1. A. Comparing Economies
B. U.S. Crisis and Recovery
C. European Slowdown
D. Asian Economic Miracles
E. Sustainability of Economic Growth
F. World Economic Outlook
THE WORLD ECONOMY:
GROWTH OR STAGNATION?
2. 16. Is Asia’s Miracle a Myth?
17. Reviving Japanese Economic Growth
18. The Rise of Developing Asia
19. China: The World’s Largest Economy
20. India: The World’s Fastest Growing Major Economy
D. ASIAN ECONOMIC MIRACLES
3. SUPPLEMENTARY READING: INDIA
International Monetary Fund (2018). India: 2018 Article IV
Consultation. Washington, DC, International Monetary Fund,
August.
https://www.imf.org/en/Publications/CR/Issues/2018/08/06/India-
2018-Article-IV-Consultation-Press-Release-Staff-Report-and-
Statement-by-the-Executive-46155.
Reserve Bank of India (2018). Annual Report 2017/2018. Mumbai,
Reserve Bank of India, August.
https://www.rbi.org.in/Scripts/AnnualReportMainDisplay.aspxl.
4. LIBERALIZATION OF THE INDIAN ECONOMY
• Liberalization of the Indian economy began in 1988, but led to a
foreign exchange crisis and IMF program in 1991. Manmohan Singh
was appointed Finance Minister in 1991 and continued through 1996.
• India grew at 5.08 percent per year from 1990-1995, 5.78 percent from
1995-2000, and 6.76 percent from 2000-2005. Singh became Prime
Minister in 2004. Indian growth jumped to 8.10 percent from 2005-2010.
• In 1990 Indian per capita output was 3.14 (U.S. = 100.0 in 2000) by
comparison with Chinese output for 2.78. By 2010 Indian per capita
output was 8.12, but Chinese output was 17.22.
• Indian productivity increased from 21.96 (U.S. = 100.0 in 2000)
in1990 to 31.91 in 2010; by comparison Chinese productivity
jumped from 23.68 to 40.38 over this period.
5. BRIEF BIO: MANMOHAN SINGH
• Born: September 26, 1932, Gah, Punjab, British India (now in
Pakistan).
• Education: Panjab University, Chandigarh, B.A. and M.A.,
Cambridge University, B.A., Oxford University, D. Phil.
• Professor of Economics, Cambridge University, 1963-5, 1969-71.
• Professor of International Trade, Delhi School of Economics.
• Governor, Reserve Bank of India, 1982-1985.
• Finance Minister, India, 1991-1996.
• Prime Minister, India, 2004-2014.
6. INDIA’S RESPONSE TO THE CRISIS
• Indian Exports Declined with the Collapse of Trade in
2008-9, But Recovered Quickly.
• India Had a Stimulus Plan in Place Before the Crisis
• The Central Government Ran a Large Deficit to Finance
Measures Taken Before the 2009 Election
• The Deficit Was Increased by a Decline in Revenue After
the Downturn in Exports
7. BRIEF BIO: NARENDRA MODI
• Born: September 17, 1950, Vadnagar, India.
• Education: Delhi University, B.A., 1978,
Gujarat University, M.A., 1983.
• Chief Minister of Gujarat, 2001-2014.
• Prime Minister, India, 2014-
8. STRUCTURAL REFORMS NEEDED TO BOOST
GROWTH AND EMPLOYMENT
• Greater Labor Market Flexibility and Product Market
Competition Will Be Required to Create Employment
and Increase Growth.
• Improve the Business Environment by Deregulating
Product Markets and Strengthening Property Rights
• Improve Functioning of Public System for Food
Procurement, Distribution and Storage.
• Introduce Efficient Pricing and Allocation of State
Power and Natural Resources.
9. BUILDING A POLICY FRAMEWORK FOR SUSTAINED
ECONOMIC GROWTH
• Create a National Market for Goods and Services.
• Privatize Public Enterprises and Deregulate Industrial
Activity to Enhance Competition.
• Reform Monetary Policy and the Regulation of Financial
Services.
• Reduce the Elaborate System of Employment Protections
to Create Employment
10. MAINTAINING EXTERNAL STABILITY
• India’s External Position is Consistent with
Fundamentals and Reserves Are Adequate.
• India Should Continue to Rely on Exchange Rate
Flexibility As a Shock Absorber.
• India Faces a Challenge in Increasing Exports.
• New Opportunities May Be Created for Free Trade
Agreements.
11. CONSOLIDATING THE FISCAL POSITION
• Fiscal Consolidation Has Paused, But the Allocation of
Government Expenditure Has Improved
• Achievement of Fiscal Targets Has Been Postponed,
But Will Probably Be Reached.
• An Important Policy Objective Is to Complete
Implementation of the Goods and Services Act of
2017.
12. THE GOODS AND SERVICES TAX
• The Goods and Services Tax Is a Value Added Tax that Replaced
Indirect Taxes at National and State Levels in July 1, 2017.
• Passage of the Tax at the National Level Required a
Constitutional Amendment in 2016.
• Revenues Will be Shared between the National and State
Governments.
• Exports will be Exempt from the Tax, While Imports Will be
Subject to the Tax at the Same Rate as Domestically Produced
Commodities.
