Some More on 2018 Economics Nobel Prize winners

Yale economist Nordhaus is commonly seen as a pioneer in environmental economics. Since the first murmurings of climate change in the 1970s, he has warned governments of the dangers of global warming, pointing to their economic models as contributing factors. As a prolific researcher, he has produced multiple models designed to alleviate these effects, the best known of which - his Dynamic Integrated Climate-Economy (DICE) model - was adopted by the US Environmental Protection Agency, and has been used to measure the impact of climate policy interventions. In more recent years, he has become a public and very vocal advocate for a universally imposed carbon tax as the best means of tackling greenhouse gas emissions.
Romer’s research has promoted the so-called ‘endogenous growth theory’, which posits that countries can ensure economic growth through a focus on supply-side measures, i.e. investments in human capital, innovation, and knowledge. Further, he has argued that technological change can be induced by appropriate state intervention, specifically, in the form of R&D tax credits and patent regulation. 
In accepting the award, both economists looked beyond the precariousness of the current moment and remained optimistic about the future. Acknowledging the Trump administration's climate change scepticism, Nordhaus did concede that the US faces ‘a difficult period’. Nonetheless, he was unerring in his confidence that the country is sufficiently equipped to see it through. Equally hopeful, Romer said he believed the prize’s announcement would reinforce the message that ‘people are capable of amazing things when they set about doing something’. With positivity so conspicuously absent from recent public discourse, it was refreshing to hear it from two experts whose fields offer so much opportunity for pessimism. In tackling both inequality and climate change, it is exactly the mentality we need to harness.
From: inomics.com

NOBEL PRIZE IN ECONOMICS 2018

Economists Paul Romer and William Nordhaus have both been awarded 2018's Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, often considered to be the most prestigious prize in the field of economics.

The prize is given to an economist who has made a substantial contribution toward the subject, with an award of more than $1 million.

Both men were given the prize for their roles in changes to long-term economic forecasting.

Romer, a former chief economist of the World Bank, received the prize "for integrating technological innovations into long-run macroeconomic analysis."

Nordhaus, often considered the father of climate change economics, won "for integrating climate change into long-run macroeconomic analysis."

Nordhaus, 77, began working on environmental issues in the early 1970s and has been trying to measure the economic costs of global warming ever since. In the 1990s, he became the first person to create a model that calculates the interplay between the economy and the climate.

Human activity has contributed to the rapid increases in average global temperatures over the last 100 years. 2018 Economic Sciences laureate William Nordhaus’ research shows how economic activity interacts with basic chemistry and physics to produce climate change.

Nordhaus warned in a recent paper that it’s “unlikely” that nations can achieve the "2 degree" target outlined in the Paris Agreement and that the “carbon price needed to achieve current targets has risen over time as policies have been delayed.”

The 62-year-old Romer, who this year stepped down from his post as Chief Economist at the World Bank after a rocky term, has argued that policymakers should stop trying to fine-tune the business cycle and instead promote new technology. His work published in 1990 has served as the foundation for what’s called “endogenous growth theory,” a rich area of research into the regulations and policies that encourage new ideas and long-term prosperity.

Romer’s research laid the foundation of what is now called endogenous growth theory. The theory has generated vast amounts of new research into the regulations and policies that encourage new ideas and long-term prosperity. 

Romer has been a long-time presence on shortlists for the Nobel, and was even mistakenly announced as a winner by NYU in 2016. But in recent years his attacks on economic models have irritated many of his colleagues.

In a paper based on a 2016 January lecture he declared, “For more than three decades, macroeconomics has gone backwards” by abandoning a commitment to objective facts in favor of models. The “dismissal of fact goes so far beyond post-modern irony that it deserves its own label. I suggest ‘post-real’,” he said.

This year’s laureates were announced as the United Nations issued a stark warning on the growing threat of climate change, adding pressure on policy makers and business leaders to do more to address the risks. It also comes a little over a year after U.S. President Donald Trump dragged the world’s biggest economy out of the Paris climate accord.

The Swedish Academy said that Nordhaus and Romer “do not deliver conclusive answers, but their findings have brought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth.”

