Showing papers by "Indira Gandhi Institute of Development Research published in 2007"

A Study of Castorseed Futures Market in India

Abstract: In this thesis, we examine commodity futures markets in India. We study three aspects of futures market viz. basis risk, price discovery and spot price volatility. Specifically, we examine the castorseed futures market at Mumbai and Ahmedabad with respect to the above three aspects. We study the castorseed futures market since inception (May 1985) up to August 1999. We investigate the nature of basis risk for different contracts for the castorseed futures market. We use root mean squared error (RMSE) to measure basis risk. The test developed by Ashley, Granger and Schmalensee is used to compare RMSE. We also use the Henrikson-Merton (H-M) timing test to gauge the qualitative accuracy of forecast. The results show that the time series model performs better (lower RMSE and superior timing ability) than the benchmark model. RMSE is low for June contract and high for December contract. The forecast for the Mumbai market has higher RMSE but better timing ability as compared to forecast for Ahmedabad market. The link between liquidity and basis risk is unclear. If the lower RMSE for Ahmedabad market is due to higher futures trading volume; the H-M timing test does not indicate superior timing ability. Usually, price discovery is studied in a futures market and its corresponding spot market. We term this as price discovery 'within' market. However, in India two futures markets exist for castorseed at Mumbai and Ahmedabad. This gives us an opportunity to study price discovery 'across' markets by designating one of the futures market, say at Mumbai, as the futures market and the other futures market, at Ahmedabad, as the spot market. The results show that the futures and spot market at Mumbai and Ahmedabad as well as the futures market at Mumbai and Ahmedabad are mostly cointegrated. There is causality and information flow from futures to spot market at both Mumbai and Ahmedabad. There is reverse information flow as well for some contracts and periods. Results are different for various markets, contracts and time periods indicating the role played by geographical location, harvest and futures trading volume in influencing price discovery. We study the impact of castorseed futures market on spot price volatility for castorseed in India. We study the market at both Mumbai and Ahmedabad which allows us to compare results across markets and gives us additional insight into the influence of futures trading on the underlying spot market. We use both the traditional regression technique as well as GARCH analysis. The results show that the introduction of castorseed futures market at Mumbai and Ahmedabad has had a beneficial effect on the castorseed spot market in the futures early period. This effect has remained stable in the futures later period, a possible reason being the rise in futures trading volume post 1994 at Ahmedabad.

Antenatal and maternal health care utilization: evidence from northeastern states of India

Abstract: This article examines the role played by the various socio-economic and community level factors in determining the antenatal and maternal health care utilization pattern using the data from the National Family Health Survey carried out in India in 1998/99. Our analysis document that autonomy enjoyed by women and exposure to media has a significant impact on maternal heath care utilization even after controlling for other attributes, particularly their education and household economic status. Availability of a rural health facility in the village and other community level programme propagates the utilization of health care.

Policy issues in the Indian securities market

Abstract: This file is a manuscript of a paper which went on to appear as:Ajay Shah and Susan Thomas. Policy issues in Indian securitiesmarkets. In Anne Krueger and Sajjid Z. Chinoy, editors, ReformingIndia’s External, Financial and Fiscal Policies, Stanford Studies inInternational Economics and Development, chapter 4, pages 129–147. Stanford University Press, 20031

Harmonic Regression Models: A Comparative Review with Applications

Abstract: Strongly periodic series occur frequently in many disciplines. This paper reviews one specific approach to analyzing such series viz. the harmonic regression approach.In this paper the five major methodsnsuggested under this approach are critically reviewed and compared, and their empirical potential highlighted via two applications. The out-of-sample forecast comparisons are made using the Superior Predictive Ability test, which specifically guards against the perils of data snooping. Certain tentative conclusions are drawn regarding the relative forecasting ability of the different methods.

An empirical analysis of the off-balance sheet activities of Indian banks

Abstract: The article traces the determinants of off-balance sheet activities in the Indian banking sector. Using data for the period 1996 to 2004, the article finds that not only regulatory factors, but also market forces captured by banks-specific characteristics and macro-economic conditions are at work in the diffusion pattern of off-balance sheet (OBS) activities. From the regulatory standpoint, while capital adequacy is dominant in the case of public sector banks, non-performing assets seem to he a prime concern for foreign banks, in addition to public sector banks. Among others, at the bank-specific level, size is an important consideration for public sector and foreign banks, while profits are a prime mover only for new private banks. Finally, the macro-economic environment seems to have played an important role in affecting OBS diffusion, more so for public sector and new private banks.

