Research
Research
Abstract: What are the quantitative effects of a government infused bank recapitalization in response to loan defaults? We analyze two different scenarios of government infused recapitalization using a dynamic stochastic general equilibrium (DSGE) model, calibrated to an emerging market economy with state owned banks. The first is an unconditional transfer and the second is an “equity in exchange for transfer” to banks. We show that a government infused recapitalization in response to a negative productivity shock may increase output in the short run. However, there is welfare loss, which is higher in the case of unconditional transfers. Our analysis suggests that bank recapitalization facilitates credit creation, capital formation and growth, especially during a cyclical downturn. There is, however, a need for appropriate policy vigil to protect the quality of public expenditure in the social sector that matters for welfare in the long run.
Abstract: Female labor force participation in urban India has remained persistently low and stagnant over the past three decades, despite significant improvements in women’s educational attainment and rising relative wages. Using data from multiple rounds of the NSS and PLFS from 1993 to 2017, this study documents the changing sectoral employment shares accounting for differences in gender composition. The empirical analysis reveals a decline in the employment share of technical services, where over 50% of women are employed, alongside an increase in the male-dominated construction sector. Building on this evidence, I develop a two-sector model with heterogeneous agents, differentiated by gender and skills, to quantitatively assess the impact of sectoral demand shifts on labor allocations. The findings suggest that higher productivity growth in the service sector, where women tend to have a comparative advantage, has disproportionately reduced women’s employment compared to men’s. Rising educational attainment among women has partially mitigated this effect; the model predicts that if all women were high-skilled, their employment would nearly double. However, the findings emphasize that expanding the service sector alone is insufficient to reverse this trend and highlight the need for broader structural reforms.
Abstract: Using high-frequency household panel data from India between 2014 and 2022, this paper examines how electoral cycles influence consumption. Household consumption expenditure increases by 4 to 5 percent in the year preceding state elections, even after controlling for income and household fixed effects. The increase is concentrated in politically competitive districts, consistent with parties reallocating both formal transfers and informal resources toward electorally pivotal areas. The results provide micro-level evidence that elections generate temporary, politically induced fluctuations in consumption, linking electoral incentives to short-term changes in household welfare.
Abstract: This paper estimates the causal impact of electing educated political leaders on women’s labor market outcomes in India. To address the endogeneity of electoral preferences, I exploit quasi-random variation from closely contested elections between educated and non-educated candidates, using this as an instrument for the proportion of seats won by graduate politicians within a district. The findings indicate that districts with a higher share of graduate leaders experience greater female employment. A 10 percentage point increase in the proportion of graduate politicians—equivalent to electing one additional graduate leader in a district—is associated with a 1.2 percentage point rise in the likelihood of women participating in the workforce. This effect is driven primarily by rural areas, where there is a significant increase in women’s self-employment in agriculture. As a potential mechanism, I find that graduate leaders are more likely to invest in irrigation infrastructure, with this effect being particularly pronounced in states where net sown area constitutes a significant portion of total land. I find no evidence supporting alternative mechanisms such as improvements in basic amenities (piped drinking water, sanitation) or reductions in crimes against women.
Abstract: In this paper, an attempt has been made to look at four empirical issues that may be of interest to the fiscal policy in India and especially to the 15th Finance Commission: what has been the impact of higher devolution of Central taxes to the States on overall economic growth, fiscal balance and other indicators? What could be the impact of changes in external conditions on the macroeconomic prospects? What mix of expenditure policies would allow the Indian economy to achieve higher growth and fiscal consolidation? And finally, can India achieve the medium term target of US$ 5 Trillion by 2024-25? To address these issues, this paper uses a modified NIPFP-macroeconomic policy simulation model for the Indian economy. Higher devolution share to the States, vis-à-vis the baseline scenario, causes economic growth to be marginally lower by 0.4% for the period 2015-20 (14th Finance Commission period) on an average and by 0.3% over the projection period 2020-2025 (15th Finance Commission period). It is also found that an expenditure switching strategy in favour of capital expenditure (by more than 1% of GDP) with the centre assuming the greater share of the increase, and reduction in revenue deficit to GDP makes it possible to combine high growth (8%) with fiscal consolidation that brings down the general Government’s liability to GDP ratio to 60 per cent by the end of 2024-25. With greater public investments and its complementarity with private investment, the target of $5 trillion economy by 2024-25 may be achievable. The analysis also suggests that distribution of debt targets between Centre and States in the proposed FRBM roadmap may need to be revised.