Indian Economy: News and Discussion (Apr 1 2011)

[vera_k]

^^

Yes, but those products are heavily taxed too, so the subsidy is more than covered by the taxes paid.

http://www.kiplinger.com/features/archi ... world.html

[Theo_Fidel]

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.

There is not a single PSU that can succeed on its own in the market place in present form. All of them have some form of monopoly or government protection. Sure there are world class facilities run by these PSU's but that does not make them competitive in the market place.

We pay for their lack of competitiveness with one of the highest costs for service in the world. Even in dollar terms. Their lack of productivity creates constant shortages in our economy. In effect this impoverishes our people.

Forget the loss making ones, lets take the profit making ones. Right now ONGC is sitting on about 20 TCF of Godavari gas without shifting its a$$ in the slightest to produce it. End result gas shortage and desperate geo-political floundering about.

[somnath]

^^

Yes, but those products are heavily taxed too, so the subsidy is more than covered by the taxes paid.

Taxes on oil are a standard feature across the world - its "carbon tax", or compensation for blowing up an irrplaceable resource...It SHOULD be high anyway in India given that we produce so little of the oil we need..

There is not a single PSU that can succeed on its own in the market place in present form. All of them have some form of monopoly or government protection. Sure there are world class facilities run by these PSU's but that does not make them competitive in the market place.
We pay for their lack of competitiveness with one of the highest costs for service in the world. Even in dollar terms. Their lack of productivity creates constant shortages in our economy. In effect this impoverishes our people

Again, a dogmatic set of views that is not (and cannot be) backed by any data...Sounds familiar! What I dont understand is why people dont just do some very elementary reading of theory and data to at least comprehend the basics of the views they are gleaning off from random press reports and/or personal "drive throughs"...

[Suraj]

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..

Widening inequality is an expected situation when there is fast economic growth. That happens along many vectors - regional disparities, rural-urban disparities, intra-urban and inter-urban disparities or social competitiveness (e.g. several 'caste clashes' are not 'high vs low' but 'low vs low' of two backward communities fighting over an available chance to advance economically by locking out the other).

One more thing - this welfarist vs laissez fairist positioning isn't deliberate on my part; I don't claim to be the latter as a rhetorical statement - I'm just asserting that our present system implies it for most, simply because a top-down welfare state mechanism does not and will not exist regardless of rising spend unless public delivery mechanisms and public opinion of the government both develop. A hasty effort to throw double or triple the money at a problem overnight, that dissolves into a poorly implemented graft-ridden mess (cough NREGS cough) is guaranteed to accomplish neither, and to further worsen the social contract between the people and the state.

My position therefore is that welfarists simply are not giving the problem of efficiency enough regard, compared to the dramatically greater audible volume of the demands for greater spending; without an improvement in efficiency, the consequence will be case of the misallocation of the petrol and education cess applied since 2004 - here's an interesting blog covering that topic. This a standard example of the problem I'm asserting - the purpose of the cess outwardly laudable, but in terms of actuals, poorly executed. GoI's standard SOP remains predictable - make an initial show of commitment through a new program or taxation measure, but be ineffective at execution. That's a reflection of their poor execution and accountability standards.

As long as that remains, even public opinion on greater government spending on social services will remain apathetic and polarized - those capable of paying will say no so that they can spend their money on private options that they place greater faith in, while the poor who can't afford it will by default say yes just so they can get whatever crumbs trickle down the inefficient public delivery system to them. Throwing more money without hammering down efficiency requirements at such an already polarized social situation is a recipe for social disaster - those with the means will resist paying more after seeing the graft, and those without the means will see little commensurate benefits despite the talk of greater spending, and in turn blame the government or the rich (or both) for siphoning it away.

[vera_k]

Taxes on oil are a standard feature across the world - its "carbon tax", or compensation for blowing up an irrplaceable resource...It SHOULD be high anyway in India given that we produce so little of the oil we need..

The level of taxation depends on the purpose for which it is levied. Though point here being that there is no net subsidy on oil, since money more than enough to cover the subsidy is collected in taxes. And who's compelling the government to be in the oil business to play shell games

[somnath]

I am pretty sure this has been posted before..

