Thread.

A lot of useful discussions going on about pricing of vaccines. Some thoughts on this.

There are 2 issues here. The first, how much should the vaccine producers charge for the vaccines?

The second, how much should the citizens pay to get themselves vaccinated? 2/
It is important to address these two issues separately, rather than conflating them.

Thread. Agriculture as shock absorber.

In all the discussions on Indian agriculture and farming, one aspect of this sector gets largely overlooked.

Its role as a social safety net.

1/11 For the poor and the vulnerable, the agricultural and allied sectors are still the main safety net in times of crisis.

And it is much bigger and more effective than all the other safety nets - like MNREGA - that we currently have.

2/11

Thread.

Politics and political-economy of Bangladesh vis-a-vis India.

Since independence, the political developments in Bangladesh has not been great.

Military coups. Political killings. De facto one party rule.

1/6 But the political economy of Bangladesh has been great for growth for a long time now.

The garments industry is the engine of Bangladeshi growth.

And Irrespective of who has been in power, the garments industry has always received royal treatment.

2/6

The disruptions caused by Covid-19 and the lockdowns may make the work of macro policy more complicated than usual, simply by worsening the short-run tradeoff between growth and inflation.

Let me explain.

1/6 A major factor behind the growth-inflation tradeoff is that in any economy close to full capacity, there is excess capacity in some sectors, while others face capacity constraints.

2/6

Short thread on the politics of economic policymaking.

How does economics analyze the impact of politics on policymaking?

The most common framework used for this in economic analysis, is the median voter theorem.

1/5 This framework suggests that a majority rule voting system will select the outcome most preferred by the median voter.

This would imply that an average voter (represented by the median) has the power to determine policy choices.

2/5

A few clarifications.

Some of you (tweets below) feel IT framework/interest rates have nothing to do with low potential growth.

Please note these two points (tweets below).

1/4

https://twitter.com/andymukherjee70/status/1303838707506577408

1. IT framework is not independent of FRBM framework. And during FRBM period, capital expenditure ratio has fallen by almost 50%!

Surely, such a drastic cut in capital expenditure has some impact on potential growth. Otherwise why so much concern over infrastructure.

2/4

1/10 Thread.

This piece by @CafeEconomics deals with a very important aspect of economic growth in countries like India.

While we fuss so much about the growth numbers here, what really drives high and sustained growth is the quality of our growth.

livemint.com/opinion/column… 2/10

@CafeEconomics uses two measures of the quality of growth.

The first is the extent of structural transformation (move from traditional to non-traditional sectors).

The second is economic complexity (producing goods that many other countries cannot).

Very useful to have views and counter-views on these issues. So thanks to Viral Acharya and @dugalira for the interview and @teasri for the counter.

Would like to add a few points from a political economy perspective:

https://twitter.com/dugalira/status/1288107464592732162

1. Agree with Viral that the banking sector has always been misused in India for political economy reasons. But assuming that the legislation of rules will prevent this is not consistent with developing country experiences.

Thread.

There's concern among many economists that Import Substitution is again becoming popular among developing countries as well as developed countries like the US.

IMO however, this conflation of the US situation with those in developing countries, misleads the debate. 1/9

https://twitter.com/RuiPauloAlmas/status/1282735070789414914

It is true that in many developing economies in the past, IS and purely inward looking policies have led to disustrous growth consequences.

This is mainly becoz the political economy in these countries allowed IS to provide a carrot to the pvt. sector, but not hold a stick. 2/9

Thread: Does Covid-19 crisis need Modern Monetary Theory (MMT) approach?

It has now become clear that the Indian govt. will run a large fiscal deficit in 20-21.

For funding this, some amount of Deficit Monetization looks inevitable. 1/12 Interestingly, the possibility of Deficit Monetization has given rise to discussions around MMT.

This is an unconventional approach in economics that is much more comfortable with the printing of money for govt. expenditures, than mainstream economics. 2/12

Friends, the IEG INSIGHT 2020 e-discussion has started. Professor Sudipto Mundle and Professor Rohini Somanathan are discussing the issues.

https://twitter.com/Sabya_K/status/1274695667936419841

Sudipto Mundle: The main challenge for the Indian government will be financing the COVID expenditure.

