By Ramkishen S. Rajan, Venkataramana (Rama) Yanamandra

Since the liberalisation of its economic climate in 1991, India has skilled sustained present account deficits. those deficits have been serviced through a huge inflow of capital inflows, made attainable through the sluggish elimination of or relief in regulations on international investments when you consider that 1991. notwithstanding, issues replaced with the cave in of Lehman Brothers in September 2008. whereas a progress slowdown coupled with a deterioration of the present account stability was once anticipated through the international monetary hindrance, the level of adverse spillovers to India was once extraordinary still. regardless of bouncing again from the challenge and providing many growth-enhancing possibilities, India's carrying on with integration with the area has given upward push to a bunch of recent demanding situations in dealing with its economic climate, fairly given the absence of any kind of coordinated international coverage.

This booklet units out to supply an empirical evaluation of a few of India's an important coverage demanding situations bearing on its financial and exterior zone administration. Rajan and Yanamandra supply an outline of the evolution of the macroeconomic surroundings and guidelines in India on account that 1991 and consider the country's financial coverage effectiveness via estimating the rate and power of its rate of interest transmission. The textual content explores the evolving alternate fee and reserve administration rules within the nation, in keeping with its speedy integration with the worldwide economic climate. moreover, the authors examine the impression of events of the Indian Rupee at the country's alternate stability and household costs, and the relative balance of exterior financing in India with specific connection with international direct funding inflows. total, the ebook tackles vital macroeconomic coverage matters confronting India, proficient by way of analytical frameworks, facts and empirics.

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Extra info for Managing the Macroeconomy: Monetary and Exchange Rate Issues in India

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For a discussion of the savings, investment and growth nexus in India, see Verma (2007), Mohan (2008) and Jangili (2011). 5. FDI is allowed upto 100 per cent in airports (Greenfield projects), atomic minerals, information technology services, manufacturing, drug, pharmaceuticals and chemicals, non-bank financial companies, power, wholesale cash and carry trading, special economic zones (SEZs) and more recently telecom; FDI is limited to 74 per cent in private banks, 49 per cent in single brand retailing through the automatic route, 49 per cent in insurance and petroleum refining, over 26 per cent in defense on a case by case basis and 20 per cent in radio.

3). Although the deficit expansion since the GFC has added to the stock of debt, it is noted by the OECD Economic Survey of India (2011) that the stock of debt did not rise as fast as nominal GDP, which ensured that the overall debt-to-GDP ratio did not experience a significant increase. However, there are concerns that the process of fiscal consolidation should be accelerated in order to remain on the path of fiscal sustainability moving forward. 1 Fiscal indicators of central and state governments (% of GDP) Source: Compiled from RBI.

At an operational level, fiscal sustainability often refers broadly to how public debt evolves over time and is one where the debt stabilises Macroeconomic Overview of the Indian Economy 23 as a share of GDP. Based on this definition, one derives the result that the debt ratio will continue to rise indefinitely as long as the real interest rate exceeds real GDP growth unless the primary budget is in sufficient surplus. 28 Nonetheless, given that this measure is parsimonious and commonsensical, it is quite a useful yardstick of fiscal sustainability, or, more precisely, a measure of long-run sustainable debt.

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