Indian Economy: News and Discussion (Apr 1 2011)

[SwamyG]

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

Why the penchant to look down upon others, and glorify the self, huh? Do you disagree with Rosling's data and views?

Oh, people can come up with statistics to prove anything, Kent. 14% of people know that. - Homer Simpson.

[vera_k]

That FDI into Delhi looks mighty fishy when compared with the table listing the number of technology transfer agreements where Delhi is non-existent. Is this all the black money that is being laundered back into the country?

[somnath]

That FDI into Delhi looks mighty fishy when compared with the table listing the number of technology transfer agreements where Delhi is non-existent. Is this all the black money that is being laundered back into the country?

Not sure what those FTC aprpovals mean..I didnt know that people had to take special approvals to transfer technology..

In any case, if you look at the numbers, they seem to be "backloaded", <100 FTC approvals in the last 2 years, which is when FDI really shot up, including in Del...Which could explain..

There is no doubt that some of the FDI would be roundtripping...But not a lot IMO...Primarily because it is much easier and flexible to round trip money through the FII and ECB routes...Plus, I dont think that the amount of "black" money abroad looking to be roundtripped back is all that high anymore - all of that came back in the '90s and early 00s..

[vera_k]

Black money is being continually generated abroad. Just this last month, a friend of mine paid into a Dubai account for buying a plot of land in the NCR. Now that money has to find its way into India somehow.

[Suraj]

The elephant in the room of HDI improvement is government efficiency. Not more resources, not cynical lip service to NREGS by blaming the rich for not wanting their productive output taxed so GoI can piss it down such programs where automation is proscribed and money doesn't even go to those whom it's intended for. If BD does better, it's a testament to the fact that their public delivery of essential goods and services is better than that of India.

I'd really like to see how much analysis these welfare economists have done to minutely quantify and analyze effectiveness of delivery of goods and services by GoI over the course of the reform period and before. The analogy here is to a leaking sieve - trying to sort an even bigger load (i.e. greater budgetary allocation) may temporarily increase the sorted volume, but the load stresses the holes and progressively exacerbates the problem of misallocation.

We've plenty of metrics to judge outcomes, and even more purveyors of povertarianism to beat us with. How about metrics on efficiency of delivery for a change; if Rs.N delivers M output (e.g. M kids vaccinated), does Rs.100N deliver 100M output ? To an extent scaling issues are reasonable; greater geographic coverage increases costs. On the other hand greater resources also enable more efficient delivery mechanisms to be applied, e.g. lower per dose costs for larger bulk purchases.

Without such detailed analysis I'm much more inclined to support Theo's or Gus' line of argument - GoI's efficiency standards being as abysmal as they are, it's far better to support the one economic paradigm that has generated dramatic countrywide socio-economic benefits - unfettered economic growth. Will it encounter diminishing returns without greater HDI development ? Quite possibly. But the drive to grow in itself provides people an organic impetus to improve or seek betterment in their educational and living standards; top down approaches do not and will not work in India as long as GoI remains incompetent at execution and delivery - something that, except for notable exceptions, has been a chronic issue forever.

[somnath]

I'd really like to see how much analysis these welfare economists have done to minutely quantify and analyze effectiveness of delivery of goods and services by GoI over the course of the reform period and before

Just because it doesnt get as much media attention doesnt mean it isnt being done! Almost every department needs to prepare Outcome Budgets - it was started in 2005 if I am not mistaken..

Here is the latest Outcome Budget of the Ministry of Urban Development..
http://www.urbanindia.nic.in/quickacces ... m10_11.pdf

At a macro level, the outcomes achieved on leading indicators, and UNDP is as good a source as any for them, demonstrate relative efficiency of outlays over time...

The analogy is wrong..Its not about putting in more load into an existing sieve, its about constructing a new sieve altogether..

GoI's efficiency standards being as abysmal as they are, it's far better to support the one economic paradigm that has generated dramatic countrywide socio-economic benefits - unfettered economic growth.

Thats a non sequitor...no one has spoekn against high economic growth...the only argument is growth isnt a sufficient condition for HDI improvement, though it might be a necessary condition...Most HDI variables will not get resolved through growth alone - education, healthcare, infant mortality et al are not outcomes that the market will deliver..Investments in them will necessarily have to be done by the govt...However, what people get confused by is between funding/administration and execution..It is not necessary that the service is delivered by a govt machinery, it can well be delivered by the pvt sector, but funded by the govt...the key fact remains that it has to be a more focussed intervention by the state...

It is a well established fact that employment elasitcities have remained stubbornly static even decline in the post reforms era...Therefore even the "hardest economic" variable in HDI, ie, poverty has not moved in line with the sharp jump in growth we have seen...In fact, poverty levels have dropped almost at the same pace as they did in the pre-reforms era..

Elsewhere, none of the other HDI variables can be addressed by growth alone...It has not been done anywhere int he world, and the pvt sector will not do it in India (pvt sector didnt even fill voids in infrastructure investments in the '90s, that were inherently profitable otherwise..The govt had to step in again to kickstart the sector in the 2000s)..So there is no substitute to public investment and better administration of the same...

A dogmatic "growth and everything else be damned" is just plain stupid...without avast numbers of people adequately equipped to take advantage of a fast growing economy, it will simply exacerbate social tensions and hamstring growth itself in the medium term..

