Showing papers by "Indira Gandhi Institute of Development Research published in 2016"

The 'Discouraged Worker Effect' in Public Works Programs: Evidence from the MGNREGA in India

Abstract: This study investigates the consequences of poor implementation in public workfare programs, focusing on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in India. Using nationally representative data, we test empirically for a discouraged worker effect arising from either of two mechanisms: administrative rationing of jobs among those who seek work and delays in wage payments. We find strong evidence at the household and district levels that administrative rationing discourages subsequent demand for work. Delayed wage payments seem to matter significantly during rainfall shocks. We find further that rationing is strongly associated with indicators of implementation ability such as staff capacity. Politics appears to play only a limited role. The findings suggest that assessments of the relevance of public programs over their lifecycle need to factor in implementation quality.

Economics of Land Degradation in India

Abstract: Land degradation is increasingly becoming a major concern for Indian agriculture on which two-third of the population depend for their livelihood. Many policies and programs have been initiated in the last two decades to address this problem but the results are meager. Analysis of causes of land degradation and their extents is very important to design suitable policies to overcome the degradation problem. It is in this context, this paper identifies the major socio-economic variables that explain land degradation. It also finds economic and social costs of land degradation and the net benefits from taking up conservation activities and finally draws some lessons on what are the right policy instruments to promote sustainable land management practices. The Total Economic Value (TEV) concept has been used in deriving the costs and benefits. Our findings from state level analysis suggest that ‘input subsidies’ and ‘decreasing land-man ratio’ are two major determining factors that increase land degradation. Rationalizing input subsidies will go a long way in improving the management of land resources. At the household level, the number of crops grown and the operating area are significantly influencing land degradation. The analysis of the costs of action versus inaction against land degradation shows that costs of inaction are higher than the costs of action, indicating the benefits that will accrue if sufficient conservation practices are undertaken. Institutions and incentive mechanisms play important roles in changing the behavior of farmers to act in a resource conservative way.

An SVAR Approach to Evaluation of Monetary Policy in India: Solution to the Exchange Rate Puzzles in an Open Economy

Abstract: Following the exchange-rate paper by Kim and Roubini (J Monet Econ 45(3):561–586, 2000), we revisit the questions on monetary policy, exchange rate delayed overshooting, the inflationary puzzle, and the weak monetary transmission mechanism; but we do so for the open Indian economy. We further incorporate a superior monetary measure, the aggregation-theoretic Divisia monetary aggregate. Our paper confirms the efficacy of the Kim and Roubini (J Monet Econ 45(3):561–586, 2000) contemporaneous restriction, customized for the Indian economy, especially when compared with recursive structure, which is damaged by the price puzzle and the exchange rate puzzle. The importance of incorporating correctly measured money into the exchange rate model is illustrated, when we compare models with no-money, simple-sum monetary measures, and Divisia monetary measures. Our results are confirmed in terms of impulse response, variance decomposition analysis, and out-of-sample forecasting. In addition, we do a flip-flop variance decomposition analysis, finding two important phenomena in the Indian economy: (i) the existence of a weak link between the nominal-policy variable and real-economic activity, and (ii) the use of inflation-targeting as a primary goal of the Indian monetary authority. These two main results are robust, holding across different time period, dissimilar monetary aggregates, and diverse exogenous model designs.

