Indian Economy: News and Discussion (Jan 1 2010)

[Arjun]

For those of you that doubt the employment creation potential in agri-business...Here's an excellent KPMG document on the business and developmental potential of the sector- Food Processing & Agribusiness

A study by ASSOCHAM also ranks food processing and beverages as the number one in direct and indirect employment creating potential for a given amount of capital: Food processing ranks first

Food processing and beverages rank first in creating both direct and indirect employment potential followed by agriculture, textiles, wood, paper & leather, rubber & plastic products and construction, according to Sectoral Analysis of Direct and Indirect Employment Potential brought out by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Food processing and beverages generate almost four times more jobs outside than inside the sector. Rubber and plastic products also induce generation of twice as many jobs outside as inside the sector. So is the case with electrical machinery, and utilities (electricity, gas and water), adds the ASSOCHAM analysis

[vina]

The Kerala experience with HDI has at least half the credit going to them!

Sorry. I happen to think that particular piece of enduring myth was propagated solely because of Amartya Sen's "discovery" of Kerala's HDI.

The commies had a rather marginal role to play there. Kerala had a long history of social and economic emancipation due to enlightened native Rajas (the Travancore and Kochi kingdoms , which were NOT British India) , the strong set of missionary and other educational & health institutions and finally the ultimate cash transfers, the money order economy via the "Gelf" boom and migration to the other parts of India.

[somnath]

For those of you that doubt the employment creation potential in agri-business...Here's an excellent KPMG document on the business and developmental potential of the sector- Food Processing & Agribusiness

Arjun-ji, there is no doubt that there is great potential in agro-processing business in India, including in employment generation..Question is whether the sector can take up the large numbers of people "released" from agriculture..If you look at the KPMG report, and any other similar report, one of the sine qua nons is a "reform" of agriculture...That is consultant speak for consolidation of land holdings and use of more cpaital intensive tools..In other words, less people employed in the activity...

The best smell test is to examine the "success stories" - US, Australia, Canada, NZ, BRazil - which of these countries have a large part of their workforce engaged in agri?

In India, does agrio-processing have enough employment elasticity to absorb the sort of manpower being released?

Things like plastic and rubber products etc fall more in the domain of traditional manufacturing rather than agri to be honest, but thats a minor point..

[Arjun]

In India, does agrio-processing have enough employment elasticity to absorb the sort of manpower being released?

The government has already recognized the potential in food processing: http://www.zeenews.com/news620427.html

If you look at the article the aim is to triple the size of the food processing industry in 10 years. Currently the sector employs 13 million directly and 35 mil indirectly. A tripling keeping the employment proportion same, would imply 26 Mil new direct jobs and 70 Mil indirect ones. By way of comparison - NREGA covers what 50 Mil currently?

[amit]

In India, does agrio-processing have enough employment elasticity to absorb the sort of manpower being released?

The government has already recognized the potential in food processing: http://www.zeenews.com/news620427.html

If you look at the article the aim is to triple the size of the food processing industry in 10 years. Currently the sector employs 13 million directly and 35 mil indirectly. A tripling keeping the employment proportion same, would imply 26 Mil new direct jobs and 70 Mil indirect ones. By way of comparison - NREGA covers what 50 Mil currently?

I'm being a bit anecdotal here so please don't mind. Many years ago I was involved in a survey which was commissioned by the West Bengal Industrial Development Corporation. The idea was to see the potential of agro business in the districts of North Bengal.

The survey found that soil, and climate conditions made these districts an ideal location for horticulture and for fruit cultivation on an industrial scale (for eg Malda is well-known for its delicious variety of mango known as "Himsagar" - as anyone who's lived in Kolkata knows!). However, the survey found that the biggest stumbling block was the total lack of infrastructure, especially for horticulture. There were no good roads to the nearest market, Kolkata and cold storages and refrigerated trucks were practically non existent.

Net result is the WBIDC never did anything with the survey because it stated clearly that investment in infra was a must before such industries can be developed.

Even today, all this talk about the potential of the food processing industry is still just a potential. For a successful food processing industry you need the infrastructure to back it up. Good roads, good cold storages and refrigerated trucks. And most important of all several hyper efficient supply chains to get these products to customers both at home and abroad. Who is building such supply chains? Who are buying refrigerated trucks by the thousands? Who are setting up cold storages and food processing units all across the country? Who is willing to invest the millions required?

Until and unless we have this framework all the fancy analyst predictions about food processing is meaningless IMO. The govt cannot be in the business of food processing.

[RamaY]

India's nation-building project needs to work on multiple pillars, but in the final analysis the "aspiration" needs to be focussed on achieving that economic holy grail of "full employment" ...

But can we wait for a functional PDS...
...
NREGA is an attempt to bypass the existing govt setup of myriad schemes to pass on benefits to the needy...Cash transfers are usually that, and have gotten increasingly popular in many countries...

Cash transfers can be unconditional (straight cash into the chap's acocunt), or conditional (based on, say, enrollment of his child in a school)...

NREGA isnt, shouldnt be an excuse for NOT carrying out other essential reforms, whether on agriculture or on labour laws....

An (apocryphal) story...In a village in Bihar,...

What is the purpose of that "full employment" holy grail, if it doesn't generate any social value (as you agree in your previous post)? How could the great minds in our planning commission and PMO miss that, unless they are implementing this reverse ponzi scheme deliberately?

Somewhere else people also claim that bad economics are good for governance. Then why wasting pages on this thread on various economic indicators and growth rates?

Isn't it a well known observation in psychology

Rewards are no more helpful at enhancing achievement than they are at fostering good values. At least two dozen studies have shown that people expecting to receive a reward for completing a task (or for doing it successfully) simply do not perform as well as those who expect nothing (Kohn, 1993). This effect is robust for young children, older children, and adults; for males and females; for rewards of all kinds; and for tasks ranging from memorizing facts to designing collages to solving problems.

If the federal budget slowly translates farm/food subsidies into NREGA type programs; when will they get to develop the civic infra that creates real employment? Especially when it is known that cash-transfers result in more favorable political outcomes?

