Indian Economy: News and Discussion (Apr 1 2011)

[somnath]

Sigh! Nowhere did I provide Bhide as a counter to Bhalla - if anything I suggested why should YOU stop at Bhalla when you can also reference Bhide-Mehta!!!

I am not referencing SB at all...Only citing him as a model for you to follow in cse you need to critique existing poverty data...And on Bhide, you said,

Somnath, Bhide and Mehta have considerable work on analysis of NSS data. Surely you are aware of it? TF saar clearly showed how Sen avoided using 2011 data when it was already available

Was it an example to show how bad India's poverty levels are, and how growth itself is not a mitigator for the same? Because that is precisely what Bhide and Mehta say...

Unlike you, I know enough about Bhide/Mehta to NOT quote them to support any of SB's contentions

Poverty assessment in rural areas will be on the 30 day cycle - pls do read up the PC report you provided. It is based on a 365 day cycle of Expenditure

Again - go through the report! Instead of making random statements based on google searches..

Here goes..

For
canvassing household expenditure on a recall basis, the NSSO has decided to shift to Mixed
Reference Period (MRP) for all its consumption surveys in future, namely, 365‐days for low
frequency items (clothing, footwear, durables, education and institutional health
expenditure) and 30‐days for all the remaining items. This change captures the household
consumption expenditure of the poor households on low‐frequency items of purchase more
satisfactorily than the earlier 30‐day recall period. The Expert Group decided to adopt the
MRP‐based estimates of consumption expenditure as the basis for future poverty lines as
against the previous practice of using Uniform reference period estimates of consumption
expenditure.

But again, barring the fact that you have either not read or understood the Tendulkar report, what is the point?

Why would the poverty figures reported using this calc. go up

some more gems! the whole idea of the Tendulkar report was to "recalculate and re-estimate" poverty levels taking into account new realities...And they recalibrated the numbers all the way back to 1993..

The expert group has re‐estimated poverty for states and all India for 2004‐05.
the methodology of carrying it foreword is also being suggested. In light of the new methodology, it
will be necessary to re‐estimate poverty for previous years. A preliminary exercise for 1993‐94 has
been carried out to facilitate a broad two‐point comparison of changes in headcount ratios. By this
exercise, poverty at all India level in 1993‐94 was 50.1% in rural areas, 31.8% in urban areas and
45.3% in the country as a whole as compared to the 1993‐94 official estimates of 37.2 per cent rural,
32.6 per cent urban and 36.0 per cent combined.

Again, barrgin the fact that you havnt read or understood the report, wnats the point?

Maybe you should think slowly, figure out what is it exactly that you want to critique, and then (ideally) find out credible grounds of that critique...Even references of someone who has done all the dirty work!

Otehrwise, the exchagne is fruitless...

[somnath]

As I see it, your angst at NREGA expenditure is perhaps driven by not getting enough labour at cheap rates to work your fields so that you can get rich faster But then NREGA as a scheme has been criticised for paying less than the required minimum labour rate no? .......

Well, the fundamental point of "wastage" as a result of NREGA is hugely hypocritical, gven the subsidies and tax breaks given to the rich and middle class, including directly to downright crooks...

NREGA is supposed to be a cash transfer scheme to attack the poorest households directly, and its "self opt out" would take care of some of the pilferage issues..But we had a long discussion on this some months back

[Supratik]

Although I am not a great fan of Sen, I felt Sen's critique is fairly well balanced. He notes the negatives and the positives about how India is doing.


Also one should note that although NREGA may have been initiated with the rural vote in mind and notwithstanding the problems associated with implementation and transparency, it helps in SLOWING down distress rural migration to the cities allowing a much more planned urbanization to take place and in the absence of social security provides something to some people to escape acute poverty. So inspite of the tardy implementation and corruption NREGA gets my vote.

[Vipul]

India's exports rise in March, trade deficit dips.

New Delhi: India's exports jumped 43.9% to $29.1 billion in March while it was up 37.5% at $245.9 billion for 2010-11, beating the official target of $200 billion, according to data released Monday.The trade deficit during the last fiscal fell to $104.8 billion, lower than the deficit in 2009-10 at $109.6 billion. For March, trade deficit was at $5.6 billion.

Total imports in March stood at $34.74 billion, while it touched $350.3 billion for 2010-11.The government plans to double exports to $450 billion by 2014. The commerce and industry ministry is expected to come out with a strategy paper this week.Oil imports, a major constituent of the total imported goods, was at $9.43 billion in March while they were valued at $101.6 billion in April-March 2010-11 - 16.7% higher than last fiscal.

Exports of engineering goods recorded the sharpest growth in 2010-11. This surged 84.76% to $60 billion. Export of petroleum products rose 50.58 percent to $42.45 billion.The gems and jewellery sector saw exports of $33.54 billion, a growth of 15.34% over the previous year.

'India today is looked upon as one of the leading players in the global arena. The growth path will continue in coming year as well,' said Rajiv Jain, chairman of the Gems and Jewellery Export Promotion Council.The performance of this industry is critical as it contributes 16.67% of India's total merchandise exports.