And lastly,

Not more resources, not cynical lip service to NREGS by blaming the rich for not wanting their productive output taxed so GoI can piss it down such programs where automation is proscribed and money doesn't even go to those whom it's intended for

I guess all tax breaks going to Shahid Balwa and KP "change my red herring 10 times" Singh are for their "productive" businesses, and inefficiencies are only in NREGS for folks living on <2 dollars/day!

[sugriva]

I'd really like to see how much analysis these welfare economists have done to minutely quantify and analyze effectiveness of delivery of goods and services by GoI over the course of the reform period and before.

Is is so difficult to turn back one page and read the link that Somnath provided and which I am quoting below. The link clearly explains that incase HDI indicators are not improved our GDP growth will remain stunted.

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..

But the drive to grow in itself provides people an organic impetus to improve or seek betterment in their educational and living standards;

If only wishful thinking would work, I would be a billionaire . Jokes apart, for good or for bad, government has to invest in the HDI improvement effort so that we can get to the next level of economic development. Otherwise we risk being stuck in the middle income group along with Thailand, Malaysia etc. I say government, because nobody else will sign up to do it. Mere wishful thinking and aspiring will not work. Somebody has to do the hard work of enabling the millions of the destitute to make a useful contribution to the economy. If they did we wouldn't need a program like NREGA

[vina]

Most HDI variables will not get resolved through growth alone - education, healthcare, infant mortality et al are not outcomes that the market will deliver

Believe me, unless you drink the Amartya Sen /DSE/ISI/Fellow Travellers KoolAid, even in a place like Kerala, none of the HDI was through Govt delivery of such services.

The entire either or argument is a cop out. In US, you have very strong state univ systems, in addition to Private Univs , to quote just education as a sector. Until recently, in India , across all sectors, the effort was to kill the private sector /keep it out, while the govt made a hash of investments and delivery in that sector. Why even today, private univs are not allowed in India I think, and the entire edu system is run like a stalinist state control freak hand.Less said about medical edu the better. It has become a money making machine for scumbag politicos (precisely because of that kind of licensing and corrupt Indian Medical council kind of scams running into thousands of crores).

Bottom line is, the entire Public Sector model propounded by Amartya et al, in the 50s and 60s when he was a firebreathing socialist jihadi was just so much hocus pocus that failed spectacularly and I have not seen him or anyone of his ilk, come forward to own up to the mass misery he perpertrated, all in the name of "solving/alleviating" poverty and shedding copious tears for the poor and narration of having witnessed the Bengal famine during the 2nd WW as a kid.

[somnath]

^^Vina-ji, most of the other stuff is rhetoric, but

Bottom line is, the entire Public Sector model propounded by Amartya et al, in the 50s and 60s when he was a firebreathing socialist jihadi was just so much hocus pocus that failed spectacularly and I have not seen him or anyone of his ilk, come forward to own up to the mass misery he perpertrated, all in the name of "solving/alleviating" poverty and shedding copious tears for the poor and narration of having witnessed the Bengal famine during the 2nd WW as a ki

I havent seen Harry Markowitz "own up" to the worldwide destruction his models caused in the financial crisis...I surely havent heard of Merton expressing any remorse for not one, but two major financial crises wrought directly because of his axioms And the connections in both these cases are far more explicit than any that you can establish for AS (and if you really study his literature, mst of what you say is not correct)...

[sugriva]

^^^somnath-ji, why do you get provoked so easily. Don't you see that it is a deliberate attempt to rile you up. I shall post later on the proof techniques of the ayatollahs of the Mylapore School of Economics. Trust me the parallels with Rajnikanth's antics are mindboggling

[Suraj]

Is is so difficult to turn back one page and read the link that Somnath provided and which I am quoting below. The link clearly explains that incase HDI indicators are not improved our GDP growth will remain stunted.

It's easy enough to construct a strawman that I'm somehow implying that HDI doesn't matter to GDP growth, particularly when one responds without reading the post fully first

TFP is too coarse grained to quantify anything about how well GoI has been able to scale up outcomes commensurate with greater revenues at their disposal, particularly since we're discussing specific HDI factors like literacy and health metrics.

Here's an example: the povertarian brigade bemoans that we only spend X% of GDP on health over the past 2 decades, yet health metrics have inched up ever so slowly over that period. Yet that X% of GDP is between 8-10X increase in spending over that period, while neither population or inflation has increased anywhere even close to that much. How does the additional spending correlate to outcomes ?

If only wishful thinking would work, I would be a billionaire . Jokes apart, for good or for bad, government has to invest in the HDI improvement effort so that we can get to the next level of economic development.

Now's your chance to show me where I implied that GoI should not invest in HDI-related social spending Criticizing the NREGS as a money pit is just that - criticism of the program. Let's not get into the standard povertarian debating logic: "if you criticize our pet program, you're anti-poor". The same folks, of course, have no qualms about talking of the "hypocrisy of the rich". That line of argument is just ideological handwaving. I've no problem with defending a worthwhile tax benefit that may be more beneficial to the middle class and wealthy, while criticizing what I consider an inefficient and wasteful social sector spending program. I'd rather debate the merits of whether or not either are beneficial regardless of who benefits.

People send their children to private schools and go to private hospitals despite higher cost because govt services in either case are often of abysmal standard. Even a fixed % of GDP allocation to either of these gets you a ~15% nominal increase in funds each year matching nominal rate of GDP growth. Are outcomes improving by a comparable factor ? Outcome data indicates otherwise - otherwise the povertarians wouldn't be such a loud voice still.