But here is the RBI report on Trends and Progress in Banking..(performance section)

http://www.rbi.org.in/scripts/Publicati ... x?id=12976

All financial ratios and operating measures given..There is no material difference in the relative performance of the public sector versus private and foreign..

And here is a study by Prof TT Ram Mohan on performance benchmarking of PSBs...It uses data from 1992-2000, but the relative situation today will be better for PSBs..

http://www.esocialsciences.com/data/art ... 004358.pdf

But why bother with data and analysis when simple ideological polemics can suffice?

[somnath]

And who's compelling the government to be in the oil business to play shell games

that is a valid point..Especially in oil marketing, there is no real reason for the govt to be present..the reason though is not far to seek - one, if BPCL/HPCL were pvt sector entities, the govt would have had to take the subsidies on the budget, unlike now where they park it with these companies..Two, the old one, is simple old-fashioned rent seeking by ministers et al..

On the point of tax and subsidy - they are two different elements altogether...Taxes are charged on goods and services at a level that optimises revenues to the govt, depending on the ability of the consumer of the specific good/service...through which the govt inturn meets a basket of expenditure ..Subsidies, on the other hand, are welfare measures for "targeted" groups..If there is a 100 rupee subsidy/welfare budget, the govt needs to decide where to spend it - on cash transfers to poor, building schools or subsidising petrol for the rich/middle class..The fact that the govt chooses to spend so much on the last is a function of the political priorities/pressure of/on the govt..

Net net, taxes and subsidies cannot be boxed into a commodity-specific equation, though that is precsiely what the politicos (of all types) try to do..They are two very different concepts..

[somnath]

My position therefore is that welfarists simply are not giving the problem of efficiency enough regard, compared to the dramatically greater audible volume of the demands for greater spending; without an improvement in efficiency, the consequence will be case of the misallocation of the petrol and education cess applied since 2004 - here's an interesting blog covering that topic. This a standard example of the problem I'm asserting - the purpose of the cess outwardly laudable, but in terms of actuals, poorly executed. GoI's standard SOP remains predictable - make an initial show of commitment through a new program or taxation measure, but be ineffective at execution. That's a reflection of their poor execution and accountability standards.

There is no gainsaying the importance of measuring outcomes...The good news is that it is the new buzzword in the govt..Started with Montek Ahluwalia making it some kind of a rosary bead prayer in UPAI...The Outcome Budgets are a reflection of the same..

However to say that the "wealfarists" are not giving attention to the issue of execution is missing the point by a wide margin...the usual suspects (or the usual bugbears here!) like Jean Dreze spend countless months reviewing and countless words rticulating issues with execution...Its interesting that NREGS is brought up as a "contra exmaple" - in fact NREGS has the most comprehensive set of outcome audits setup..As I mentioned before, almost every single IIT and IIM is engaged, as also people like Jean Dreze at a "civil society" level gauging the effectiveness...

The example of the road cess is interesting too...I am sure there are leakages there...But it can be no one's case that the highway infrastructure in India isnt dramatically better today copared to 10 years back - the NHDP funding AND execution model, both are responsible for that...As to the "unutilisation" which is the main point in that blog, unfortunately a lot of it is due to attendant externalities in India...So while NHDP might be administered well with the best intentions, absence of a land acquisition framework has stalled progress in many places...Ideally, land acquisition laws should have been changed much earlier - they are doing it now - but that still doesnt take away from the massive difference the programme has made..

The central point is this - high HDI is not an option, it is a necessity..And growth is not going to take care of it meaningfully...In absence, we will simply remain stuck to a lower middle income status with social instability...So we need to do what it takes - higher outlays (and there is masisve scpe for that - just take tax breaks away from crooks like Balwa and KP Singh ) AND better models of execution...

[svinayak]

Check out India

http://www.newsweek.com/2010/08/15/inte ... tries.html

World s best countries

[somnath]

Came across this nice article by Devesh Kapur, Arvind S and Partha Mukherjee on Direct Cash transfers...In this they are basically rebutting the traditional assumptions behind welfare programmes, and the typical critique of cash transfers..