[somnath]

Currently the sector employs 13 million directly and 35 mil indirectly. A tripling keeping the employment proportion same, would imply 26 Mil new direct jobs and 70 Mil indirect ones. By way of comparison - NREGA covers what 50 Mil currently?

Arjun-ji, even if these numbers are taken to be achieveable in full, how long will it take, infrastructure and all, for a full fledged world class agro-industry to be set up that can employ 96 million people? Till that happens, what should the 400 million people below poverty line in this country do? NREGA impacts them today, right now - it is what I call a "bootstrap" strategy, pulling them out of poverty by their bootstraps...So its about 100 million people getting a job of some sort today, which enables them send their kids to an "english medium" school today...Which gives some of them the chance to graduate to middle class in a generation....Not wait for another 25 years for a developed agro industry to be setup...In the meanwhile, policy interventions on agro should also continue - as Jean Dreze says, its not an either or situation...

What is the purpose of that "full employment" holy grail, if it doesn't generate any social value (as you agree in your previous post)?

I didnt say that, I said that the assets created by NREGA works might not have great durable economic value (though people like Jean Dreze dispute that as well)...NREGA affords immense opportunities on creation of social capital...Not only in terms of increasing affordibility for "market-quality" services in education and healthcare..But also in terms of political mobilisation, increasing local level accountability for district officials - the opportunities are immense...

And it is not bad economics...To me, it is better economics than the 1.4 lac crores foregone in direct tax exemptions in this budget - every single paisa going to the middle class and corporate sector...

The good news is, it is no longer a (big) question of money..India can afford this, within reasonable limits...There is no reason why we shouldnt do it...

[jagga]

BTW, I read Jayati Ghosh's article in Hindu today...She does have a point...A cash transfer scheme without the services being on the ground is substantially less-than-optimum..So if healthcare is priced @ 500 rupees a month and "cash transferred", it really doesnt help much if there isnt a health centre in the vicinity, private OR public...There is some argument that over time, the private sector will come up knowing that there are people with buying power for those services...But till that time, the cash transfer will be inadequate as the beneficiary doesnt even have access...

Cash transfer cannot address the issue of access, it increases the problem of "affordability"....

+1

[Prem]

http://www.indiaeveryday.in/finance/ful ... 365046.htm

New Delhi, March 2: Capital flows into India are likely to touch $64 billion in the current fiscal, much higher than the $40-billion that the country received in the previous fiscal, Dr C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, has said. Given the expected capital inflows, financing of current account deficit (CAD) will not be a problem, Dr Rangarajan said at the spring meeting of the Institute of International Finance (IIF) here on Wednesday. The council's Chairman said that the more recent data indicated that CAD may even be closer to 2.5 per cent of gross domestic product (GDP) in the current fiscal. “We think we should move towards a CAD of 2-2.5 per cent of GDP,” he said, pointing out that India's CAD had remained below 2 per cent until 2008-09. India's CAD as a percentage of GDP was 2.8 per cent in 2009-10.
Dr Rangarajan highlighted that the different growth rates at which the Indian economy was moving and the rates at which advanced economies are moving is contributing to higher CAD. “While our import demand is rising because of our higher growth rate, our export demand is not rising to the same extent because of the inadequate growth rate in developed economies,” he said. He said that PMEAC had earlier estimated CAD of 3 per cent of GDP. “It now appears that CAD would be lower than 3 per cent of GDP. Overall merchandise trade deficit is narrowing, and therefore, we think CAD should be 2.5-3 per cent,” he later told reporters. On inflation, Dr Rangarajan told the IIF members that the Government does not buy the idea that high growth rate requires high inflation. He said that all available policy instruments would be used to bring down inflation to 7 per cent by March and 5-6 per cent in coming fiscal.

[RamaY]

I didnt say that, I said that the assets created by NREGA works might not have great durable economic value (though people like Jean Dreze dispute that as well)...NREGA affords immense opportunities on creation of social capital...Not only in terms of increasing affordibility for "market-quality" services in education and healthcare..But also in terms of political mobilisation, increasing local level accountability for district officials - the opportunities are immense...

I know the difference between economic and social goods/value. Nitpicking aside, you seem to agree that

- There is little economic value except increasing consumption (Is it any different from US Fed's zero% rates to boost economy) equivalent to the money supplied. If you see the reality on the ground; for example in Andhra Pradesh, most of this NREGA money is going to liquor shops (average small town liquor shop is auctioned for 1 cr Rs). And Jean Dreze thinks otherwise, meaning this program does create economic value too? Cute, didnt we have those LSE,JNU alumni guiding our e-con-micky since independence resulting in congress growth of rate? (Yes, i read his credentials...)

- Do you have any statistics on the social value created? Is it one of the objectives of NREGA plan to start with? How about the other point you posted, where availability of cash doesn't automatically ensure availability of service access?

Shouldn't the great Mr. clean, person of impeccable integrity, secular, e-con-micky PM of India MMS be thinking about -
- Creating permanent jobs
- Developing necessary Educational, R&D, and Industrial infra
- Developing Civic infrastructure that really creates social goods

instead of buying votes for congress using tax-payer's money?

And it is not bad economics...To me, it is better economics than the 1.4 lac crores foregone in direct tax exemptions in this budget - every single paisa going to the middle class and corporate sector...

So you are one of those eCon-Robinhoods? What gives the politicians the right to transfer "cash" from one section of society to another section? Is it the modern democratic economy you subscribe to? Wow!

The good news is, it is no longer a (big) question of money..India can afford this, within reasonable limits...There is no reason why we shouldnt do it...

Really? Then why running deficit budget? Then how come we hear lack of funds to any/every meaningful national project?

