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Latest Working Papers

WP244: Indian Economy@75: Achievements, Gaps, and Aspirations for the Indian Centenary, Nagesh Kumar, March 2022

Abstarct: One of the largest and richest economies of the world in much of the human history, India emerged from the colonial rule in 1947, as one of the poorest countries. Much has been achieved over the past 75 years in both economic and social terms. However, many challenges remain that need to be addressed over the next quarter century. In this essay, an overview of the key achievements and the gaps in India’s socio-economic development is presented, in the context Azadi ka Amrit Mahotsav, celebrating India’s 75th year of Independence. It also summarizes aspirations for the Indian Centenary, that will be celebrated in 2047 and a vision of India’s global leadership, not only in economic terms but also in terms of prosperity that is more inclusive, more sustainable, and more resilient to enable her to celebrate the Centenary with a greater sense of national pride, achievement, and fulfilment, becoming a role model for the developing world!

WP243: Impact of Covid-19 on MSMEs in India: Evidence from a Primary Survey, Akhilesh K. Sharma & Sushil K. Rai, February 2022

Abstarct: The Pandemic has raised an issue of survival for most of the micro, small, and medium enterprises (MSMEs) at global level. MSMEs sector are one of the most vulnerable sector because of their size, limited financial resources and inefficiency to deal with unpredicted situations. Based on a primary survey of 225 small firms located in Dehradun and National Capital Region, the present study investigates the impact of COVID-19 on MSMEs in India and find out the ways to enhance the resilience and promote its sustained growth in the presence of government supportive measures. The study observed that around 90 percent firms realized decline in their turnover, which was mainly due to restriction in economic activities, decrease in demand, shortage of workers, and disruption in supply chains. Furthermore, the reduction in employment was around 25 percent, which was mainly in the segment of informal employment. Surprisingly, there was some increase in formal employment in around 50 percent of firms because of business commitment of firms, shortage of informal workers and availability of workers at lower wages. Around 87 percent firms informed that revision in MSME definition is beneficial. The support measures by the government were found to be insufficient and have limited relevance to the MSME sector in its revival. However, majority of firms suggested that support measures should continue for long time. For enhancing resilience and sustainability of MSMEs, the study proposes two types of financial instruments viz. Uncertainty Corpus Fund for Small Businesses and Small Business Insurance.

WP242: Related Party Trade and Transfers to Tax Havens: A Study of Select Manufacturing Foreign Subsidiaries in India, Swati Verma, January 2022

Abstarct: The intra-firm cross-border transactions are highly susceptible to transfer pricing manipulation for profit shifting and tax evasion purpose by the MNC linked firms, and the risks of ‘revenue’ resource loss through these channels are particularly high for developing economies, as a range of recent global evidence indicate. An attempt is made in this study to estimate the extent of intra-firm transactions in foreign exchange transactions of a select set of foreign affiliated manufacturing firms in India by analyzing the related party foreign transaction disclosures from company financial statements. Transaction heads like trade in goods, technology, finance, services and other miscellaneous transfer channels are evaluated for 109 FDI linked manufacturing firms, covering mostly large-scale subsidiaries and unlisted firms, for two recent years, 2014-15 and 2015-16. The outflows of foreign exchange directed to tax haven locations have been specifically identified to assess the vulnerability of these transfers to tax avoidance risk. The findings indicate that a majority of earnings and expense transfers in foreign exchange were conducted on an intra-firm basis by FDI linked firms in both study years. Also, major component of the intra-firm transfers for most expense transaction routes were tied up to the various tax haven locations, associated with varying levels of tax avoidance risk. Some parts of these outflows were directed to the worst tax haven jurisdictions having high tax avoidance risk. Several instances of firms having intra-firm import payments, services or financial transfers predominantly linked with the worst tax havens were noted. The findings emphasize the vital need for a careful and stringent tax scrutiny of each cross-border transfer to tax havens through diverse transaction channels by the foreign affiliates operating in India.