Monetary Transmission in Developing Countries: Evidence from India

Abstract: There are strong priori reasons to believe that monetary transmission may be weaker and less reliable in low- than in high-income countries. This is as true in India as it is elsewhere. While its floating exchange rate gives the RBI monetary autonomy, the country’s limited degree of integration with world financial markets and RBI’s interventions in the foreign exchange markets limit the strength of the exchange rate channel of monetary transmission. The country lacks large and liquid secondary markets for debt instruments, as well as a well-functioning stock market. This means that monetary policy effects on aggregate demand would tend to operate primarily through the bank lending channel. Yet the formal banking sector is small, and does not intermediate for a large share of the economy. Moreover, there is evidence that not only are the costs of financial intermediation high but also that the banking system may not be very competitive. The presence of all these factors should tend to weaken the process of monetary transmission in India. This paper examines what the empirical evidence has to say about the strength of monetary transmission in India, using the structural vector autoregression (SVAR) methods that have been applied broadly to investigate this issue in many countries, including high-, middle-, and low-income ones. We estimate a monthly VAR with data from April 2001 to December 2014. Applying a variety of methods to identify exogenous movements in the policy rate in the data, we find consistently that positive shocks to the policy rate result in statistically significant effects (at least at confidence levels typically used in such applications) on the bank lending rate in the direction predicted by theory. Specifically, a tightening of monetary policy is associated with an increase in bank lending rates, consistent with evidence for the first stage of transmission in the bank lending channel. While pass-through from the policy rate to bank lending rates is in the right (theoretically expected) direction, the pass-through is incomplete. When the monetary policy variable is ordered first, effects on the real effective exchange rate are also in the theoretically expected direction on impact, but are extremely weak and not statistically significant, even at the 90 % confidence level, for any of the four monetary policy variants that we investigate. Finally, we are unable to uncover evidence for any effect of monetary policy shocks on aggregate demand, as recorded either in the industrial production (IIP) gap or the inflation rate. None of these effects are estimated with strong precision, which may reflect either instability in monetary transmission or the limitations of the empirical methodology. Overall, the empirical tests yield a mixed message on the effectiveness of monetary policy in India, but perhaps one that is more favorable than is typical of many countries at similar income levels.

Inequality-adjusted Human Development Index: States in India:

Abstract: The UNDP Human Development Report (HDR) for 2010 introduced a new index, the Inequality-adjusted Human Development Index (IHDI), to capture the distributional dimensions of human development. The i...

Occupational Segregation in the Indian Labour Market

Abstract: This article measures the extent of occupational segregation for gender and social groups in India. It is based on a recent round of a nationally representative employment and unemployment survey of the Government of India. We use overall and local measures of occupational segregation. We find that occupational segregation for both genders and social groups is higher in the urban sector than in the rural sector. Females are more segregated than their male counterparts in both sectors. Among social groups, scheduled caste and scheduled tribe groups have higher levels of segregation. Furthermore, we find that regular workers and the elderly are more segregated when we examine segregation, respectively, by nature of employment and across age groups.

Labour Market Outcomes of Itinerant Workers in Rural India

Abstract: This paper examines the characteristics, wages and mobility of short-term migrants in India using a nationally representative database on migration. We find that an individual is more likely to be a short-term migrant if he or she is from a district with a higher concentration of workers in the construction industry. Using instrumental variable method, we find that short-term migrants are likely to earn lower wages compared with non-short-term migrants. Finally, we model the transition of short-term migrant workers from one sector to another, drawing on the literature on income and occupational mobility. Copyright © 2015 John Wiley & Sons, Ltd.

Network Trade and Development: What Do Patterns of Vertically Specialized Trade in ASEAN Tell Us About India’s Place in Asian Production Networks?

Abstract: At a time when regional production networks have been resurgent, especially in Asia, why has India’s integration in regional markets not been deeper? Using highly disaggregated trade data and firm level field interviews, the paper found that despite low volumes, vertically specialized trade has been growing between India and ASEAN. Overall, we find that there is significant potential for deepening India’s engagement in ASEAN by expanding intermediates exports in the machinery sector, expanding into higher value specialty chemicals exports, unlocking the underexploited potential for growth in the electronics sector and moving up the value chain in the road vehicles and, telecommunications sectors where network exports are already important. Our field level interviews bear out these findings and show that besides the usual policy costs associated with supply side constraints in Indian manufacturing three factors hamper India’s deeper integration in Asian production networks: (i) low value addition in Indian manufacturing which translates into low-value component exports and a high degree of reliance on expensive imports creating a perverse effect on both learning and trade balance; (ii) a janus faced effect on technological change and productivity stemming from relatively low quality standards associated with cost-sensitive demand from domestic buyers and weak exports. This leads to technological stagnation on the one hand, and a growing capital intensity of routine operations on the other. (iii) and finally, despite the rise of export oriented industrial parks and SEZ’s there is a striking lack of an effective institutional eco-system of industrial advantage that agglomeration economies and colocation of interdependent, sectorally specialized firms can bring. Instead, sectoral fragmentation adds to manufacturing costs despite co-location. Although some firms have found innovative ways to cope, the coping costs are high.

