Blurb: Despite tall claims, the NREGA program is just a dud as most other “in the name of the poor” expenditures – and as much of a dud as predicted by Rajiv Gandhi.
A decade or so ago, Booker prize winner Ms. Arundhati Roy claimed that the building of dams in India had displaced more than 50 million people. This implied that one out of every three rural Indians had had to move because of the construction of dams (remember the population was a lot lower when most of the dams were built in the 1950s, 1960s and 1970s). Upon closer examination, it turned out that the number of people displaced was more than a tenth lower, with the likely estimate around 3 million.
It is poetic and novelist license to indulge in hyperbole; it is quite another matter when official agencies of the government do the same. And especially in the good governance era of 2010 and beyond. The latest report of the Ministry of Rural Development, (the one in charge of implementing the National Rural Employment Guarantee Act , NREGA) makes an Arundhati Roy like claim: that as of Dec. 2009, 43 million households had been provided with NREGA employment in 2009/10. The last quarter of the fiscal year is the largest for such employment : around a third of total NREGA jobs. The projected employment for 2009/10 is likely to be close to 50 million households. There are about 150 million rural households; this Congress claim is the same as Ms. Roy: one out of every 3 households in rural areas will have worked on NREGA! Even more remarkable – the jobs are meant to be hard work, menial, at minimum wages and for the poor. In 2004/5, official estimates place rural poverty in India between 20 to 25 percent. Assuming no improvement in poverty at all – an extraordinary accomplishment for a government that prides itself on inclusive growth – 22.5 percent poor households mean 34 million. So the government is claiming that every poor household is covered, and for good measure, 50 percent more are provided employment.
This superlative achievement is credited by many – both within the Congress and the Opposition – for Congress’s surprise win in the 2009 elections. Some of us had predicted such a win, but without recourse to this super weapon of opposition destruction. It was because we had not looked at the government data. In 2006/7, the first full year of implementation, the government claimed to have provided employment to 21 million households. In the space of just three years, the government is claiming to have increased jobs for the poor to 50 million. No wonder the Congress won, and won so emphatically. The poor just love the Congress, because it has stood tall for them.
But has it? It was not so long ago that Rajiv Gandhi had stated that he had found well meaning programs meant for the poor but not reaching the poor. Without much scientific basis, he came out with the assertion that only 15 percent of the expenditures meant for the poor actually reached the poor. Experts who have tried to test this assertion have found more truth in that statement than almost any other forecast of an economist, defunct or otherwise.
There is a way to test the veracity of Rajiv Gandhi’s prediction, and the Congress governments’ claim on reaching the poor. In 2006/7, in the 63rd round of the all India NSS survey, a special question was asked of those above the age of 15: did you work in a public works program during the last 365 days, what wage did you get and how many days did you work. These answers are reported in the Table along with the statistics from the Ministry of Rural Development. The latter are for the period April 2006 to March 2007; the NSS figures are for the period July 2006 to June 2007. To the extent the rapid expansion of NREGA is true, the NSS figures are an over-estimate of the “true” financial year figures.
The first figure of note is the fact that NREGA was not able to spend all the money allocated for it; indeed, it spent less than three-fourths of what was allocated. Of course, those were early days of the program, but even in 2008/9, when allocations reached Rs. 30,000 crores, the NREGA authorities were able to spend only 73 percent. The Ministry claims only Rs. 8823 crores were spent in 2006/7, and two-thirds of this amount (Rs. 5842 crores) was spent on wages. The rest are administrative costs, capital equipment, etc. i.e. Rs. 3250 crores were spent to facilitate expenditures. But was this money ostensibly spent as wages – Rs. 5842 crores –received as wages by NREGA workers? According to the NSS, only half of the expenditures allocated as wages was received as wages – Rs. 3000 cores received vs. Rs. 5842 crores meant to have been received. Even less went to the target poor worker. The NSS reports that NREGA wages received by the poor were only Rs. 1270 crores.
Let us ponder on this figure for a little while. The government announces with much fanfare that it is spending a lot to fight hunger, poverty, injustice and inequality. Despite repeated evidence for the last twenty years that “in the name of the poor programs”, and especially in the name of the poor programs, reach everybody but the poor, the well-meaning socialist but not so realist Congress renamed and expanded existing food for work programs under its own Congress brand as NREGA, and now MREGA. (Ironically, but poetic justice style, the latter acronym also means “to die”!). It spends Rs. 8823 crores on the program in 2006/7 (and Rs. 39000 crores in 2009/10) and is able to actually deliver only 14.7 percent (Rs. 1270 crores) to the targeted audience?! The figures suggest that Rajiv Gandhi, the enlightened pragmatic realist, was extraordinarily right.
Table 1: Testing NREGA Achievements - 2006-07
Ministry of Rural
NSSO
Development (MRD)
Actuals
Index
Actuals
as % of
as % of
(** = 100)
MRD*
MRD**
1. NREGA Financial Data (in Rs. Cr.)
Total funds available
12073
137
Funds Utilized (MRD - **)
8823
100
Funds Utilized as Wages (*)
5842
66
3000
51
34
-- Wages on Poor
1270
Rajiv Gandhi Index
(% of funds reaching the poor)
21
14
Average Wage, per day per person (In Rs.)
90.00
Average Wage per day per household (In Rs.)
65
65
2. NREGA Physical Data
No. of households (in Cr.)
2.1
1.7
No. of workers (in Cr.)
2.4
Person days (in Cr.)
90.5
46.5
Person days per household
43
27.2
Person days per worker
17.5
Note
1) Poor Identified in NSSO 63rd round, 20006-07, according to monthly per capita expenditures being below the
official 2004-05 poverty line for different states and extrapolated for 2006-07 according to the rise in the CPIAL index.
