Most analyses of accelerating inflation in India emphasise the role of “imported inflation” in driving Indian prices upwards. In this edition of Macroscan, C.P. Chandrasekhar and Jayati Ghosh examine the trends in global markets that influence domestic price movements and their implications.

The main issues in this year's economic strategy of the government, especially the intentions as signalled in this year's Budget proposals remain the same as that of 2004. These are employment, the agrarian crisis, nutrition and food security, education, health and social security. In each of these areas, the UPA government promised much. However, the delivery has not only been far below the promises, but in some cases even worse than the previous government.

As profits rise in developed and developing countries and the share of wages in value added falls, the clamour for reducing corporate tax rates only increases. Governments are warned of the danger of being shunned by FDI or of seeing their own capital migrate out in search of relative tax havens. The ''race to the bottom'' that this could set off, argue C.P. Chandrasekhar and Jayati Ghosh, would only increase the inequalising tendencies inherent in contemporary capitalism.

The recent phase of high economic growth in India has been associated with high savings and investment rates. This paper investigates the recent patterns in savings and investment and considers what this reveals about the nature of the growth process. It helps us to understand why the theme of “two Indias” is unfortunately so persistent and so plausible, at least in economic terms.

The sharp stock market correction of April 2nd was in reaction to the RBI’s unexpected attempts towards immediate price stabilisation. Unfortunately, the response to inflation that has been the result of unbalanced sectoral growth in the economy has to be such measures, which would adversely affect the pace of growth and the returns from speculation. However, the RBI has no option but to rein in the rapid growth of liquidity resulting from the sharp increase in foreign capital inflows into the economy, especially the stock markets.

This paper provides a simple model of the current pattern of India’s economic growth process, to reckon with the fact that even an accelerating growth rate may leave the unemployment problem completely unresolved, or even accentuated, as labour productivity rises at a faster rate than investment. An obvious conclusion that emerges is that the widely-held perception that higher and higher growth rates would eventually eradicate unemployment in the country, is untenable.

This paper argues that both China and India, despite the similarity of the current international hype about their future economic prospects and also despite their obvious differences, face rather similar economic problems at present with respect to the labour market. In both countries, the strategy of development is delivering relatively high growth without commensurate increases in employment, especially in the organised sector; and the bulk of new employment is in lower productivity activities under uncertain and often oppressive conditions. It is argued that this paradox may be a common result of the similar strategy of economic expansion currently being followed in both countries.

There is a strong case for evolving a growth strategy that allows and encourages labour productivity increases overall, while significantly expanding expenditure in social sectors that positively affect the conditions of life of most citizens. This in turn requires a major role for state intervention, through direct public investment and through fiscal, monetary and market-based measures that alter the structure of incentives for private agents.

The increase in the overall inflation rate, as well as the rise in prices of particular commodities in the past year, have brought into question both the sustainability of the current economic growth process and the efficacy of public management of price rise in particular sectors.

India is supposedly the new growth ''miracle'' in the developing world. However, unless the recent GDP growth rates are robust and sustainable, it may be prudent to hold back on the celebration. Indeed, against the backdrop of rising inflation and current account deficit, there is reason to be sceptical about the sustainability of this process of services-driven growth.

This background note prepared on behalf of the Kerala State Planning Board by Prabhat Patnaik, the Vice-Chairman of the Board, discusses the various reservations of the Board on the Approach Paper to the Eleventh Five Year Plan released by the Planning Commission. The paper also makes a number of initial proposals towards advancing the regional consultations to be carried out by the Planning Commission.

The Planning Commission has just released its Approach to the Eleventh Five-Year Plan, which is entitled ''Towards faster and more inclusive growth''. It is argued in this paper that the macroeconomic presumptions of the approach are faulty and unlikely to generate anything resembling more inclusive growth.

In recent years, the media has created a lot of hype about the UPA government's budgets, stating that these are examples of ''reforms with human face''. This government assumed power on May 22, 2004, with the support of the Left parties, and was expected to bring about major changes in the economic policies in favour of the poor. The question which naturally arises is whether these expectations are fulfilled or whether this government too is framing policies favourable to the richer segments of the population. This paper attempts to find an answer to this question by analyzing the recent budget and the two previous ones presented by Mr. P Chidambaram, the Finance Minister.

Even as the RBI recognizes that liberalized and integrated financial systems generate market conditions which coupled with capital account convertibility have the potential to lead to crises, there is a dangerous drive towards the risky path of full convertibility, spurred by a desire to facilitate the transformation of Mumbai into a regional or even global financial centre.

The revised estimates of national income with 1999-2000 as base suggest that an increase in the savings rate since 2002-03 has been sustained into 2004-05, taking the domestic savings rate to record levels. In this article, C.P. Chandrasekhar and Jayati Ghosh examine the estimates to unravel the source of the sudden and remarkable increase in national savings.

A recent government report on FII inflows into the Indian stock market reflects the growing chasm between the view points of the Finance Ministry and the Central Bank on the matter. While the report advocates the cause of the FIIs, the RBI, concerned about the macroeconomic implications of excessive capital inflows and outflows, has virtually disowned much of it. In this critique, the author looks at the various arguments.

Successive governments in India have lacked the vision or the political will to recognize that for adopting a broad-based and effective pro-poor programme as well as finance its development, it must shift its fiscal policy in a direction that is geared towards taxing the rich effectively in order to generate more tax revenues and a high tax-GDP ratio. In fact, the trend has been to the contrary: the rich have received several tax concessions. The capital market, the corporate sector and the new service sectors have also received unduly large concessions. This note outlines the specific demands for an alternative resource mobilization strategy which has been put forward by the combined left parties in India.