They make an interesting point, ie, the issues of faulty state execution cannot be addrressed at all, its a ceteris paribus condition..The solution (according to them) therefore is to simply give the money directly to the poor..

http://casi.ssc.upenn.edu/system/files/12902.pdf

I tend to agree with a lot that they are saying, though at the end remain a bit puzzled when they say

But yes, we believe DCTs would be an improvement over the status quo by helping to improve the access of the poor to goods and services that can be accessed through the market. Equally, government has a key role in providing other goods and services, i e, complementary inputs, which the market cannot supply effectively. But we differ with MS who continues to have faith in direct provision of goods and services by the state, in particular,state and central governments.

They recognise NREGS as a cash transfer scheme, which I do as well...But then, if there is no health centre in the village how does the villager access health services, even if he has the affordibility now? As DK et al agree, the market isnt going to provide for them!

Which is what makes this an astounding challenge, and not amenable to simple answers at all..

[Suraj]

For all the outcome auditing involved in various programs, the actual outcomes remain suboptimal, whether it be NREGS or any other HDI related public service program. In particular, auditing performed by those actually implementing the program involves conflict of interest anyway, not that reported outcomes are good.

There seems to be a curious willingness to throw money at a problem first and then figure out implementation failures along the way, over a 5-10 year duration. In effect, it's no different from any other social development program, except that the wastages as a result are not 10s or 100s of millions of dollars but 10s of billions now. Yet, the bluster directed towards the 'evil rich' for their tax breaks - which amount to revenues forgone of similar figures - is much louder. Just a wee bit hypocritical, don't you think ? Perhaps taxing them further gives more headroom for wastage

The NHDP is a relatively good program in terms of results, while our education/literacy development programs have languished in comparison despite both having cesses applied to them. However, the NHDP doesn't execute - it just grants BOT/BOOT contracts to private parties. In effect the actual implementation is in private hands, with NHDP just being a nodal coordination agency. Even so, it took years to finetune, and remains prone to graft and inefficiency. For example, initial bidding on long stretches were a failure, and had to be broken into smaller ones because of unwillingless of builders to commit resources. Progressively, the opposite became true as viability was established - unless stretches were long enough, it wasn't sufficiently lucrative to bid.

Education on the other hand, is a completely different animal. Rather than allocating contracts to private parties, GoI builds and operates schools. When it comes to implementing a program on its own, the marked difference in performance is very clear - NHDP done through a gradually finetuned contractual implementation process worked very well, while something like education or health, where GoI cannot incentivize the public sector to set aside profit motive for social good, and has to implement things itself, it performs much worse. GoI could theoretically pay a fixed premium that constitutes a profit margin with the operation of schools or hospitals being in private hands - the margin basically being the cost of not being able to execute it themselves.

This extraordinary emphasis on funding over implementation efficiency sounds like a 'lets throw as much as we can and see what sticks' kludge, while those developing nations with excellent HDI metrics are characterized by an efficient delivery system that provided for basic health of mother and child, education and related primary metrics. The likes of PRC were able to develop their HDI metrics even while they were busy killing millions simultaneously and were essentially stone broke, which says something about how much more efficiency matters over throwing money.

[nandakumar]

The NHDP is a relatively good program in terms of results, while our education/literacy development programs have languished in comparison despite both having cesses applied to them. However, the NHDP doesn't execute - it just grants BOT/BOOT contracts to private parties. In effect the actual implementation is in private hands, with NHDP just being a nodal coordination agency. Even so, it took years to finetune, and remains prone to graft and inefficiency. For example, initial bidding on long stretches were a failure, and had to be broken into smaller ones because of unwillingless of builders to commit resources. Progressively, the opposite became true as viability was established - unless stretches were long enough, it wasn't sufficiently lucrative to bid.

Education on the other hand, is a completely different animal. Rather than allocating contracts to private parties, GoI builds and operates schools. When it comes to implementing a program on its own, the marked difference in performance is very clear - NHDP done through a gradually finetuned contractual implementation process worked very well, while something like education or health, where GoI cannot incentivize the public sector to set aside profit motive for social good, and has to implement things itself, it performs much worse. GoI could theoretically pay a fixed premium that constitutes a profit margin with the operation of schools or hospitals being in private hands - the margin basically being the cost of not being able to execute it themselves.