[Prem]

http://www.ft.com/cms/s/0/0411641e-4410 ... e2340.html
Ambani criticises Singh on economy

Mukesh Ambani, India’s richest man and a powerful industrialist, has challenged the government of Manmohan Singh, prime minister, to be far bolder in its approach to building India into a leading economy and world power.
Mr Ambani, chairman of Reliance Industries, warned on Tuesday of a two-speed India whose divisions could not be addressed by “meaningless” small reforms and a lack of a grand vision among the country’s leadership.
He called for an urgent return to “disruptive policies” – such as the 1991 financial reforms that Mr Singh masterminded – to take full advantage of India’s economic potential and to remove “the shackles and free up Indian minds”.In an outspoken address to the nation’s top business leaders he said: “India needs a bold new vision and a feasible action plan

[somnath]

- There is little economic value except increasing consumption (Is it any different from US Fed's zero% rates to boost economy) equivalent to the money supplied. If you see the reality on the ground; for example in Andhra Pradesh, most of this NREGA money is going to liquor shops (average small town liquor shop is auctioned for 1 cr Rs). And Jean Dreze thinks otherwise, meaning this program does create economic value too? Cute, didnt we have those LSE,JNU alumni guiding our e-con-micky since independence resulting in congress growth of rate? (Yes, i read his credentials...)

- Do you have any statistics on the social value created? Is it one of the objectives of NREGA plan to start with? How about the other point you posted, where availability of cash doesn't automatically ensure availability of service access?

Shouldn't the great Mr. clean, person of impeccable integrity, secular, e-con-micky PM of India MMS be thinking about -
- Creating permanent jobs
- Developing necessary Educational, R&D, and Industrial infra
- Developing Civic infrastructure that really creates social goods

instead of buying votes for congress using tax-payer's money?

It is a stimulus-type measure as well..And by all accounts, it had its impact in shoring up consumption during the crisis...

What Jean Dreze "thinks" is less important - it was only a reference - question is what is the empirical facts on the ground...And by the sheer composition of expenditure, the assets being created cannot be very durable..But thats not the point...the objective of the programme, I have said before, is to create a safety net for the 400 million BPL folks...Its a bootstrap strategy to pull substantial numbers of them out of poverty (the wage rate you see is just above the 2 dollars/day benchmark!)...

It isnt "either or", the development of infrastructure should continue apace...But that has happened for the last 60 years, including 20 odd years post reforms...The data shows (I have posted above) that it isnt catching up fast enough..And structurally India is evolving far too rapidly for a lot of people to even have a chance of catching up..Employment elasticities are down almost across the board, and agriculture if anything will employ less and less people...

As Amit's anecdotal instance displayed, infrastructure is struggling to catch up, it will continue to struggle to catch up...And the BPL folks get impacted a LOT more on account of this than either the middle class or the corporate sector...There isnt a good govt school? No problem, my kid anyways goes to St Xavier's or St Mary's (both Calcutta )...she doesnt miss out..But the kid of the BPL folk in Poilan (thats a village right on the outskirts of Calcutta) cant even afford the "english medium" school near RAichak...With NREGA, at least some would be able to do that...

I would put NREGA as a social security equivalent of "viability gap funding" that we have for PPP projects...In a host of infrastructure projects (mainly urban transport related), the projects themselves are not viable on a stand-alone basis..Therefore, the govt pitches in with a certain amount of support that makes the project viable for pvt sector participation..NREGA creates the viability gap funding for millions to access pvt sector services (like health and education and even nutrition) where public sector either doesnt exist or is decrepit...

So you are one of those eCon-Robinhoods? What gives the politicians the right to transfer "cash" from one section of society to another section? Is it the modern democratic economy you subscribe to

First, a large part of the "tax cash", around 50% still comes out of indirect taxes, where the poor pay disproportionately more (as a % of income) than the middle class. Second, the question is hugely hypocritical from a class that has just gotten a 1.4 lac crore dole on account of direct tax exemptions! BTW, the job of any govt is to collect taxes and use it for larger societal purposes...

And really the amounts are not crushingly unaffordable..Talking about which, can you point out any large national project in the last 10 years that have been pushed back because of a lack of funding? Money isnt a huge constraint anymore for India, not within reasonable limits...

[vina]

.Its a bootstrap strategy to pull substantial numbers of them out of poverty (the wage rate you see is just above the 2 dollars/day benchmark!)...

Yawn.. And I thought a wise man part of whose name rhymes with Confusion said "Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime!".

This boot strap business is pouring water into a bucket without a bottom. It is indeed important that the NREGA funds be used to create durable assets and not end up being a dig a hole and fill a hole kind of program which has nothing to show for in 2 days and the same empty stomachs and outstretched arms come for more baksheesh.

[RamaY]

^ Unfortunately if you see the kind of projects they are doing under NREGA it is exactly the opposite.

My gut feeling is that the scheme is to control the labor migration from rural to urban areas; mainly because it puts stress on urban areas and create "slums".

In Indian system such ideas do not work as such schemes can never end (like reservations); and will continue to extend the other population groups (like pink ration cards or BC reservations). I do not remember exactly but the number of castes eligible for BC reservations increased ten fold between 1950 and 1980s.

On paper the scheme appears to have created 2100 million hours of work; but in reality the 10-16,000 crore allocation is more or less goes to
- Maoists (2000 Crs - per news reports)
- Govt. Employees (15%) = That is the standard rate for any govt contract work (My brother is a govt contractor)
- Local Leaders (minimum 20%) = That is the standard rate for any govt contract work
- Fake works (like digging the same tank again and again)

***

Somnath;

You are thinking very short term like a financial engineer. You are seeing transactions where as Govt. function is supposed to create long-term value.

In your own words -
- There is nothing wrong if such schemes create political benefits
- This is like economic stimulus (we are laughing at "bridge to nowhere in Alaska" at the same time)
- This is a small amount (10-16,000 Cr allocation is not a small amount even today in Planned Expenditure) so it must be OK.
- This creates social value (for how long?) - Will those kids can afford to go to those english medium schools once this scheme ends?
- This is like social security (really?)

do you see the short-sightedness?

[RamaY]

And really the amounts are not crushingly unaffordable..Talking about which, can you point out any large national project in the last 10 years that have been pushed back because of a lack of funding? Money isnt a huge constraint anymore for India, not within reasonable limits...