The growth in the sector was primarily driven by cut and polished diamonds, which registered an increase of 54.91% in 2010-11.
Drugs and pharmaceuticals sectors, for which India has gained considerable global reputation, saw exports worth $10.32 billion - a growth of 15.08%. Ready-made garments exports rose 4.23% to $11.1 billion.

However, exports of iron ore fell 25 percent to $4.5 billion in the reporting fiscal.

[vera_k]

HDI as an index itself is composed only of Life Expectancy, Education and Income. The only relatively fast moving averages in the index are the Expected Years of Schooling and Income.

If HDI itself is to be improved in a targetted manner, schooling has to be expanded to 12 year by eliminating the 10th grade boards, and having more students go to college. Life expectancy improvement needs more investment in healthcare than is done today - including training a lot more doctors, nurses and allied specialties.

So if HDI is to be the metric, it's fair to say NREGA has tangential benefit at best since it doesn't increase spending for any of the constitutent components of the index.

[Theo_Fidel]

Sugriva,

That is not what I said at all. Yes, toilets, education and child mortality is important. But rather than addressing it with yet another GOI program we simply have to get richer. Most of these problems have to do with the fact that we are not yet rich enough to afford these things by ouselves. 100% of our focus must remain on growing as fast as we can. To do this all our investment must go towards productive growth. How can you possible say we don't have productive avenues of investment. In my small town the entire infrastructure needs to be replaced. We still use a steel water tank built in the 1930 that leaks over 30% of its water. Our local hospital was built back in 1890 with a few wings added. Our roods are all basic gravel and mud. In the town center even the storm drains are old stone slab covered junk that never works properly. Most properties are unpainted and unmaintained contributing to the trashy look. Our garbage collection still occasionally is by bullock cart, once a month if we are lucky.

Instead we have a Rs 50,000 crore junk program that perpetuates manual labor and squanders money. Meanwhile JNNURM is set to end soon while money for NREGA is going up. This not a program even the states advocate just the high priestess in Delhi. The TN government now has a program for every one to convert their hut into a pucca concrete building. When they asked if NREGA money could be spent on this they were told no. And there is no money to fund the homes program.

Sen and his type are not comfortable with our focus on growth. They want us to de-emphasize growth. This is wrong. We need to remain 100% focused on growth.

[SwamyG]

While HDI surveys, studies and reports can be used by West to show how India is bad; if the numbers are true then it just shows how much catching up we have to do.
Typically in BRF and other jingo nukkads:
1. If any number, be it from the West, East, North or South shows India highly - there is lot of patting on the back. It corroborates our views on an ascending India in economy, military and social life. We feel happy and gloat. While some do point out, hey it could be trickery. Let us not believe it.
2. If any number, portrays India low, then
(a) One group starts crying hoarse about how all this is West attempt to keep India in poor light, illiterate, in poverty, under control and what not.
(b) Another group says "See, we have improved a lot; but we have to improve more"
(c) Another group says "See, we have not progressed much at all. India is doomed onlee" {akin to some Skyscraper City forum members who after looking at old Chennai photos craved for British ruling India for more time}

Groups (a) and (c) are unhealthy and extreme groups . We need more group (b) folks. But in any case, we are held hostage to the Western Economic model of measuring how long our appendages are onlee. While size matters to some, even with smaller appendages things can be made happy.

How Happy Are You? A Census Wants to Know Now that the West is intent to capture the happiness of people, maybe desh will ape the West. Sad, when all along we had our own parameters to measure our way of life.

[RamaY]

SwamyG garu,

Wonderful point. I am going to follow your lead and start being happy with everything I see because the glass is always half-ful

That automatically solves my problem and others too; for example by accepting HDI is half-truth India has made some progress and will need to work further on it. At the same time HDI is also used to influence certain policies to reflect the other half of the glass and I am happy about it too.

I want to extend this idea to other issues like corruption issue, AH's Lokpal bill, MMS, OBL, 9/11... at the end of the day all I want to be is part of the happy group.

In telugu we call this 'goda meeda pilli = cat on the wall" strategy.

[sugriva]

...

Theo,
If that is your understanding then we have a fundamental disconnect. What I am saying is that faster growth is not possible without improvement in HDI indices. For good or for bad investment has a very narrow meaning, that of earning positive returns over a period of time on something that I invest in today. So for the village/taluk improvement programs that you talk about above, pray tell me how is someone supposed to make money by repairing the hospital and relaying the roads. Yes, if the govt gave out contracts there would be contractors willing to take up the work, but you and I both know that this expenditure would count as government expenditure and not investment. Yes one can blabber about how improved roads lead to growing economic opportunities etc but it is as yet unclear, at least to the best of my knowledge of economics, how such an arrangement could be quantified.

So that set out of the way, I will define investment to be investment in profit making ventures. For that either one sets up factories or starts a services business. Both of the above require some literacy skills. Also malnourished people will not be able to do the work. For these we need investment in literacy and in whatever else improves HDI. It is therefore that I say that without improvements in HDI figures future growth is not possible. As I see it we risk loosing the demographic dividend if we cannot equip our potential workforce to be fit educationally and physically.