It seems rather more fashionable to polarise the debate on ideological lines rather than question why even the 15% annual increase in resources even with a fixed % of GDP spending on a given socio-economic parameter does not generate commensurate outcomes; did that increase the number of schools/hospitals built, or teachers/nurses trained accordingly ? Coarse TFP data is not sufficient in this regard.

[Abhijeet]

Are there any examples of poor countries being able to develop past say $5K nominal per capita GDP without strong public schools and public healthcare? Perhaps Latin American countries could serve as a counter-example?

The question is out of curiosity since it seems self-evident to me that primary education and healthcare are two things that cannot be run only by the private sector.

[sugriva]

It's easy enough to construct a strawman that I'm somehow implying that HDI doesn't matter to GDP growth

Nice try. The very fact that you explicitly state that we should go down the growth path and that HDI would be taken care of by growth, perhaps by wishing for it, is evidence enough that you consider HDI improvements an after effect of GDP growth and not something that leads to it. However I am happy that atleast now you agree that HDI does matter to GDP growth. So we are in the same club

TFP is too coarse grained to quantify anything about how well GoI has been able to scale up outcomes commensurate with greater revenues at their disposal, particularly since we're discussing specific HDI factors like literacy and health metrics.

Since you criticize TFP, I'd be curious to know what other metrics you have in mind that can serve as a proxy for improvements in HDI that lead to GDP growth.

Yet that X% of GDP is between 8-10X increase in spending over that period, while neither population or inflation has increased anywhere even close to that much.

Strawman argument. We started with absymally low levels of literacy rates and health indicators. Even today in absolute numbers we have the largest population of illiterates. To get to wherever we are today we have quite naturally had to spend a lot more money than what population increase figures or inflation figures would suggest. I am not even sure how spending on literacy drives is related to population growth rates as you suggest.

Now's your chance to show me where I implied that GoI should not invest in HDI-related social spending

I will, once you point out clearly where you think I suggested that you were advocating not to invest in HDI-related spending.

The point that I am making is that without improvements in HDI indices it will not be possible to improve GDP growth rates. Somnath's link provided the study of how improvements in HDI indices, as proxied by TFP numbers could lead to increased GDP numbers, sometimes even with low investment rates. If you agree with this proposition then we have no argument. Government (in)efficiencies and corruption are a fact of life in this country. That only implies that efforts need to be made to remove the inefficiencies and corruption and not junk the whole thing alltogether. You dont shoot a person dead just because said person has some disease.

[somnath]

But the drive to grow in itself provides people an organic impetus to improve or seek betterment in their educational and living standards; top down approaches do not and will not work in India as long as GoI remains incompetent at execution and delivery - something that, except for notable exceptions, has been a chronic issue forever

If there is one axiom in development economics that has been comprehensively discredited in the last 30-40 years, it is the so-called "trickle down" theory...It has not worked in India, it has not worked anywhere else...

BTW, what is "coarse" about TFP?

Are there any examples of poor countries being able to develop past say $5K nominal per capita GDP without strong public schools and public healthcare? Perhaps Latin American countries could serve as a counter-example?

Latam in fact almost uniformly have high HDIs, thanks to their socialist legacies...the intresting fact is this...there are quite a few low/middle income countries with high HDIs..but there are very very few middle-to-high income countries with middle/low HDIs...The only notables are China and Turkey, and both are rapidly graduating to the "high HDI" category..
http://hdr.undp.org/en/media/LP2-HDR07- ... -final.pdf

Therefore, the essential concept, ie, growth is perhaps a necessary condition for high HD, but not a sufficient one, is amply demonstrated...

[Supratik]

Just for info - according to the Bangladesh Bureau of Statistics, the population estimate for 2009 is 144 million and TFR 2.3.
So it wouldn't be a surprise if the population is capped finally much below 200 million. It seems the TFR has shown a sharp decline between 2001-2009. I believe similar sharp declines have taken place in states like AP in India.

[Supratik]

We need large scale Government investments in education and healthcare instead of pumping 1000's of crores into white
elephants like Air India and other PSUs. Saying that we don't need it because it is "inefficient" is essentially a "cop-out".

[SwamyG]

If one believes Rosling's data; then China and India among several countries have improved their life expectancy (and health) in general even before they began to grow their income per person (GDP per capita) Health and Wealth of Nations

In India Child per Women (total fertility) and Life Expectancy both started to climb just after Independence. So is the case with China (after WWII)

More data here..

[JE Menon]

>>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.

Wow, very good news. Especially in this kind of global economic climate!

[Theo_Fidel]

The PSU dinosaurs must die. But we should keep in mind it was this very same cabal of high sounding 'economists' who foisted those things on us.

The choice is never between PSU's and HDI. If you notice none of the flag wavers attack the horrendous waste in these organizations and demand that they be shut down to fund education. In fact most of those leaders live comfortably inside a PSU.

The real choice is this. Say you have a Rs 1000 crore. There is a large company, say BMW, that wants to make an investment and you have a welfare proposal. Do you spend that Rs1000 crore on building a road, a railway, new water lines, new electric capacity, etc to allow that company to make a productive investment hiring 3000 employees or do you spend that money on yet another welfare scheme. I'm of the view that 75%+ of the time we should come down on the side of BMW. We have no shortage of skilled people even if only 50% of our population gets a proper education. When Asashi glass in Chennai advertized for 800 shop engineer positions they got 23,000 applications just in the first week. I think this is a far better welfare program. It draws our people into the modern economy and causes a progressive social change that no government can ever supply. Just one example, in a modern factory there is no discrimination between men & women. Foreign companies just work that way. The girls who work at these factories, and I know several, are very different in their attitudes and outlook to life. Their priorities on how to raise children, how to manage the family is very HDI friendly.

