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Purpose This paper aims to scrutinize the asymmetric interactions between current account deficit and gross fiscal deficit in case of a growing and dynamically integrated economy, namely, India featured with high inequality and liquidity constraints. Two additional variables, trade-openness and output growth, are also incorporated into the analysis to assess their likely impact on the current account balance. Design/methodology/approach The study uses a recently developed non-linear autoregressive distributed lag model given by Shin et al. (2014) in its empirical examination. In addition, non-linear cumulative dynamic multipliers are used to understand the route between disequilibrium position of short-run and subsequent long-run equilibrium of the system. Findings The study confirms the long-run co-movements of current account deficit and gross fiscal deficit and therefore refutes the Ricardian Equivalence proposition and validates the twin-deficit hypothesis. But instead of a linear relationship of the kind examined in the previous studies, the two variables share asymmetric linkages – both in the short run and in the long run. The asymmetry indicates that positive changes are more influential than their negative counterparts in the short run, whereas in the long run, only the positive changes are found to alter the external balance statistically. The asymmetric impact of fiscal deficits on the current account balance of a country may arise due to its asymmetric impact on aggregate demand through consumption inflexibility (ratchet effect) and the existence of liquidity constraints. The other control variables used in the study are also found to have cointegration with the current account deficit, but the relationship is symmetrical in the long run, even though it is asymmetrical in the short run. The study finally uses the asymmetric cumulative dynamic multipliers to examine the route of asymmetries and adjustments over the course of time. The dynamic multipliers also confirm the results documented in the earlier part and therefore demonstrate their robustness. Practical implications The asymmetric results obtained in the study provide strong grounds to devise the policies adaptive to changing arenas in domestic and external sectors. Output growth, export promotion and import substitution, increasing integration and fiscal austerity are seen as helpful in achieving a desired (and growth conducive) external balance together with macroeconomic stability. The need for a prudent fiscal policy and avoidance of profligacy is indicated based on the asymmetric results to ward off any unfavorable impact of fiscal deficits on external account. To conduct a sound fiscal policy, the government needs to cut down unproductive consumption expenditure, raise tax revenues and should pay attention to distribution and trickle-down effects to avoid the adversity of high inequality and liquidity constraints in the economy. Moreover, to ameliorate the current account balance, policies aimed at increasing the real competitiven...

Applying an asymmetric model, the study reported no evidence of J-curve phenomenon in case of India. In the short-run currency appreciation deteriorates the trade balance and currency depreciation improves it. In the long-run, again the similar response is observed, however, only the impact of currency depreciation is statistically significant. Increase in domestic demand deteriorates the trade balance by a greater magnitude than improvement is observed due to the decline in domestic demand conditions. Finally, foreign demand hike improves the trade balance relatively by a higher magnitude; however, the impact of a foreign demand decline is statistically insignificant. JEL Codes: F4, F41, F42

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Purpose This paper aims to measure the state-level energy efficiency in Indian paper industry and simultaneously explain inter-state variation in efficiency by inefficiency effect model. Three variables, labor productivity, capital intensity and structure of paper industry, are included in inefficiency effect model to assess the likely impact on energy efficiency. Design/methodology/approach Sub-vector input distance function is derived through neo-classical production function which provides measures to estimate energy efficiency. Assuming a translog production function specification, energy efficiency is estimated by using Battese and Coelli (1995) stochastic frontier analysis (SFA). The authors also estimated four other SFA models, and energy efficiency from all the models is compared for robustness checking. Findings The results show the existence of a vast potential to improve energy efficiency. Inefficiency effect model reported a positive impact of structure of the industry and capital intensity on energy efficiency performance, while labor productivity does not have any significant impact on energy efficiency. There exists considerable energy efficiency variation among states. Uttarakhand, Punjab and Orissa are the best performing states while Rajasthan, Jharkhand and Goa have worst energy efficiency performance based on average efficiency. The ranks assigned to states according to inefficiency effects model are found contrary to the simple measure of energy efficiency, i.e. energy intensity. Thus, energy intensity may not always be a good proxy for underlying energy efficiency and need to be compared with a comprehensive possible measure. Originality/value To the best of the authors’ knowledge, this is the first study which measures energy efficiency of Indian paper industry through stochastic frontier model using region-level data. Instead of relying on traditional energy efficiency indicators (energy-output ratio), total-factor energy efficiency approach is used to conduct the empirical exercise. Deviations from the frontier because of factors beyond the scope of producers are also incorporated into analysis to portray the magnitude of random factors in influencing the efficiency performance.