1. National River Linking Project
2. NHDP - Phases III, IV, V
3. Delhi-Mumbai Industrial corridor and other industrial corridors

These programs are in Lakhs of crores...

In AP alone
1. All Jalayajnam Projects are stalled for lack of funds (about 20 projects worth 1 Lakh crores in total)
2. Vijayawada - Hyd highway (was supposed to start 10 yrs ago, finally it got go ahead in 2010)
3. Costal Corridor project

I can dig more projects if you want...

Can you pls tell me ten national projects (worth 10,000 cr and above) started and completed in past 7 years of UPA rule? In past 7 years UPA must have budgeted at least 7 Lakh crores of planned expenditure (this year it is 2 Lakh crores).

[Airavat]

Companies are using family-friendly perks to hold on to female workers

[somnath]

RamaY-ji,

Barring the river-linking project, which most experts cant even agree on whether it is a good idea, none of the other projects are languishing for want of funds...DMIC has just gotten g'teed budgetary support for an extended time period...The bigger issues are not to do with funding, but other elements like land acquisition, railways (where Mamta bannerjee is an absolute disaster)..The issues with NHDP have again got little to do with funding - NHDP's funding has been secured through that oil cess and budgetary support, but yet again a lot to do with execution deficiencies (with everyone blaming the other person - have you heard Kamal Nath blaming funding for delays, he blames Montek Ahluwalia! )...

Most infra projects are substantially bankable now, and there is enough public funding to bridge the gap...Ask anyone in the sector - Vinayak Chatterjee onwards - the issues are to do with policies on land acquisition and execution...

I dont want to get into a UPA v/s NDA conversation - because I dont think data shows any meaningful difference in performance (unless you are talking of GDP growth, where the UPA/Congress has a FAR better performance on average over the last 20 years )...BTW, plan expenditure this year is not 2 lac crores, but 4.4 lac crores - to be honest, I agree with most people that these classifications of plan/non-plan are a bit useless for public expenditure..

On NREGA, there might be leakages, I am sure there are...But the systemic intervention is much more efficient than in most public welfare projects - go through some of the docs I posted on how much of the outlay has been spent on wages for example..

And it is not short sighted at all...ALL govts, red, green or blue hued, use social security in some manner or form...And they are there ad infinitum...Thats what govts are there for! the issue is far more urgent in India..400 million poor canot keep waiting for nother 20 years for the infratstructure to catch up...Not in this information age, when aspirations are communicated almost as fast to BPL as it is to Mukesh Ambani...

A point on the assets created by NREGA...It is time someone did an audit of that...By now enoigh empirical evidnce should be availabel..BTW, if you read the ppt I referenced, the survey said a very large % of those who worked in NREGA said that the assets created were useful/very useful - >70%..Maybe there is more to it than we (myself included) are giving credit for in tems of utility...

[Arjun]

http://www.ft.com/cms/s/0/0411641e-4410 ... e2340.html
Ambani criticises Singh on economy

Mukesh Ambani, India’s richest man and a powerful industrialist, has challenged the government of Manmohan Singh, prime minister, to be far bolder in its approach to building India into a leading economy and world power.
Mr Ambani, chairman of Reliance Industries, warned on Tuesday of a two-speed India whose divisions could not be addressed by “meaningless” small reforms and a lack of a grand vision among the country’s leadership.
He called for an urgent return to “disruptive policies” – such as the 1991 financial reforms that Mr Singh masterminded – to take full advantage of India’s economic potential and to remove “the shackles and free up Indian minds”.In an outspoken address to the nation’s top business leaders he said: “India needs a bold new vision and a feasible action plan

I am glad our fabulous entrepreneur and industrialist class continues to have their heads firmly on their shoulders - and have not fallen for the self-congratulatory hyperbole of a section of the economists and government. India needs a grand vision and a complete set of second-generation reforms to move growth to higher gear. Hopefully MMS has not shut his ears completely to the voice of the those he should be listening to the most.

[ShauryaT]

.Its a bootstrap strategy to pull substantial numbers of them out of poverty (the wage rate you see is just above the 2 dollars/day benchmark!)...

Yawn.. And I thought a wise man part of whose name rhymes with Confusion said "Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime!".

This boot strap business is pouring water into a bucket without a bottom. It is indeed important that the NREGA funds be used to create durable assets and not end up being a dig a hole and fill a hole kind of program which has nothing to show for in 2 days and the same empty stomachs and outstretched arms come for more baksheesh.

Exactly my thoughts too. I had written a more harsher post, on the lines that the biggest losers in this NREGA game are the rural folks below the poverty line. They will always be at that level.

[somnath]

Yawn.. And I thought a wise man part of whose name rhymes with Confusion said "Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime!".

This boot strap business is pouring water into a bucket without a bottom. It is indeed important that the NREGA funds be used to create durable assets and not end up being a dig a hole and fill a hole kind of program which has nothing to show for in 2 days and the same empty stomachs and outstretched arms come for more baksheesh.

Vina-ji, its incredibly insensitive to say that...What about us - dont we go out stretch our hands every single year before the budget for some more income tax exemptions? And our stomachs are not even empty! Or our corporates, who spend monies lobbying for tax exemptions?

I am not sure why the conversation should be "either or"..Capacity building needs to continue apace...NREGA is an immediate fix on affordibility till that happens...

BTW, quality of asset creation is being stressed by one and all in the NREGA initative...Maybe there is some merit in integrating, at least in part, the NREGA effort with other rural infra programmes like the Gram Sadak Yojana and Bharat Nirman...

[amit]

Exactly my thoughts too. I had written a more harsher post, on the lines that the biggest losers in this NREGA game are the rural folks below the poverty line. They will always be at that level.

If we take Rs16K crore as the amount spend on NREGA till now. Can someone do a rough outline of how this money could have been better spent so that the BPL folks would have benefitted and would have permanently moved out of the BPL level?