Amartya Sen and his ilk want us to come down on the side of GOI defined welfare most of the time. They wave our horrendous HDI (new sexy term) as a red flag under our nose for this purpose. They even try to humiliate us by dragging in BD knowing this will get a rise out of us. Snakes.

I think if we are not to waste our dividend we need to focus on economic growth 100%.

[vera_k]

Are there any examples of poor countries being able to develop past say $5K nominal per capita GDP without strong public schools and public healthcare? Perhaps Latin American countries could serve as a counter-example?

On healthcare, the USA doesn't have public healthcare even today. But the basics - vaccination + emergency care - are provided for free. And BPL qualified families get assistance via a public health insurance program. As big a counterexample as any against the necessity of all-encompassing public healthcare for good HDI.

When it comes to public schools, GoI has thrown in the towel on improving standards in government schools. To a large extent, I take it that Indians don't want to be taxed higher by state and local governments (which is where the money for schools will come from), although this may be due to Indian tax laws which don't provide a break on federal taxes to compensate for higher local taxes. If say the muncipal corporation or zilla parishad starting assessing even a 0.5% tax on all property, it would do wonders for local services like schools. But it will also add hugely to the tax burden for most people.

[vina]

Amartya Sen and his ilk want us to come down on the side of GOI defined welfare most of the time. They wave our horrendous HDI (new sexy term) as a red flag under our nose for this purpose. They even try to humiliate us by dragging in BD knowing this will get a rise out of us. Snakes.

I think if we are not to waste our dividend we need to focus on economic growth 100%.

Amartya Sen and his fellow commie/socialist ideologues were in cloud cuckoo land. Amartya atleast was shrewd to know how to jump ship and high tail it to "leafy western campuses" and project himself as above and beyond the fray.

Fact is , the DSE/ISI/JNU legacy and the "leftist" / "welfarist"/"sense of entitlement" thoughts it engendered were corrosive to the core.

Let me quote two examples.

1) ATMs : For a long time, Banking in India was a nightmarish of experience straight from a Kafkaesque tragedy.Strikes at the drop , arrogant underlings and riff raffs staffing the banks, ZERO automation, withdrawing or depositing your own money was a nightmare, usual service (or rather lack) accompanied with a snarl (not smile) and when someone dropped the word ATM , the commie thugs and their bank underlings went on long strikes and when finally the ATM thingie came about, it was "negotiated" settlement on the lines such as a) The ATM will have to be inside the bank premises 2) For every ATM, 2 employees have to be hired by the bank, effectively rendering the entire purpose of ATMs unviable, until that kind of rubbish was torn up in the mid 90s!. Today, there is an ATM in every nook and corner, you dont have to kow tow to a unionized thug to find out the balance in your account , withdraw your cash or deposit a check and best of all, you can do it 24*7 and not put up with that ridiculous 10 to 2 with a 1.5 hr lunch break ! See, if you put in ATMs according to the "welfarists" there would be "mass unemployment" and "loss of welfare" and now the same "welfarists" come and use words like "Total Factor Productivity"! Getting rid of any army of commie underlings who would have handled the money by counting out currency notes one by one in rapidly growing economy raised TFP more than anything else!

2) Computers: If there was ever a red flag in front of the commies it was computers. They were dead against it, argued it as a creater of "mass employment" tremendous resistance by the unionized thugs to it's use in govt and corporte world. Esp in Bengal! When Bangalore and Chennai took of in IT/Vity sneers from the Commie Bhadralok was "bah typists" , google around for worthies from JNU saying so literally and arguing that this kind of thing was a small "fringe" thing and can never create anything much . (sort of like asking "Mylapore school" where are the investment avenues .. did the commie monkeys know that IT/vity was one, or were they hell bent on killing it?). Then come 2000 or so and INFY,Wipro and IT/Vity become global names and huge market caps and employment running into hundreds of thousands, the West Bengal govt tries to jump in and does "IT/Vity" . Buddadeb was asked on TV , since your party and you campaigned against computers and computerization all this while, how do you expect the IT industry to come to Bengal. For once, a commie was honest in his answer and said "We Were Wrong" .

All I expect is Amartya and his fellow travellers to say just these words ."We WERE WRONG . Very Sorry" .

Oh, but that would mean acknowledging mistakes and not have the nose in the air and coming up with arty farty theories and ridiculous rubbish such as "High Growth but low HDI!" when he knows better than anyone else, that the low HDI is due to lack of social investments over the past 40 years, the root cause of which was the miserable economic policies perpetrated by him and his ilk.

[Theo_Fidel]

SwamyG,

That is an awesome website.

In 1990 China had India's present Literacy rate of 74%. In 1980 China had a literacy rate of 60%.

We tend to think that Panda land came out of the revolutionary period with bright and Shiny HDI. This is completely false apparently. Very recent phenomena.

Also way back in 1980 those well know world beaters Vietnam & Phillipines had 90%+ literacy. That alone should tell you high HDI /= Growth.

India's 15-25 literacy rate is approaching 90%+. Up from 50% in 1985.