WP241: Industry 4:0: Some Conjectures on Employment and Technology Diffusion, Satyaki Roy, January 2022

Abstract: Paradigm shift towards ‘new technology’ clubbed together as Industry 4.0 marks a significant departure in terms of human labour use and process of diffusion while maintaining continuity on account of emerging possibilities and challenges in terms of redistribution of employment similar to previous technological revolutions. Technologies are disruptive to established production functions, often follows a non-linear path of development by mix and interactions of inventions and innovations and hardly pareto superior in their welfare effects. They drastically alter human labour use while at the aggregate level the net effect depends on the balance between human displacement in technology using sectors and jobs created in complementary labour using sectors. With the change in the composition of knowledge involved and the related learning curve, this paper argues that propertied knowledge traded through market may turn out to be restrictive in terms of realising the full potentials of new technology and its diffusion. Since continuous interaction between producers and consumers provides critical input in the development trajectory of new technology it demands a more inclusive mix of institutional structure, collaborative arrangement of production and distribution based more on reciprocity and cooperation.

WP240: Two Phases of NPAs in India’s Banks, Santosh Kumar Das, December 2021

Abstract: India’s banking sector has witnessed two phases of non-performing advances (NPAs) during the post liberalisation period: one during the mid-1990s and other which is ongoing. The present paper explores the trend and pattern of NPAs during the above two phases, with a focus on the ongoing NPA crisis. It attempts to provide a comparative analysis between the two phases in terms of individual banks vis-à-vis their NPA performance and the sources of loan failure. The paper also attempts to explain the differential NPA figures between the public sector banks (PSBs) and private banks by analysing their approach to credit. The paper suggests that in terms of magnitude, the current crisis is more severe, having adverse consequences as, largely, the loan default is happening within the industrial and infrastructure sector. Majority of the PSBs are found to be affected in both the phases of crisis. Overwhelmingly, the current NPA problem is due to the non-performance of the non-priority sector advances, which are large in size. On the other side, during the earlier NPA crisis, the priority sector was also equally hit. We found there is considerable difference between the PSBs and the private banks with respect to their credit approach or strategy, which explains the higher incidence of NPAs in PSBs. We found that while PSBs have undertaken term lending, private banks tend to refrain from lending to large projects.

WP239: Reducing Import Dependence on APIs in the Indian Pharmaceuticals Sector: An Analysis of Early Experience of the PLI Phase-I Scheme, Reji K Joseph and Ramaa Arun Kumar, December 2021

Abstract: The outbreak of COVID-19 in Wuhan, China and the lockdown that followed had disrupted the supply of APIs and their intermediates and starting materials to India, leading to a temporary restriction on export of certain medicines from India. The PLI scheme that was announced subsequently aimed at attaining self-reliance in the production of 41 APIs/DIs/KSMs for which India is heavily dependent on China. However, the response of the industry to this scheme was not encouraging. In this context, this study attempts to capture the nature of import dependence and identify possible measures for the improvement of the scheme or to be incorporated into a strategy to achieve self-reliance in APIs. The analysis of import dependence, both in terms of the share of imports from China and the total imports in relation to production, shows that India is not heavily dependent on imports in some cases and such products should not have been covered by this scheme. The analysis of exports shows that India’s export of many of these products have increased over time and in some cases, China is a leading export destination. And, the RCA index is favourable to India, as compared to China, in most categories of APIs. This indicates the possibility of import of KSMs and DIs for the production of APIs. As cheaper import of KSMs and DIs help Indian producers to become competitive in APIs and formulations, they will have no incentive to invest in the production in India unless they see the possibility of producing at costs lower than the import price. This study makes eight specific suggestions, including incentivising operationalisation to the full capacity of existing plants, making technology a key aspect of the policy and adopting an integrated and holistic approach to be incorporated into any strategy that aims to achieve self-reliance in APIs.

WP238: Growth, Diversification and Upgrading of India’s Export Structure: Lessons from an Analysis of Post Reforms Period, Aradhna Aggarwal, November 2021

Abstract: India has embarked on the path of self-reliance with no clear roadmap. This paper highlights the need to demystify the concept and argues that any path to self-reliance would require creating new productive capabilities that would be determined not by what the country can produce but what it can export. Following the ‘product space’ perspective, promoted by Ricardo Hausmann and others at the Growth Lab of Harvard University, that a country’s capacity to add new capabilities depends strongly on the existing ones, I assess India’s export performance since 1988 along three dimensions: growth, diversification, and upgrading. The objective is to understand how well India is prepared to achieve the goal of creating new productive capabilities in this globalised world and recommend developing a well-informed export strategy to push the emerging dynamic comparative advantages in international markets to move towards self-reliance.