Indian Economy, 5th edition (30 page)
Read Indian Economy, 5th edition Online
Authors: Ramesh Singh
(i)
hedonic regression model, and
(ii)
the basic Laspeyre’s weighted index.
It is well-known that the registered price of houses are grossly under-estimated due to very high registration fees and stamp duty. The subsequent obligations for the payment of property tax acts as a dis-incentive to individual purchases (except the corporate bodies) for revealing the exact purchase price of a house. That is why, in addition to information from registration offices, basic data on value, plinth area, location, age and basic characteristics of the houses were collected from property dealers, Resident’s welfare Associations (RWAs), Development Authorities/Municipal Corporations and the private builders.
The TAG decided to take 2001 as the
base year
for the index which is consistent with the base period of the other indices i.e. 2001 for the revised CPI (IW), 2000–01 for the revised WPI and 1999–2000 for the revised GDP series.
With an overall objective of bringing transparency in the Indian real estate market, the index is expected to serve some highly important and timely purposes:
(a)
Whether a broker is quoting too high a price for houses in the cities.
(b)
Banks/housing finance bodies will be able to estimate only if the loan applications are realistic for the properties.
(c)
This will also show the level of non-performing assets in the housing sector.
(d)
And most importantly it will serve as a realistic price index for the buyers. (At present a buyer has no means, to judge whether a rise in property price was in the offing with the general level of inflation (i.e. at WPI) in the country, or has been scaled up disproportionately. Other than quotes from brokers, there are no means at present to evaluate the changes in price in this sector. At present the only index that gave some idea of housing price changes was the CPI (IW) which being a national index did not show the
regional variations
.)
In the next phase, the NHB will compile indices for 35 cities/towns with a population of more than a million (as per the census 2001). These indices are planned to be prepared on a half-yearly basis, to be subsequently expanded to cover 63 cities/towns covered under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).
Service Price Index
The contribution of the tertiary sector in India’s GDP has been strengthening for the past 6 to 7 years and today it stands approximately at 54 per cent. The need for a service price index (SPI) in India is warranted by the growing dominance of the sector in the economy.
69
There is no index, so far, to measure the price changes in the service sector. The present inflation (at the WPI) only shows the price movements of the commodity-producing sector i.e. it includes only the primary and the secondary sectors—the tertiary sector is not represented by it.
The need for such an index was recommended by the working Group (under the Chairmanship of Prof. Abhijit Sen, Member, P.C.) set up to revise the WPI (1993–94) series which was reiterated by the National Statistical Commission (headed by C. Rangarajan).The office of the Economic Adviser, Ministry of Commerce and Industry has been making an effort to develop sector-specific service price index for the country with the technical assistance being received under the World Bank Assisted Economic Reforms Projects (WBAERPs).At present, efforts are being made to develop service price indices for selected services initially on an experimental basis (covering road transport, railways, airways, business, trade, port, postal telecommunications, banking and insurance services only).
The basic studies of index construction are complete. Before formal launching of the index, the complete study is supposed to be discussed with academicians, practitioners and the users of the services. The need to construct a service price index for the economy was felt more
after the
OECD-Eurosat Report of 2005
on the subject.
70
1.
Samuelson, Paul A. and Nardhaus, William D.,
Economics
, Tata McGraw-Hill, N. Delhi, 2006, p. 439.
2.
Mc Cormick, B.J. et.al,
Introducing Economics
, Penguin Education, Great Britain, 1974, p.609.
3.
Penguin Dictionary of Economics
, Penguin Books, London, 7
th
Ed., 2003.
4.
Collins internet-linked Dictionary of Economics
, Harper Collins Pubs., Glasgow, 2006.
5.
Mathew Bishop,
Pocket Economist
, The Economist, London, 2007, p. 121.
6.
Stiglitz, Joseph E. and Walsh, Carl E.,
Economics
, W.W. Norton & Company, New York, 2005, p. 509.
7.
As per the
Economic Survey, 1997–98,
Ministry of Finance, GoI, N. Delhi, p. 89.
8.
As per the
Economic Survey,
2003–04,
p. 90.
9.
