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No. 337 |
October 2004 |
Vol LXXXV |
ISSN0019-5170 |
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Contents
Notes and Memoranda
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Tax Evasion,
Monopoly, and Tax Neutrality
TAI- YUNG KAM
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This paper re-examines
the issue of profit tax evasion and monopoly
output decisions in the uncertainty model
with endogenous probability of audition.
This paper incorporates a notion where
a rational monopolist tends to reduce
its assessed taxable profit by investing
in self-insurance. The result shows that
neutrality mayor may not hold, it depends
on the magnitude of the marginal value
of the monopolist's self-insurance activities,
which explains why some of the monopolists
produce more than the profit-maximizing
output level but some don't. |
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Capital Inflows
to India in the Nineties Implications
for Overheating and the Monetary Policy
Response
TANUSHREE MAZUMDAR
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Capital inflows are
known to cause overheating in countries
following an exchange rate regime of
managed float. Sterilized intervention is
one of the important tools used by
monetary authorities in emerging markets
to check overheating of the economy in
several countries. However, sterilized
intervention is associated with rising
fiscal costs in the countries where it has
been used. Findings of this paper reveals
that India has only occasionally chooses
to sterilize the capital inflows. More
often the RBI has resorted to
non-sterilized intervention as a policy
response to capital inflows. This paper
further analyses the impact of India's
policy stance of non-sterilized
intervention to ascertain if we have been
able to escape the fiscal costs associated
with sterilization. The findings are that
despite non-sterilized intervention, our
fiscal burden in the period between 1993
and 2002 had increased. This is largely
due to the distortion in the interest rate
structure in the economy which has two
sets of interest rates-market determined
(which have been falling in response to
rising money supply) and administered
interest rates on some government
instruments of saving (which have been
higher than the market-determined rates).
This has led to a growing preference of
the households for saving in government
instruments increasing the fiscal burden
of the government. |
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Causal Nexus
Between Foreign Investment and Economic
Growth in India
K. SHAM BRAT, TRIPURA SUNDARI C.
U.
AND
K. DURAl RAJ
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Granger Causality test
was employed to examine the causal nexus
between foreign investment and economic
growth in India. Besides, Dickey-Fuller
test was also employed to examine the
stationarity of the series. The data
series were quarterly basis and collected
from various issues of Reserve Bank of
India Bulletin, World Investment Report
and Centre of Monitoring Indian Economy
for the year 1990-2002. The analysis
revealed an independent relationship
between foreign investment and economic
growth in India. The possible reasons are
: (a) In India, foreign investment is only
0.9 per cent of Gross Domestic Product and
its high transaction cost in the form of
corruption and unnecessary regulatory
requirements. (b) Lack of full
integratiol1 of capital and financial
markets, and (c) Higher levels of economic
growth may not attract foreign investment
due to lack of stability of Indian rupee
in international market. The present study
calls for the following policy options to
enhance economic growth through foreign
direct investment and vice versa: (i)
there is a need for further liberalization
of Foreign Direct Investment and much
emphasis should be given for outward
oriented trade policies, (iii)
strengthening the regional economic
integration such as ASEAN and NAFTA, and
(iii) maintenance of stability of Indian
rupee in terms of foreign currency. |
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Purchasing Power
Parity: A Review of the Co-integration
Evidence
WEN-RONG LIU, HENRY THOMPSON
AND
SRISUDA THUNGSUWAN
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If persistence of a
theory is an indication of success,
purchasing power parity (PPP) has been a
very successful theory. The core mechanism
of PPP is arbitrage lending to equal
prices of traded goods across countries.
Tests of PPP depend on the degree of
exchange rate control, the price indices,
frequency of the data, the period of time,
and the particular counties involved. The
present paper reviews the recent
co-integration literature on PPP.
comparing data sets and outcomes. Tests
are more likely to have positive outcomes,
with a wholesale price index and floating
exchange rates. |
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Retail-Loans by Financial Institutions
(Ms) PARUL
JAIN AND A. K. JAIN
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Until the early 1990
the role of financial system in India was
primarily restricted to channelizing
resources from surplus to deficit sectors.
However, after the adoption of New
Economic Policy of 1991, bank deposits
have considerably increased and so also
the availability of surplus funds with
banks. Earlier only some private sector
institutions were engaged in granting
retail loans and that to on a very high
rate of interest. However, with the
increasing entry of commercial banks in
the area of retail loans, more & more
people are resorting to retail and
personal loans to improve their living
standard. The increasing wave of
consumerism on account of globalization
has further intensified the demand for
such loans.
Today, virtually every player in the
market, from the retail savvy foreign
banks who target high net worth
individuals, to the public sector banks,
with the common man as the target
customer, is chasing the retail segment in
a big way. Fierce competition in the
retail finance has seen interest rates
across a host of consumer finance
categories leveling out to a narrow band
width and out throat competition has
resulted in drop in interest rates.
Affordability is seen as a keen driver of
such loans.
However, one precaution needs to be taken.
In most cases, interest rates on retail
loans are related to prime lending rates
and in actuality, an average borrower has
to pay much higher interest rate than what
is being advertised. |
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Infonnal Sector: Connotations,
Characteristics and Potentials
VINOD ANAND
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Informal Sector
encompasses a large number and a wide
range of economic activities within its
fold. These activities are also
geographically dispersed allover. This
fact is greatly supported by the fact that
in most of the developing countries around
90 per cent of the total employment is
generated by the informal sector through
its various categories and sub-categories.