[sugriva]

Reports from those who put their money where there mouth is.
India Inc reports on manpower shortage.

http://www.ciionline.org/PressreleasesD ... IoyPfrmJs=
Mr H M Nerurkar, Managing Director, Tata Steel,
"...but there is tremendous shortage of skilled manpower"

Another on shortage of skilled workers in the Food Industry
http://www.ficci.com/SPdocument/20067/F ... _Study.pdf

And yet another one from ASSOCHAM which talks of shortages in the
engineering and construction industries.
http://www.assocham.org/arb/app/APP-Aug_2007.pdf

Unlike what the MSE Ayatollahs will tell you India Inc cannot grow or expand its business
without trained and skilled manpower. It doesn't take an Amartya Sen to tell you that literacy and
health, aka HDI indices are a prerequisite for skilled manpower.

And these are actual statements from industry bodies, not revelations regurgitated
on a message boards by chosen messengers.

But then its always easier to say "100% growth" 5 times a day and be counted as a devout
Ayatollah then actually admit to the fallacies of one's faith.

[svinayak]

India's 15-25 literacy rate is approaching 90%+. Up from 50% in 1985.

As long as that age group is targetted and its literacy long term is good

[vina]

Reports from those who put their money where there mouth is.India Inc reports on manpower shortage.

.

Industry screams that we need manpower today because of HIGH GROWTH TODAY and so, AS & DSE /ISI fellow travelers and their wacky thesis of killing industry and achieving a "Hindu Rate of Growth" which was supposed to deliver a magical "high HDI" and a "socialist utopia in the long run" were right in the 50s to 90s ?

Well, in the AS/DSE/ISI world view, the thing to do was to register yourself in an "Employment Exchange" and the you would get into roster/queue managed by a ration shop like Babu , and you get "allocated" to an "enterprise" which would need "manpower" as it was required.. That is the Soviet model, all very planned, Babu managed, no demand supply mismatch... So the babu would say, okay.. they need Janitors at place X and you want to be a carpenter ? . No sir.. You dont decide.. The great "system" decides for you.

Not that it is bad in a specific context , but terribly wasteful for an economy, because no system anywhere in the world will have enough information to efficiently plan that kind of thing in a dynamic world.

Note however, per what I understand, TCS (Tata Consultancy) has a centralized manpower planning pool called (MATC or something) that is something like a commie Employment Exchange and the workforce pool is centrally managed. That works very efficiently for TCS because of a very simply reason, that is taught in ops 101..when you face a probablistic demand, and lead times and fixed costs using a simple model such as a "Newspaper Vendor Model" you have an Economic Order Quantity and when you have multiple probabilistic demand, centralizing makes sense because the std deviations add not artihematically but as square root means! In TCS it works fine becuase of a limited number of skills and fungibility across geographies and locations . For an economy like India, the skills will be orders of magnitude more and zero fungibility across locations and work descriptions and stickiness in labor mobility!

[Theo_Fidel]

Unlike what the MSE Ayatollahs will tell you India Inc cannot grow or expand its business
without trained and skilled manpower. It doesn't take an Amartya Sen to tell you that literacy and
health, aka HDI indices are a prerequisite for skilled manpower.

And these are actual statements from industry bodies, not revelations regurgitated
on a message boards by chosen messengers.

That's garbage. When industries put out these reports what they really mean is that we can't find skilled labor at the menial labor wages we pay.
Also the reason there is a lack of skilled people in food processing is because till recently such an industry did not exist. Lack of people is a function of our rapid growth, not lack of HDI.

In Chennai there are occasional labor shortages in specific fields. Right now there is a severe shortage of skilled car technicians because of the electronics in the newer car models. It took 2 weeks before our car's stalling problem could be checked and the electronics involved replaced. The manager complained bitterly that he can't keep the employees for what he paid them last year as they keep jumping to another job.

In the US for instance the manufacturing sector moans about skill shortages during a time of 9% unemployment! What they don't say is the average pay for these jobs is $20,000. You get what you pay for.

Our steel industry has quadrupled and is on its way to quadrupling again. Of course there are shortages, this does not mean we put the breaks on growth. It is lack of investment in manufacturing earlier that causes these shortages.

Another example. Last year when I went to the Chennai Airport construction site about 80% of the casual labor was from Bihar and Odisha. Does this mean a lack of HDI in Chennai. The labor had been shipped in because the locals would not work 12 hour days for 2 months at a time for R3000 per month. Yes that was the construction wage.

[Abhijeet]

On healthcare, the USA doesn't have public healthcare even today. But the basics - vaccination + emergency care - are provided for free. And BPL qualified families get assistance via a public health insurance program. As big a counterexample as any against the necessity of all-encompassing public healthcare for good HDI.

That is a bad example (although I should have known that someone would bring it up). The US was never a poor country by the standards of its time. It grew slowly over a period of several decades to a modern standard of living, along with the other countries in Europe that went through the Industrial Revolution. It was never a desperately poor country trying to raise hundreds of millions of people out of poverty within a generation. India is.

The most canonical examples are found in Asia. Many of them have done what India wants to do -- gone from poor to moderately rich within 30-50 years. But they all had better governments than India does today, and in every case the government played a major role in their development.

=========================

I think the debate is somewhat artificial. I don't think anyone is arguing for going back to the bad old days of Big Brother socialism. Liberalization is good, yay for the private sector, etc -- everyone knows that. The key questions are:

- Can growth continue at its current pace if we don't fix our governance?
- Will growth by itself automatically result in governance being fixed once India reaches a certain level of development?

My guess is that the answers to these questions are no and no, respectively. At some point, poor governance will bottleneck growth, and growth by itself will not magically make the government reform.

This does NOT mean pushing money into a bottomless pit of government programs. It DOES mean fixing the areas that the government cannot just turn over to the private sector -- basic education, healthcare, law enforcement etc.