An empirical analysis of the off-balance sheet activities of Indian banks

Abstract: The paper traces the determinants of off-balance sheet activities in the Indian banking sector. Using data for the period 1996 to 2004, the paper finds that, not only regulatory factors, but also market forces, captured by banks-specific characteristics and macroeconomic conditions are at work in the diffusion pattern of OBS activities. From the regulatory standpoint, while capital adequacy is dominant in case of public sector banks, non-performing assets seem to a prime concern for foreign banks, in addition to the public sector banks. Among others, at the bank-specific level, size is an important consideration for public sector and foreign banks, while profits are a prime mover only for new private banks. Finally, the macroeconomic environment seems to have played an important role in affecting OBS diffusion, more so for public sector and new private banks.

CO2 Emission Reduction Strategies and Economic Development of India

Abstract: This article examines the consequences of alternative CO2 emission reduction strategies on economic development and, in particular, the implications for the poor by empirically implementing an economy-wide model for India over a 35-year time horizon. A multi-sectoral, inter-temporal model in the activity analysis framework is used for this purpose. The model with specific technological alternatives, endogenous income distribution and truly dynamic behaviour and that covers the whole economy is an integrated top-down–bottom-up model. The results show that CO2 emission reduction imposes costs in terms of lower GDP and higher poverty. Cumulative emission reduction targets are, however, preferable to annual reduction targets and that a dynamically optimum strategy can help reduce the burden of emission reductions. The scenarios involving compensation for the loss in welfare are not very encouraging as they require large capital inflows. Contrasted with these, scenarios involving tradable emission quota give I...

Agrarian Scenario in Post-reform India: A Story of Distress, Despair and Death

Abstract: Indian agriculture today is under a large crisis. An average farmer household’s returns from cultivation would be around one thousand rupees per month. The incomes are inadequate and the farmer is not in a position to address the multitude of risks: weather, credit, market and technology among others. Social responsibility of education, healthcare and marriage instead of being normal activities add to the burden. All these would even put the semi-medium farmer under a state of transient poverty. The state of the vast majority of small and marginal farmers and agricultural labourers is worse off. An extreme form of response to this crisis is the increasing incidence of farmers’ suicides. In such situations, employment programmes can provide some succour to the agricultural labourers and also perhaps to the marginal and small farmers. The least that one can expect from such programmes is rentseeking. Some recent evidences indicate that one can develop institutions to address this. It is this that gives a glimmer of hope in the larger story of distress, despair and death. Incidentally, this paper provides some estimates from National Sample Survey (NSS) region wise information on returns to cultivation and on some aspects of farmers’ indebtedness based on the 33 schedule 59 round survey of 2003. It provides suicide mortality rate for farmers, non-farmers and age-adjusted population across states of India from 1995-2004.

Women Making Choices: Masked but Aware?

Abstract: Amartya Sen's capability approach is very useful to analyse how choices affect the potential of women, once the position that women lack self-awareness when they make their choices is dropped. Wome...

Financial Liberalisation and Monetary Policy

Abstract: It is generally believed that financial liberalisation erodes the potency of monetary policy by rendering tenuous the link between monetary aggregates and important macro-economic magnitudes (such as income, prices and exchange rates). This could be accounted for by several factors such as the blurring of the distinction between money and near-money, the breakdown of the money demand function and the easing of credit and liquidity constraints. This hypothesis has been tested in the context of developed economies, where it has derived a measure of support. However, the empirical evidence to test this proposition is somewhat scanty, in the context of less developed countries (LDCs) and emerging market economies (EMEs). This article uses a Structural Vector Auto Regressive (SVAR) model to address this problem in the Indian context over the period January 1980 to August 2004. Using monthly data separate SVAR models are estimated for the pre-liberalisation (1980:03 to 1991:12) and post-liberalisation phases (1...