Brief Biography:

                                                                William Nordhaus

Born in Albuquerque, New Mexico in 1941, Nordhaus did his undergraduate work at Yale and earned a doctorate in economics from the Massachusetts Institute of Technology in Cambridge in 1967. He returned to Yale to teach that year and has been at the New Haven, Connecticut-based university since, except for a two-year stint as a member of President Jimmy Carter’s Council of Economic Advisers from 1977 to 1979.

He is also the co-author of a popular economics textbook with the late Paul Samuelson, who won the Nobel Prize in economics in 1970.

                                                               Paul Romer

Romer is a native of Denver whose father is Roy Romer, a former governor of Colorado. He earned a bachelor’s degree in mathematics from the University of Chicago. After doing graduate work at MIT and Queens University, he received a doctorate in economics from the University of Chicago in 1983.

At Chicago, Romer studied under 1995 Nobel Prize-winner Robert Lucas, who was influenced by the free-market theories of Milton Friedman. Even so, he dismissed the university’s long-held precept that markets always produce efficient results, arguing that competition isn’t perfect and sometimes needs help.

Wait and Watch or ?

The rupee’s latest record slide in the forex market has sparked a debate in India. Should the RBI intervene to strengthen the rupee? 

The Reserve Bank’s stated policy is to reduce volatility, rather than target a specific level for the currency. 

Some of the loudest complaints have come from companies worried about the likely impact  of currency depreciation on corporate balance sheets. Secondly, when the rupee depreciates, the exchange-rate pass through to fuel prices and, as a result, the rest of the economy, is high. This discomfort is something that we are all acutely aware of. 

So if we conclude that the RBI should do something; the question is what?

The most obvious is to intervene in foreign-exchange markets by selling dollars given that the central bank has more than $400 billion in reserves. Secondly, it could raise interest rates, given the weak currency, higher oil prices and the latest above-target inflation. Thirdly, it could borrow dollars from non-resident Indians.

These methods were tried in 2013 when the rupee was rapidly sliding. 

The result? The rupee fared worse than all other emerging-market currencies. 

Every move — tightening liquidity and raising interest rates, to the discussion of non-resident borrowing and restrictions on derivatives — was interpreted as a panic reaction that only confirmed the rupee was under pressure. Foreigners felt it was better to take money out of India sooner rather than later, and the fall of the rupee became a self-fulfilling prophecy. 

However, currency volatility settled and the RBI continued to manage the rupee carefully. However, the currency is today one of Asia’s worst performers, losing 12 percent this year.

Sure some sectors of the economy gain from rupee depreciation. It for instance, helps export growth, companies struggling with the transition to GST and which are small and labour-intensive, and companies which have had a hard time getting credit. A weaker rupee would also offset competition of cheap imports from countries like China, which could give domestic industries a much-needed boost.

The RBI and India’s government, at present, are calm.  

Let us wait and watch.

Throwback to September 2013 or is it?

When Raghuram Rajan took charge as governor of the Reserve Bank of India in September 2013, the rupee was in free fall, inflation was high, India had a large current account deficit, and exchange reserves were falling.

As measure after measure failed to stabilise markets, speculators sensed a full-blown crisis and labelled India one of the Fragile Five economies.

Today 10 September 2018, at the Interbank Foreign Exchange (Forex) market, the Indian Rupee opened at an all time record low of 72.15 a dollar from its previous close of 71.73 and slipped to hit a fresh low of 72.18, down by 45 paise. 

Forex dealers said besides strong demand for the American currency, buying by importers, mainly oil refiners in view of surging crude oil prices and capital outflows, weighed on the domestic currency.

In addition, the dollar strength against its rival currencies overseas amid fears of a possible escalation in the US-China trade conflict also put pressure on the rupee.

Demonetisation

As I commenced lectures with my Second Year students today I couldn't help but think about the Demonetisation of 2016.
After all the suffering of the average citizen it looks like black money never existed or more likely the hoarders found a way to make it legit!
Banks have enjoyed an influx of cash.
Digital payments are up.
Economic growth seems to have suffered.