[somnath]

I think the debate is somewhat artificial. I don't think anyone is arguing for going back to the bad old days of Big Brother socialism

It is, in a manner of speaking..Most of the much-derided "welfarists" are actualy talking of improving execution in public services, besides hiking outlays...So they (and us!) are on the same page as all our "laissez fairists" in BR!

Nevertheless, there are policy choices still to be made, especially on resource allocation, and there are viable areas of critique of public policy on the choices being made..

Briefly though, there are lots of axioms being bandied around here that really dont stand up to empirical (or theoretical) scrutiny...I have pointed some of them out already, but a few more..

1. Axiom: It is the "commanding heights for PSU" policy brought inefficient results..

Fact: Its absolute bunkum...Public sector was never a large part of the Indian economy, not in 1950, not in 1970, and not now..When we started off in 1950, the "commanding heights" policy wasnt a policy of great "choice", it was the default option...there wasnt anything else available - you just need to glance through the Bombay Plan document to realise what India's pvt sector was thinking at that time...Even naysayers like Shenoy werent really articulating a "pvt sector" - led strategy...LAter, '60s onwards, cynical crony capitalism was masked in a rhetoric of socialism, nothing more or less..

In terms of data, govt expdt has always been in the 15-20% range of GDP in India...Compare that to "free" economies in the West - the numbers typically approach 50%...In India, the problem wasnt that the govt was "too much" into the economy, the issue actually has been it has been involved "too little"! Most of the time, GOI simply didnt have the fiscal space to be involved more than what it did..

the real pernicious element of the pre-90s wasnt govt investments (which anyway was too little), but govt "control", ie the license-permit-quota raj..It was the "controls" element of planning that people like Shenot opposed, and which caused muhc of the issues..It wasnt govt investment, or govt ownership, of which there was too little indeed..What the reforms process has done is to dismantle that control regime...

Conclusion - now that GOI has greater fiscal ammunition, what the "welfarists" are asking for is great outlays on social sectors...And a more efficient delivery system..

2. Axiom: PSUs are loss-making dinosaurs, we should let them "die"...

Fact: It was true 20 years back, no longer...As a whole PSUs are profit making, despite oil companies being made to shoulder subsidy burdens through the backdoor...Look at the Union Budget, a VERY LARGE part of the investment programme is actually financed by the PSUs...At the same time, barring some strategic sectors, the govt doesnt have too much need for directly controlling them...

Conclusion - fresh govt infusion into PSUs is mostly on infrastructure, there isnt much wrong in that policy..Its certainly not "subsidising" of losses at a macro level, individual cases (like Air India) notwithstanding...

3. Axiom: Growth will "organically" create incentives for HD...

Fact: Our employment elaciticies are declining, our poverty levels are going down lower than our growth - these are the "hardest" components of HD...But some will keep mouthing such pious platitudes, without any backup data, without any alternative theory..

Conclusion: There is no alternative to public investment, and more of it to improve HDIs...that includes cash trasnfers (like NREGA), and better delivery...

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Unfortunately, there is a lot of uninformed chatter rather than informed debate..Abusing AS is quite easy (though I havent seena single instance of anyone referencing anything that he is being abused on!)...Dimissing data is easier still, especially if you dont have to furnish an alternate data or methodology...Even easier is to quote ancdotal instances of "fish tanks" and "drive throughs" to make a policy point..And the gem is in creating really stupid arguments of "growth will take care of everything"...The sort of rubbish that has gotten repeatedly dicredited everywhere else...Not even the likes of Bibek Debroy (or indeed Surjit Bhalla!) talk in these terms anymore...the issue is of execution, and we need to lick the same...To say that because public sector delivery is inefficient we need to cut public sector investment is a bit like throwing the baby out of the bathwater! Or a "copout", to use an oft-used terminology here!

[somnath]

>>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.

Wow, very good news. Especially in this kind of global economic climate!

Well, the global trade climate has been unusually propitious this year, with trade growth touching all-time high levels of 17% (or something like that)..

Nevertheless, this export performance has resulted in Jamal Mecklai fantasizing about fast-track convertibility!

http://business-standard.com/india/news ... ty/434478/

JM is a smart cookie (though he seems to have monopolised the IQ in his family, speaking from personal experience ), but he is a trader rather than a policy-maker...His points on a large corporate debt market is valid...Though the jumbled-up lament on the absence of a proper "forward" market for rupee isnt..There is a large vibrant offshore forward market in INR (called NDF)..So people looking for efficient "hedges" can choose either of the two to use...

On the fundamental point, I am not sure we are at a stage where a full convertibility will be possible, or even desirable from a policy perspective...What I would realy like is for an offshore INR offering..Similar to CNH (or offshore CNY) that China has recently floated, and which is a rage in Fx markets in Asia..

[Suraj]

Strawman argument. We started with absymally low levels of literacy rates and health indicators. Even today in absolute numbers we have the largest population of illiterates. To get to wherever we are today we have quite naturally had to spend a lot more money than what population increase figures or inflation figures would suggest. I am not even sure how spending on literacy drives is related to population growth rates as you suggest.

Why is it a strawman argument to question what an order of magnitude greater actual spending generates in terms of actual returns in socio-economic metrics ? If there are specific metrics tying actual spending to outcomes as well as quantify leakages, that would actually help a lot and be meaningfully data-driven, as opposed to nothing more than a polarizing knife-fight where people implicitly or explicitly attack each other - case in point being your own brusque response to my original post, that wasn't even directed at you, or anyone else for that matter.