The superior outcome in highway construction as opposed to delivering educational services can also explained by the fundamental difference in the character of these two programmes. Highway construction is capital intensive but otherwise involves very little of revenue expenditure. In fact, good oversight while the project is being implemented or by involving seasoned contrctors who have a reputation to protect you can bring down the need for incurring revenue expenses even further. A road designed and constructed with a good camber will bring down the need for maintenance work significantly.
In contrast, education and health whether they are capital intensive or not, certainly requires significant does of revenue expenses to keep the programme going, from an 'outcome' perspective. In other words, the activity, even if outsourced to private parties, lays tremendous emphasis on oversight by the Government on a continuous basis if the programme has to deliver desirable public outcomes. Without such oversight, it would lead to the private sector agency pursuing profits without worrying about outcomes. When these programmes (health/education) do not lend themselves to objective measurement of outcomes as in the case of education or public health ( what is the perfect of yardstick for saying that a person has been educated?) you would be loading a poor administrative capacity for project oversight with an additional burden of delivering a continuous outcome that it is simply not equipped to handle. It (public administration) is bound to become a sitting duck for regulatory capture by the private service providers.
The other reason that renders highway construction model of private participation unsuitable for education or health is that it becomes morally difficult to enforce the principle of user must pay as a disciplining mechanism - something that is perfectly acceptable in highway usage.

[somnath]

Yet, the bluster directed towards the 'evil rich' for their tax breaks - which amount to revenues forgone of similar figures - is much louder. Just a wee bit hypocritical, don't you think

Well, the real hypocrisy is when tax exemptions are justified to the likes of Shahid Balwa and KP Singh, while allocations to NREGS are grudged, on account of "efficiency"!

On a serious note though, it is not correct that outcomes on education (as an example) have not responded to higher allocations and changes in model..The Sarva Shiksha Abhiyan (along with the Right to Education Act) brought together both a new model of execution & monitoring AND a secured funding stream - watch where the enrollment ratios have gone to in the last 3-4 years...Another number to check is the difference in the literacy levels estimated by econometric models (like UNDP) and the actual numbers in the Census - its a good 3-4% over the estimated numbers...the models use past trends and sample data for their projections..So obvioulsy, the programme with its upped outlays is having its impact..

Its not perfect, far from it, but it is a great deal more difficult to get it right in the "service sector" than in "hard" assets...(it is an urban legend in banking that if airlines made the same number of mistakes as banks, in terms of % of mistakes/txn, we would have 15 plane crashes a day )...

likes of PRC were able to develop their HDI metrics even while they were busy killing millions simultaneously and were essentially stone broke, which says something about how much more efficiency matters over throwing money

It isnt just about efficient execution..Most successful countries had/have significant outlays too, even when they were broke, to education..those magic benchmarks (6% of GDP etc) are primarily driven by the experiences of East Asia and East Europe..It is also about focus within the sector..For education, in India there has historically been lots of focus on higher education - setting up and maintaining the IITs and IIMs and a bunch of central unis...In Asia, the focus on higher education was relatively less initially, with countries going in for mass literacy before trying to graduate to bigger things..Which is why most countries in Asia (outside China and Japan) are only now trying to setup institutions like IITs and IIMs of their own...

To me, there is no silver bullet solution...the real long term solution might be direct cash transfers...We are moving towards that in any case...But it doesnt solve the issue of access, which for most basic welfare services will need state intervention..

When these programmes (health/education) do not lend themselves to objective measurement of outcomes as in the case of education or public health ( what is the perfect of yardstick for saying that a person has been educated?) you would be loading a poor administrative capacity for project oversight with an additional burden of delivering a continuous outcome that it is simply not equipped to handle

Its not as bad as that...It is not difficult to define objective measures of outcomes in health and education...Enrollment ratios, sample surveys on capabilities (like the Pratham ASER studies)..While not being as readily amenable to oversight as highways, it isnt impossible either..

[Hari Seldon]

>>Well, the real hypocrisy is when tax exemptions are justified to the likes of Shahid Balwa and KP Singh, while allocations to NREGS are grudged, on account of "efficiency"!