For example, in India during 1999-2000 the
total employment was 397 million, out of
which the informal sector accounted for
368.89 million i.e., about 93 per cent of
the total employment. The share of the
formal sector was just 28.1 million i.e.,
about 7 per cent of the total employment
in the country. The public sector
accounted for about two-third of this
seven per cent. In fact, over the years
there has been a deceleration in the
growth of employment in the formal sector
due to many reasons including the decline
in the rate of growth of public sector
employment from 1.52 per cent per annum
between 1983 and 1994 to a negative growth
of (-) 0.03 per cent per annum during
1999-2000. Employment generation is just
one potential of the informal sector.
There are many more. Because of the
multi-faceted nature of this sector, it is
quite often seen that it is not easy to
strictly define this sector (Guerguil,
1988), and, as such, it is a 'fuzzy'
concept (Peattie, 1987). But at the the
same time, the different categories and
sub categories of this sector can be
strictly defined, essentially in terms of
the number of persons they employ.
Sometime, the amount of investment is also
considered for such definitions, like in
the case of non- directory enterprises in
the terminology of the National Sample
Survey Organization (NSSO). It is because
of these reasons that most of the informal
sector studies are subject to quantitative
analysis. |
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A Var Approach
to Growth Empirics : Evidence From
Selected Sub- Sahara African Countries
OLOMOLA, P.
AKANNI
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The objective of this
study was to evaluate the contributions of
investment rates and export growth on per
capita real GNP as opined by the
endogenous growth literature. The Vector
autogression method was employed. The
basic findings were that impulse response
analysis and variance decompositions
suggested that investment rates and growth
of exports have significant short-run
effects on the growth rate of per capita
output in Rwanda, Nigeria, South Africa
and Kenya. However, while the effects of
export disappear within three years which
of investment phased out in the fourth
year. These findings are consistent with
the prediction of the Slow growth model.
The study found no empirical support for
endogenous growth theory. |
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Energy Use Pattern in
Agriculture in Punjab
MANDEEP SINGH AND SUKHJEET
K. SARAN
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The present study based
on secondary data made an endeavor to
examine the energy use pattern in Punjab
agriculture. The present study had shown
that after the green revolution, Punjab
farmers shifted from non-commercial energy
sources to commercial energy sources for
their various energy needs in agriculture.
The consumption of commercial energy
sources increased by 27.41 times from
1965-66 to 1998-99, whereas the use of
non-commercial energy sources remained
almost at the same level, i.e. increased
by only 1.15 times during the same period.
After 1965-66, the use of commercial
energy inputs had been increasing every
year and in 1998-99, its share in total
energy used in agricultural production was
91.77 per cent, whereas the share of non-
commercial energy inputs reduced merely to
8.23 per cent during the same year. Energy
used per hectare in the state increased by
761.20 per cent from 1965-66 to 1998-99.
Amongst the various commercial energy
sources, electricity has shown maximum
increase (95.41 times) followed by
tractors (35.26 times) etc. from 1965-66
to 1998-99. All these figures depict the
transformation of traditional agricu1ture
to commercialization of agriculture and
the still increasing use of commercial
energy sources on Punjab farms draws our
attention to reduce the excessive use of
commercial energy sources. |
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Occupational Structure
in Punjab
KIRAN SETHI, SUKHJEET K. SARAN AND
MINI GOEL
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In the post
independence period, several factors
having a bearing on rural non-agricultural
employment have shown major systematic
changes. The importance of agriculture is
declining at a fast rate in the recent
past. The share of primary sector in the
net state domestic product was 58.37 per
cent in 1970-71 and came down to 41.46 per
cent in 2000-0 I. This decline is mainly
by fall in the share of agriculture
between 1970-71 and 2000-01 to the extent
of 17.28. The loss in the share of primary
sector has resulted in a gain in the share
of secondary and tertiary sectors. The
principal gainer is the tertiary sector
which increased its share from 26.32 per
cent in 1970-71 to 36.66 per cent in 2000-
0 I. In 1970-71, the income per worker in
agriculture and livestock was below the
state average where it was considerably
higher in non-agricultural sector. The
difference in income in agriculture and
non-agricultural workers widened both
absolutely and relatively during the
period 1970-71 to 1980-81. The difference
in income in both the categories increased
in absolute terms but slightly decreased
in relative terms in 1990-91. The
difference in income between agricultural
and non-agricultural sector decreased both
absolutely and relatively in 2000-01.
During this period, per worker income in
non-agricultural sector is less than
agricultural sector because of the shift
of greater number of workers in
non-agricultural sector. Over the period
of 30 years, sectoral differences in per
worker income almost increased except in
the year 2000-2001. The rising sectoral
difference in income and increase in net
sectoral income in favour of
non-agricultural sector and particularly
in tertiary sector created a strong
economic incentive for shift of workers
towards non-agricultural activities.
The analysis of the occupational shift
gives the significant observations. In
agricultural occupation such as
cultivators, agricultural labourers and
allied agricultural workers have
experienced decline. Their combined share
in total workers decline from 63.62 per
cent in 1970-71 to 39.83 per cent in 2000-
01. The occupation which are
non-agricultural have gained in their
share of total workers from 36.38 per cent
in 1970- 71 to 60.17 per cent in 2000-01.
This signified the growth in wage- salary
employment which weakens the traditional
bounds and has a favourable impact on
mobility of population in state. Since
most of the non-agricultural employment is
concentrated in towns and cities, an
increase in percentage share of
non-agricultural employment has
implications for rural to urban migration
in the state. |
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