The author is Chairman of Oxus Investments, an emerging market advisory and fund management firm. Please visit www.oxusinvestments.com for an archive of articles et; comments welcome at surjit.bhalla@oxusinvestments.com
Two important issues face the Indian economy, and stock market, today. First, what happens to the value of the Chinese currency? Second, what does the RBI do in its monetary policy meeting next month?
Perhaps, the most important long-term issue facing the world policy makers is the value of the Chinese yuan. By several accounts, it is a deeply undervalued currency, and my estimate is that it is undervalued by upwards of 60 percent. This cheapness from a currency backed by close to 800 million workers is a problem, for the workers and the world. The Chinese workers because they get paid considerably less than the wage that would prevail if the currency was not kept undervalued by the Chinese authorities; the world because workers in other countries lose jobs, or obtain lower wages because the Chinese worker gets too low wages, relative to her productivity. One consequence of this long running undervaluation saga was the financial crisis that the world experienced in 2008; the other side of cheap sub-prime loans in the US was the “cheap” availability of finance for the lender, the Chinese government. It is an easy call to make that if the Chinese refuse to undertake structural reform of the foreign exchange value of their currency, and system, the world is in for considerable turbulence. And India will have to take part in this turbulence.
The second major reason for being distinctly uncomfortable is the much hyped inflation-growth trade-off discussion in India. The recent WPI inflation numbers point to near double-digit inflation. But inflation as measured by the WPI. According to the CSO estimates of GDP deflator inflation in India for 2009/10, the number stands at 3.7 percent, and almost all of the inflation is due to food. The numbers are easy to grasp. Food constitutes 25 percent of GDP in India and food inflation has been around 10 percent. Add inflation due to “government and community services”, which has been high due to the Pay Commission awards, and one obtains the entire inflation experienced over the last year.
So is there an inflation problem in India? Many analysts think so. These experts argue that now inflation is feeding through to non-food items. Going forward, this is manifestly going to be the case. It would be a most unusual reality if non-food items did not show an inflation trend of around 3 to 5 percent over the next fiscal year. The big question is what will food inflation be over the next year? With a normal monsoon, a reasonable guess is that such inflation goes nowhere and hugs close to the zero line. Procurement prices for rice and wheat are extremely unlikely to move; they will not go down, and barring a mega-shock, are unlikely to go up. Which means that overall inflation will be around 2 to 4 percent, one of the lowest India has ever experienced, along with 2009/10, a year with close to the lowest ever GDP deflator inflation, at least since 1980. So two years with the lowest GDP deflator inflation in the modern era does not, in my mind at least, constitute an inflation problem, let alone the hyped high inflation problem.
If the first event materializes i.e. movement of the Chinese yuan upward, this itself will be a (mild) deflationary (strictly, a lower rate of inflation) force in India and a not so mild deflationary force in China. If it doesn’t, inflation in India is headed southward in WPI and CPI, and flat in terms of the GDP deflator. So is there an inflation-growth trade-off in India? No. Should the RBI hike interest rates at its meeting next month? No. Should the CRR be raised? Yes, just to send the signal that the RBI is monitoring the inflation situation very closely.
The author is Chairman of Oxus Investments, an merging market advisory and fund management firm. Please visit www.oxusinvestments.com for an archive of articles et; comments welcome at surjit.bhalla@oxusinvestments.com
Blurb: It is difficult to imagine a worse “in the name of women” legislation anywhere in the world. Tragically, it is likely to slow down progress towards equality in India.
Amidst much obsequious and self-indulgent fanfare, the Congress party was able to push through the Women’s Bill in the Rajya Sabha. One reason for the inordinate hurry was the fact that constitutional policy change in India is now being made with a firm eye on the international newspapers and magazines. It was a set-up. The 100th anniversary of Women’s Day, and our policy makers want to see their picture on the front page of the NY Times, or better still, the cover of The Economist. It was easier in the olden days when all people wanted was to “see my smilin’ face on the cover of the Rolling Stone”. (Youngsters, check Google for the Dr. Hook song). Thankfully, a Lok Sabha test awaits, so there is time.
From the introduction of the birth control bill some fifty years ago to today, the world has come a long way. The remarkably changing world order, where women are playing the same role as men used to. Much has been accomplished, and while it is politically and femininely correct to say that much remains, that ain’t so. Yes, some distance remains, but that does not give license for men, and institutions, to pass absurd legislation. Especially if a simple solution is in sight.
In typical Indian Constitution style (time to rewrite the Constitution – with more than 100 amendments in a short space of 60 years, none of us know what is the basic law, and what is man’s interpretation, and what is his re-interpretation) the Bill relies on quotas – read that for extreme lack of intelligence. It is so so India of the licence raj; set quantities. So the Bill says that one-third of all legislative positions in the country will be reserved for women candidates only. These legislative positions will be in all forms of government, from the Lok Sabha to the village panchayats, where it already exists.. Sounds simple and straightforward. The mistake is to assume that India, a country of 1.1 billion people, is a village. If it works in a village, it is bound to work at an all-India level. That is just not stupid, it is irresponsibly stupid.
As the men quaking dust has settled, the cracks are beginning to appear. First, at the national level, how are the women constituencies to be chosen? Are they to be frozen in time, as the quota reserved seats are for the SC/ST candidates, or are they to rotate. The latter, because there isn’t any quintessential woman constituency. So how are the women’s seats to be chosen? Oh, didn’t you know, by lottery. But, and amidst the mandatory references, and obsequious genuflections to all the vision and service the Nehru-Gandhi family has done for India, and continuing to do so, we are told that the party is open to suggestions.
So the Bill is as follows. One-third constituencies chosen by lottery for women only candidates. The lottery will mysteriously not touch certain constituencies – unless there is a national random TV drawing of the samples. The sitting candidate from the anointed constituency, man or woman, will have to go fish. But the Constitution requires residency, so are we going to change that part of the Constitution also? Why not – we have amended it more often than most people change their toothbrush.
