National Council of Applied Economic Research
NCAER, India’s oldest and premier economic think tank, hosted its prestigious annual brainstorming session, India Policy Forum, during July 2-3, 2024 at its premises in New Delhi.
In the past two decades, the Forum has engaged in policy conversations that have contributed to a profound transformation of the Indian economy and society. Since its inception in 2004, the IPF has been a platform carrying forward NCAER’s mandate of ensuring quality, relevance, and impact. It has enabled honest conversations among world-class researchers using evidence-based research and has emerged over the years as a leader of ideas and a unique forum for driving policy.
Every year, IPF provides an intense scholarship-policymaker engagement through commissioned papers presented at the Conference, which are subsequently published in a journal. In addition, the IPF features lectures and panel discussions on key issues.
The 21th edition of the IPF was attended by a galaxy of eminent policymakers, economists, academics and researchers, who deliberated on four research papers, covering a range of diverse sectors and subjects, including the need for changing social safety nets, impact of presence of women in boards and top management on a firm’s performance, Punjab’s low growth trap and the opportunity cost of keeping high foreign exchange reserves.
The first paper presented at the IPF 2024 was on “Rethinking Social Safety Nets in a Changing Society”, authored by NCAER’s Prof Sonalde Desai and others. Using data from three rounds of the India Human Development Survey (IHDS), collected during 2004-5, 2011-12, and 2022-24, the paper shows that as the economy grows, households face considerable transition in and out of poverty. Historically, India’s approach to social safety nets has involved identifying the poor and providing them with priority access to various social protection programmes that include both in-kind and cash assistance.
But the churn in households’ economic circumstances makes it difficult to precisely identify and target the poor. It says traditional approaches to identifying the poor through provision of Below Poverty Line (BPL) cards, now dubbed priority cards, tend to focus on chronically poor households that usually come from poor regions or have enduring characteristics that predispose them to poverty (e.g. belonging to Scheduled Castes and Tribes). The IHDS data show that with a decline in chronic poverty, transient poverty begins to dominate. This suggests that our approach to social protection must pay greater attention to circumstances of life that push people into poverty rather than circumstances of birth associated with social identity or region of birth. The paper discusses a variety of approaches to providing safety nets and examines the success of some key programs in reaching the poor.
The authors of the second paper titled “Female Leadership in Corporate India: Firm Performance and Culture” bring out how the ‘female director mandate’ under the Companies Act (2013) positively impacted the performance of the firms and their overall culture. Within a year, the percentage of listed firms without women on board plummeted from 53% to less than 10%. Despite this progress, India still lags in women’s participation in middle and senior management roles.
Interestingly, the paper finds that firms, on average, were appointing more women than mandated by the Act. At the same time, newly appointed women were younger and more educated than their male counterparts and their average directorship “stretch factor” increased significantly compared to men. Combining personnel-level data from NSE-listed firms with firm performance data, it finds that having at least one woman on board is associated with higher economic performance, financial stability, and lower financial risk. Additionally, using almost 400,000 employee reviews, it finds that higher share of women in board positions correlate positively with employee ratings and sentiment scores.
Another paper presented at the IPF 2024 was on “India’s Foreign Reserves and Global Risk”, which dwells on the opportunity cost of keeping higher reserves. India’s current reserves comfortably surpass conventional thresholds for adequacy used by the International Monetary Fund and others and is set to act as a bulwark against any adverse geo-strategic and geo-economic factors. Additions to reserves reduce the economy’s exposure to global financial risk.
The paper says the precautionary benefits of reserves could well increase as India becomes further integrated to international financial markets. Estimates of the costs of holding reserves give evidence that increases in the reserves to output ratio reduce the risk premium on reserves, so that the sovereign interest rate spread overestimates the marginal cost of reserves.
“Global financial turbulence and foreign monetary policy shocks are significant drivers of foreign capital outflows from India. Additional reserves can significantly reduce large outflows. The precautionary benefits of reserves could well increase as India becomes further integrated to international financial markets,” says the paper authored by Prof Chetan Ghate (Indian Statistical Institute and Institute of Economic Growth), Prof Kenneth Kletzer (University of California) and Mahima Yadav (Indian Statistical Institute).
“The empirical analysis of India’s external portfolio capital flows finds that reserves lower outflows in the event of global financial distress. Reserve holdings reduce the volatility of portfolio debt flows,” says the paper.
The fourth paper presented at the IPF 2024, was titled “Economic Development of Punjab: Prospects and Policies”. It says Punjab needs to shed its mono-culture farming, scrap subsidies like free power and water and reorient its industries and services to overcome slow economic growth, high debt, societal challenges like the drug menace and environmental degradation. The state’s over reliance on the Centre’s food procurement policy makes it heavily agricultural and, that too, in a narrow manner. It needs to diversify its cropping pattern beyond wheat and rice as a first step.
The authors- Prof Lakhwinder Singh (Institute of Human Development), Prof Nirvikar Singh (University of California), and Prof Prakarsh Singh (Plaksha University)—attribute the state’s high debt and strained public finances to lack of agricultural diversification and agro-processing industries besides high power and water subsidies. They find a “disconnect between the current situation and the state’s vision for the medium and long terms”. “Lack of desirable employment and social problems such as drug and alcohol abuse all seem to stem from Punjab’s lock-in to the agricultural system created by the Green Revolution and an outdated national food procurement policy,” says the paper.
The authors say that “agriculture based on unprocessed food grains provides little opportunity for tax revenue” and the problem is compounded by huge power and water subsidies. Making a strong case against free power, they point to excessive depletion of groundwater which raises the spectre of desertification.
Arguing for support from the Centre for the state to make a farming switch, the paper says the procurement policy offering unlimited purchase of maize and pulses at MSP if farmers switch from paddy or wheat may not be enough for Punjab and “additional payments may be required, which could be justified politically as compensation for past contributions to national food security”.
In addition to the four papers, the India Policy Forum Conference of 2024 also featured lecture the TN Srinivasan Memorial Lecture on “Cracks in the System: How Geo-economic Fragmentation is Reshaping the World”, delivered by IMF Chief Economist Pierre-Olivier Gourinchas with NCAER Chairman Nandan Nilekani in the Chair. There were also panel discussions on issues like “Digitalisation and Development”; “States’ Fiscal Challenges”; “Employment Challenges in India and Beyond”; and “The Middle-Income Trap”.
The IPF 2024 concluded with a panel discussion on “India’s Economic Prospects in a Turbulent World” for which the main speaker was Martin Wolfe, Chief Economics Commentator, Financial Times. The panel included Barry Eichengreen (University of California), who is currently visiting Distinguished Professor at NCAER; Anantha Nageswaran, Chief Economic Advisor to Government of India; IMF Chief Economist Pierre-Olivier Gourinchas; and Swaminathan Aiyar, Editor, Emeritus, The Economic Times.
For any queries, please contact ipf@ncaer.org