HIGHLIGHTS from RBI’s 2nd MPC — June 2018 FY19

1. Repo rate under the liquidity adjustment facility (LAF) has been raised by 25 basis points to 6.25% in a first rate hike in four-and-half-years.
2. Reverse repo rate under the LAF stands adjusted to 6% and the marginal standing facility (MSF) rate and the Bank Rate has been adjusted to 6.5%.
3. The MPC has decided to retain the projection of GDP growth for the financial year 2018-2019 at 7.4% with risk evenly balanced around this number.
4. All six members of the MPC including RBI Governor Urjit Patel and Dr Chetan Ghate, Dr Pami Dua, Dr Ravindra H. Dholakia, Dr Viral V. Acharya Dr Michael Debabrata Patra voted for 0.25% rate hike.
5. RBI has projected retail inflation at 4.8-4.9% for the period of April-September and 4.7% in H2 FY19.
6. RBI Governor has said that the forecast of normal monsoon for 2018-19 augurs well for the agriculture sector.
7. Emerging market currencies have by and large got depreciated against the US dollar. The geopolitical risks, financial market volatility and trade protectionism will further impact domestic growth.
8. According to RBI, the adherence to budgetary targets by the central government and the respective state government will ease upside risks to the inflation outlook.
9. The major upside risk to the inflation path is due to continuous rise price of crude oil as Brent crude rose to $76 a barrel from a level of $67 per barrel during April meeting of MPC.
10. RBI pointed that the volatility in the crude oil prices has added to uncertainty to the inflation outlook.
11. Investment activity is recovering well in the context of IBC (Insolvency and Bankruptcy Code) and will further get a boost from swift resolution under IBC.
12. The Reserve Bank of India’s next Monetary Policy Committee meeting is scheduled on 31 July and 1 August 2018.     WATCH THIS SPACE

6th Bi-monthly Monetary Policy Statement of FY18

The Reserve Bank of India (RBI) today kept interest rates unchanged but hinted that monetary conditions are likely to remain tight because of rising risks to inflation.

It raised its March-end Consumer Price Index (CPI) inflation forecast to 5.1% and projected an inflation range of 5.1-5.6% in the first half of the next fiscal year.

The monetary policy committee of the central bank decided to keep repo rate—at which the RBI infuses liquidity in the banking system—on hold at 6%.

The inflation outlook is “clouded by several uncertainties.” The the staggered impact of housing rent allowance increases by the state government, rising prices of crude oil and other commodities owing to a pick-up in global growth, increase in minimum support prices (MSPs) for kharif crops, the budget’s hike in custom duties are some of the factors which signal the “need for vigilance around the evolving inflation scenario in the coming months.”

On growth, the RBI has cut the growth projections for the current fiscal to 6.6% from 6.7% earlier. For the next financial year, it has projected gross value added (GVA) growth of 7.2%.

A stabilising goods and services tax (GST) regime, improving credit offtake, rising capital goods production and recapitalisation of banks mean well for growth.

Budget Byte 2018

The government has chosen to stick to credibility rather than populism in the Union budget. It has continued on the path of fiscal consolidation.

The budget has boosted investments through higher capital expenditure and consumption through tax cuts for lower income individuals, small and medium businesses.

An encouraging feature of the fiscal consolidation over the last two years is the lowering of the revenue deficit.  

Economic survey 2017-18

The Economic Survey 2017-18, was tabled in the Parliament on January 29, 2018, by
Mr Arun Jaitley, Union Minister for Finance, Government of India.

The Survey forecasts a growth rate of 7 to 7.5 per cent for FY19,

as compared to the expected growth rate of 6.75 per cent in FY18.

Key Highlights:

Fiscal Deficit:

- 3.2% of GDP for 2017-18.

- Revenue and fiscal deficits of states as a percentage of corresponding budget estimates is lower in the current year as compared to the previous year.

GDP Growth:

- Expected to be between 6.5 and 6.75 per cent in 2017-18.

- GVA growth at basic prices is expected to be 6.1 per cent in 2017-18

Inflation:

- Average retail inflation, measured by Consumer Price Index (CPI), in 2017-18 (April–December) seen at 3.3%.

- Average Wholesale Price Index (WPI) inflation, in 2017-18 (April–December) seen at 2.9% from 1.7% in 2016-17.

Monetary policy:

- The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points to 6.0 per cent in August 2017.

External Sector:

- The current account deficit has declined to reach about 1.8% of GDP in the first half of FY2018.

- During April-December 2017, trade deficit increased by 46.4% over corresponding period of previous year.