Isn’t there a simpler way for achieving the worthwhile goal of equality? There is. Any recognized political party has to field in whatever election – Lok Sabha or municipal dog-catcher – at least one third females. End of policy. As simple as it can get. Now let us think of the implications. There can be an all woman party, but there cannot be an all man party. It can be the case that all the elected officials are women, it cannot be the case that all the elected officials are men. Far better, and far more equal, to give extra benefits to women today for equality tomorrow. By subscribing to laws like the women’s bill, all of us, women and men, are signing on to something that couldn’t, shouldn’t and wouldn’t happen.
So why are the women not demanding, signing up, for this deal? Surely if a constitutional amendment can be made, requiring clearance by both chambers, and ratification by 14 states, a simple agreement can be reached to field one-third female candidates? Because the women are smart, and the men dumb. With this law, women are guaranteed with 33 percent seats in parliament, a three-fold increase, and an increase guaranteed to stay forever. Oh, yes, there is the proviso that the parliament will look at the quota situation again in 10 years, but recall that reservations for SC/ST were meant to be reviewed every 10 years; instead, we have got quota after quota, with no end in sight. A sure 33 percent by law, rather than a hard-fought battle against the male order of only 10 percent at present? It’s a deal, say the smart women.
But maybe they are being too, too clever. They should know the Indian male who has kept them at a lower status than most countries in the world, including Bangladesh and Pakistan. The clever, chauvinist, cheating Indian male has most likely given them the Rajya Sabha bait. The law is unlikely to pass the Lok Sabha. The smarter men are likely to triumph. By not going for the simpler, fairer, solution, the Indian women, and women all across the world, and humanity, is the loser.
The author is Chairman of Oxus Investments, an merging market advisory and fund management firm. Please visit www.oxusinvestments.com for an archive of articles et; comments welcome at surjit.bhalla@oxusinvestments.com
Blurb: It is difficult to imagine a worse “in the name of women” legislation anywhere in the world. Tragically, it is likely to slow down progress towards equality in India.
Amidst much obsequious and self-indulgent fanfare, the Congress party was able to push through the Women’s Bill in the Rajya Sabha. One reason for the inordinate hurry was the fact that constitutional policy change in India is now being made with a firm eye on the international newspapers and magazines. It was a set-up. The 100th anniversary of Women’s Day, and our policy makers want to see their picture on the front page of the NY Times, or better still, the cover of The Economist. It was easier in the olden days when all people wanted was to “see my smilin’ face on the cover of the Rolling Stone”. (Youngsters, check Google for the Dr. Hook song). Thankfully, a Lok Sabha test awaits, so there is time.
Blurb: It is difficult to imagine a worse “in the name of women” legislation anywhere in the world. Tragically, it is likely to slow down progress towards equality in India.
Amidst much obsequious and self-indulgent fanfare, the Congress party was able to push through the Women’s Bill in the Rajya Sabha. One reason for the inordinate hurry was the fact that constitutional policy change in India is now being made with a firm eye on the international newspapers and magazines. It was a set-up. The 100th anniversary of Women’s Day, and our policy makers want to see their picture on the front page of the NY Times, or better still, the cover of The Economist. It was easier in the olden days when all people wanted was to “see my smilin’ face on the cover of the Rolling Stone”. (Youngsters, check Google for the Dr. Hook song). Thankfully, a Lok Sabha test awaits, so there is time.
Blurb: Our copycat analysts are asking for an interest rate hike just because there is talk of this in the west — never mind that Indian rates are higher than enough and all inflation is food-related.
There is talk of fiscal stimulus being removed in the Western world, and our copy cat analysts, bankers and experts (CCABE) regurgitate the same. There is talk of interest rates rising in the Western world, from near zero levels, and you guessed it, our CCABEs talk about the need to raise interest rates. Then there is a bailout for Greece, and the CCABE remind us that we have high fiscal deficits, and we need to get our act together, and cut fiscal deficits. But should expenditures be cut, or taxes be raised? Of course the latter, because as some even argue, efficiency of tax collection goes up with an increase in tax rates! And expenditures cannot be cut, because they are meant for the poor.
It is true that the world is a lot more synchronized today than it ever was. But co-ordination does not imply equality, let alone identity. The economic facts suggest that the CCAE recommendations are not only way off the target, but very likely, will also fail the test of time. In this article, the “no-brainer” CCABE case for raising interest rates will be examined.
Clues about what the repo rate in India should be are obtained by examining the data on real repo rates in developed and developing economies. Real (repo) overnight rates in the developing countries have been about 50 basis points higher than the developed countries; long term rates about 1 percentage point higher. The average real repo rate in rich countries – about 2 percent. So when CCAE argues for an increase in interest rates, what is it assuming about Indian inflation, and what is it assuming about the desired level of real rates?
Central to the calculation of the real interest rate is the inflation rate, and perhaps more accurately, the expected inflation rate. Defining, and especially measuring, the latter is the biggest mug game of all. The only recourse for policy makers (and analysts) is to gauge the trend in the overall inflation rate. Recognizing that food and energy prices are volatile, central bankers prefer to use the “core” inflation rate defined as inflation of all goods and services minus food and fuel inflation.
But, surely, this is inappropriate “for a country like India”. Food is an important part of consumption of the poor, so food inflation is important. Of course it is, which is why the UPA government’s failure to release foodstocks to help mitigate the rise in prices is all the more reprehensible. Today, we have to add the new “populist” decision to ban the production of BT brinjal. This must be the only time when the well meaning in the name of the poor and the environment NGOs were hand in hand with inefficient crony capitalist subsidy consuming fertilizer manufacturers, the major beneficiaries of the environment minister, Jairam Ramesh’s unfortunate “technical” decision.