Really? Who justified these tax exemptions for Balwa and KP? Just curious. Maybe I missed it. Kindly point out.

BTW, the 85-90% literacyrate for our under-10s was mentioned and went uncontested? is it true? Wow then. A generation down, we can hope to have better HDIs at least.

[Supratik]

$400 million to Air India could have been used to built more IITs and IISER's. I think saving Air India out of "national pride" is a bogus argument. According to one of those English New channels Air India has debt of 40,000 crores and loss of 14,000 crores. Crony socialism is as dangerous as crony capitalism.

Also the highway development work albeit slow is doing reasonably well. You have to experience it first hand to see the difference.

[somnath]

Really? Who justified these tax exemptions for Balwa and KP? Just curious. Maybe I missed it. Kindly point out

Seems you missed out the whole discussion on SEZs!

BTW, the 85-90% literacyrate for our under-10s was mentioned and went uncontested? is it true? Wow then. A generation down, we can hope to have better HDIs at least.

Well the claim came from Theo, who seems to have this tendency for making claims without always referencing any data to support! Given that literacy itself is measured of people >7 years in age now, I dont think there is any "literacy rate" that can be meaningfully measured for the 7-10 age group...I guess he was referring to enrolment ratios in primary schools...But even that is not "<10 years", but in terms of "primary school, secondary" etc..As mentioned earlier, those numbers have really shot jup in the last 5-7 years...

I think saving Air India out of "national pride" is a bogus argument.

Largely true, but it is a fact, and not just in India..Most countries spend an inordinate amount of energy and money trying to save "national carriers"...they finally give up, but not without trying!

[Hari Seldon]

Well, two wromngs don;t make a right. So both SEZs and NREGs are 'bad' as in suboptimal outcome generating tax money-sieves. The argument then is which is more wrong then, perhaps, eh?

No point only. The NAC or whatever is hell bent on pushing laudable schemes like right to edu, right to food etc down the govt's throat without specifying how to fund these programs and get something worthwhile out of them. The fear that good money will be wasted in more boondoggles at the cost of a few % points growth that would have had spillover effects even in the HDI area is not unfounded, far as I can see. But how does it matter at this point anyway.

[somnath]

Well, two wromngs don;t make a right. So both SEZs and NREGs are 'bad' as in suboptimal outcome generating tax money-sieves. The argument then is which is more wrong then, perhaps, eh?

Not sure how NREGS can be termed as "bad"...If anything, most outcome audits show it up as one of the best managed social welfare programme ever attempted, with "certificates" from sources as ideologically diverse as UNDP on one end to Economist on the other! It is a cash transfer programme for BPL, over time it will morph into a purely DCT..

If 40k crores are being spent on NREGS, even if the leakage is 30%, 30k crores go straight to the pockets of 100 million folks living on less thana dollar a day..But every single rupee spent on tax breaks on SEZ (15-20k crore) goes to subsidize KP Singh for selling luxury apartments - and thats just one example of tax exemption...Forr argument's sake, if both are deemed to be "wrong", there is no argument on which is "more wrong"..

The fear that good money will be wasted in more boondoggles at the cost of a few % points growth that would have had spillover effects even in the HDI area is not unfounded, far as I can see. But how does it matter at this point anyway

On the contrary, it was widely acknowledged that consumption demand held up during the crisis in parts due to NREGA...And there has been no decline in level of govt investment as a result of NREGA either...

[Suraj]

If it weren't for wicked rich men like KP Singh and GM Rao driving our economic growth, GoI wouldn't have anywhere as much money to spend on its UNDP/Economist-certified dole program

Jokes apart, regardless of what the % of GDP China spent during the Cultural Revolution on education or health was, in absolute terms it was a pittance. The fundamental distinction remains their far greater ability to get done what they order done. GoI on the other hand comes up with programs, names it after some random Gandhi clan member, throws a lot of money at it, and ends up coming far short in comparison, as our HDI metrics show abundantly.

[Supratik]

I think we should not get confused by comparing SEZs and NREGA. They are meant for different purposes and both have some pros and cons.

