ABSTRACT
This chapter addresses the issues and seeks quantitative answers in a macroeconomic theoretical framework for India. The tool of counter factual policy simulation is used for this purpose. The chapter discusses the work by Murty and Soumya wherein they attempted to build a small macroeconometric model for India using the absorption approach of Pollak. The economy is divided into four sectors: Agriculture including allied activities; manufacturing including mining and quarrying; infrastructure including electricity, gas, water supply, construction, transport, storage and communication; and services including trade, financing, insurance and public administration. In the case of head count ratio, rate of inflation, rate of interest and trade balance, the impacts are changes in level, rates of change. The exogenous variables world real income, world export price, unit value of imports, import tariff rate and India-US bilateral nominal exchange rate, all appear in the external trade block of the macro model.