[nithish]

India clears $12 bln S. Korean steel plant

India on Monday gave final clearance to South Korean giant POSCO's proposed $12 billion steel plant in a deal seen as a test of the country's openness to foreign investment.

The plant — one of India's biggest foreign projects since the launch of market reforms in 1991 — has faced fierce opposition from locals in Eastern Orissa state campaigning to save farmland and forests.

The environment ministry, which gave permission for the plant to be built in January, had stipulated that the Orissa government should investigate claims by locals who could be forced off their land.

Environment minister Jairam Ramesh said Orissa authorities had dismissed the claims and therefore "final approval is accorded to the state government" to give 1,253 hectares (3,100 acres) of forest to POSCO.

[SwamyG]

RamaY:
Welcome to my world that acknowledges the glass is half-full and half-empty I am entrenched in "dharma", so cat on the fall and other sarcasms are going to be less effective on me, because I am actually the buffalo in the pond

[RamaY]

SwamyG garu, the personification of Dharma is Action; not in-action. But I agree that we have to become like buffalos (SDRE dharma-devatas = cows) when it comes to all these indices. Accept the for what they are and do what we gotta do.

[Abhijeet]

We have been talking about and trying to fix this for 50+ years. You can talk about sincerity, effort, honesty, etc but this is the end result.

Theo, there's no disagreement from me that growth is the overriding, urgent objective. My only point is that without fixing basic governance, just economic growth will not be able to pull large sections of our population out of poverty -- because they simply lack the skills to generate wealth, and the government is not doing enough to help them move into the modern, wealth-generating economy.

My guess -- that I had written about before -- is that our Gini coefficient will get progressively worse over the next few years, as the people who are able to get by without the government move ahead, while those who need the government to pull them up are unable to find any help.

[Theo_Fidel]

Sugriva,

I think you are buying the Sen argument too much. It has been much discussed here and noted that the HDI problems have nothing to do with the way we invest or develop programs. In my town literacy amongst under 15 years is 100%. In Chennai it is well above 90%. Even in places like UP you go and look at the young population and literacy rates are very high and standard of living has risen dramatically. I have noted before that the shortage of welders in Chennai ended when all the projects started up recently as 'on the job' training has created a whole army of experienced welders. Yet you don't seem to think that people joining the modern workforce is necessary. Which is what rebuilding our infrastructure would do.

Your focus on HDI improvement as limiting our growth is mistaken. It has not limited it so far and will not in future. What will limit it is diverting our productive population into digging holes and filling holes. Kerala has off the charts high HDI yet its growth rate is anemic. Same with Sri Lanka. HDI by itself is meaningless. Growth and productive wealth generation that then proceeds to improve HDI is what we need.

Yes admittedly we have a 30% chunk of our population that essentially continues to live in the stone age. The source of this population has been much debated here. At least here in southern TN a major source of this population is the older folks, 35 years+ who are the debris of 50 years of NREGA type poverty perpetuating programs. They have no education, poor living practices and no drive to reform. I don't know what is the solution to that problem. As long as this 30% chunk lives, they will continue to make our HDI stink. No amount of building toilets will make them use and maintain that particular technology. Several small attempts here failed within weeks. But this is not the source of our growth problems and certainly not a obvious limiting factor for our growth.

Again as has been posted before, the limiting factor for our growth is the investment rate. At a 35% investment rate 9% growth is the best we can expect. If we can increase it to 45% plus (China is at 54%) we would automatically grow at 10% plus. HDI has nothing to do with this. Let me point out that TN alone graduates 150,000 engineers alone of varying quality. This is more than the entire US.

It is exactly your sort of confusion about the source and future of India's growth that Sen and his lot intend. Please ignore their pointless barking and keep the focus on why we grow.

Abhijeet,

How can you possibly say that. The evidence is right before your eyes bhaiya. More people have been yanked out of poverty in the last 15 years of rapid growth than in all the years since independence. Trying to divide and sub-divide a small pie only guarantees poverty for all. Every group the government has touched has remained poor and wretched. Sheer growth is the only dynamic working in India. All else has been tried and has failed.

[Gus]

We are not a country of "lets plan this program and execute it efficiently and make it work" type people. Of all the programs the govt has announced over the last 50 years, what is the success rate? This is not to say that the govt should dismantle all programs. We have a small window of opportunity to get it right and I am with Theo on 'let's just grow and let things develop organically as per demands that come along with growth than throwing money at non-productive programs'.

[somnath]

We are not a country of "lets plan this program and execute it efficiently and make it work" type people. Of all the programs the govt has announced over the last 50 years, what is the success rate?

Gus-ji, unfortunately the debate tends to get side-tracked with an "us versus them",, rather "this way, highway ro my way" sort of stances...

One, Amartya Sen isnt talking about dampening growth in any way...the fact that growth is necessary to generate resources for the social sector is understood...

Two, the kind of programmes that are relevant for HDI will overwhelmingly be delivered (and have to be delivered) by the state...There are no two ways about it..Private sector cannot, will not deliver literacy, health, sanitation...Even large infrastructure...It can be engaged in the execution in some parts, but funding, monitoring, administration will always be with the govt..We therefore better find out more efficient means of doing it..

