It is clear that the government has not, to date, been able to present an analytical framework to address the exacerbation of the structural downturn in economic growth caused by Covid. Inappropriate legacy analytics have hobbled the government’s ability to mount an effective response to the situation.
The language and grammar of most macroeconomic policy in India is based on business cycle theory. Simply put, there is a trend growth rate with ups and downs —variations around the trend. This is captured by empirically constructing a polynomial that is stochastically robust to econometric testing. Policy seeks to be “counter-cyclical”. Alternatively, “output-gap”
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