Traditional Industry in the Economy of Colonial India

Abstract: The majority of workers in South Asia are employed in industries that rely on manual labour and craft skills. Some of these industries have existed for centuries and survived great changes in consumption and technology over the last 150 years. In earlier studies, historians of the region focused on mechanized rather than craft industries, arguing that traditional manufacturing was destroyed or devitalized during the colonial period, and that 'modern' industry is substantially different. Exploring material from research into five traditional industries, Tirthankar Roy's book contests these notions, demonstrating that while traditional industry did evolve during the Industrial Revolution, these transformations had a positive rather than destructive effect on manufacturing generally. In fact, the book suggests, the major industries in post-independence India were shaped by such transformations. Tirthankar Roy's book offers penetrating insights into India's economic and social history.

Analyzing Strongly Periodic Series in the Frequency Domain: A Comparison of Alternative Approaches with Applications

Abstract: Strongly periodic series occur frequently in many disciplines. This paper reviews one specific approach to analyzing such series viz. the harmonic regression approach. In this paper, the five major methods suggested under this approach are critically reviewed and compared, and their empirical potential highlighted via two applications. The out-of-sample forecast comparisons are made using the Superior Predictive Ability test, which specifically guards against the perils of data snooping. Certain tentative conclusions are drawn regarding the relative forecasting ability of the different methods.

MiFID Best Execution Benchmark

Abstract: The Markets in Financial Instruments Directive, a cornerstone of the Financial Services Action Plan, was proposed in November 2002 to replace the existing Investment Services Directive of 1993. It was designed to cope with, and to further enable, the increased level of cross-border investment transactions. MiFID was adopted in April 2004 and will take effect in November 2007. Article 21 of MiFID covers Best Execution - a firm must take all reasonable steps to obtain the best possible result, taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order. In this paper we propose a model to benchmark best execution quality; based upon parameters suggested by the EC. It is hoped that the model will go a long way in establishing a best execution benchmark that can be applied by firms to comply with MiFID guidelines concerning best execution.

To Pool or to Aggregate? Tests with a Dynamic Panel Macroeconometric Model of Australian State Labour Markets

Abstract: We construct a dynamic error correction model of the Australian labour market using a macroeconomic panel across seven states from 1972:3 to 1999:1 Long run equilibrium estimates support a real wageproductivity gap and an unemployment gap The dynamic short-run estimates support expectations augmented Phillips curves for wages and prices, and Keynesian demand-led employment growth We compare three procedures – pooled, aggregate and mean group estimates Considerable heterogeneity existed across states in the pooled procedure, and state-level variables had a significant impact in the aggregate procedure Out-of-sample aggregate forecast ing for the pooled, aggregate and mean group procedures indicate that the pooled one performs best

Technology portfolio analysis for residential lighting

Abstract: Electricity consumption in India is increasing rapidly over the years. The increased demand for electricity forces the electricity utilities to increase their generating capacity. The huge investments on generation, transmission and distribution (at the cost of alternative development projects) adversely affect India's scarce capital resources. Also, internal energy resources like coal are utilised with a great risk to the environment. This paper attempts to show analytically the benefits of shift in the focus from supply augmentation to demand management through a case study of replacement of inefficient devices with efficient ones for residential lighting. This is being done by analyzing the economics of various alternatives and developing an optimal portfolio for meeting the lighting requirement of a typical household in Maharashtra State in India. A mixed integer-programming model has been used for developing the optimal portfolio and a comparison of annual returns is made. Finally, the results for the typical household have been extended to the state of Maharashtra and the cost and benefits are estimated. The results show that the optimal lighting portfolio provides a far higher return at a lower risk compared to other investment alternatives like the stock market while providing substantial savings both in terms of energy and peak demand.

Two decades of structural reforms in India : a balance sheet

Abstract: The post-reforms period in India has been characterized by high growth rates, which have often been attributed to the reforms process and invoked as an argument for pushing reforms further. This paper critically examines the perceived benevolent link between market-oriented reforms and growth, as also the implications of reforms for social welfare. Among the major issues discussed in the paper are the following: (i) the. Sustainability of the growth momentum; (ii) likely impacts of . Reforms on poverty and employment; (iii) rising inequality in the wake of reforms; (iv) possible adverse impact on the environment due to globalization; and (v) . The role of natural resource constraints. On several of these aspects, the situation is far less sanguine than made out by reform advocates in India.