Unless one can point to better usage or schemes, knee-jerk criticism of NREGA serves no purpose. At least it's an attempt to do something for the BPL folks. May not be the best scheme in the world but certainly in terms of scope its the largest poverty alleviation scheme ever attempted in the world.

Interestingly one of the best implementation of NREGA schemes have occurred in Gujarat where its watershed scheme has improved soil fertility significantly and now the Gujarat model is to be adopted in the rest of the country. Link

Small, marginal and those farmers living below poverty line (BPL) in Gujarat may get an opportunity to design solutions for their own plot of land. If everything goes right, Gujarat government, under the National Rural Employment Guarantee Act (NREGA), has plans of taking each farmer's land as an individual project and give liberty to choose what they want to with it to earn livelihood under the scheme.

This years' planning for the NREGA has already started, disclosed commissioner and principal secretary of Rural Development Department of government of Gujarat, Rita Teotia. "This year, we plan NREGA mainly on watershed initiative," she said, adding that each farmers' (marginal) land will be taken as individual projects and the farmer concerned will be asked what they need for their land - whether they would want it cleared first, improve the soil moisture level since irrigation may not be available or if they wish to go for horticulture, Teotia said.

Around 1 lakh farmers are expected to be benefited by the scheme and the government hopes to take it to 2 lakh in a year's time.

Please note the bolded part. That's not "asset creation" in the classical sense which folks here are clamoring for. But its a very important "asset creation" for the small farmer because it makes his land more fertile and gives him the chance to get better yield or even go for higher return horticulture.

Another point which should be considered is the multiplier effect in terms of economic activity in the countryside that extra money through NREGA in the hands of the BPL class bring about. Whether one likes it or not, as Mihir Shah pointed out NREGA helped somewhat to cushion the fall out of the financial crisis.

We cheer when the Govt gives a "stimulus" package to industry but we think its wastage when a different type of "stimulus" package is given to BPL. Yet the purpose of stimulus is to create demand to get the economy to churn!

[somnath]

^^Amit, small correction - the outlay on NREGA is higher thn 16k crores..Last year, we spent 40k, and this year in a leap of imagination, Pranab-da has estimated the number to remain the same!

About the "social effects" of NREGA, some stats here..
http://www.levyinstitute.org/pubs/conf_ ... hrotra.pdf

Its a slightly dated document, but still:

1. NREGA is more effective than any other programme tried before...
2. High participation of women
3. Higher participation of SC/STs.

An interesting view on how NREGA can be used for "skills development"..

http://economictimes.indiatimes.com/opi ... ms?curpg=1

a PPP model where construction companies are invited to take up projects in defined geographic areas, employing NREGA-registered labour for the project under implementation. In fact, the real benefit of this idea underlies in its potential for long-term skill-building, as described below.

The project being implemented under the PPP model must create an on-the-job training module aimed at upgrading the skills of people working at the sites. It could be about 80% hands-on training while 20% could be on concepts, quality and other technical aspects delivered in pedagogy suitable for the target group. A select few who come up to the standards benchmarked by the firm for a particular skilled category could be given certificates for the relevant skill.

Its an interesting thought...though one would wonder what sort of "margins" would pvt compnaies be attracted by, as that needs to come out of the same pool of money...

It might be an interesting idea to see if parts of the PM Gram Sadak Yojana can be merged with NREGA and the skill-building project referred to above........

[amit]

I am glad our fabulous entrepreneur and industrialist class continues to have their heads firmly on their shoulders - and have not fallen for the self-congratulatory hyperbole of a section of the economists and government. India needs a grand vision and a complete set of second-generation reforms to move growth to higher gear. Hopefully MMS has not shut his ears completely to the voice of the those he should be listening to the most.

+1

[amit]

^^Amit, small correction - the outlay on NREGA is higher thn 16k crores..Last year, we spent 40k, and this year in a leap of imagination, Pranab-da has estimated the number to remain the same!

About the "social effects" of NREGA, some stats here..
http://www.levyinstitute.org/pubs/conf_ ... hrotra.pdf

Its a slightly dated document, but still:

1. NREGA is more effective than any other programme tried before...
2. High participation of women

Sorry typo. Thanks will correct.

[Theo_Fidel]

As far as I can ascertain JNNURM is in trouble with the allocation cut from Rs 12,000 Crore to just Rs 8,000 Crore this year.

Tells you what this government thinks its priorities are. Get ready for major delays in all city projects.

http://www.indianexpress.com/news/Cauti ... ike/756704

[somnath]

Its good that Mukesh Ambani is talking about "disruptive policies"...Though I remain deeply sceptical about industrialists' views generally - they seldom go beyond the sophistry to mask their own agenda (with honourable exceptions)...

This "second generation reform" thing is a bit of a cliched hyperbole...The action points doled out are all the same - increase in FDI in retail/insurance, more foreign banking participation, corporate farming...Deja vu and ennui really - first, these are just extensions of existing policies and second, most of them are not even that "disruptive"...

The real second gen reforms need to be on governance structures...How can we scale up the number of schools..Or number of judges...Or number of policemen...Land acquisition legislations...GST....At the level of nitty gritty, much of it to be implemented by state govts...

[somnath]

As far as I can ascertain JNNURM is in trouble with the allocation cut from Rs 12,000 Crore to just Rs 8,000 Crore this year.

Tells you what this government thinks its priorities are. Get ready for major delays in all city projects.

http://www.indianexpress.com/news/Cauti ... ike/756704

Indian newspapers have a severe dearth of "anaysts" - they make elementary mistakes...Even IE, which is otherwise pretty good..

Here is the relevant setion of the budget..

http://indiabudget.nic.in/ub2011-12/eb/stat16.pdf

The outlay on JNNURM has been increased by 60-70% from last year's expenditure - from 7.5k crores to 12.5k crores! the issue is utilisation (bit like Defence for many years, not this year though) - last year, the spend of 7.5k crore was only about 65% of the outlay, which was 11.6k crores..

Theo Fidel-ji, seems in this case the priorties are in the right place!

the big issue with JNNURM is about the state govts - they have to pay for 35% of the cost, and also execute the programme..It is the latter that is an issue...