Again as has been posted before, the limiting factor for our growth is the investment rate. At a 35% investment rate 9% growth is the best we can expect. If we can increase it to 45% plus (China is at 54%) we would automatically grow at 10% plus. HDI has nothing to do with this. Let me point out that TN alone graduates 150,000 engineers alone of varying quality. This is more than the entire US

There is nothing "given" about a given level of ICOR...Without the essential "software" in place, no amount of savings, investment, physical hardware can suffice..thee are lots of examples of this - the entire Middle East for one..Despite high levels of investment, infrastruture etc, they remain underdeveloped and prone to masisve cyclical issues as they lack cricial elemnts of the "software" (not basic HDI, like India, but some others)...

If India does not get its act in place on the "software", growth momentum will ultimately peter out, and we will have massive social tensions to contend with at the same time..

Most importantly, while faster growth definitely genertaes more resources, what is crucial to understand is the following:
1. Faster growth has NOT resulted in a commensurate decline in poverty..One can quibble over the various methodologies - Arjun Sengupta, Suresh Tendulkar et al (and we have done that befoe here), the fact that the numbers are still unconscionably large is a fact of life..More so when you take into account the fact that a lot of "APL people" are only a drought or marriage or disease away from becoming BPL...

2. Faster growth has yielded less and less of employment...Again, multiple sources have been quoted here on the point - employment elasticities have remianed stubbornly declining-to-stagnant in the post-reforms era...

Lastly, there is somehow an association imputed between NREGS and our HDI numbers...NREGS addresses only one variable in the HDI framework, viz, poverty - refer to the two points made above...It is howewver not a silver bulet solution for all our problems...Bulk of the issues with HDI is on the quality of execution in delivering public services, which is precisely what AS and others (including Bhide ) have been saying..

Instead we have a Rs 50,000 crore junk program that perpetuates manual labor and squanders money

And presumably the few lac crores of tax exemptions (exemptions, not breaks - very different concepts) and subsidies given every year to the rich and middle class is useful usage of money! Of course, "targeted" tax breaks given to Shahid Balwa and KP "need to change my red herring 10 times" Singh on selling luxuy apartments perpetuate something noble!

[Theo_Fidel]

We are not a country of "lets plan this program and execute it efficiently and make it work" type people. Of all the programs the govt has announced over the last 50 years, what is the success rate?

Gus,

This is absolutely right. Our society has not been that way for a long time. Even the Romans commented about the diversity they found in India back then. What works in other societies is simply irrelevant here. People like Sen don't understand this at all or understand but choose to ignore. We will do things our way and the world metrics be damned.

How can we have 100% literacy and 10% literacy in the same country.
How can we have a state like Meghalaya with a Literacy rate of 92% yet a child mortality rate of 60 per 1000 and a vaccination coverage of 30%.
How can we have a state like AP with a literacy rate of 67% yet a child mortality rate of 42 per 1000 and a vaccination coverage of 74%.

What central program can deal with this.

We need to grow rich before these critics of our rapid growth make us doubt ourselves. Completely divorced from reality every one of them. None of them remember how bad things were in the 60's & 70's a and have the craziness to say our growth rate is not good for India. The reality is right before my eyes, no twisted and lie ridden statistics are required. My family has essentially 100% employment compared to a time when I remember a 20% employment rate.

Keep that investment rate ~ 40% India. All else is Maya.

[somnath]

For those with a dogmatic belief in the power of investment rates to propel GDP growth, the axiom doesnt stand theoretical scrutiny, but more importantly doesnt stand empirical scrutiny either..

Here is a (slightly old, 2003 vintage) paper on sources of growth in South Asia..

http://siteresources.worldbank.org/SOUT ... on_ch2.pdf

As can be seen, contribution of "total factor productivity" towers over contribution of physical capital (the proxy for "capital invetsments") for both India and China, as well as for Industrial countries in the post-WWII phase..

More critically, the key point of difference is the sheer scale of growth in total factor productivity in China in its own post-reforms phase (1980-2003), when it went up from 0.64 to 4.49...Compared to India, where the TFP went down to 1.95 (in 1990-2003) from 2.05 (in 1980-1990)...some of it is to be expected, as India has had a legacy massive lead in efficiency ratios, especially financial ones over China (which remains valid even today)..But still, it goes to show how much room there is to push up growth by the right investments in "software"...the levels of investment required in them is relatively low, but the payoffs are outsized..A classic example is our software industry, which the paper references to as well..

Good read for both the dogmatists and the pragmatists!

[somnath]

For those who havent seen/read it, here is the latest UNDP report..

http://hdr.undp.org/en/media/HDR_2010_E ... eprint.pdf

HDI is very comprehensive - starts off with Health, Education and Income as the key variables, but drills down into the micro numbers at great detail for each of the three..They also now have an "inequality-adjusted HDI", to account for differential outcomes for countries with large levels of inequality..

The amount of detail is just astounding - gender, equality, freedom, sustainability..The new Multi-disciplinary Poverty Index (MPI) is simple and elegant, yet comprehensive...

Overall, good read...