As the CRR for banks was revised upward to 6.5 per cent by the RBI in its credit and Monetary Policy for April 2007 onwards and again increased to 7 per cent in the Review July 31, 2007.
10.
As the RBI increased the Repo Rate to 7.75 per cent in its
Credit & Monetary Policy
announced on March 31, 2007.
11.
Samuelson and Nordhaus, op.cit., p. 671.
12.
Collins Dictionary of Economics
, op.cit., p. 251.
13.
Samuelson & Nordhaus, op.cit., p. 671
14.
As popularised by
The Economist
,
The Wall Street Journal
,
The Economic Times
(India), etc.
15.
Collins Dictionary of Economics
, op.cit., p. 251
16.
Samuelson & Nordhaus, op.cit., p. 671.
17.
Thomas Sargent, “The Ends of Four Big Inflations”, in R.Hall, ed.
Inflations, Causes and Effects
, University of Chicago Press, Chicago, 1982, pp. 74–75 (as quoted by Stiglitz & walsh, op. cit. p. 513).
18.
Stiglitz & Walsh, op.cit., p. 512.
19.
Sachs, Jeffery,
The End of Poverty
, Penguin Books, London, 2005, pp. 92–108.
20.
Hyperinflation erodes the value of money very fast and that too at a very high scale. We may put it with an example suppose the annual rate of inflation is 100 per cent, money loses half its value every year. It means that a note of ‘100 will have a value of just ‘3 after five years!
21.
Economic Survey, 2000–01
, Ministry of Finance, GoI, N. Delhi.
22.
Stiglitz & Walsh, op.cit., p. 511.
23.
Penguin Dictionary of Economics
, op. cit.
24.
Gablbraith, J.K,
A History of Economics
, Penguin Books, London, 1991, pp. 205, 267–70.
25.
Patrick Lane,
Economics
, The Economist, London, 1999, p. 270.
26.
Stiglitz & Walsh, op. cit. pp. 821–822.
27.
Penguin Dictionary of Economics
, op. cit. pp. 297–298.
28.
Meier, Gerald M. and Ranch, James E.,
Leading Issues in Economic Development
, Oxford University Press, N. Delhi, 2006, pp. 37–39.
29.
Stiglitz & Walsh, op. cit, p. 822.
30.
Samuelson & Nordhaus, op. cit., pp. 680–687.
31.
Collins Dictionary of Economics
, op. cit., p. 446
32a.
Stiglitz & Walsh, op. cit., p. 478.
32b.
C. Rangarajan,
Indian Economy: Essays on Money and Finance
, UBSPD, 1998, p. 58.
33.
Samuelson & Nordhaus, op. cit., p. 723.
34.
New Zealand passed a law to do this with a target of 0 to 2 per cent inflation with a provision that the Reserve Bank of New Zealand governor could be fired if inflation crossed the 2 per cent upper limit—now this target range has been revised to 1 to 3 per cent (as write Stiglitz & Walsh, op. cit. p. 849).
35.
Samuelson & Nordhaus, op. cit., p. 674.
36.
Samuelson & Nordhaus, op. cit., p. 674.
37.
Economic Survey, 2006–07,
MoF, GoI, p. 85
38.
The three major classifications of the items in the WPI were followed for the first time when India went for the third revision of the prices with 1970–71 as the base year which was introduced in January 1977. The same classification is followed till date with changes in the assignments of weights to the items (
Economic Survey
2006–07, op. cit, p. 85).
39.
The economies of the Euro-American region have a single CPI as the majority of consumers show the same consumer behaviour (see Rosser and Rosser,
Comparative Economics in a Transforming World Economy,
Prentice-Hall, MIT Press, Cambridge, USA, 2004).
40.
Economic Survey 2006–07,
op. cit, p. 90.
41.
Economic Survey 2001–02,
op. cit, p. 90.
42.
Economic Survey, 2001–02,
op. cit., p. 91.
43.
Economic Survey, 2006–07,
op. cit., p. 90.
44.
Pranab Bardhan agrees to Amartya Sen (How is India doing?, New York Review of Books, Dec. 1982) in A Political Economy Perspective on Development in Bimal Jalan ed. Indian Economy; Problems and Prospects, Penguin Books, N. Delhi, 1992, p. 369.
