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Tuesday, February 12, 2008

Two interesting documents from the IMF

The IMF released two documents on 4 February: India: 2007 Article IV Consultation, and India: Selected Issues.

Selected Issues

While a quick search on the IMF website shows many `Selected Issues' documents, I had not noticed this product type earlier. It turns out to be a small edited book containing seven papers about India:

  1. Competitiveness and Exchange Rate Policy by Hiroko Oura, Petia Topalova, Andrea Richter-Hume, and Charles Kramer;
  2. Challenges to Monetary Policy from Financial Globalization: The Case of India by Charles F. Kramer, Helene K. Poirson and A. Prasad;
  3. Monetary Policy Communication and Transparency by Helene K. Poirson;
  4. Financial Development and Growth in India: A Growing Tiger in a Cage? by Hiroko Oura and Renu Kohli;
  5. Developing the Foreign Exchange Derivatives Market by Andreas Jobst;
  6. Inclusive Growth by Petia Topalova;
  7. India's Social Protection Framework by Andrea Richter Hume.

Of these, three stood out for me.

It has been previously noted that the RBI fares very badly in international comparisons of central bank transparency. Further, while central banks worldwide have improved over the last decade, RBI has stagnated. The paper by Helene K. Poirson is an outstanding how-to manual on how RBI's transparency can be improved. It is sensible, well written and immediately actionable. It reviews the recent difficulties of monetary policy from the viewpoint of communication strategy, and draws on these episodes to propose solutions. I hope RBI is able to implement all this right away. Everyone interested in Indian monetary economics should read this article.

The paper by Hiroko Oura and Renu Kohli was also most interesting to me. There is a vast literature based on the CMIE firm-level database; this one stands out as obtaining interesting answers to interesting questions. Specifically, it sheds light on the areas where the Indian financial sector does or does not deliver the goods in terms of financing of firms.

The paper by Jobst on currency derivatives is an excellent policy paper, one that is particularly timely given that RBI is presently engaged in trying to ensure that a currency futures market does not succeed.

Article IV Consultation document

I am generally cynical about Article IV documents. Too often, they are suffused with bureaucratic triumphalism, with sentences of the form ``Under the steady guidance of the great leader, the peasants and workers reaped a glorious harvest''. The IMF is forced to praise India's deft handling of macroeconomic policy in every alternate paragraph. If your tastes run to `ruthless truth-telling', the result of the Article IV process is often not interesting.

However, this time, the document is well worth reading, particularly if you're able to ignore the platitudes. It gives the reader a good grip of the overall macroeconomic situation, and a sound perspective on the difficulties of both fiscal and monetary policy. It struck me that there isn't an Indian effort of this genre out there.


  1. Dr.Ajay,

    Just to ping that
    "India: Selected Issues" link :

    is not working.

    L&T, Powai


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