I will, once you point out clearly where you think I suggested that you were advocating not to invest in HDI-related spending.

You seem to have taken the debate rather personally, considering I wasn't addressing you in my original post in the first place. It focussed on one particular topic, i.e. govt efficiency, not on the importance or lack of importance of HDI, or even more bizarrely, the suggestion that HDI doesn't matter to GDP growth. Since you chose to address me directly, I asked for the basis of your accusations towards me.

The point that I am making is that without improvements in HDI indices it will not be possible to improve GDP growth rates. Somnath's link provided the study of how improvements in HDI indices, as proxied by TFP numbers could lead to increased GDP numbers, sometimes even with low investment rates.

That's tautological. You're merely repeating the same thing while I was talking about something else, and you seem to have interpreted my post as an attack on you in some manner. I cannot help you there, nor do I wish to make it personal.

[somnath]

If there are specific metrics tying actual spending to outcomes as well as quantify leakages, that would actually help a lot and be meaningfully data-driven,

It is there...2005 onwards, all ministries produce Outome budgets...I referenced the one from Urban Developmen earlier..they are uite quantitiative and goals-driven...In fact everything these days has something similar..NREGS is audited sontinually by (among others) the IITs and IIMs in almost every state...

YEs, a point on efficiency..If public spending ina certain mode is inefficient, the solution is the change the execution model, not to cut off the investment altogether...Highways is a classic case...We spent lots of money, not enough, but increasing amounts, for decades on highways..the outcomes werent great..then the NHDP programme saw a change in the model as well as a drastic increase in outlays - the outcomes have since then been much better...

[somnath]

The question of growth and human development and the trade-offs therein was extensively addressed in the Human Development Report of 1996...

Its a good read..
http://hdr.undp.org/en/media/hdr_1996_en_chap2.pdf

But really, those who suggest "growth will take care of everything else" are so much behind the curve on theory, and so much wrong in terms of data that the discussion cannot even begin...theoretically, the new models of growth economics, pioneereed by the like sof Lucas and Romer (not Sen!), treat prodctivity as an "endogenous" variable, rather than the traditional neoclassical models, where productivity has been taken as an "exogeneous" variable..Shorn of the jargon, it means that conscious policy choices require to be made to enhance human capital, which is what leads to higher productivity...It doesnt take place in thin air..

It would be useful for people to do a bit of reading on the "primary" stuff - whether theory or data, before rushing on to critique based on random newspaper clippings and genral ideological proclivities...that way, the critiques themselves would be more credible...

[somnath]

Interesting development on mobile banking...

Loading limit increased to 50k
http://www.indianexpress.com/news/now-u ... k/786077/0

the reason its interesting from a public perspective is the immense scope for using this tool to facilitate cash transfers and reduce leakage..With phone penetration touching 60% and growing, this can become the medium through which the govt can directly transfer cash to "targeted" segments...Rather than the elaborate delivery chain today..

[Suraj]

YEs, a point on efficiency..If public spending ina certain mode is inefficient, the solution is the change the execution model, not to cut off the investment altogether...Highways is a classic case...We spent lots of money, not enough, but increasing amounts, for decades on highways..the outcomes werent great..then the NHDP programme saw a change in the model as well as a drastic increase in outlays - the outcomes have since then been much better...

I haven't ever advocated not spending on HDI metrics. I question the standard argument that failures on that front are merely a symptom of spending as a % of GDP. Even a fixed % of GDP spend gets you 15% nominal increase baked right in - thanks to high growth. This is assuming tax/GDP and % spend remain fixed, whereas both have inched up.

Economists dryly comment on how early growth phases demonstrate rising graft in society. That is a symptom of higher financial resources overwhelming the substandard delivery mechanisms. In a country like India, where public goods and services delivery has at best been abysmal, the lack of close outcome monitoring is a recipe for greater graft, and even greater apathy of the general public to either depend on the government's ability, or even fund them. From a public policy perspective, this amounts to a breakdown in the social contract between the public and the govt.

Under such circumstances people will abandon public services and progressively be more hostile to funding them. That outcome budgets are a very recent phenomenon itself underscores the lack of priorities in this regard. 5 years is not much of a historical record of any sort, but it's a start to get an idea of what kind of trends have developed in terms of outcome development in relation to the sizeable increase in absolute allocation on an annual basis.

High growth in itself isn't a panacea for HDI improvement, but it provides a more urgent impetus for people to equip themselves with better socio-economic parameters to make themselves competitive. It's nowhere near the most optimal solution, but under the current circumstances, it remains the path most will take provided they have the means. Our terrible HDI metrics from the license raj days were partly self-perpetuated - a combination of government not delivering basic health and related services, and a stagnant economy placing no implicit or explicit premium on better education and social upliftment. It was a vicious cycle where there was neither decent delivery of public services nor a premium on skills and abilities in a stagnant economy. A byproduct of that is the existence of a vast unorganized economy.

Communist countries are interesting contrast to this - where the lack of personal impetus due to economic stagnation was compensated by an efficient public delivery system that raised their HDI levels. But we're not like that - we lack the basic foundation of what worked for them - an efficient delivery system or sufficient social reform interest. The fact that it worked well for them merely underlines what is more important - not more money (which they didn't have much of either) but effective delivery and top-down social reform.