45.
Rosser, J.B and Rosser, M.V, op. cit.
46.
Based on Rangarajan, C., 1998, op. cit., p. 63; Jalan, Bimal, 2004, op. cit., pp. 182–191.
47.
Economic Survery 2012-13
, op. cit., p. 77.
48.
Rangarajan, C.,
Perspectives on Indian Economy
, UBSPD, N. Delhi, 2000, p. 68.
49.
Desai, Meghnad,
Development Perspectives in I
. J. Ahluwalia and I.M.D. Little edited
India’s Economic Reforms and Development,
Oxford Univ. Press, N. Delhi, 1998, p. 41.
50.
Jalan Bimal,
India’s Economic Policy,
Penguin Books, N. Delhi, 1992, pp. 52–58.
51.
Rangarajan, C., ‘Development, Inflation and Monetary Policy’ in Ahluwalia and Little edited
India’s Economic Reforms and Development,
op. cit., pp. 56–57.
52.
Jalan, Bimal, 1992, op. cit., pp. 191–203.
53.
Chelliah Committee Report,
1993.
54.
Dandekar, V.M, ‘Forty Years After Independence’ in the Bimal Jalan edited,
Indian Economy: Problems and Prospects,
op. cit., pp. 84–88.
55a.
Reddy, Y. V.,
Lectures on Economic and Financial Sector Reforms in India,
Oxford University press, N. Delhi, 2002, pp. 176–177.
55b.
Goyal, Ashima, ‘Puzzles in Indian Performance: Deficits without Disasters’ in Kirit S. Parikh and R. Radhakrishna (eds.) IGIDR’s
India Development Report,
2004–05, Oxford University Press, N. Delhi, 2005, p. 191–208.
56.
Basu, Kaushik,
India’s Emerging Economy: Performance and Prospects in the 1990s and Beyond
,
Oxford University Press, N. Delhi, 2004, pp. 89–103.
57.
Fischer, S., ‘Modern Central Banking’ in F. Capie, C. Goodhart, S. Fischer and N. Schnadt edited,
The Future of Central Banking, The Tercentenary Symposium of the Bank of England,
Cambridge University Press, Cambridge, 1994, pp. 262–308.
58.
Krugman, P.,
Stable Prices and Fast Growth: Just Say No’,
Economist 31
, 1996, pp. 15–18.
59.
Ahluwalia and Little, op. cit., p. 2.
60.
Economic Survey 1997–98,
GoI, p. 92.
61.
Rangarajan, C., 1998, op. cit., pp. xii & 61–63.
62.
We may refer to almost all the Credit and Monetary Policies announced by the RBI during this period.
63.
As the RBI put it in its Credit and Monetary Policy Review of July 31, 2007.
64.
It should be noted here that the level of inflation was below 5 per cent till the new Government came to power and the outgoing Government was blamed to freeze the inflation data to a more politically digestable level (i.e., below 5 per cent). The new Government in the process of preparing a producer price index (PPI) has also committed to make the inflation data automated like the shave indices.
65.
Stiglitz and Walsh, op. cit., p. 517.
66.
Economic Survey 2006–07,
op. cit., p. 92.
67.
Samuelson and Nordhaus, op. cit., p. 441.
68.
Economic Survey 2006–07,
op. cit., p. 92.
69.
Economic Survey 2006–07,
op. cit., p. 94.
70.
‘The number of National Statistical Agencies collecting service producer prices data, though growing, is still small’, points out the
OECO-Eurosat, 2005 Inquiry on National Collection of Services Producer Prices Preliminary Report,
giving information on 45 such countries. The report further adds that while some such agencies have focused exclusively on the price of services provided to enterprises, others have approached the subject more broadly through the development of services producer price indices with varying approaches and coverage. As per the report, at present, 30 countries collect services producer prices while prelimilary works have started in the other countries, particularly the European countries under the auspices of the Eurosat. Other than the developed Euro-American economies some other countries which worked as inspiration for India which have such an index are China, Hong Kong, Czech Republic, Slovak Republic, Poland, Lithuania, Israel and Vietnam.