[Theo_Fidel]

Thanks somnath. Should have known better than to rely on DDM.

Allocation of Rs 12,522 is good though the Urban infrastructure component, which is the only one big cities benefit from, is flat from last year. Better than a drop.

[Suraj]

BTW, quality of asset creation is being stressed by one and all in the NREGA initative...Maybe there is some merit in integrating, at least in part, the NREGA effort with other rural infra programmes like the Gram Sadak Yojana and Bharat Nirman...

As I recall, they finally got around to tying NREGS with Bharat Nirman/PMGSY - something that took them 5 years to do. I recall a recent article within the last 3-4 months mentioning it. However, this ought to have been done long ago.

More than the nature of being a dole, the problem with NREGS is that when you just hand people money without necessarily creating assets - it doesn't necessarily work out as one intends. Pushing up aggregate wage level would significant increase in economic activity or asset creation just leads to wage inflation, which they then combat by raising NREGA wages, and probably by taking on 'hoarders' who are ramping up prices. This is an absurd cycle.

Infrastructure, whether it be roads, a local water reservoir, or any other facility, increases the amount of economic activity. How is it that GoI can travel to villages to pay these people, but cannot transport cement, steel and other raw materials needed to build infrastructure ? Throwing money without an emphasis on RoI is a waste, regardless of how one attempts to characterize it as an act of altruism towards starving masses. Rather than 400m people who are destitute and lack money, it will perpetuate inflation, and a large population conditioned to dole without development of skills or a work ethic to be productive, and the lack of economic activity means there are few goods and services for them to obtain, and what they do get will be overpriced.

While I appreciate that the cash transfer proposition behind NREGA has a lot of merit, its implementation, focusing on delivery of cash more than an emphasis on increasing economic activity, is fundamentally flawed. Tying it to other infrastructure creation programs like Bharat Nirman and PMGSY has long been mooted, but ignored. It could have been rectified, and is currently being rectified, but the way it was conceptualized and put into practice for quite a long time was little more than a massive political dole program.

[somnath]

Suraj-ji,

Maybe all of us give less credit to the govt than is often deserved...The point on integrating NREGA with existing rural infra programmes (not just Bharat Nirman, but also myriad other programmes on agri, fisheries etc etc) - its already there, its part of the programme!

http://nrega.nic.in/circular/minutes_working_groups.pdf

The big issue I think would be the fact that implementation of NREGA, as well as the other programmes, is upto the state govt...And that is where the impact differentials come in..A smart state govt will be able to come up with an imagineative portfolio of projects, others wont...It is difficult, and in fact politically impossible for the Centre to dictate projects siting in Delhi..

Having said that, if NREGA has fuelled wage inflation - and there is no empirical evidence of that, only conjecture and anecotes - it is only enabling a set of people to catch up to subsistence level...Even after the increases proposed, NREGA wages (mind you, its still for 100 days/year only) will be about the 2 dollars/day level...In terms of general inflation, the impact of a 40k crore spend on pure cash transfer (lets assume all of it just a cash transfer) will be far lower than the impact of a 1.4 lac crore of cash transfer through tax exemption, or the cash transfer through excise relief done last year (and not rescinded this yera).....The montary impact of an incremental 40k crore is too small to be a material effect on inflation...

At some stage, NREGA could also morph into a conditional cash transfer scheme (a la the Bolsa, or Nitish Kumar's cycle) from being a quasi-unconditional scheme....But let no one say that the money is being given away "free" - there is nothing "free" about literally back breaking work for 8 hours in the summers....

Over time, I think that is the way to go...It ill become a conditional cash transfer programme, UID based, that will give cash for education, healthcare, farm subsidies....

[Suraj]

Somnath: the RBI itself mentions wage inflation, to quote from my earlier link:

With the government revising wages under MGNREGA, it could be another pressure point for rising inflation, if appropriate policy action to address the demand-supply gap is not in place, said the Reserve Bank of India [ Get Quote ] (RBI) on Monday.

"MGNREGA has the potential to raise the wage bargaining power even in the unorganised sector, particularly in the agriculture and construction sectors, besides raising rural demand at a faster pace relative to the production of cereals and non-cereal food items," the central bank said in its macro-economic and monetary development report.

The RBI does not deal with 'conjecture and anecdotes'.

To further quote from the PDF you just linked:

Much criticism of MGNREGS hinges on the assets being unproductive. It comes not only from external critiques but with questions that are posed to the committee - why it has not impacted on farmer suicides, left wing extremism or in capital formation. Accepting this reality and correcting this through considerable improvements in the planning and implementation package is vital for MGNREGS to stay and be sustainable. The old notion of works emerging from food for work and other employment schemes must give way to a radical change and overhaul in planning, implementation, monitoring and investing on personnel to get the desired results and outcomes.

That's precisely what I said previously - the implementation was flawed, and they're only just modifying the implementation - as of 2010, five years into the program - to better coordinate with and drive actually productive economic activity rather than serve as a political vote earning trust fund. I'll provide credit as and when the results show up.

[somnath]

The RBI does not deal with 'conjecture and anecdotes'

Suraj-ji, RBI is making a completely different point..Posting the quote in full..

"MGNREGA has the potential to raise the wage bargaining power even in the unorganised sector, particularly in the agriculture and construction sectors, besides raising rural demand at a faster pace relative to the production of cereals and non-cereal food items," the central bank said in its macro-economic and monetary development report.

As a result, sectoral demand-supply imbalances require structural policy intervention to improve the supply situation more than any demand compressing measures at the aggregate level, RBI said.

"The stronger growth in private consumption expenditure partly reflects the change in terms-of-trade in favour of agriculture in view of the supply side constraints," RBI said.

they are simply referring to something well known - that inflation in India is primarily a funciton of supply side bottlenecks and they need to be tackled..In absence , rise of any wages, whether NREGA or of IT employees will exert demand-side pressures..

In any case, RBI is only identifying NREGA as a source of higher demand in the rural sector...whether it is NREGA or any other rural development programme, rise in rural demand is the objective in the first place! RBI's point is on the lack of supply-side interventions...