And yes, read the reference to NREGA on page 116! As also copious references and credits to Amartya Sen and Jean Dreze

[vina]

One, Amartya Sen isnt talking about dampening growth in any way...the fact that growth is necessary to generate resources for the social sector is understood...

Sorry. That is a revisionist writing of the facts. The DSE/ISI/St Stephens/JNU cabal propagated the view of the 'ideal' being a Sri Lanka or a Cuba. It was simply beyond their imagination that you could grow wealthy at all. Their focus and entire thrust was not on creating wealth to increase the size of the pie , but rather on re-distributing the one chappati that we had.

Hence all the focus on "dispensing welfare" (Amartya is a top proponent of "welfare economics" and he got his Nobel for that) and tying down industry and "commanding heights" and all that.. fit in perfectly with the recieved wisdom of the Fabian Socialism from Oxbridge which Chacha Nehru and the other "intellectuals" (particularly Bhadra Bongs ) attended pre independence (the thrall continues in today's Dilli whose denizens haul their a*ses across to Oxbridge for a routine round of indoctrination to announce to the world of their "arrival") and the massive underperformance of the Indian economy for 40 years and the undisguized sneer at Asean as "shoe and bag stitchers" when their growth took off in the 60s and 70s.. Well, see where Malaysia, Singapore, Thailand , even Indonesia are today and see where India and particularly Bengal are today and you know whom to lay the blame on.

[somnath]

he DSE/ISI/St Stephens/JNU cabal propagated the view of the 'ideal' being a Sri Lanka or a Cuba.

Well, dont know what the "DU-JNU view" means, but I would be interested to see if there is any place where AS talks of Cuba or SL as being "ideals"...Or the fact that growth is not important..

the limited point being made is that economic growth is not a sufficient condition to improve HDI (incl poverty), though it is a necessary condition (even though contrary examples too abound for the "necessary" conditionality - East Europe, Cuba, Central Asia)...

Pigeonholing is rather easy to do - makes for better rhetoric (eg, buttonhole "welfare economics" as "state control")

BTW, as many "Bongs" spoke (then) and speak (now) on the market - Shankar Acharya to Kaushik Basu - India's reforms process is replete with contributions of the talented bengali economist community

[sugriva]

Fabian Socialism from Oxbridge which Chacha Nehru and the other "intellectuals" (particularly Bhadra Bongs ) ....particularly Bengal are today and you know whom to lay the blame on.

If this is the quality of logic from the shallow thinkers of the Mylapore School of Economics then God save this country....

[Theo_Fidel]

Here is India HDI 1980.


Here is India HDI 2005.


Trending towards yellow/green is better. According to Sen our obsession with GDP growth caused this lack of improvement. What can one say. Poisonous snake.

Vina uses colorful language but there was a long tradition of worshiping Sri Lanka type smug chauvinistic elitism. Radio Ceylon was must listen back then. This was when TV and Radio were not meant for people but to educate and raise people HDI. You know by broadcasting Sanskrit and Hindi. Oddly the only radio programs in Tamil worth listening to were from Radio Ceylon where the dripping condescension towards the dirty, backward and low HDI Indians was very strong. People don't even remember these things now. Cuba too was very popular and still is amongst these snakes. Recently it is psychotic Bhutan with its insane 'Gross National Happiness', whatever the F@#%% that is supposed to mean. This was the cr@p peddled to us as the alternative to hard work and prosperity.

It is the sad fate of BR that Arundhati Roy is roundly condemned for her naked but honest commentary but the sleek snakes such as Amartya Sen get a free pass.

[sugriva]

Trending towards green is better. According to Sen our obsession with GDP growth caused this lack of improvement. What can one say. Poisonous snake.

Err, This is your interpretation of what he says no .....

[somnath]

Trending towards green is better. According to Sen our obsession with GDP growth caused this lack of improvement. What can one say. Poisonous snake.

Err, This is your interpretation of what he says no .....

Most importantly, Sen is merely comparing the relative progress made by India and China..And amplifying his point by comparing the outcomes of even lesser-endowed countries with India on some of the variables...He is certanly NOT saying that India's realtively poor progress is because of higher growth..Rather that its despite higher growth..

I said before, growth is (perhaps) a necessary condition, not a sufficient one, to use an oft-used economics phrase!

In fact he's not making any earth-shattering point at all..anyone glancing through the HDI report would make pretty similar observations...

As I said before, buttonholing a personality on a non-existant position makes for better opportunities at abuse and invectives

[Theo_Fidel]

Err, This is your interpretation of what he says no .....

You are being cute now. You know very well what he is implying. I'm merely cutting to the chase.

[somnath]

You are being cute now. You know very well what he is implying. I'm merely cutting to the chase.

Of course asking for any evidence to back thi up will be futile, as it usually is for most such assertions!

[vera_k]

One thing I don't get is why the country does not allow states to levy their own income taxes to raise funds for social spending. Shouldn't it be possible to have an Indian version of California with high income and sales taxes and the high HDI to go with it? This will also allow the states to claw back any undeserved tax breaks or exemptions doled out by Delhi if the local situation so demands it. After all, it is not as if schools funded by Delhi are going to educate children in Nagpur, nor will hospitals funded by Delhi treat patients in Indore.