[Theo_Fidel]

Jokes apart, regardless of what the % of GDP China spent during the Cultural Revolution on education or health was, in absolute terms it was a pittance. The fundamental distinction remains their far greater ability to get done what they order done. GoI on the other hand comes up with programs, names it after some random Gandhi clan member, throws a lot of money at it, and ends up coming far short in comparison, as our HDI metrics show abundantly.

Suraj,

Having gone and studied the Panda land statistics I'm not convinced that they came out of the cultural revolution madness with good HDI indicators.

Their improvement should have been visible by 1980 or so right. By then their 'investment' had run its course. Yet here is their key HDI numbers at that point. Data from UNESCO.

In 1980 China...

Life expectancy ~ 63 years.

Literacy Rate

Overall adult ~ 66%
Female ------~ 54%
Male ---------~ 77%
Youth Literacy - 84%
Education % of GDP - 2.4%. (Just to point out India is at 3.2% right now)

Fertility rate - 3.32%

Urban Population ~ 16%

Infant mortality --~54/1000

HDI index 1980 - 0.537

There are not world beating numbers. They are India's numbers from year 2000 or so. Of course the trend lines in the time series, which is the only thing that matters, were all moving towards positive outcomes. India's time series trend lines are all similarly positive. What really matters is what happened after 1980. Just to point out 2 numbers by 1990..

Literacy rate ~ 76%. Reaching Grade 5 - 87%
Primary female enrollment - 97% (astounding)

Infant mortality - 32/1000

Life expectancy ~ 67 years.

You can see the effect that the older population with low HDI is having. To this day China's overall literacy rate is only about 85% despite 97% child literacy.
The key thing was what happened after 1980 in China. That is what is delivering them a economic dividend today.

[Theo_Fidel]

WRT SEZ & NREGA,

They are not the same at all. One is wealth creating, put in Rs 10 and after some work/gol-mal we get back Rs 20, and this is every year afterwards too. So what exactly is the 'con' from that. In NREGA we put in Rs 10 and we get Rs 0, as in big fat anda back, wealth destruction, baring a few local transient consumption activities.

The wealth of India is in its middle class, however crass they might be, not in glorifying its poor with some pointless manual labor Baksheesh.

[SwamyG]

The noticeable thing is when the Europeans gave control back to China and India, things began to improve dramatically. India still had the "Hindu Growth" rate; but JLN had his head in the right place when it came to certain issues. Stability matters the most and institutions matter even more when it comes to large countries. India is not a city state that could rapidly get out of the gates - like say Singapore or HK.

Ultimately, 'happiness' matters the most to people. And as long as the country gives the people the freedom to define their 'happiness' and allows them to pursue it under dharma, we BRFites should be 'happy'.

[Suraj]

Theo - don't you find it startling that China could have a closed economy, two massive genocidal events (Great Leap Forward and then Cultural Revolution) and still come out with HDI parameters in 1980 that were competitive with ours two decades later ? They were closed off from the world, busy killing upto 10% of their population and yet managed to feed, inoculate and educate their people to a standard we were quite far away from in 1980, and they did so on what amounts to a shoestring budget but a lot of resolve and effectiveness at getting it done.

[Abhijeet]

I have a perhaps theoretical question. What is the economic rationale behind the fact that highway construction quality has improved since the NHDP started contracting out the work to private companies after bidding?

The general efficiency advantages of the private sector can be taken for granted only in the special case of a competitive market with several players. Most highways are natural monopolies -- there is typically only one way to get from point A to point B -- so the competition argument does not hold after the contract has been awarded. So (again, theoretically) you would expect private operators to become very good at submitting plausible bids, while slipping on the quality of work after they have won the contract.

I believe this has not happened at least for the GQ routes.

I imagine it's only good regulation that can avoid this. Otherwise, you end up with a situation like Reliance Energy having a monopoly (till recently) in the Mumbai suburbs -- leading to Mumbai consumers paying by far the highest prices for power in the country. After Tata Power was also allowed to distribute power in the suburbs, people have told me that the electricity rates have come down significantly.

Is it good regulation on the part of the NHDP that has prevented this in the case of highways?