Mega External Preferential Trade Agreements and Their Impacts on Indian Economy

Abstract: This study examines the impacts on India of three mega external preferential trading agreements (PTAs) from which the country is excluded using the Global Trade Analysis Project (GTAP) model combin...

Social Safety Nets for Food and Nutritional Security in India

Abstract: This paper brings together existing literature on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNRGEA) and the Public Distribution System (PDS) in India, offering a narrative review of the evidence on impacts on food security, health and nutrition of beneficiaries Both programs operate on a large scale and have the capacity to impact the factors leading to undernutrition It is evident that despite the deficiencies in implementation, both the MGNREGA and the PDS are inclusive and reach the poor and the marginalized who are likely to also experience greater undernutrition and poor health Data challenges have however prevented researchers from conducting studies that assess the ultimate impact of these two large-scale programs on health and nutrition The evidence that exists suggests largely positive impacts indicating a clear potential to make these programs more nutrition sensitive not just by incorporating elements that would explicitly address nutritional concerns but also by directing specific attention to innovations that strengthen critical complementarities and synergies that exist between the two programs

Local skill concentrations and district employment growth: a simultaneous equation approach for India

Abstract: Spatial concentration of skills has been identified as an important factor that causes differences in regional employment in developed countries. In the light of this literature, this paper investigates the relationship between spatial distribution of skills in the year 2001 and district-wise employment growth between the years 2001 and 2011, for India. We argue that educational attainment as a measure of worker skills may not be appropriate for a developing country and take a different approach to measuring skills wherein a worker’s skill is inferred from the occupation in which he/she is employed. We use district-wise data on occupational distribution of employment (from Census of India) along with the skill content of occupations (from a US-based dataset called O-NET) to measure regional skills. Using this measure, we model employment and population growth simultaneously and find a positive relationship between cognitive skills and employment growth. The results are robust across all the models that we employ. Our results suggest the presence of externalities associated with skilled people which is instrumental in increasing productivity and employment in skilled regions.

Corporate insolvency resolution in India: Lessons from a cross-country comparison

Abstract: In this paper we analyse the corporate insolvency resolution procedures of India, UK and Singapore within a common framework of well-specified principles. India at present lacks a single, comprehensive law that addresses all aspects of insolvency of a firm. It has a multiple laws, regulations and adjudication fora, each of which have created opportunities for debtor firms to exploit the arbitrage between these to frustrate recovery efforts of creditors. This adversely affets the resolution process, the time to recovery and the value recovered. The importance of a comprehensive, well-functioning insolvency resolution framework has been documented in literature. In India, the Bankruptcy Law Reforms Committee (BLRC) was constituted in 2014 with the objective of proposing a comprehensive framework for resolving the insolvency of firms and individuals. We undertake a comparison of the corporate insolvency resolution framework in UK, Singapore and India, with the underlying motivation to highlight the similarities and differences across the laws, procedures and institutional context of the three countries. The objective of this comparison is to draw lessons for the Indian reform process, in context of the formation of the BLRC. The BLRC has recently proposed an Insolvency and Bankruptcy Bill (IBB) which has been presented in Parliament and is currently being deliberated upon by a Joint Parliamentary Committee.