The lack of an income tax is also a strike against the GST for it will take away whatever flexibility the states have to raise more resources on their own.

[sugriva]

As I said before, buttonholing a personality on a non-existant position makes for better opportunities at abuse and invectives

Somnath-ji,
That's par for the course for the ayatollahs of the Mylapore School of Economics. The central tenets of this school of economics seem to be
1. GDP Growth to be greater than 10%. How somebody should get to that percentage? What are the factors that can enable or hinder that growth process, nobody wants to talk about? 40% investment rates are bandied about but ask people for where are the investment opportunities and they point to their village fish tank.
2. The link between literacy, health and economic development does not seem to exist in this school of economics.
3. If anybody points out any data to the contrary, he or she is a western implanted agent who seeks to bring down the credit ratings of India
4. Diss and throw mud on all the schools and institutions in India. This way nobody has to explain what their positions are and how they would use the same data to arrive at any meaningful conclusion.
5. If data is unfavourable to this school of thought then dismiss data using tactics 3 and 4 above and call it suspect and the result of corrupt data gatherers.
There I have summed up the economic contributions of the Mylapore School of Economics, all from my readings of this thread over the past 6 odd years.

[somnath]

One thing I don't get is why the country does not allow states to levy their own income taxes to raise funds for social spending

Vera_k-ji, there is...state govts can impose payroll taxes on employers (and employees)...We typically have the former, and these monies are used for social sector, usually insurance and healthcare..But its certainly not at the same level as the US...

To be honest, most state govts have a far higher degree of fiscal space now..Successive Finance commission recos have ensured tht...Yes, these guys are chomping at the bit at the loss of flexibility on GST, but its really not a big deal - at the end, it will benefit everyone, or most in any case..

[somnath]

As I said before, buttonholing a personality on a non-existant position makes for better opportunities at abuse and invectives

Somnath-ji,
That's par for the course for the ayatollahs of the Mylapore School of Economics.

Sugriva-ji, not sure about the "Mylapore" bit, but +1 on the rest!

[Supratik]

Well Somnath is right in that what Sen is saying is that resources generated by higher growth should be used to plug the holes in HDI e.g. how many central hospitals have been setup by the Govt. in the last 20 years since liberalization. We have been hearing about more AIIMS like hospitals for the last ten years at least since the NDA Govt. But nothing has happened. In my home state of WB how many state hospitals have been setup? How many Universities have been setup where the requirement is thousands of universities required to get to the level of advanced countries. Why is the school dropout rate so high? How can we keep more students in classes for longer periods of time? How many people can afford healthcare from say a Fortis hospital or education from Amity University? So Government has a role in education, healthcare and I would add "infrastructure" that cannot be wished away. The Government is inefficient as compared to the private sector even in advanced countries. The problem in India is that it is even worse. So the solution lies in better governance and we should be glad that people have started demanding it (note for example the inability to dislodge Modi from Gujarat inspite of all the propaganda or the reelection of Nitish in Bihar and Sheila Dixit in Delhi and the imminent ouster of the ruling party in WB).

Growth alone is not an end in itself. It is means to a better quality of life for its citizens.


NREGA or the imminent Food Security Act should be seen as stop gap measures to Social Security. Once we have the resources (say a $10-20 trillion economy) by 2020-2025 and the universalization of UID, we can think of eliminating all these programs and going for social security (direct cash transfer). That is what I believe the US did in the 1950's.

[vina]

Well Somnath is right in that what Sen is saying is that resources generated by higher growth should be used to plug the holes in HDI e.g.

Well, that is the new, reformed , "post modern" Amartya Sen saying that growth creates resources which can be funneled to the social sector.

You dont need Amartya Sen to say that. Any random Abdul off the street can say that.

That in anycase was not the Amartya Sen / ISI/DSE/ Dilli Ding-Dong thesis when these types were the fire breathing socialist ayatollahs in the 50s, 60s and 70s. Their thesis was through some magical "welfare" and "socialist planning" and "commanding heights" over the means of production the "surplus" of the economy can be used to fulfil the social causes and you get HDI of the level of Cuba (post Fidel Castro revolution) or closer home , Sri Lanka , culminating in a search for "an Indian example " and the "discovery" of Kerala.

That the entire thing is hokey and there are proven quoted articles of Amartya Sen arguing that the Public Sector can well continue to make large losses becuase it resulted in "greater welfare" from long ago is lost in these warm fuzzy days when he is a nice old grandpa with a Nobel and looking to go the the great yonder in a blaze of glory ..

Not that I have a problem with that, but it needs to be recognized that the wacky theses of the ISI/DSE wallahs and the imported Fabian socialism condemned a massive number of Indians (how many hundred millions?) to grinding poverty , backwardness and yes poor HDI and trying to put the cause of low HDI on "growth" and "liberalization" and not on the severe under performance of the economy for 40 years (and yeah, due to the lack of resources your own policies and wonkish and wacky economic theories could not generate) is really being a quack and charlatan in the extreme. Oh well, we will see a great paper with "stat is sticks" from the DSE types "proving" it so soon I guess , including about how the great NREGA was the primary driver of higher HDI in 2020 vs 2010 (err.. ignoring the elephant in the room called growth and sensible choices people make when you give money in their hands like sending kids to school and getting them food and vaccination vs what Babu monkeys do when you give them money , like building large giant steel plants which you run at massive losses and say that is good because it increases "welfare")..