The digression underlines the point that while food inflation hurts the poor more, it should not be made an excuse to hurt the poor even more by raising interest rates. It is imperative for central bankers (and even CCABE’s) to have appropriate policies to ensure potential growth and have low inflation. A recent paper by an RBI staff member, Deepak Mohanty, comprehensively shows that no matter what the definition of inflation (CPI, WPI, or the most comprehensive GDP deflator) the recent bout of inflation is all food. Excluding food, inflation has been negative. His analysis, however, only contains data till November 2009; the CCABE argument is that food inflation is spilling into non-food items and this means that the RBI should raise interest rates (and not because we are copy-cats).
The CSO has just released its estimate for GDP growth for India for 2009/10 and all the journalistic and expert copy has been oriented towards evaluating the GDP growth rate of 7.2 percent. What is remarkable, and relevant, for inflationary expectations and monetary policy is the estimate of (GDP deflator) inflation contained in the CSO calculations – only 3.7 percent for the full fiscal year 2009/10. Agriculture (food) and community, social and personal services (government) account for 31 percent of GDP and have a 9.3 percent inflation rate. The other 69 percent of GDP (do the math and also see the table) is expected to have an average inflation rate of less than 1 percent! It would be a sad day indeed if the RBI, goaded on by the CCABE’s, were to raise interest rates to counter near zero inflation. Both of the present inflation drivers are expected to be substantially less in the coming year (though nobody ever went broke overestimating the ability of the government to cause food inflation with plentiful stocks). Inflation in government services is due to the Pay Commission increase, and food inflation occurred because of ineptitude and drought. At least one contributor should be less next year.
What all this means is that food inflation is a problem, but not overall inflation. And overall inflation is likely to be between 3 and 4 percent next year, say 3.5 percent. A 50 basis point real repo rate in the developed economies (means that the FED and the rest of the developed world will raise rates by 250 basis points this year, an unlikely possibility) means a 100 basis point real repo rate in India, or a 4.5 percent nominal rate in India. And at 4.75 percent, we in India are already above this expected peak level for 2010.
The real reality is that interest rates in India, thanks to the great financial crisis, are not greatly above trend normal levels. The problem lies on the fiscal side, and within it, on wasteful, extravagant, populist and not benefitting the poor expenditure. More on this later.
Deepak Mohanty, “Measures of Inflation in India: Issues and Perspectives”, RBI, Jan. 2010
The author is Chairman of Oxus Investments and anchor of Tough Talk, a talk show on NDTV profit; please visit www.oxusinvestments.com for an archive of articles etc.
Make no mistake about it – the forthcoming Monetary Policy meeting of the RBI, Jan. 29th, is going to be significant, and at the risk of only a very mild exaggeration, one of the most important meetings of the last decade. There are two very important policy issues confronting monetary policy – higher than expected growth and higher than comfortable level of inflation. The text-book Indian answer to this set of facts is to raise interest rates. The big question is – is there need for the traditional approach?
Let us examine the two issues separately. First, economic growth. What the text-book says is that when growth is above potential, then policy should be tightened. (I am only talking about interest rates, and not policy tightening via raising the CRR). But is a GDP growth level above 7 percent above potential? It may have been so earlier, but for the last seven years, since 2002/3, GDP growth has averaged well above 8 percent, and it did so with minimal inflation for five of those years. As is well known, and even acknowledged by the hawks at the RBI, inflation in 2008 was mostly imported i.e. it had precious little to do with monetary policy. This year, overall inflation is even higher than last year. What is going on?
In a recent paper “Measures of Inflation in India: Issues and Perspectives”, Deepak Mohanty of the RBI, examines the various inflation indices available in India. He also calculates an inflation index excluding food - for the financial year 2009/10, this “core” inflation has averaged a minus 1.2 percent. If oil is excluded along with food, the average increases to 1 percent. In conclusion – inflation in 2009/10 cannot be regarded, by any reasonable stretch of the imagination, as a monetary phenomenon. That is not to say that policy changes should not be made by the government – it is only to state that a response to high inflation should not come from the monetary authorities.
So the joint conclusion is that growth is not above potential, and excess demand hasn’t been seen via the inflation data. If this is the reality, what should the RBI do? It should change course from its traditional mode of thinking and incorporate the following facts into its system. First, inflation in India, and in most parts of the world, is a global phenomena rather than something local monetary conditions can affect. Second, potential GDP growth in India is well in excess of 8 percent. A simple way to understand this is to appreciate the fact that investment rates have increased by about 16 percentage points (from 23 percent of GDP in 2002 and before to about 39 percent of GDP today). This is not inflation causing increase in consumption we are talking about, this is growth enhancing investment.
Third, and most importantly, real interest rates in India are too high. A comparative analysis of real long-term rates in India (prime lending rates) with countries in East Asia (our competitors) shows that real lending rates in India are higher by an average of 1.5 percentage points over the period 2002 to 2008. What the world financial crisis of 2008 did was to bring real interest rates in India down from their abnormally high levels. If analysts and policy makers think that just because real interest rates went down in 2009 they should now be brought up, then they are believing that (a) real interest rates need to be much higher in India than our competitors, and (b) that our potential GDP growth rate is south of 7 to 8 percent. Both these beliefs lack an economic or empirical basis. Hence, they should not be a basis for monetary policy.
In my view, the traditional approach to monetary policy in India is on the way out. Starting Friday, Jan. 29th 2009, we will begin to find out.
The author is Chairman of Oxus Investments, a New Delhi PMS (hedge fund) and emerging markets advisory firm; please visit www.oxusinvestments.com for an archive of articles etc.
