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3846 items in total found

Working Papers | 1997

Indian Money Market: Market Structure, Covered Parity and Term Structure

Jayanth R. Varma

In the context of the relatively recent deregulation of interest rates in India, this paper analyses the structure and inter-relationships of money market interest rates and studies the extent to which covered interest parity holds in India. The paper shows that there was a major structural break in September 1995 when in the wake of turmoil in the foreign exchange markets, covered interest arbitrage came into play in a big way for the first time. Even after September 1995, the forward premia continue to violate covered parity in systematic ways. These violations are shown to be related partly to the distortions in the foreign exchange market as measured by the premium in the unofficial foreign exchange market. Partly, however, covered parity violations also reflect distortions in the money market rates and in the formation of expectations. Though the money market is free from interest rate ceilings, structural barriers and institutional factors continue to create distortions in the market. Apart from the overnight inter-bank (call market) rate, the other interest rates in the money market are sticky and appear to be set in customer markets rather than auction markets. A well-defined yield curve does not therefore exist in the Indian money market.

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Working Papers | 1997

Neutral Taxation of Risky Investment and Proportional Sacrifice

Lahiri Somdeb

In this paper, our purpose is to show that a tax schedule is neutral with respect to a concave utility function if and only if it is an equal proportional sacrifice tax schedule.

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Working Papers | 1997

Why Not Push for 9% Growth?

Sebastian Morris

More than political constraints, an adherence to orthodoxy on the part of policy makers may have been responsible for the economy operating at well below the growth rate that it is capable of achieving. Part of the problem is orthodoxy's (limited) understanding of the East Asian trade strategy, which was as far from laissez faire as can be imagined. A purposeful and massive under valuation of their currency was part of the strategy, which while making the ratio of importables to exportables close to their international prices, provided for simultaneous export growth and import substitution, something not possible in orthodoxy's standard work horse-the 2x2x2 model of international trade. Simultaneous import substitution and export production is theoretically possible for economies with idle resources, with the introduction of third non-traded goods corrected would bring exports and growth itself tumbling down. An examination of causal links among macroeconomic variables would indicate that exports, agriculture and public sector GDP are most "exogenous". Private sector GDP is strongly influenced by exports and agriculture. The prospect for a sustained growth at 9% or more is real. It is well below the point at inflation can be expected to rise. The need of the hour is expenditure (investment) expansion. The current budget in providing for a tax cut for industry, has done the right thing. But that in itself would not be enough. For structural and other reasons private investment would not show the same bouncy in the years to come that it shown in the past. Further increases in the share of private investment would have to wait many clarifications of legal and other (such as regulatory) tangles. This raises the scope for renewal of public investments in areas like power, with even deficit financing. If the agricultural constraint too can be relaxed via institutional reform, and a disequilibrium exchange rate strategy is in place the 9% may itself be an underestimate of the rate of growth the economy is capable of. Of course the present orthodoxy of the policy makers and the RBI would have to go.

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Working Papers | 1997

Macro Economic Theory and Policy: A Perspective

Gupta G S

The paper provides a brief account of the scope and developments in macro economic theory and policy. In particular, it highlights the significant determinants of economic well-being and of the effectiveness of economic policies. Factors responsible for the limitations of macro policies have also been discussed.

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Working Papers | 1997

Towards Mega Faculties: The Case-based Learning of Core Capability Development and Management

Thomas P S and T. Madhavan

In this paper, we introduce the concept of mega faculties, corporate abilities to change focal faculties from time to time over the long term. Since it is a tentative concept we propose a case discussion based approach to learn about it suing core competence or core capabilities as a proxy for focal faculties. A set of 30 cases is presented and summarised under the broad heads of a) strategic intent and competence development, b) competence-based competition and growth, c) leveraging competences internally, d) leveraging competences externally, e) identifying core competences for mega management and f) capstone case(s). Pohang, 3M, Sony Workstation Division, Plus Development Corporation, Acer and Intel are representative cases from each segment of the set. With the set, prospects for the development of the language system and conceptual framework involved in core competence seem high. But there is a major gap in relation to the identification of core competences from a zero base. Until this gap is filled in due course only first level of observations regarding mega faculties can be made. Besides, a discussion of the full set of 30 cases is also pending in MBA and MDP contexts.