[somnath]

Well, that is the new, reformed , "post modern" Amartya Sen saying that growth creates resources which can be funneled to the social sector

Vina-ji, what is the point here? That Amartya Sen is liable to be critiqued? Well, thats tautological - every economist can be, and has been critiqued..Heck, John Keynes has gone from being a sage to an outmoded statist to a prescient genius - not once but a few times in the course of 60-70 years! So can AS be..But critiquing AS's consistency or otherwise (even if one were to take your claims as true - they are not, but thats a different point) has little consequence to the thrust of the current axiom - simply put, and I am reiterating - growth is perhaps a necessary condition for better HDIs, but certainly not a sufficient condition..

About your allegation of what AS said in the past, lot of it is plain inaccurate (you might want to first read his original works on India, China and Kerala, circa 1980) - but that isnt the point here at all, so I wont get into pointing the errors out..

the primary issue is this - whether its the planning process of the '50s (when there were lots of good reasons for the policy choices made), to the autarky of the 60s and 70s, to the hesitant nothingness of the 80s to the reforms process in the '90s - there has simply not been the kind of focus on education and healthcare in India as has been in many other countries, especially in East Asia and East Europe...We made conscious choices about putting more focus on the "hard indicators" of growth - whether it was the steel plants and dams in the 50s, or the wholesale nationalisation of the 70s or the reforms of the 90s - the focus was (realtively) less on these sectors...Our expdt-to-GDP ratios for these sectors tell their story well enough...And the limited point people like Sen are making (he first made it in 1980!) is that we need to look into that - both from an outlay perspective as well as from an outcome perspective...

A brief point on the utility of this "software" to growth itself...There is this dogmatic belief (here and elsehwere) that investment rate alone g'tees growth...Flies in the face of both theory and data...there is nothing constant, or "given" about our ICOR...ICORs change with structural changes in the economy...So an agri-based economy will have a lower ICOR to one that is heavily investing in manufacturing and industry, while some parts of services will have a lower ICOR as well..Which is why the US for example has a higher ICOR to India's! Most economists prefer to take Total Factor Productivity (TFP) as a better measure of efficiency...

As manufacturing, infrastructure and capital-intensive parts of services (banking, insurance) grow as a % of GDP, India's ICOR will come under upward pressure...The only way of deriving out efficieincies (TFP) in the process is by having a better trained, healthier workforce...HDIs prepare that groundwork to cope with the growth...

Refer to the World Bank report I referenced earlier...China's humungous growth from 1980 was substantially because of growth in TFP, and actually lesser (though substantial by itself) in terms of pure capital investment! The reason is simple - in 1980, China's "software" in HDI terms was far better tuned than Idnia's for example...India had/has legacy advantages in other areas like capital efficiency...But going forward, the overall "quality" of people will need to be improved for India's own "software" to retain the edge and cope with increased investments...

As Jean Dreze (yes, Jean Dreze!) says, its not an "either or" scenario.We need large investments, both public and pvt, AND we need to dramatically up the game in HDIs....

how the great NREGA was the primary driver of higher HDI in 2020 vs 2010 (err.. ignoring the elephant in the room called growth and sensible choices people make when you give money in their hands like sending kids to school and getting them food and vaccination vs what Babu monkeys do when you give them money

Ahh so, you actually think NREGA is a good idea

[Theo_Fidel]

The best example to short circuit all those claims of high HDI by the Kerala government is the presence of Kanyakumari district in TN. All its social indicators mirror that of the old Travancore and Cochin districts next door. 95%+ literacy, replacement fertility, delayed marriage, low child mortality and mal-nutrition, etc and for a long time as well, before HDI was such a sexy concept. Yet there it is in TN with its lower expenditure on schooling and social engineering. That same TN also has a district like Dharmapuri with a literacy rate of 63%.

The reason these areas have high HDI number is the people living there. For what ever reason (I not going there) social reform was a high priority for them. Government programs only help on the periphery. Unless the HDI indicators are an extremely high priority for the people involved all government programs will fail as they have in huge sections of India. This why it is important to recognize the resistance from the 300 million or so of our population that have been lost through a failure to change. These are the ones who were lost to poverty while Sen and his types bloviated about poverty in India and how the government should divert all its resources there rather than to build roads, primary schools and ports. So we had ivory towers such as JNU, AIIMS and even the IIT's well funded but not primary education. We had TV programs such as 'Krishy Darshan' which taught city dwellers (the only people with TV & electricity back then) the best way to fertilize the Sugarcane field for 2 hours every evening. We had the failure to provide modern communication in the form of phones till the late 1990's since it was not a priority for HDI improvement. We had 'Food for Work' programs such as NREGA all the way from 1960's, with fancy names such as Jawahar Rozgar Yojna, Employment Guarantee Scheme, etc. Did nothing to end poverty so now we have new and shiny NREGA.