Competition, strategic delegation and delay in technology adoption

Abstract: This paper examines how strategic managerial delegation affects firms' timing of adoption of a new technology under different modes of product market competition. It demonstrates that strategic delegation has differential impacts on adoption dates under Cournot and Bertrand competitions. Strategic delegation with ‘own-performance’-based incentive schemes always leads to early adoption in markets with Bertrand competition compared to that under no-delegation, but not necessarily so in markets with Cournot competition. It also shows that under strategic delegation with ‘own-performance’-based incentive schemes, adoption occurs earlier (later) in markets with Cournot competition than in markets with Bertrand competition, if the degree of product differentiation is high (low). In contrast, under strategic delegation with ‘relative-performance’-based incentive schemes, adoption dates do not differ across markets with different modes of competition. It also analyses implications of firms' choice over types of m...

Geographic Neighbourhood and Cluster Formation: Evidence from Indian Agriculture

Abstract: We study an empirical occurrence largely overlooked in studies on income clusters: (i) most clusters include geographic neighbours and non-neighbours; and (ii) not all geographic neighbours are cluster-co-members. Using agricultural income across Indian states, we find a similar pattern in income-clusters over the last 45 years. Logistic regressions that consider state-pairs as the unit of analysis show that cluster membership is not driven by geographic variables but rather by non-geographic factors like weather shock, resource constraints, technology/input usage, extent of crop diversification, infrastructure, policy and institutions

The Impossible Trinity: Where Does India Stand?

Abstract: The Global Financial Crisis of 2008 and the heightened macroeconomic and financial volatility that followed the crisis raised important questions about the current international financial architecture as well as about individual countries’ external macroeconomic policies. Policy-makers dealing with the global crisis have been confronted with the ‘impossible trinity’ or the ‘Trilemma,’ a potent paradigm of open economy macroeconomics asserting that a country may not target the exchange rate, conduct an independent monetary policy and have full financial integration, all at the same time. This issue is highly pertinent for India. A number of challenges have emanated from India’s greater integration with the global financial markets during the last two decades, one of which includes managing the policy tradeoffs under the Trilemma. In this chapter, I present a comprehensive overview of a few empirical studies that have explored the issue of Trilemma in the Indian context. Based on these studies I attempt to analyze how have Indian policy-makers dealt with the various trade-offs while managing the Trilemma over the last two decades.

Preferential Resource Spending under an Employment Guarantee: The Political Economy of MGNREGS in Andhra Pradesh

Abstract: Are ostensibly demand-driven public works programs with high levels of safeguards nonetheless susceptible to political influence? This conjecture is investigated using expenditure data at the local level from India's National Rural Employment Guarantee Scheme. Focusing on one state where accountability and transparency mechanisms have been employed and implementation efforts have been widely applauded, there is no evidence of partisan-influenced spending before the 2009 election however a statistically significant but small in magnitude effect after the 2009 election. Most variation in public works expenditures is explained by the observed needs of potential beneficiaries, as the scheme intended.

Unconventional monetary policy in emerging markets

Abstract: Channels of monetary transmission likely to work in an emerging market (EM) are presented The Indian accommodative policy cycle, and the papers in this special issue, is used to analyse unconventional aspects of EM monetary policy It is argued that conditions used to justify unconventional monetary policy in advanced economies routinely hold in EMs

Foreign Exchange Markets, Intervention, and Exchange Rate Regimes

Abstract: While macroeconomic fundamentals determine the exchange rate at long horizons, there are substantial and persistent deviations from these fundamentals. The market microstructure within which they operate, macroeconomic fundamentals, and policies all affect foreign exchange (FX) markets. The chapter describes the institutional features of these markets, with special emphasis on the process of liberalization and deepening in Indian FX markets, in the context of global integration. Since the mechanics of FX trading affect exchange rates, they have implications for the appropriate exchange rate regime. First, bounds on the volatility of the exchange rate can lower noise trading in FX markets, decrease variance, improve fundamentals, and give more monetary policy autonomy. Second, the speculative demand curve is well behaved under strategic interaction between differentially informed speculators and the Central Bank (CB) when there is greater uncertainty about fundamentals as in emerging markets. So, a diffuse target and strategic revelation of selected information can be expected to be effective. Analysis of Indian experience confirms these research results. CB actions, including intervention and signaling, have major effects.