13. RESERVE BANK OF INDIA ADOPTS FLEXIBLE
INFLATION TARGETING
• A Monetary Policy Framework Agreement (MPFA) Was
Signed between the RBI and the Government of India on
February 20, 2015.
• The Intermediate CPI Inflation Target Is Four Percent
Annually.
• Monetary Policy Is Set by the Monetary Policy Board,
According to the Amended RBI Act of May 14, 2016.
• The Policy Rate Was Reduced by 75 bps during 2015-6
and 25 bps during 2016-7.
14. BANKING AND FINANCIAL REGULATION IN INDIA
• Basel III Was Implemented by the Reserve Bank of India (RBI) for
Banks in India on March 27, 2014.
• Commercial Banks are Regulated by the Department of Banking
Regulation of RBI.
• Non-Banking Financial Intermediaries are Regulated by the
Department of Non-Banking Supervision of RBI.
• The Financial Stability Unit of RBI Is Charged with Macro-Prudential
Regulation of Financial Institutions.
• The RBI Is Committed to Harmonization of Prudential Regulation
Across Various Segments of the Financial Sector.
15. DEMONETIZATION
On November 8, 2016, Prime Minister Narendra Modi Announced that Large Bills, Rs500 and
Rs1000, Comprising 86 Percent of Currency in Circulation in India, Were “Demonetized,” That Is,
No Longer Legal Tender Except in Specified Circumstances. These Bills Were to Be Deposited in
Banks by December 30 and Restrictions Were Placed on Cash Withdrawals.
The Purpose of Demonetization Was Fourfold: Curb Corruption, Counterfeiting, Use of Currency to
Finance Terrorist Activities, and the Accumulation of “Black Money” Generated by Income not Declared to
the Tax Authorities. Demonetization Will Create Short-Term Costs and Long-Term Benefits. Short-Term
Costs Are the Inconvenience, Even Hardship, Especially for Informal and Cash-Intensive Sectors.
The Long-Term Benefits Are the Reduction of Corruption Concealed by Conducting Illegal Business
Activities in Cash, Reduction of Counterfeiting by Introducing New Currency Less Subject to
Counterfeiting, and Increasing the Cost of Cash Financing of Terrorist Activities. The Most Important
Long-Term Effect Is a Sharp Reduction in Tax Evasion Which Will Make It Possible to Stimulate
Economic Activities by Reducing Tax Rates.
Much of the Short-Term Cost Has Already Taken Place. There Has Been a Modest Boost in Tax
Revenues through Punitive Rates Paid on Cash Deposits That Had Not Previously Been Reported
to the Tax Authorities. Lower Prices and Interest Rates Cushioned Some of the Short-Term Impact.
The Impact of Demonetization Was Reinforced by Adoption of the Goods and Services Tax.
16. EFFICIENT REDISTRIBUTION
India Devotes About Five Percent of Its GDP to Over 950 Central Government
and Central Government-Supported Income Programs, Many of Which Are Not
Properly Targeted to Support Groups Most in Need.
From the Annual Survey:
The Embrace of Markets—Even in the Modest Sense of Avoiding
Intrusive Intervention, Protecting Property Rights, Disposing of Unviable Public
Sector Assets and Exiting from Areas of Comparative
Non-Advantage, and Allowing Economic Agents to Face Market Prices—
Remains a Work-in Progress.
Universal Basic Income: The Ultimate Realization of Mahatma Gandhi’s Anti-
Poverty Program: “Wipe a Tear from Every Eye.”
17. INDIAN ECONOMIC POLICY: SUMMARY
• The Goods and Services Tax Will Contribute to the Creation of
National Markets for Goods and Services.
• National Markets for Goods and Services Can Be Made More
Competitive by Privatization of Public Enterprises and
Deregulation of Industrial Activities.
• Flexible Inflation Targeting and a Unified System of Financial
Regulation Will Strengthen the Financial Sector.
• The Great Challenge That Remains is to Develop Labor Markets
That Will Create Employment and Sustain Economic Growth.
18. THE SOURCES OF ECONOMIC GROWTH
• Comparisons among Regions and Countries
• Sources of Growth in Capital Input
• Information Technology and Non-Information Technology
• Labor Input and Labor Quality
• Total Factor Productivity
19. MODEL OF PRODUCTION:
Production Possibility Frontier
where:
I - Investment
C – Consumption
K – Capital
L – Labor
A - Total Factor Productivity (TFP)
t
t
t
L
t
t
K
t
t
C
t
t
I A
L
v
K
v
C
w
I
w ln
ln
ln
ln
ln ,
,
,
,
Labor
Capital
of
Shares
v
v L
K ,
,
n
Consumptio
Investment
of
Shares
w
w C
I ,
,
20. SOURCES OF WORLD ECONOMIC GROWTH
Average annual growth rates, weighted by the income share
21. SOURCES OF GROWTH
FOR DEVELOPING AND TRANSITIONING ECONOMIES
Average annual growth rates, weighted by the income share
23. MAJOR TRENDS IN THE WORLD ECONOMY
• The Growth of the World Economy Has Accelerated
Since 1995 and Become Much More Turbulent.
• The Balance of the World Economy Is Shifting from the
Advanced Economies of the G7 to the Emerging
Economies of Asia, Especially China and India.
• The Transformation of the World Economy has Led to a
New World Order, Led by China, the U.S., India, and Japan.