To deduce therefore an RBI concern on NREGA fuelling wage inflation is a massive stretch of proportion...In terms of wage inflation, the annual increase in salaries of just one sector, IT, would contribute more towards agregate wage inflation in India than perhaps a decade of NREGA...

The question on quality of assets btw is valid..The point however is that the programme could not have funded a higher quality of infra by itself, given a stated objective of 60-70% of the outlay in wages..The "quality" element has to come from other programmes...They have gotten the point now, and we shall see how it pans out....

[Theo_Fidel]

At some stage, NREGA could also morph into a conditional cash transfer scheme (a la the Bolsa, or Nitish Kumar's cycle) from being a quasi-unconditional scheme....But let no one say that the money is being given away "free" - there is nothing "free" about literally back breaking work for 8 hours in the summers....

This is the saddest part of the entire scheme. There is no need for the de-humanizing manual labor involved. We now have enough earth moving equipment even in the most remote hamlet to get the work done by thousands taken care of in a matter of hours. Bot noooo.. ..the scheme specifically prohibits the use of mechanical equipment. Not only that even the excavation equipment has to be supplied by the laborers. Its almost like the purpose of the scheme is to remind people they are still chaprasi's...

I remember driving past a small village near Rameshwaram where the driver told me the NREGA people had about 500 people building an embankment for a tank. They had been working for a 2 months and had about 200 meters of 20 foot high embankment to show for it. I walked up to the embankment and the earth had not been consolidated or properly layered or even sloped correctly. The next rain would bring the entire lot down. Not only that a couple of backhoe loaders would have done the job in 4-6 hours with proper compaction.

Next to the embankment the villagers had been 'borrowing' earth from the tank side as part of 'de-silting'. Per my driver what everyone had forgotten was that the tank had not held water in 40 years. Not only that farmers now grew crops inside the tank on the fertile 'silt' soil, yes the same one now being dug up. So there you have it. The program is destroying fertile farm land in order to build an embankment that is not needed but will fail in the first rain but managed to put 500 people to work for 2 months. According to the driver this project was selected because it was walking distance from the village. There are outer irrigation channels that need to be cleaned and de-silted but no mechanical transport is allowed under the scheme so...

Honestly Somnath don't defend the work being done. Does the money transfer work, sure. But why not pay people to attend as a course in pipe fitting or building toilets or glass fitting or painting, etc. You know skills that the economy actually needs. Or why not pay a stipend to moms so they can better feed their kids, instead of forcing them to break their back working rather than looking after their kids.

As far as the inflation, any activity that does not raise economic productivity but raises wages will trigger inflation. It is one thing to spend money so crop productivity increases, it is another to pay people to essentially do nothing i.e. be unproductive. The IT sector get paid by the productivity it generates. Its productivity is vastly higher than the wages paid out and hence does NOT generate inflation. If anything because its work allows things to be made cheaper the IT sector depresses inflation.

[Suraj]

Somnath: One cannot run a program that fundamentally focuses on cash disbursal over a priority on asset creation for five years without either localized goods and services price inflation or attendant wage inflation. As you yourself quote, nearly 3/4ths of NREGA resources were spent on wages. That amounts to cumulatively how much - $30 billion in the last five years, with 70% of that being wages. Further, the composition of wages to total outlay has increasing with each passing year, from the mid 60%s to low 70%s now. The RBI is just saying the same in other words - such a massive cash disbursal program is just fueling local inflation because it increases demand without supply. Supply comes from economic activity in the secondary and tertiary sectors. If there's no emphasis on such economic activity it is just going to lead to price and wage inflation due to increasing demand competing for scarce supply each year.

NREGA in isolation is flawed in its implementation, and I'm not even referring to leakages. Combined with other programs focussed on capital formation and other activities, it has the potential to rapidly bootstrap rural employment. But as it stands it doesn't provide 100 days of economic activity, but 100 days of wages - I'd rather put it that way than claim it provides 100 days of employment. For it to actually constitute employment, it ought to entail a focus on viable economic activity, which has only just received attention, after half a decade.

Added: Theo, thanks for bringing up the point on mechanization. I forgot that - you've repeatedly emphasized it before.

[somnath]

As far as the inflation, any activity that does not raise economic productivity but raises wages will trigger inflation

Thats tautological..Literally taken, as you are, it means that every single tax exemption/subsidy/grant is inflationary..I reiterate, which will mean that just the direct tax exemptions (1.4 lac crores) given in this year is a few times more inflationary than NREGA...In the real world, even in mathematical models, things are not so "closed"...A cash dole is spent largely in the local economy, which boosts demand there and generates more econmic activity...I referenced a report in my first post on the topic - a bottoms up empirical study - the economic multipliers are working, they are low, as is to be expected of consumption expenditure, but they are there and rising..

About the manual labour, in the current scheme of things that is the only way the system can be made self selecting and minimise leakage to he undeserving (a feature of most welfare programmes)...With UID and bank accounts, that issue will be tackled with time..But as of now its a fair solution...Mechanisation automatically brings in a different skew in the outlay, and NREGA by itself couldnt afford that...That is the reason they are now talking about clubbing it with other programmes that do have the outlay for more capital to be employed...

One cannot run a program that fundamentally focuses on cash disbursal over a priority on asset creation for five years without either localized goods and services price inflation or attendant wage inflation.

Bulk of the govt expenditure does not create "productive assets" in the manner you are defining..In the C+I+G model, all forms of intermediate expenditure has a multiplier impact...NREGA too will have a multiplier, to what extent, thats up for debate (the article I referenced makes an attempt to measure)...Does it meaningfully contribute to inflation? Theoretically, Keynesian Phillips Curve inflation would be reached through a process that leads to near full employment scenario, with workers progressively demanding higher wages and demand for goods and services..Taking up the latter, how much incremental "C" is being generated by NREGA, compared to the increase in agregate "C" every year? Roughly, consumption - about 700-800 billion dollars p.a - is increasing @ a conservatve 12-13%, will mean that the non-NREGA delta in "C" (80-90 billion) will be 15 times the total wages disbursed thorugh NREGA (~6-7 billion), and a few hundred times the delta in NREGA wages itself..