In general, it seems to me that the general hierarchy of "good for consumers" is:

Competitive market > Private oligopoly > government monopoly > private monopoly

Private monopolies with poor regulation are probably the worst possible economic arrangement for consumers.

Many Indian markets still fall into the private oligopoly / "usual suspects everywhere" segment.

[Theo_Fidel]

I think the shoe string part is a bit over done. Truth is both China & India were poor. If we are growing literate rapidly now it is because we to have the resources to to make a real dent in that problem. If anything our dependent rate is still double that of China's. Mao's literacy campaigns undoubtedly helped, esp. WRT to female literacy but it was only after China started to grow rapidly in the mid 1970's that a real dent was put into the HDI index. If this continues in the present manner India too should put a serious dent into the HDI number in the next 10 years. Stay the course.

In 1960 China's literacy was 44% while India's was 26%. That gap has persisted all the way to the present.

[Rishirishi]

Theo - don't you find it startling that China could have a closed economy, two massive genocidal events (Great Leap Forward and then Cultural Revolution) and still come out with HDI parameters in 1980 that were competitive with ours two decades later ? They were closed off from the world, busy killing upto 10% of their population and yet managed to feed, inoculate and educate their people to a standard we were quite far away from in 1980, and they did so on what amounts to a shoestring budget but a lot of resolve and effectiveness at getting it done.

You must remember the great role overseas chinease have played. Even before the "rise" of China, a lot of the goods were made in Singapore, HK, Taiwan and Macao. The Chinease also control the economy in countries like, Phillipines, Indonasia, Malaysia, Thailand etc.

The first wave of investment came from HK and Taiwan. later came the mass shift of global manufacturing. The Chinese were good at providing infrastructure, manpower etc. Hence China won the manufacturing race.

[VenkataS]

To this day China's overall literacy rate is only about 85% despite 97% child literacy.

China's literacy rate currently stands at 95.9%. They have done very well on this front by any indicator.
http://en.wikipedia.org/wiki/List_of_co ... endnote_k5

Education is one of those areas which has a cascading effect on quality of life of the people, in increasing productivity, and in the growth of the economy.
It should be one of the top priority items for the government.
The goal should be that each and every child should get 12 years of compulsory education from now onwards.

For illiterate adults, there should be adult education programs which focus on education and imparting specific skills based training.
If we are spending 3.2% on education and not meeting these targets then maybe we should be spending more.

Our demographic dividend is going to be now not 20 years from now. It is critical that we focus on education as a top priority now.

[vina]

The noticeable thing is when the Europeans gave control back to China and India, things began to improve dramatically. India still had the "Hindu Growth" rate; but JLN had his head in the right place when it came to certain issues. Stability matters the most and institutions matter even more when it comes to large countries. India is not a city state that could rapidly get out of the gates - like say Singapore or HK.

In China they spilled blood to win their freedom. In India what India got was "uncle toms" who were mentally enslaved to the European paradigms and thought they were oh-so-soup-e-rear when compared to the unwashed mango man. (the JLN and other Oxbridge educated types ..compare them to an absolutely sharp nativist like Rajaji...) . It is not for any reason that Singapore and the rest of SE A emphasised on the native values of thrift, hard work and gainful employment rather than some arty farty artifice of some "magical" wand you wave called "socialism" or "welfare" and without hardwork, progress and growth and getting richer, somehow all problems were magically taken care of.

In fact, in the 60s/70s, the sneer that JLN /fellow Dilli-Ding dongs had for Asean was incredible "bag and shoe stitchers" , American lackeys.. Harrumph .. Korea.. guffawwws..a basket case.... (err.. we are the "soup-e-rear" import substitute guys certified by stat-is-sticks which only we know and can use, dont ask how).

Someone here talked about the "Mylapore" school. That in my opinion was best exemplified by Rajaji. Not that JLN and his ilk (despite the "proof" or rather a Paki like "broof" from the stat-is-sticks models of the ISI/DSE/ and other ding dongs) were not warned by Rajaji very presciently (his famous words about how businessmen should spend their time profitably in their business rather than lobbying for licenses in Dilli, how the fount of corruption is control..which now seem as clear as daylight, but back then were dismissed as "reactionary" by the ding-dong Dilli cabal) . The entire socialism lurch was done OVER better counsel by one of the smartest, upright and far thinking persons we had seen for a long time in India. That is why Rajaji was Rajaji and ding dongs were well ding-dongs and miserable long run failures!.

