Articles by Arvind Subramanian

To assess whether the Reserve Bank of India is overcapitalised, two approaches are employed. First, the methodology and risk tolerance parameters used by major central banks are applied to the RBI’s balance sheet. Second, a simple cross-country econometric framework relating optimal capital to its possible determinants is used. Both suggest (conservatively) that the RBI has substantial excess capital—in excess of ₹4.5 lakh crore—which could be profitably deployed elsewhere, not for financing general government operations or the deficit but, for example, to recapitalise the public sector banks conditional on them being reformed. 

This paper is the first attempt at examining the growth performance across Indian states during 2001-09, a period also marked by the global financial crisis. We report four key findings. First, consistent with the fact that the decade was the best one for Indian macroeconomic performance, growth increased across almost all major states in 2001-09 compared to 1993-2001. Second, nevertheless, we continue to see the phenomenon of divergence or rising inequality across states: on average the richer states in 2001 grew faster in 2001-09. Third, during the crisis years of 2008 and 2009, states with the highest growth in 2001-07 suffered the largest deceleration. Since high growing states were also the most open, it seems that openness creates dynamism and vulnerability. Finally, although the demographic dividend - a young population boosting economic dynamism - was evident before 2000, there is little evidence that there was any dividend in the 2000s. Demography alone cannot be counted on for future economic growth.

Industrial countries have never been sympathetic to India's idea of controlling carbon emissions based on per capita targets. They prefer targets based on reductions in total emissions by developing countries, comparable or equivalent to those undertaken by them. This paper offers a new approach that tries to bolster the case for a per capita emissions approach by distinguishing the co2 emissions intensity of production and consumption from energy use per capita. It also outlines some projections that could lead to a reasonable emissions trajectory for India and one that is consistent with global efforts at addressing climate change. Looking at the role of trade in climate change, it concludes that the outcome will be messy if the trading system is burdened with the task of settling environmental problems.

Ashima Goyal ("Avoiding Handicaps: Assessing Global Policy Advice for India", epw, 2 May 2009) in response to two papers "India and Bretton Woods II", and "Preventing and Responding to the Crisis of 2018" asserts that the arguments therein are inconsistent because the advice for international policy is in contradiction with the guidance for Indian domestic policy. No doubt there is a tension between both the articles, but there is no contradiction in the arguments and the policy proposals.

Looking ahead, the big macroeconomic policy question for India is whether or not it should emphasise greater self-insurance with a necessarily more cautious approach to capital market integration. The serious adverse impact of the current crisis should awaken India to the need for effective self-insurance in the future. If self-insurance becomes an important policy objective, the government will need to revisit its macroeconomic policy, including exchange rate management and capital account convertibility. Self-insurance calls for countercyclical policy - dampening flows and keeping the currency competitive - so that reserves can be built up during good times.