As long as GoI remains poor at delivery, this kind of cynicism towards their ability to deliver will remain, particularly in a milieu where graft and scams are at every corner. Letting HDI take care of itself isn't the most ideal approach. I've no issue with that argument. Rather, my argument is, that's how it will happen under the current circumstances, due to the ground reality of abysmal standard of efficiency when it comes to GoI's ability to execute and deliver. No amount of empirical data from elsewhere changes what's the current reality on the ground: people do not trust public services, and unless they've no other option, will choose to pay more to turn to other options. Those who have no means to pay will be left behind. That's the harsh reality.

Throwing more money is the standard solution on paper, but the fact is our fast economic growth already throws in 15% or more nominal increases every year already - a doubling in spending every 5 years. In effect in the last decade we've quadrupled spending on education and health with a decadal 8-10% growth in population, yet our HDI metrics have barely inched up. The literacy rate was particularly disappointing to me, considering I was hoping to see a high 70%s to low 80% rate in the run up to the census release, and my own substantial personal charitable interest in the matter. It's a reflection of the fact that outcomes fall far behind rising spend, and as such the public will continue to remain cynical of public services. For better or worse, those who can afford to will better themselves through other means, and the rest will be left behind.

[somnath]

I question the standard argument that failures on that front are merely a symptom of spending as a % of GDP. Even a fixed % of GDP spend gets you 15% nominal increase baked right in - thanks to high growth. This is assuming tax/GDP and % spend remain fixed, whereas both have inched up

The "% of GDP" metric is used to display a measure of "political policy choice"...In absolute amount terms, it might not be enough yet, but it is a symbol of how important the country holds certain key deliverables..

On outlays themselves...Without gainsaying the issue with execution, our outlays have traditionally remained very very sub-optimal...As a result, a nominal GDP-linked growth in the same has meant that outlays, stripped off the impact of inflation and population growth, has remained sub-optimal over the years..In education for example, I know some people who are passionately involved in the sector - they tell me that the average cost per child in a primary school for a good quality (not IB standard!) would be around 5000-10000 rupees per annum...Even today our outlays are a fraction of that(admittedly these are numbers for urban centres, and without the benefit of scale economies, which are relatively small though in educaiton)..So if outlays have been a fifth or a tenth of what is required, increasing those outlays by nominal GDP growth rates obvioulsy make less difference in a macro sense! Especially as a lot of thse social sector spending is susceptible to social and class division based allocation at the brasstacks level...The example of highways is illustrative - the quality of our highways visibly improved only after both outlays and execution model were changed - it wasnt any one of them, but both..The same is required for the social sector - which is what the derided "welfarists" are dmeanding..

So our problem since independence was not only about execution shortfall, it was also about outlay inadequacy...

Throwing more money is the standard solution on paper, but the fact is our fast economic growth already throws in 15% or more nominal increases every year already - a doubling in spending every 5 years. In effect in the last decade we've quadrupled spending on education and health with a decadal 8-10% growth in population, yet our HDI metrics have barely inched up

the reason is that the outlays are becoming meaningful only now..It is a measure of policy choices exercised that only in the current budget did central spends on the social sector exceeded defence, for the first time in many many years...(I am not saying defence should be underfunded, only commenting on the choices exercised)...Which is why the outcomes of the SarvaShiksha Abhiyaan, with much better outlays are much better at the margin compared to what we have seen before...(BTW, education expt as % of GDP has remained stubbornly constant over the year, barring the last 2-3 years)...

the issue is greater...While we try to catch up on the basics, the other guys are upgrading on what they have...In some ways, we have to keep running extra hard just to remain where we are relative to others...

We should also remember another point...While India grows, we will also grow more unequal, which is already evidenced by our worsening Gini...While that happens, if people are left to the market and themselves to even acquire basic skills of making themselves relevant, it would only exacerbate social tensions...Just because our execution is inefficient doesnt let the govt off the hook..The demand should be to make them efficient, AND increase outlays that are sub-optimal..

[somnath]

New ADB report on Asia's middle class...

http://www.adb.org/Documents/Books/Key_ ... ter-02.pdf

They are predicting India to have 70% of its population as middle class in 15 years...

Nice stuff, but based on slightly dated baseline data (for India) - they base themselves on the 2004 NSSO numbers...But intersting study nevertheless..Some more India Shining!

[somnath]

Having said that, some more affirmation of India's relatively slow progress on MDGs - on all of them...In fact India gets clubbed as a "slow progress" country almost across the board for all variables..

http://www.adb.org/Documents/Books/Key_ ... oal-01.pdf

[SwamyG]

SwamyG,

That is an awesome website.

Maiyaluma solareengala, ilai kindala ?

[vera_k]

2. Axiom: PSUs are loss-making dinosaurs, we should let them "die"...

Fact: It was true 20 years back, no longer...As a whole PSUs are profit making, despite oil companies being made to shoulder subsidy burdens through the backdoor...

The question is whether this is the best use of government money. To pick on Air India since it is in the news...how many more schools would have been built in the last two years with the $400 million bailout in 2009?

So sure, keep the ones that are succeeding on their own, but divert the money spent on the loss making ones to the social sector.

[somnath]

The question is whether this is the best use of government money. To pick on Air India since it is in the news...how many more schools would have been built in the last two years with the $400 million bailout in 2009

You are fundamentally right...though the concept of a "national airlines" has a bit more than just economics around it, there are notions of national pride etc built around, not just in India..But then, on the other hand oil PSUs are shouldering burdens of 60-70k crores every year of subsidies, mostly to the middle class and rich! Imagine how many schools can be setup with that?