Bis-mil-alHifazat, “I begin in the name of security”, has become the new slogan for a mindless, anything goes policy.
Just when it was safe to conclude that the Home Minister, Mr. P.C. Chidambaram, will go down in history as the best Home Minister India has had, along comes news that not one player from the champion T-20 team, Pakistan, has been chosen to play in the T-20 IPL (Indian Player League) tournament.
The official version of what happened is murky. The sports minister, Mr. M.S. Gill, claims that no directive was given to the Board of Control for Cricket in India, BCCI to introduce any such ban; the equally murky BCCI claims that there were both security concerns, and visa probabilities, with regard to the Pakistani players. So all the Pakistani players fell into the cracks and could not be recovered.
Given that the Sports Ministry does not know what is going on, and the Home Ministry is the holy security cow – don’t question, don’t ask – perhaps the Foreign Ministry will know what is going on. But this Ministry has been concocting visa laws for entering India that would shame both Goebbels and Kafka. The rules bar tourists from returning to India within two months of the first visit. There are two possible explanations for this pioneering policy (cannot find any other country that has tried this novel approach to fighting terrorism). The first explanation rests on the proposition that a prospective terrorist will be caught if she applies for a business visa. So a big step forward for Indian security. The would be terrorist will have no other option but to apply for a tourist visa. That the Ministry will grant. The expectation is that all tourists, sorry terrorists, first come to India a la Headley to reconnoiter and study the various angles of photography. Once they have “cased the joint” they will go back for more advanced planning. But the objective of preventing terrorism would have been achieved. We know that there won’t be an attack in the subsequent two months, don’t we? What happens if the terrorist returns after 2 months and 1 day?
The role of the Home Ministry in banning Pakistani players is not discussed in the newspapers, the Foreign Ministry, after doing all the work on the ideal visa policy is too tired to even think about communicating a new policy, let alone implementing it. Hence, it is not to blame for no Pakistani being selected since it did not communicate any orders to the IPL.
The buck then passes to the BCCI, a body not known for much else than making monopoly profits. Has anyone been to Ferozshah Kotla after its renovation? I have yet to go to a stadium in worse shape, and that too in the capital city, and built by the richest sports monopoly in the world. This arrogance was followed by preparing a disastrous pitch for a recent Test match, which was followed by the even bigger arrogance of not holding their subsidiary DDCA accountable.
The BCCI is blaming the government for giving it a shadowy signal regarding the probability of visas for the Pakistani players. But perhaps it was elements within BCCI who, for reasons of false patriotism (read reactionary prejudice) wanted to punish the Muslim Pakistanis. How could the BCCI lose by selecting the Pakistani players? There would have been no cost involved since contracts are subject to visas being obtained. Further, the Government’s bluff, of not interfering with IPL, would have been called. A check and balance on the arbitrary arrogance of the government would have been obtained.
Perhaps it was popular sentiment that did it. The politicians believe that after the terror attacks of last year, the popular public wants to punish all Pakistanis, regardless of race, color, or religion. Even if the public thinks that way, does it make sense for the government to cater to such base instincts? Another possible explanation for the actions of the government is that they are concerned about the safety of the Pakistani players, especially since Mumbai politicians have warned of possible attacks. We also have the Congress Chief Minister of Maharashtra flip-flopping over requirements of taxi-drivers in Mumbai. Just comprehend the magnitude of the CM’s statement. All taxi drivers in Mumbai will have to know the local language, Marathi. Now Mumbai is not another country. If the Congress gives in to domestic terror tactics, then what is to stop the Mumbai politicians from demanding that visitors to Mumbai, from other parts of India, have tourist visas and workers obtain work permits?
Could it be that the saga of the IPL selection is akin to the leaked letter from Jairam Ramesh to the PM, Manmohan Singh? That letter signaled a change in India’s approach to climate change, and it was speculated, at least in this column, that this was a near “perfect” way to change policy. The debate gets into the open, there are no hard feelings, and policy gets changed. This time around, everyone feigns ignorance, I didn’t do it, you didn’t do it but the dastardly deed gets done. So after circling around, we come to perhaps the responsible party – the ruling Congress regime.
The sad truth might be simple: this government is possessed with hubris; in simple English, unlimited arrogance. The decimation of the major opposition party BJP, the extinction of the fringe party Communists, has seemingly left Indians with the option of no one but the Congress. Hence, it can do what it wants. If there is a food shortage, don’t release the piled up stock of reserves which were created to counter just such an emergency. No matter if there is high food inflation, the people will still vote you in. If the Mumbai politicians object, give in to their extraordinary demands and threats. Have no logic in the policy on visas. If someone even dares to question anything that the Congress party and its leaders have done over the last sixty years, then censor them, even if it is a guarded comment by one of your ministers. And remember, there was no such person as Narasimha Rao, even though it was under his leadership that the country changed, and the policies of the government changed.
The author is Chairman of Oxus Investments and anchor of Tough Talk, a talk show on NDTV profit; please visit www.oxusinvestments.com for an archive of articles etc.
Blurb: Even if you raise the poverty line as much as the Expert Group does, it turns out that just 11 percent of Indians are poor, not 37 percent--- that is a huge poverty of estimation.
That the study of poverty is a major industry in India (and the World Bank) is a fact. Whether this is as it should be is another story. The Planning Commission of India, under the direction of its chief, Montek Ahluwalia, has set up an internal committee to recommend the future of the Commission i.e. whether it has outlived its original purpose, and what its new role in life should be. This is indicative of clear, forward thinking. A pity, therefore, that it comes on the heels of an old fashioned publication by the same organization “The Expert Group to Review the Methodology for Estimation of Poverty”, hereafter EGMEP.