Data and definitions: Underestimating savings and investment in an open economy

Abstract: This note clarifies definitions and derives from first principles the relationship between investment, domestic and foreign savings in order to show that there is underestimation of investment and foreign savings given conceptual macroeconomic definitions and Indian practice. Indian national accounts report and use gross domestic savings but the measure of capital inflows used with it is the one appropriate for gross national savings. The degree of underestimation is shown using recent data and implications drawn from the errors.

Diversification of Rural Workforce: Indian Context

Abstract: It is projected that the proportion of India's rural population in the working age group of 15-64 years would increase from 62.9 per cent in 2006 to 68.4 percent by 2026 (Economic Survey 2006-2007 p. 215). A diversification of employment opportunities in rural India in conjunction with a larger working age population could offer India the opportunity to benefit from the demographic dividend. However, the employment numbers do not suggest that India might not be on course to reap the demographic dividend. The inability of agricultural sector to absorb workforce is reflected in the elasticity of employment. The elasticity of employment was estimated at 0.00 for the period 1993-94 to 1999-00 (Planning Commission 2001). We seek to understand whether there is diversification of employment in rural India. The specific questions addressed are the following. What are the trends in workforce participation rates and unemployment rates? Are there gender specific differences? Are people moving out of agriculture? Is there employment diversification? Are there differences across very high, high, medium and low poverty regions? Over the years there has been no change in the overall workforce participation rates across all the poverty regions. But the workforce participation rate of male declined and that of female increased over the years across all the poverty regions. The workforce participation rate for females doubled in 2004-05 compared to 1993-94 in the very high poverty region. The unemployment rate increased over the years across all the poverty regions. The unemployment rates almost doubled for male and female in the low poverty region in 2004-05 compared to 1993-94. The increase in the unemployment rate has been the least in the very high poverty region. Based on three recent rounds of NSSO data on employment and unemployment, our findings infer that over the years there has been a tendency of decline in the share of agricultural sector and increase in the share of non-agricultural sector in total rural workforce. This pattern of diversification is evident across all the age cohorts. Over the years there has been a decline in the share of agriculture in the total rural female workforce across all the poverty regions. The share of agriculture in male workforce declined in the very high poverty region but in other poverty regions the share of agriculture in total rural male workforce almost remained unchanged over the years. Our findings show that over the years the share of tertiary sector employment in the female workforce particularly employment in the construction sector has increased across all the poverty regions. Among the manufacturing sector the share of employment in the wearing apparel industry increased over time for both male and female.

Through a Glass Darkly: Deciphering the Impact of Oil Price Shocks

Abstract: In order to examine if the impact of oil price shocks depends on the structure of an economy, a vertical (VSC) and a horizontal (HSC) long-run supply curve identifications are successively imposed on a three-variable structural vector autoregression (SVAR) with Indian time series data. While core inflation is measured with the VSC, the HSC requires a new concept of demand-driven inflation: residual (demand) inflation, which gives the impact of short and medium-run demand shocks on inflation. Both core and residual inflation are estimated. The data favours the HSC, but both identifications imply that policy demand squeeze aggravated international oil price shocks.

A General equilibrium open economy model for emerging markets: Monetary policy with a dualistic labor market

Abstract: An optimizing model of a small open emerging market economy (SOEME) with dualistic labour markets and two types of consumers, delivers a tractable model for monetary policy. Differences between the SOEME and the SOE are derived. Parameters depend on features of the labour market and on consumption inequality, and affect the natural interest rate, terms of trade and potential output. The supply curve turns out to be flatter and more volatile, with a larger number of shift factors. A simple basic version of the model is simulated in order to compare different policy targets in response to a cost shock. Flexible domestic inflation targeting delivers stability and the lowest volatility. Some weight on output and on interest smoothing allows monetary policy to be less contractionary. Exchange rate flexibility is less but still makes a major contribution to controlling inflation.

Strategies for the promotion of cleaner and energy efficient technologies in the urban transport system in selected Asian cities

Abstract: This paper presents key findings of a study conducted under Asian Regional Research Programme in Energy, Environment and Climate on least cost options to meet the projected transport service demand in eight selected Asian cities. It also presents the barriers to the adoption of the selected cleaner transport options. Furthermore, it discusses some policies and measures to promote the cleaner transport options. The study finds that high initial cost and lack of infrastructure (especially for compressed natural gas operated vehicles and mass rapid transit system) are the major barriers to the selected options.