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New issues in Indian macro policy


  • Shah, Ajay

    () (National Institute of Public Finance and Policy)


Macroeconomic policy thinking in India has been rooted in an environment with five key parameters: agricultural shocks rather than a conventional business cycle, a closed economy, deeply distortionary tax policy coupled with a fiscal crisis, financial markets that lacked speculative price discovery, and a monetary policy shaped by deficit financing. This environment has been completely altered through India's integration into the world economy, the rise of one financial market (the equity market), the reduced importance of the monsoon, the rise of conventional business cycle dynamics, a partial abatement of the fiscal crisis and a monetary policy environment with loss of autonomy owing to exchange rate pegging. These changes call for a rethink of the macroeconomic policy framework. The agenda of assuring fiscal stability needs to be seen to its conclusion. Monetary policy and fiscal policy need to be converted into tools for macroeconomic stabilisation.

Suggested Citation

  • Shah, Ajay, 2008. "New issues in Indian macro policy," Working Papers 08/51, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:08/51
    Note: Working Paper 51, 2008

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    References listed on IDEAS

    1. Ananthakrishnan Prasad & Adarsh Kishore, 2007. "Indian Subnational Finances; Recent Performance," IMF Working Papers 07/205, International Monetary Fund.
    2. Norbert Janssen & Charles Nolan & Ryland Thomas, 2004. "Money, Debt and Prices in the UK 1705-1996," CDMA Working Paper Series 200407, Centre for Dynamic Macroeconomic Analysis.
    3. M. S. Mohanty & Marc Klau, 2004. "Monetary policy rules in emerging market economies: issues and evidence," BIS Working Papers 149, Bank for International Settlements.
    4. Rajaraman, Indira, 2004. "Fiscal restructuring in the context of trade reform," Working Papers 04/7, National Institute of Public Finance and Policy.
    5. Ila Patnaik, 2003. "The Consequences of currency intervention in India," Indian Council for Research on International Economic Relations, New Delhi Working Papers 114, Indian Council for Research on International Economic Relations, New Delhi, India.
    6. Vijay Joshi, 2003. "India and the Impossible Trinity," The World Economy, Wiley Blackwell, vol. 26(4), pages 555-583, April.
    7. Elena Glinskaya & Michael Lokshin, 2007. "Wage differentials between the public and private sectors in India," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(3), pages 333-355.
    8. Rao, M. Govinda, 2005. "Tax system reform in India: Achievements and challenges ahead," Journal of Asian Economics, Elsevier, vol. 16(6), pages 993-1011, December.
    9. Edward Nelson, 2004. "The U.K.’s rocky road to stability," Monetary Trends, Federal Reserve Bank of St. Louis, issue Oct.
    10. repec:npf:wpaper:07 is not listed on IDEAS
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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Structural transformation and stylised business cycle facts
      by Ajay Shah in Ajay Shah's blog on 2013-05-18 11:13:00


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    Cited by:

    1. Ajay Shah & Ila Patnaik, 2010. "Managing Capital Flows: The Case of India," Chapters,in: Managing Capital Flows, chapter 9 Edward Elgar Publishing.
    2. Eswar S. Prasad, 2009. "India’s Approach to Capital Account Liberalization," Working Papers id:2043, eSocialSciences.
    3. Prasad, Eswar S., 2009. "Some New Perspectives on India’s Approach to Capital Account Liberalization," India Policy Forum, National Council of Applied Economic Research, vol. 5(1), pages 125-178.
    4. Rajeswari Sengupta, 2015. "The Impossible Trinity: Where does India stand?," Working Papers id:6659, eSocialSciences.
    5. Hutchison, Michael M. & Sengupta, Rajeswari & Singh, Nirvikar, 2013. "Dove or Hawk? Characterizing monetary policy regime switches in India," Emerging Markets Review, Elsevier, vol. 16(C), pages 183-202.
    6. Aizenman, Joshua & Sengupta, Rajeswari, 2011. "The financial trilemma in China and a comparative analysis with India," MPRA Paper 34485, University Library of Munich, Germany.
    7. Paunic, Alida, 2009. "I did it my way," MPRA Paper 17547, University Library of Munich, Germany.
    8. Prachi Mishra & Peter J Montiel & Rajeswari Sengupta, 2016. "Monetary Transmission in Developing Countries; Evidence from India," IMF Working Papers 16/167, International Monetary Fund.
    9. repec:pra:mprapa:39771 is not listed on IDEAS

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