The analysis of poverty can get controversial, and complicated. There is technical stuff involved, of the sort not suitable for a family newspaper. But in reality, the calculation of poverty is very simple. A person is poor if her real consumption is below the stipulated level of consumption deemed the poverty line. If so simple, then why the controversy and why the need for EGMEP and its volumes of publications?
The Expert Group on poverty misses out on two crucial developments: poverty in India is becoming relative and the existing method of measuring poverty is prone to large and inexplicable errors. Let us deconstruct the route taken by EGMEP to come out with its assessment that the fraction of people poor in India was not around 21 percent but close to double that amount at 37 percent. The major departure for EGMEP is to change the poverty line, and increase it by 16 percent for the urban areas and a whopping 36 percent for rural India. The motivation – because the earlier poverty line was not comprehensive enough (it did not include estimates for expenditures on health and education) and was pointing to lower rates of inflation than actually existed. On both counts, the EGMEP suffers from either a lack of appreciation of what a poverty line is, or myopia, or both.
A poverty line is just a level of consumption. How Ms. Sita chooses to spend this amount – on food, liquor, movies, or children’s education - is ultimately her choice. In the olden days (the one the Planning Commission has set up a committee to forget) the Planner decided what Sita should spend on, and thus arrived at a justification for the poverty line. As I have written elsewhere, the developing countries should, and must, raise the poverty line. This to account for the growth that has taken place since the poverty line was first constructed in the 1960s. Coincidentally, the average 26 percent increase recommended by the Expert Group in 2009 is almost identical to the recommendation contained in Bhalla(2003)*.
Rather than state the obvious fact that the level of consumption that was considered non-poor in 1960 should in 2010 be considered poor, the Expert Group goes about catching the poverty nose in a typically Indian way (by going behind the neck yoga style). The basket of the urban poor around the old poverty line is defined to be the “new normal poor”. By using residence of an individual as the basis for defining the poor, the EGMEP breaks new ground, is pioneering. It would have been simpler to just state that the absolute poverty line is being raised, period. Why would anyone object to that?
The convolutions that set in because of this desire to be technical (again, the details not suited for family consumption) lead the Group into avoidable errors. If they mention it once, they mention it twenty times: the CPI index for agricultural workers (CPIAL) has been understating inflation for rural workers; hence, one should use the internal price indices generated by the NSS surveys. The Group cites an important study by Prof. Deaton who showed that NSS inflation during 1999-2004 was 14 percent compared to the CPIAL figure of 11 percent. The Group fails to note that over the longer period, 1987-2004, the CPIAL was overstating inflation by 7 percent. Hence, that is a basis for lowering the poverty line by 7 percent rather than raising it by 3 percent – an error gap of 10 percent.
But these errors are minor compared to the most glaring omission of all – indeed, a deliberate commission. As is well known to the Expert Group headed by Prof. Tendulkar, until recently head of the Statistical Commission of India (where I served for 3 years as a member), the National Sample Surveys have been suffering from extreme inefficiency. The amount of national consumption captured by the surveys reached a nadir of 48.7 percent in the 2004/5 survey. This means that in the 2004/5 survey, 51 percent of the consumption in the economy – of wheat, fruits, vegetables, airline travel, Rolls Royce’s etc – did not accrue to the Ambani’s, you, me or the poor. This is a large dose of missing consumption.
According to the NSS survey, this missing consumption does not exist, was never there, is a fiction of your imagination. But it is there accruing to all households in the economy. And a detailed investigation (see Bhalla, Imagine…) shows that the NSS surveys underestimate consumption for all households, rich and poor, on an approximately proportionate basis i.e. consumption for all households needs to be increased by the same proportion, in order that the lower survey mean and the higher national accounts mean match. An example can help illustrate. Assume that the 1987 NSS survey was approximately right. In that year, the survey mean was only 71 percent of the national accounts mean. So 29 percent of total consumption was missing, and perhaps even accrued exclusively to the rich households. But we need to still allocate (71 – 48.7) 22.3 percent of total consumption. Proportionate adjustment would mean that all consumption be increased by the factor (71/48.7) 1.46. On a conservative basis, the multiplier for the poor is reduced by 10 percent, so instead of 1.46 it is 1.41. Note the extreme indulgence EGMEP shows for its perceived inflation error of 3 percent between 1999 and 2004. And there is no concern, not even a footnote mention, of the glaring error of at least 41 percent understatement in the consumption of the poor? Talk about missing the entire forest, and the trees as well.
What a difference the errors of omission and commission make to the poverty estimates is illustrated in the Table. Estimates of the head count ratio (HCR) of poverty are presented for the two different poverty lines. The big conclusions are as follows. First, a correct adjustment for inflation reduces the HCR by 3-5 percentage points (not raise it as believed by the Expert Group). Second, a conservative adjustment to the 1987 level of efficiency reduces national poverty to 5 percent. Since relative poverty is considerably more than 5 percent, there is a clear case for substantially raising the poverty line. But if this poverty line is raised as per the recommendations of EGREM, poverty in India is still only 11 percent. This suggests that the method of measuring poverty needs to be changed – maybe an appointment of a new Expert Group, and one less steeped in pre-ordained conclusions?
Bhalla, Surjit S (2002), Imagine There’s No Country: Poverty, Inequality and Growth in the Era of Globalization, Institute of International Economics, Washington.
Bhalla, Surjit S (2003), “Raising the Standard: The War on Global Poverty”, paper presented at an Initiative for Policy Dialogue conference, Columbia University, March 31-April 1, 2003; chapter in Anand, Sudhir, Paul Segal and Joseph Stiglitz, edited, Debates on the Measurement of Global Poverty, Oxford University Press, 2009.
The author is Chairman of Oxus Investment; all the past articles (and forecasts) are available on www.oxusinvestments.com .
