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Asia and Pacific > India

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Cover Regional Economic Outlook, April 2018, Asia Pacific
Regional Economic Outlook, April 2018, Asia Pacific
Good Times, Uncertain Times: A Time to Prepare
International Monetary Fund. Asia and Pacific Dept

Abstract

Asia is expected to grow by about 5½ percent this year, accounting for nearly two-thirds of global growth, and the region remains the world’s most dynamic by a considerable margin. But despite the strong outlook, policymakers must remain vigilant. While risks around the forecast are broadly balanced for now, they are skewed firmly to the downside over the medium term. Key risks include those of further market corrections—possibly triggered by inflation surprises and/or faster-than-expected monetary tightening in advanced economies—a shift toward protectionist policies, and an increase in geopolitical tensions.

Keywords:
REO; inflation expectation; abbreviation FY; Asia; intangible low-taxed income; IMF's Asia; IMF projection; basis points; Inflation; Inflation targeting; Consumer price indexes; Producer price indexes; Emerging and frontier financial markets; Asia and Pacific; Global; Pacific Islands; PPI inflation; inflation pressure; inflation shock; inflation dynamics; inflation process; spillover effect; trend inflation; long-run inflation expectation; import price inflation; IMF staff calculation
Cover Policy Papers
Measuring the Digital Economy
International Monetary Fund. Statistics Dept.
Digitalization encompasses a wide range of new applications of information technology in business models and products that are transforming the economy and social interactions. Digitalization is both an enabler and a disruptor of businesses. The lack of a generally agreed definition of the “digital economy” or “digital sector” and the lack of industry and product classification for Internet platforms and associated services are hurdles to measuring the digital economy. This paper distinguishes between the “digital sector” and the increasingly digitalized modern economy, often called the “digital economy,” and focuses on the measurement of the digital sector. The digital sector covers the core activities of digitalization, ICT goods and services, online platforms, and platform-enabled activities such as the sharing economy.
Keywords:
PP; consumer surplus; rate of change; OECD country; capital formation; data user; fixed capital; GDP compiler; imputed income; market production; real GDP; digital economy; source data; cost of living; merchandise trade statistics; production boundary; Digital economy; Sharing economy; Digitalization; Price indexes; Global
Cover IMF Working Papers
What is Responsible for India’s Sharp Disinflation?
Sajjid Chinoy
,
Pankaj Kumar
, and
Ms. Prachi Mishra
We analyze the dramatic decline in India’s inflation over the last two years using an augmented Phillips Curve approach and quantify the role of different factors. Our results suggest that, contrary to popular perception, the direct role of lower oil prices in India’s disinflation was relatively modest given the limited pass-through into domestic prices. Instead, we find that inflation is a highly persistent process in India, reflecting very adaptive expectations and the backward looking nature of wage and support price-setting. As a consequence, we find that a moderation of expectations, both backward and forward, and a rationalization of Minimum Support Prices (MSPs), explain the bulk of the disinflation over the last two years.
Keywords:
WP; CPI inflation; inflation expectation; Dis-inflation dynamics; food inflation; inflation process; inflation; India; world food price growth; inflation lag; Food prices; Disinflation; Wages; Price indexes; Global
Cover IMF Staff Country Reports
India: 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for India
International Monetary Fund. Asia and Pacific Dept
This paper discusses outlook and risk related to the economic development of India. The Indian economy is on a recovery path, supported by a large terms of trade gain (about 2½ percent of GDP) and reduced external vulnerabilities, though downside risks remain. Important economic and structural reforms have been initiated, but further reforms are needed to boost India’s growth potential. Notwithstanding the cyclical pickup, medium-term growth continues to be constrained by supply-side bottlenecks and weaknesses in the corporate and banking sectors. Past fund advice and the authorities’ macroeconomic policies have been broadly aligned, but progress on structural reforms has been partial.
Keywords:
ISCR; CR; net portfolio investment outflow; market price; outflow; net spot sale; bank credit growth; household inflation expectation; GDP data; Inflation; Oil prices; Commercial banks; Public investment spending; Global; South Asia
Cover Taming Indian Inflation
Taming Indian Inflation
Mr. Paul Cashin
and
Rahul Anand

Abstract

High and persistent inflation has presented serious macroeconomic challenges in India in recent years, increasing the country’s domestic and external vulnerabilities. A number of factors underpin India’s high inflation. This book analyzes various facets of Indian inflation—the causes, consequences, and policies being implemented to manage it. Several chapters are devoted to analyzing and managing food inflation, given its significance in driving overall inflation dynamics in India.