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Working Papers | 1997

Direct Tax Proposals in the Union Budget 1997/98: A Preliminary Analysis from a Corporate Finance Perspective

Venkiteswaran N

The Union Budget 1997/98 has significant implications for corporate investment, financing and dividend decisions. While the lowering of corporate tax rates places a premium on efficiency and profitability, lowering of personal tax rates and the proposal for complete tax exemption for dividend have the potential to lower cost of capital. Company managements may have to devote more explicit managerial attention to dividend policy on account of likely increase in investor pressure for stepping up dividend on the one had and the imposition of 10% tax on distributed profits on the other. Preference shares are likely gain a new lease of life as a financing instrument.

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Working Papers | 1997

Public Policy, Focal Faculties and Innovative International Competition: The Case of Indian Civil Aviation

Thomas P S and T. Madhavan

In the early 1990s the concept of the firm's focal faculties came into vogue. It helped to explain the phenomenon of innovative international competition. In the new civil aviation policy of the Indian government we have an interesting situation where there is some scope (perhaps small) of seeing an innovative international competitor. This is because the new policy has explicitly opened the field to foreign investment but simultaneously disallowed existing global players in the industry from investing. Thus, aside from foreign financial institutions and investments by NRI entrepreneurs, there is the hitherto unrecognized possibility of a non-aviation corporation leveraging its focal faculties to enter the Indian aviation scene. The paper is a preliminary attempt to shed light on the focal faculty concept by examining its applicability in an intriguing Indian situation with global potential. The Indian formula is recommended to the civil aviation authorities of developed countries who are also trying to protect domestic players. This raises the prospect of a serious worldwide evaluation of the focal faculty concept for management and development.

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Working Papers | 1997

Economic Reforms and Institutions: A Few Issues and Policy Implications for India

Patibandla Murali

In the absence of necessary institutional conditions, market reforms in developing economies cause rent seeking and unequitable distribution of income. This, in turn, could stun economic growth and also thwart the emergence of right institutions. It is important for government policy not only to minimize the costs of institutional failures but also to set the initial conditions for the evolution of institutions in the right direction. This paper illustrates some of the costs of institutional failures and the policy implications in the present Indian context.

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Working Papers | 1997

The Policy Reforms, Evolution of Domestic Markets Structure and Exports: A Study of Indian Engineering Industry

Patibandla Murali

The policy reforms initiated in India since the eighties have caused entry of quite a few multinational firms into Indian industries. This has significant implications on the evolution of domestic market structure into a competitive one and consequent increase in exports. This paper builds a simple theoretical model in tracing out the evolution of domestic market structure by considering asymmetries in terms of time of entry and costs of production under oligopolistic competition. The main propositions of the model are empirically verified by econometric exercises based on firm level panel data for a set of industries. The results suggest a positive explanation of domestic market shares of firms by their relative technical efficiency in production. Increased competition from new entrants, especially multinational firms is driving domestic firms to undertake deliberate technological efforts for enhancing production efficiency. Research and development expenditures appear to be more important for domestic firms than multinational (which posses superior technology) in increasing technical efficiency in production. Increase in industry output, because of new entry and increased production efficiency of firms, appears to make firms to augment their export orientation.

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Working Papers | 1997

Privitisation: Theory, Practices and Issues

Gupta G S

The paper discusses the various forms of privatisation, its rationale, practices in India and abroad, and the issues facing the privatisation programme. It concludes that while privatisation programme is not easy to design and implement, it has good potentials to resolve economic ills of public sector enterprises (PSEs). Many countries have used this strategy with good results and if there is a strong political will, India could also derive benefits through this programme. The paper offers a few suggestions for the successful implementation of this programme.

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