Poverty in India, in percent of population, 2004-05
Rural
Urban
All India
Old poverty Line
1. NSS - Original
20.7
21.1
20.8
2. NSS-Inflation Adjusted
15.4
21.1
17.1
3.NSS-Consumption Measurement at 1987 Levels of accuracy
3.2
8
4.5
New Poverty Line - 36 % higher for rural India, 16 % higher for urban India
Expert Group estimate
41.8
25.7
37.2
1. NSS - Original
40.2
25
36.3
2. NSS-Inflation Adjusted
33.1
25
31
3.NSS-Consumption Measurement at 1987 Levels of accuracy
11.3
9.7
11
Notes: 1) Inflation adjustment means that the poverty line in rural areas matches internal NSS inflation; this is the recommendation of the Expert Group.
2) The “1987 level of accuracy” refers to the ratio of survey to national accounts mean consumption of 71 percent. This is taken as the “truth” implying that 29 percent of Indian consumption does not accrue to anybody, rich or poor. See text and Bhalla(2002,2003) for details.
3) Calculations of poverty are for the NSS 2004/5 survey, unit level data. The three assumptions yield the three estimates. The most preferred estimate is “NSS-Consumption Measurement at 1987 levels of accuracy”.
Blurb:The new decade will likely belong to India; when will this reality be recognized by Indians?
End of the year, end of the decade. Time for assessment, rumination, and forecasts. And if it is the year after the greatest financial crisis, what else can the forecast be about than GDP growth? Oh yes, it could be about climate, but after hope and Dopenagen, that assessment can wait.
Two key conclusions emerge about Indian GDP growth. First, that this growth is now at a plateau level of 8-9 percent. Second, that very soon, analysts and punters will have to change their Word documents to “India is the fastest growing economy in the world” rather than, “excepting China, India is the fastest growing economy”.
There are three separate reasons for this, all of which have been outlined numerous times before in these columns (and a detailed assessment was provided in Bhalla(2007)*). The reasons refer to the broad determinants of economic growth – capital, labor, and productivity. On the first, India is investing at the same rate as China (approximately 40 percent of GDP), on the second, India’s labor force growth is about 1.8 % per year faster than China, and on the third, China has outpaced India by about 2 percent per annum (for the last five years). Most of this outpacing has had to do with the deep and deeper currency undervaluation practiced by the Chinese authorities. Which led to two unsatisfactory outcomes: the great financial crisis of 2008, and now the largest and fastest growing polluter of the world. For how long will the international community stand idly by? Not very, and this is the first big forecast for the ensuing decade: China’s exchange rate will appreciate significantly starting 2010. How significantly? A first year appreciation to about 6 yuan per dollar from the present 6.8 level.
This scenario will have predicted effects – China’s GDP growth should moderate to a less polluting 8.5 percent in 2010 and then proceed on a declining trend for the rest of the decade. This will mean jobs for the rest of the world. The other side-effect of the China growth rate decline will be on carbon emissions. They too will decline, and allow China to reduce its carbon intensity of output to at least the world average. In stark contrast, India does not have pressure from the world community to mind its currency or its emissions. The productivity growth advantage of 2 percent a year that China presently enjoys will soon disappear leaving India with a GDP growth rate in excess of China, and in excess on a sustained basis.
I realize I am going out on a limb, because no one has even dared to project India to grow at even the same rate as China – and I am saying that India exceeds the China growth rate as early as 010 (as it happens, this is the exact year forecast in Bhalla(2007)). But I have good fortune on my side – my forecast of 8 % plus for Indian GDP growth for 2009/10 (made on April 18 2009, V – Shape of Things to Come, Business Standard) got an “endorsement” from India’s finance minister, Mr. Pranab Mukherjee when just yesterday he claimed Indian growth could top 8 % this fiscal year.
What Indian policy makers have not realized, and their counterparts around the world, especially China, do recognize, is that what international organizations say affects perceptions of the world, and affect our own negotiating positions. Take for example the assessment of poverty in India. We keep coming out with poverty lines and expert committee reports whose only terms of reference is to increase the rate or poverty to somewhere around 80 to 90 percent (why they don’t reach 99 percent poor is a mystery). China, on the other hand, refuses to let the Asian Development Bank even mention the word China in its poverty assessment report for all of Asia (presumably, China is situated in Europe). China does not ask for money for climate control, and Jairam Ramesh gets berated for sacrificing India’s interests by not begging for more aid.
As you mistakenly perceive yourself, so do others. For example, the IMF comes out with “respectable” forecasts of GDP growth for China but, low ball estimates for India. [Haven’t you heard - India has 50 percent poor, China does not have any poor]. The first low attempt by the hallowed (hollow?) institution was 4.5 percent GDP growth for 2009. Recognizing the error of its ways, the IMF has revised this forecast sharply upward to 5.4 percent. For 2010, the forecast is even higher at 6.4 percent; presumably, that comes with an admonition that the Indian economy is overheating.
The IMF is in Washington, and its thinking is still respected by many government officials. But one might justifiably ask, a la the Joker, “Why so Low” for India? In a revealing contrast, the IMF forecasts for China are a lot closer to reality, and at least 3 percentage points a year higher than those for India. And here am I, ordinary mortal, daring to contend that GDP growth for India will be higher. Goliath vs. David ?
But the IMF is in good company – in India. We have more than a smattering of the nattering nabobs of negativity (in homage to the recently departed William Safire) to supplement the dark IMF view. Most notably, practically everybody outside of Oxus, Ministry of Finance and the Planning Commission is targeting weak GDP growth for India (should make the poverty investors at the World Bank and the UN very happy). All of this was all too apparent on Nov 30th, when GDP growth figures for July-Sept. 2009 were released. The official estimate for year-on-year growth: 7.9 percent (Oxus’s seasonally adjusted annualized rate calculation: 11.5 percent). Most forecasters, (including the prestigious PM Council of Economic Advisers headed by former Central Bank Governor, C Rangarajan)) had an estimate of growth a full 2 percentage points lower at 6 percent. It is not easy to get a forecast that far off. Especially interesting was the excuse made by most for getting it all wrong – Oh, the drought effects of the summer Kharif crop were not factored in. But the last time the Kharif crop got harvested by September was in historic cooler climes of a few hundred years ago.