Keywords:
BOOK; food inflation; lending rate; nonfood inflation; inflation expectation; deposit rate; Inflation; Food prices; Agricultural commodities; Consumer price indexes; Income inequality; Global; South Asia; Asia and Pacific
Cover IMF Working Papers
What Measure of Inflation Should a Developing Country Central Bank Target?
Rahul Anand
,
Mr. Eswar S Prasad
, and
Boyang Zhang
In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high. We develop an open economy model with incomplete financial markets to show that headline inflation targeting improves welfare outcomes. We also compute the optimal price index, which includes a positive weight on food prices but, unlike headline inflation, assigns zero weight to import prices.
Keywords:
WP; core inflation; headline inflation; subsistence level; Inflation targeting; monetary policy framework; financial frictions; core inflation inflation targeting; headline inflation inflation targeting; food price inflation; headline inflation targeting regime result; headline inflation targeting rule; optimal price index; inflation expectation; Inflation; Sticky prices; Consumption; Price indexes; Africa; Global
Cover IMF Working Papers
Does Inflation Slow Long-Run Growth in India?
Mr. Kamiar Mohaddes
and
Mr. Mehdi Raissi
This paper examines the long-run relationship between consumer price index industrial workers (CPI-IW) inflation and GDP growth in India. We collect data on a sample of 14 Indian states over the period 1989–2013, and use the cross-sectionally augmented distributed lag (CSDL) approach of Chudik et al. (2013) as well as the standard panel ARDL method for estimation—to account for cross-state heterogeneity and dependence, dynamics and feedback effects. Our findings suggest that, on average, there is a negative long-run relationship between inflation and economic growth in India. We also find statistically-significant inflation-growth threshold effects in the case of states with persistently-elevated inflation rates of above 5.5 percent. This suggest the need for the Reserve Bank of India to balance the short-term growthinflation trade-off, in light of the long-term negative effects on growth of persistently-high inflation.
Keywords:
WP; India; inflation; growth; threshold effects; cross-sectional heterogeneity; dependence; data from the CEIC database; panel ARDL approach; inflation threshold effect; CS-DL estimation strategy; growth rate; CPI-RL data; inflation-growth trade-off; CS-DL result; ARDL specification; anti-inflation effort; CS-DL estimate; Consumer price indexes; Production growth; Threshold analysis
Cover IMF Working Papers
Monetary Policy Transmission in an Emerging Market Setting
Ila Patnaik
,
Ajay Shah
, and
Rudrani Bhattacharya
Some emerging economies have a relatively ineffective monetary policy transmission owing to weaknesses in the domestic financial system and the presence of a large and segmented informal sector. At the same time, small open economies can have a substantial monetary policy transmission through the exchange rate channel. In order to understand this setting, we explore a unified treatment of monetary policy transmission and exchangerate pass-through. The results for an emerging market, India, suggest that the most effective mechanism through which monetary policy impacts inflation runs through the exchange rate.
Keywords:
WP; sc; exchange rate; interest rate; Monetary policy transmission; Exchange rate pass-through; interest rate channel; transmission mechanism; interest rate hike; channel of monetary policy; open economy; Exchange rates; Wholesale price indexes; Price indexes; Central bank policy rate; East Asia
Cover IMF Working Papers
Inflation Expectations and Monetary Policy in India: An Empirical Exploration
Michael Debabrata Patra
and
Partha Ray
This paper pursues a computationally intensive approach to generate future inflation, followed by an exploration of the determinants of inflation expectations by estimating a new Keynesian type Phillips curve that takes into account country-specific characteristics, the stance of monetary and fiscal policies, marginal costs and exogenous supply shocks. The empirical results indicate that high and climbing inflation could easily seep into people’s anticipation of future inflation and linger. There is a reputational bonus for monetary policy to act against inflation now rather than going for cold turkey when societal compulsions reach a critical mass.
Keywords:
WP; inflation expectation; WPI inflation projection; consumer price; expectations survey; inflation pressure; Inflation; India; Monetary Policy; inflation process; inflation concern; inflation risk; Real interest rates; Wholesale price indexes; Food prices; Consumer price indexes; Global
Cover IMF Working Papers
Is Inflation in India an Attractor of Inflation in Nepal?
Mr. Edimon Ginting
The paper attempts to answer some important questions around the inflationary process in Nepal, particularly the transmission of inflation from India. Because the Nepali currency is pegged to the Indian rupee and the two countries share an open border, price developments in Nepal would be expected to mirror to those in India. The results show that inflation in India and inflation in Nepal tend to converge in the long run. Our estimates indicate that the passthrough of inflation from India to Nepal takes about seven months. The paper draws some implications for the conduct of monetary policy in Nepal.
Keywords:
WP; core inflation measure