What can be more perverse than to argue that there is inflation being caused by the increased consumption of food and education by the bottom 400 million of the populace? One that will barely live above the2 dollars/day level for 100 days a year?

Cut to wage inflation...What impact does a 10% increase in an aggregate wage pool of 6 billion dollars have on a country of India's size?

RBI is obviously only too aware of this, and contrary to the headlines, it is NOT the point that it is making...the point that it is making, very consistently with the bytes it has been giving out, is on supply side bottlenecks...Its quite clear from the actual statements, if/when one goes through them...It is goading the govt to do something about that rather than looking towards the "easier" monetary tools...

A study of a cash transfer scheme in Uganda, and its impact in on inflation..

http://www.odihpn.org/report.asp?id=3177

[chaanakya]

NAREGA is a rich cash cow for local CON politicians or politicians in power of any other hue as well as the machinery implementing it. Sure some money is flowing to poor people at a time when economic distress could have been acute . To that extent it is good and a successful scheme. CON party also had advantage of giving money for vote which resulted in EU PEE AAI-II. It reminds me of food for work programme. No asset is being created hence it is inflationary. It will also keep rural poor in a state of permanent bondage as no skill transfer takes place to really improve their economic status.

The employment is for 100 days with Rs 100 as wages( now indexed) i.e. Rs 10000 per year. It is not even statutory minimum wages for skilled or unskilled work.

However given the propensity of one scam a day scheme of CON party , this millions little scams everywhere is not a bad idea. Everyone involved is happy and keeping quite and being quite supportive. Ever heard of overheads being charged from the wages being paid??

[somnath]

No asset is being created hence it is inflationary

And I am sure you can explain the theoretical and empirical underpinnings of this assertion?

[RamaY]

Somnath

Go read about NHDP and how the funding is done for various phases. I posted it in the early pages of 2G scam.

All major projects are turned into BOT model in the past few years and the funds rarely come from the budget.

If NREGA allocation in 2010 was 40,000 Cr, then it is even a bigger waste. If GOI could spend that money it could have developed at least 4000 cooperative societies across india each focussing on 1000 BPL families pulling them out of poverty permanently. That is 4mil families per year.

A focussed approach is always better to some haphazardous money allocation scheme. That is the main issue with NREGA. All those irrigation works conducted under this program reminds me of the "inkudugutalu" scheme of CbN in AP. All that digging became useless within one year.

You are again taking the discussion in the wrong direction. No one is against poverty alleviation programs. The difference of opinion is whether to do them in a coherent way so that they alaign with india's strategic vision or done in the way NREGA is doing; the focus is on work creation without focusing on what that work is and how useful it is for public and how long the benefits lost.

All subsidies combined, GOI is spending >150,000 crs per year. All I am saying is that this money can be better spent on long term employment creation and that too aligned to national interests.

When there is a will, there is a way. If the objective is next election; the the nation loses. All the ideologies in the world cannot help.

[Theo_Fidel]

And I am sure you can explain the theoretical and empirical underpinnings of this assertion?

I don't understand why you have so much trouble understanding this, unless it is just to be argumentative. You make 10 units of stuff and your wages are Rs 100, each unit will be priced at Rs 10. Now you continue making 10 units of stuff and your wage gets bumped to Rs 150, now each unit will be repriced at Rs15. Viola inflation. No need for big words and obfuscation.

This is exactly what the NREGA does. Yes it is Rs 10,000 max, but that is per family member. Rural combined families often have 5-6 adults. Rs 50,000 is enough for many families to live at the subsistence level for the entire year. It is definitely happening. Around here it is almost impossible to get construction labor anymore. Even for rock 'jalli' people search for tipper trucks that are much more expensive as you have to buy a full load. So the extra rock just sits on the road with no labor to cart it away. Wait till the program starts near your town, all the surplus labor will magically disappear.

The thing to remember is that the rural economy is very small. Basic Agriculture is only ~ $100 Billion or so without including allied industries. Of this actual wages are only about $30 Billion or so, much of it paid in grain or barter. The NREGA scheme is also only active in a few districts. In TN it is about 1/3 of the districts so far. Districts near big cities are typically neglected under the scheme. So dumping $10 Billion into this mix is a BIG deal. Especially free cash. Almost everywhere the effect has been quite dramatic. It is also a symbol of how productive our cities are over the rural areas.

[chaanakya]

No asset is being created hence it is inflationary

And I am sure you can explain the theoretical and empirical underpinnings of this assertion?

Better than one can imagine.

Example give earlier by one member is not the only case. You need to visit and see for yourself hundreds of empirical evidence. Currently, it is the hot topic in review meetings( besides subversion of minimum wages act) and one of the main criticism of the scheme, dear Somnath. It is being suggested to include works which provide for durable asset creation rather than providing wage employment. Read the Act , it is pursuant to Right to employment enshrined in the constitution

The Mahatma Gandhi National Rural Employment Guarantee Act aims at enhancing the livelihood security of people in rural areas by guaranteeing hundred days of wage-employment in a financial year to a rural household whose adult members volunteer to do unskilled manual work.

Its primary focus is on wage employment.It does not primarily aim for asset creation which could be incidental though nothing enduring is being created. Rest assured.

Act by itself doe not mention it. The guidelines include durable assets for rural areas in passing . This is needed for physical verification of work and work is determined based on shelf of projects determined by Gram Panhayats etc. which aims for something requiring unskilled labour with 40% material component. So you get earth work of dubious quality.

expanding the basket of works under NREGA to create more durable assets and facilitate faster
growth of rural economy.

He apprised Members of the fact that NREGA will continue to augment the economic security of the rural poor thereby enabling them to graduate from wage earning to more sustainable forms of employment and livelihood security and this indeed would be a significant step towards their empowerment.

Some lines from official minutes .