This has been a structural change decade for India. Sadly, this reality hasn’t quite seeped into the psyche and mind set of a large body of Indian policy makers and opinionratti’s. This should, will, also change in the new decade.
*Bhalla, Surjit S., Second Among Equals: The Middle Class Kingdoms of India and China, May 2007, available at www.oxusinvestments.com; revised version, forthcoming 2010, Peterson Institute for International Economics, Washington, DC.
The author is Chairman of Oxus Investment; all the past articles (and forecasts) are available on www.oxusinvestments.com .
Blurb: China and India are on different sides of the climate change debate, and after the US, China has to make the most cuts
The climate talks start today in Copenhagen and this article concludes our four part series. Several conclusions emerge from a historical and future simulation exercise. The first major conclusion is that the debate about climate change and what can be done about it should no longer be couched in per capita terms. Population growth is an ex-event in most countries, and in the next few decades this rate is going to decline, and decline sharply. Most projections of population growth, and the one used by the research community, are gross overestimates of the likely outcome. World population is expected to increase by 1 % per annum for the next two decades, only a marginal decline from the 1.2 percent growth over the last decade. The likely scenario: world population at 7.2 billion in 2025 versus the received wisdom of 8 billion; and at around the same level in 2050 versus the projected 9 billion. In 2007, world population was at 6.6 billion. This is good news for the world – the problem is about 15 to 20 percent less than formulated. But this 15-20 percent less, while helpful, does not solve the problem.
The basic problem facing the world is not that there are going to be too many new people in the world, but rather that the existing people will be a lot richer. And that most of this growth will accrue to the present poor countries. The developed world share in world income is projected to decline from 40 percent today to only a fourth in 2025. The developing country share will correspondingly increase, and since these countries are on the upward trajectory of growth, the CO2 emissions will also correspondingly increase. As has been pointed out before by several scholars, the developing countries will have a larger portion of the world population, and a much larger share of world income, than ever before. The climate change problem is no longer a developed country problem; it is a universal problem.
There are, in the main, two methods for deciding on the burden of adjustment for each country. The reduction allocation can either be decided on a per capita basis, or on an intensity of use basis. The former is fast fading from the scene as a worthy contender, and both its erstwhile champions, China and India, have changed course by announcing voluntary cuts in emission intensity. The per capita allocation favors large poor countries, but no more than the intensity criterion. Further, this “benefit” becomes zero somewhere in the late 2020s. The more stringent the world decision to reduce global emissions, the sooner does the population criteria become binding on the poor countries. This follows from the simple math that the share of population is staying fixed, and output, and therefore emissions, are increasing at a fast pace. If the denominator (world emissions) is reduced, the share of carbon space occupied goes up. Perhaps the policy makers in the two countries have done this calculation, seen the future, and decided to go for an allocation criterion that keeps their growth ambitions intact.
But this might be the only topic on which the two population giants are on the same side. The strong conclusion that emerges from even a cursory examination of climate issues is that the population twins have opposite interests. Note that no matter what the criteria, a “fair” allocation of burdens of adjustment would involve a comparison with world averages. In this regard, it might be reverse payback time for India’s past bad policies. A systematic discrimination against the industrial sector has meant that India’s share of industry in GDP is a low 30 percent, and China’s is a high 50 percent. Both countries should have an industry/GDP ratio close to 40 percent with India somewhat lower. This divergence has predicted consequences. If per capita is your criteria, then India’s per capita emissions are near the bottom of the league, only 1.2 tons per capita (25th percentile). China is near the top of the inefficiency table with a per capita emissions average of 4.6 (75th percentile); the world average in 2007 was 4.4.
But maybe China is efficient in carbon emissions. Again, not so. Its intensity of emissions in 2007 (intensity defined as kg of CO2 emissions as a percent of 2007 PPP GDP) was a high 47 (75th percentile); India, one of the most efficient, was a low 25 (20th percentile). The world average was 37. Perhaps China has been improving its efficiency. It has, but so has India. So is there a common negotiating ground between the two population giants? Nyet.
What these very simple statistics suggest is that Copenhagen will be historic in breaking the forced China India alliance on climate change. This conclusion is further buttressed by simulation analysis of future emissions. The only fair basis for any allocation or simulation is that those who are inefficient, however defined, should bear most of the burden of adjustment. This is akin to the well accepted polluter pays principle. On a combination of per capita and intensity basis (the exact share between the two is dependent on the time path of reductions) China’s share of total global cuts, between now and 2050, would be in the range of 10 to 30 percent; the US share, roughly between 40 and 60 percent. If only per capita is a criterion, the US share of global cuts falls and that of China rises. This provides a perspective on why the developed countries might want a per capita criterion! In either case, India’s share is miniscule, less than 10 percent. For the earlier more important high growth period of 2010-2030 , most calculations suggest that India's share in reductions is less than one-fourth of 1 percent.
No matter how one does the math, the burden will have to fall, must fall, on US and China. Equal sharing of the planet’s resources means equal sacrifice. India is in the most enviable situation of having all the capacity to grow and in a position to help dictate the terms of the climate agreement. For that to happen, it must shed its Cold War attitudes of Oh Marx, I am so poor and they are out to get me.
This is the final part of the four part series; all the articles are available at www.oxusinvestments.com. In addition, the paper “Climate Change – What’s it all about and what is to be done” , will soon be available.