Purpose Because of growing energy consumption and increasing absolute CO2 emissions, the recent calibrations about the environmental sustainability across the globe have mandated to achieve the minimal energy consumption through employing energy-efficient technology. This study aims to estimate linkage between simple measure of energy efficiency indicator that is reciprocal of energy intensity and total factor productivity (TFP) in case of Indian paper industry for 21 major states. In addition, the study incorporates the other control variables like labour productivity, capital utilization and structure of paper industry to scrutinize their likely impact on energy efficiency performance of the industry. Design/methodology/approach To derive the plausible estimates of TFP, the study applies the much celebrated Levinsohn and Petrin (2003) methodology. Using the regional level data for the period 2001-2013, the study employs instrumental variable-generalized method of moments (GMM-IV) technique to examine the nature of relationship among the variables involved in the analysis. Findings An elementary examination of energy intensity shows that not all states are equally energy intensive. States like Goa, Rajasthan, Jharkhand and Tamil Nadu are less energy intensive, whereas Uttar Pradesh, Kerala, Chhattisgarh, Assam and Punjab are most energy-intensive states on the basis of their state averages over the whole study period. The results estimated through GMM-IV show that increasing level of TFP is associated with lower level of energy per unit of output. Along this better skills and capacity utilization are also found to have positive impact on energy efficiency performance of industry. However, the potential heterogeneity within the structure of industry itself is found responsible for its higher energy intensity. Practical implications States should ensure and undertake substantial investment projects in the research and development of energy-efficient technology and that targeted allocations could be reinforced for more fruitful results. Factors aiming at improving the labour productivity should be given extra emphasis together with capital deepening and widening, needed for energy conservation and environmental sustainability. Given the dependence of structure of paper industry on the multitude of factors like regional inequality, economic growth, industrial structure and the resource endowment together with the issues of fragmented sizes, poor infrastructure and availability and affordability of raw materials etc., states should actively promote the coordination and cooperation among themselves to reap the benefits of technological advancements through technological spill overs. In addition, owing to their respective state autonomies, state governments should set their own energy saving targets by taking into account the respective potentials and opportunities for the different industries. Despite the requirement of energy-efficient innovations, however, the cons of technological advancements and the legal frameworks on the employment structure and distributional status should be taken care of before their adoption and execution. Originality/value To the best of our knowledge, this is the first study that empirically examines the linkage between energy efficiency and TFP in case of Indian paper industry. The application of improved methods like Levinsohn and Petrin (2003) to derive the TFP measure and the use of GMM-IV to account for potential econometric problems like that of endogeneity will again add to the novelty of study.

Purpose Among the many factors fueling the inflationary tendencies in an economy such as monetary shocks, structural shocks, demand shocks, external shocks and demographic changes, the issue of inflation (INF) has also been found to be related to fiscal policy decisions of the government. The purpose of this study is to investigate the inflationary tendencies in India particularly from the fiscal point of view. The study also examines the influence of other potential determinants such as output growth rate, interest rate, trade-openness (TO) and oil price inflation (OPI). Design/methodology/approach To examine the dynamic nature of association between fiscal deficit and inflation, the study applies the Toda-Yamamoto (1995) test and Breitung and Candelon (2006) test to investigate the nature of causality in time and frequency domain frameworks. In addition, to scrutinize the possibility of a long-run association, that too from an asymmetric point of view, the study applies a Non-linear Autoregressive Distributed lag model (NARDL) given by Shin et al. (2014). Finally, non-linear cumulative dynamic multipliers are used to trace the traverse between disequilibrium position of short-run and subsequent long-run equilibrium of the system. Findings The authors found a unidirectional causality from fiscal deficit to inflation in case of time domain analysis and no feedback causality is reported. However, in case of frequency domain design, causality from fiscal deficit to inflation is found at low frequencies only, i.e. no short-run causality is established and hence dynamic nature of the relationship between the two variables is vindicated. Using NARDL model, the results document the existence of an asymmetric long-run direct association between fiscal deficit and inflation. However, an increase in deficit is found to be more inflationary and a decrease affects the inflation with a lower magnitude. The asymmetric impact of fiscal deficit on inflation can be explained through the existence of liquidity constraints, consumption-investment downward inflexibility and the downward price stickiness. Contractionary monetary policy action is found to be more effective than an expansionary one, signifying the asymmetric influence of monetary policy actions on the inflation of India. Similarly, in a supply-constrained economy with downward price rigidity, the authors found an asymmetric impact of output growth and output decline on inflation. As regard to the trade-openness, although an asymmetry is reported, the signs refute the validation of Romer (1993) hypothesis. Finally, the impact of oil price inflation on the inflationary pressures is according to theory but the coefficients are devoid of statistical significance. Practical implications These results indicate some important policy recommendations. Fiscal consolidation strategy should be executed in an appreciable manner to achieve the sound fiscal health and lower INF. The disciplined fiscal strategy would also be imperative for an effective monetary policy. Monetary authorities should possess noticeable credibility to manage the macroeconomic system and policy stances should be implemented according to requirements of the economy. Growth in output should be encouraged to have two-fold benefits to the economy – reducing INF on the one hand and fiscal deficits on the other. Originality/value The study contributes to the existing literature in the following ways. First, taking note of dynamic nature of the relationship between these two variables, the study examined the deficit INF nexus in a dynamic and asymmetric framework. The novelty of the study is ensured by the very nature of it is the first study in case of India to identify the fiscal INF in an asymmetric configuration. The authors applied a NARDL model, given by Shin et al. (2014) to examine the existence of any cointegrating relationship in an asymmetric paradigm. Second, the nature of causality between fiscal deficit and INF has been examined in a time domain and FD framework to portray precisely the casual interactions between these two variables in the short-run and long run. The study will, therefore, enrich the existing literature along the asymmetric lines.