- During April-December 2017, exports grew 12.1%, while imports increased by 21.8%.

- Private transfer receipts, most of which is composed of remittances from Indians working abroad, increased by 10% in first half of 2017-18.

Performance of key sectors:

Agriculture and food management:

- The growth rate in Gross Value Added (GVA) by the agriculture and allied sectors is estimated to be 4.9% for 2016-17, as per provisional estimates.

Industries, corporate and infrastructure sector:

- Growth rate in the Gross Value Added (GVA) by the industrial sector was 5.6% in 2016-17 and 5.8% in the second quarter of 2017-18.

- The eight core infrastructure supportive industries, viz. coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity that have a total weight of nearly 40 per cent in the IIP, registered a cumulative growth of 3.9% during April-November 2017.

- As of September 2017, India had 115,530 km of national highways, 176,166 km of state highways and 53,26,166 km of other roads. Under the new umbrella program ‘Bharatmala Pariyojana’ the government is aiming holistic development of highways in the country.

Services sector:

- The services sector is projected to grow at 8.3%in 2017-18, as against 7.7% in 2016-17.

- As per World Trade Organisation (WTO) data, India’s share in the exports of commercial services in the world increased to 3.4% in 2016 from 3.3%in 2015.

- In terms of growth in tourism sector, between January-December 2017, Foreign Tourist Arrivals (FTAs) were 10.2 million with a growth of 15.6% and foreign exchange earnings (FEE) were at US$ 27.7 billion with a growth of 20.8%.

Public Finance:

- The growth in non-debt receipts at 4.58% during April-November 2017 as against the growth rate of 25.8% in the previous year.

Ease of Doing Business in India:

- Various reforms taken by the Government of India have led to increase in India’s ranking in the World Bank’s Ease of Doing Business Index from 130 in 2017 to 100 in 2018.

- India’s ranking in the taxation and insolvency parameters improved by 53 and 33 spots, respectively, on the back of administrative reforms undertaken by the Government of India in the areas of taxation and passage of Insolvency and Bankruptcy Code (IBC), 2016.

- To improve the ease of doing business in the country, the government has taken various initiatives to improve contract enforcement. Over 1,000 redundant legislations have been scrapped.

- The National Judicial Data Grid (NJDG) is being expanded under which every high court in the country will be digitized very soon. The same was recognized in the rankings by the World Bank.

GST data and the Indian Economy:

- The number of indirect taxpayers in the country witnessed growth of 50% to 9.8 million unique GST registrants, as of December 2017.

- India’s internal trade in goods and services (excluding non-GST goods and services) at 60% is even higher than that estimated in last year’s economic survey.

- Non-agricultural workforce in the formal sector in India is considerably greater than previously held beliefs about the size of formal sector non-farm payroll. Estimates, on the basis of enterprise-based definition of employment, imply that nearly 53% of non-agricultural workforce is in the formal sector.

Science, Research and Technology 

• Public expenditure on R&D as a percentage of GDP has remained constant between 0.6-0.7% over the past two decades; however in value terms, the gross expenditure on R&D has increased at a CAGR of 13.03 per cent from Rs.24,117 crore (US$ 3.8 billion) in 2004-05 to Rs.104,864 crore (US$ 16.5 billion) in 2016-17.
• The number of students enrolled in PhD programs in India has increased over the years, with 126,451 PhD enrolments in 2015-16. 
• The number of annual publications in India grew 14% between 2009-14, which increased India’s share in global publications from 3.1% in 2009 to 4.4% in 2014.
• India was ranked 13 in 2017 by Nature Index, which publishes tables based on counts of high-quality research outputs based on natural sciences in the previous year.
• As per WIPO, India’s Patent Filing Office is the 7th largest in the world with 45,658 registered patents as of 2015.
• About 200,000 patents were pending for examination as there were only 132 patent examiners as of 2016-17; however the government has hired 450 patent examiners and created an expedited filing system for Indian residents in 2017, which will improve the existing patent system.
• The government has chosen few missions for their strategic importance and potential for societal impact such as National Mission on Dark Matter, National Mission on Genomics, National Mission on Energy Storage Systems, National Mission on Mathematics, National Mission on Cyber Physical Systems, and National Mission on Agriculture.