Thread. #Atmanirvar

Many economists are warning against a return to protectionism in India, and rightly so.

However, some are using the economic theory of Comparative Advantage to make this argument, and this is misleading.

1/4 CA is a powerful but static theory which shows that with given endowments, trade increases welfare for all countries.

But what if a country is not really happy with the welfare increase due to trade based on its current CA, and like Oliver Twist, wants more? 2/4

Excellent podcast. Agree mostly with Ajay. Adding a few points here that are complementary to his approach.

1. The private vs. public sector is a false debate that we have indulged in, in India, for too long. In countries with poor institutions, both do poorly. E.g. India.

https://twitter.com/pujamehra/status/1266727621556965376

2. In countries with more developed institutions, both private and public sectors play important and complementary roles. E.g. Nordic countries.

3. There are two factors that keep institutions poor: political economy and state capacity (SC).

Thanks @MeeraNangia. I would agree with all of your points in ordinary circumstances.

But we are living in extraordinary times now. And this situation might need an unorthodox approach.

And in public policy, we frequently do not have the option of adopting the best policy.

https://twitter.com/MeeraNangia/status/1266437781573627904

So ideally, the direct transfer to workers would be the best policy.

But our govt. does not have any data on who is a worker. Or a viable channel through which they can be paid.

Sometimes our only option is to adopt the second-best or third-best policy.

1/6

Thread. @BIS_org suggests that during this crisis, banks should provide support only to illiquid firms and not to insolvent ones. Is this suggestion useful in developing countries?

Some thoughts:

This sounds like a reasonable suggestion for any banking sector. But...

https://twitter.com/BIS_org/status/1265949189499912192

2/6

If banks do not lend to insolvent firms, these firms would probably shut down and definitely not pay their employees.

In a normal situation, this would be part of the process of 'creative destruction'.

Thread.

If you look through each of the demands, they are (mostly) claims on commodities produced and consumed normally every year by various sections of the citizenry and mediated by the market. Things like food, transportation (trains, buses), clothes.

1/5

https://twitter.com/andymukherjee70/status/1264091216196427776

The first challenge is to ensure that these are produced in quantities that are needed. For example, make sure agricultural growth is positive etc.

2/5

Govt. postpones monetization of deficits. My thoughts:

1. The govt. doesn't seem to be budgeting for its Covid-related expenditures right now. Instead, expenditures will be made as per need. If expenditures can be covered by borrowing, the govt. wants to avoid monetization.

1/7

https://twitter.com/aruproytweets/status/1252447071929372672

2. Why is the govt. reluctant to use the monetization route now?

Perhaps the govt. anticipates that we will run into an inflationary situation shortly due to acute supply dislocations.

Perhaps the govt. thinks creating more money will exacerbate this problem.

2/7

Thread.

The reverse migration of labourers from Delhi after the lockdown in India, clearly caught the government on the wrong foot.

I find that the Lucas critique of macro policies in the 1970s is a useful framework to understand this phenomenon and draw lessons from it.

1/7 Keynesian policymakers in the 70s assumed that consumption (and other) economic behaviour was stable.

This meant that their model parameters describing the consumption function, based on the past data, remained unchanged even when (fiscal or monetary) policies were changed.

2/7

Thread.

India's not facing a stagflation right now. But what if we land in one sometime in 2020? What policies should we pursue?

First things first. Is there a real chance of this?

Well, growth is already down. But the demand meltdown is keeping inflation low. So why worry? 1/

https://twitter.com/BloombergQuint/status/1222446785274183680

Well, there’s always worry on the rainfall/monsoon front.

But even with normal monsoons, there is worry from imported inflation.

Three sources of this worry:

- Rising global food prices

- Potential oil-price hike due to gulf politics

- Major exchange rate depreciation. 2/

Thread.

Is there a lack of fiscal space for the Indian government in the current scenario?

There are many commentators on the Indian economy who think that monetary policy has become ineffective in India.

1/9 So the only option left to counter the collapse in demand from the private sector, is to use fiscal policy.

But there are some who worry that even this is not an option as there is no fiscal space in the Indian economy.

2/9