The best tonic for a failure to change is money, growth and an integration into the modern economy. It is not to say HDI is not important. But in India its growth and prosperity that leads to high HDI not the other way around. To show just how resistant our population is to social reform, the child Mal-Nutrition rate amongst the Indian Middle class is an extremely high 30% or so. Not that far from the poor folks 40%. If we wait for our people to reform socially so we can raise our HDI and then focus on growth we could be here centuries. Wait, that's what we have been doing so far right. That's what these socialist types want.

[Theo_Fidel]

Meanwhile for those seduced by Bangladesh... ..underestimate your population by 10% and your HDI miracle can continue..

http://www.economist.com/blogs/banyan/2 ... shs_census

To account for the decade-long stagnation in the rate of fertility decline, in 2004 the UNFPA raised its 2050 population estimate by 25m to 243m. Bangladesh’s most recent Demographic and Health Survey calls this “unduly pessimistic” (the government puts its estimate of the 2050 population at 218m). Indeed, many demographers shared the government's criticism and believe that the UN's projection (243m in 2050) was simply too high because it chose to project from 1991 census data instead of the latest data, from 2001. In its latest report, “The State of the Population (2010)”, UNFPA practically reversed its own revision. It now estimates that the population will hit only 223m by 2050, which puts it a mere 5m souls above the government’s own best guess. Mr Muhith is reported to have complained about the “honourable clerks” who seem to spend too much of their time sitting behind desks in New York.

Arithmetically speaking, it is a battle over the size of a denominator—many indicators of economic development are expressed as a proportion of the total population. Politically, a small population is a nice thing to have. This is because the smaller it is, the more impressive Bangladesh’s progress on the UN’s Millennium Development Goals (MDGs) will look (and the warm feeling would be mutual). This refers to progress made towards the goal of halving the proportions of poor and hungry people. So the size of the population matters, either directly or indirectly, for it serves as a denominator in the vast majority of indicators by which progress on the goals in the MDG framework are measured.

this inevitably leads to someone’s asking: how many of the “missing” Bangladeshis may have successfully made their way across the bloody border with India? India’s 2001 census shows that 3.1m people or nearly two-thirds of all migrants from India’s international neighbours came from Bangladesh. That number, like the one from India’s 2011 census, is unlikely to be accurate. By many estimates, more than 15m illegal migrants have entered India from Bangladesh since 1971.

[somnath]

One of the last bastions of the "price control" regime is about to fall...Well, at least the first stakes have been planted..

Demand deposits, or Savings/Current account in common parlance, have regulated interest rates in India - 3.5% for the former and 0% for the latter...RBI has come out witha discussion paper which proposes doing away with the controlled pricing on the former, and making it "free"..

Its a very good step, one in the right direction..It has been the banking cabal, led by the PSU banks that has been stalling this for a long time..the reason is simple..Because SA are actually quite stable in practice (despite being called "demand" deposits), they afford massive Net Interest Margins to the banks...With clients having no choice in the matter, all banks therefore have a cosy arrangement of profits going...Its anachronistic, most of the civilised world has deregulated SA pricing already...

time we did as well..Here is the paper..
http://rbidocs.rbi.org.in/rdocs/Content ... 70411F.pdf

[Hari Seldon]

From twitter, perhaps relevant to the 'debate' above:

>>600 civil society folks chants inclusive mantra for 12th plan. http://twitpic.com/4t106p

It's the influence-sans-accountability civil society activist types that may (inadvertently, perhaps) put the brakes on growth, which has shown itself to be a more reliable driver of HDI among other positive things, in our country. I'd love to be proved wrong but the number of spanner in the spokes put in by these activist types on a whole slew of large infrastructural and industrial projects does give pause.

[somnath]

It's the influence-sans-accountability civil society activist types that may (inadvertently, perhaps) put the brakes on growth, which has shown itself to be a more reliable driver of HDI among other positive things, in our country. I'd love to be proved wrong but the number of spanner in the spokes put in by these activist types on a whole slew of large infrastructural and industrial projects does give pause

The Plan document is an anachronism (expect Montek Ahluwalia to junk it by the end of his term in PC!)...For 600 chaps to be worked up over it shows how anachronistic they are!

BTW, all the brouhaha over land acquisition was a necessary evil..For far too long, the issue has been dealt with in a surreptitious way, using colonial era legislaions, for pure and simple rent seeking...Almost every large project in India has meant land acquisition procedures dovetailed to benefit key "persons", usually party hacks (Singur was no exception, as an example)..Now, thanks to the shindig, the govt has had to come up with proper modern policy frameworks on land acquisition, mining rights etc - most of it is now WIP...

[somnath]

BTW, found an interesting document on FDI flows into India - cumulative from 2000 onwards..

http://www.scribd.com/doc/36517068/Indi ... ruary-2010

(someone's done the dirty work of collating all RBI numbers monthwise!)..

The state-wise break-up is useful...Mah and Del are heads and shoulders above everyone else...Kar, AP, Gujarat and TN are in the next bunch, pretty close to each other...And then there are the "rest", led by WB