And let us see about "Rajinikanth economics". There was another "fillum actor" chief minister in TN (at whom the "intellectuals" used to turn up their noses as so declasse).. Well, he introduced a mid-day meal scheme for school children (directly addressing undernourishment, school enrollment and drop out rates) when the "welfarists" were wanking around in the "models" and advocating "greater socialism" , "more control" etc..etc. Miracle of Miracles. That MGR/Rajinikanth model means that TN has a far higher HDI than Bengal in all respects and that too when TN had far less "central govt investments" historically (after the congress loss anyway in the early 60s) than other places .

Well ,the commie govt in Bengal and TN dravidian parties were equal-equal in that central govt investment respect. But look at the difference. People have first class bus service in TN , very frequent, reasonably priced, convenient, rather clean, eminently useable. They don't ride on the roof tops of buses like in parts of North and East India.There is a functional education system at all levels, there is primary,secondary and tertiary health care and seem to be better fed and clothed on an average and mind you, none of this came at the cost of economic growth, rather growth and this fed each other!

Unlike the scoundrel commies or Congress, the Dravidian parties never pretended to be "oh-so-soup-e-rear" e-con-o-mists with Oxbridge degrees and pedigree. The most damning indictment is in the performance of West Bengal with a PhD in E-Con from YumEyeTea (one of the top schools in e-con) Chief Minister, who subscribes to the Amartya/Commie/doling out "welfare" as a silver bullet against growth kind of IED-o-logy , with long service in the govt, driving it further in to the morass.

Thank goodness that India is federal enough for those different models to flourish. If it had been a unitarian state, the Dilli Ding-Dongs would have imposed collective suicide on the country economically and India as a whole would mirror the Bengal / Bihar of today economically.. more like a Soviet Central asian former Communist backwater without oil/natural resources desperately trying to get something started but flailing and failing. No IT/Vity, low HDI, no industries ,no entrepreneurship, no nothing, but the entire population aspiring like lemmings to become clerks/govt babus/some unionized factory worker beholden to the commie bosses , all that for "your own good" (as found out by Dilli ding-dong models) onree!

[Theo_Fidel]

Venkat,

That is their internal data which has often been suspect.

My source is UNESCO data which has 91% for 2008. Which I used for both India & China. The report also indicates that due to the difficulty of the Chinese script quite a bit of back sliding occurs. So 'Functional' literacy is estimated to be in the 85%+ range. Also note India's literacy rate is functional as well as it is collected as part of the census.

Despite this their achievement in education is impressive. I just think we are on a similar steadier curve and as long as we keep our educational investments up should get there in 15-20 years as well.

The #1 thing is to increase the average number of years of schooling. It is an abysmal 5 years right now India while it is 11+ in Panda land. This can only happen with a better GDP as there is less economic impulse to yank the kids out of school for work. Social reform too would help.

[somnath]

In general, it seems to me that the general hierarchy of "good for consumers" is:

Competitive market > Private oligopoly > government monopoly > private monopoly

Abhijeet-ji, from a socio-political perspective, the most optimum outcome-ranking is as per:

Perfect competition > Monopolistic competition > Govt monopoly > Govt oligopoly > Pvt oligopoly > Pvt monopoly

In case of select areas of "hard" infrastructure, and highways is a prime example, it is efficient and possible to unbundle funding, governance and execution..Which is precisely what the NHDP programme (adn the airport/metro rail programmes) have attempted to do...The investment is still primarily public investment, pvt investment is supplementary, and planning and governance is done by the govt..But execution is outsourced to the pvt sector...

Issue with things like primary education and public health is that making pvt sector IRR on investment is well nigh impossible, even with substantial viability gap funding...More importantly, scaling up to the level required for a population of 1.2 billion is outside the capacity of any group of education entrepreneurs - issues with land, infratsurtcure, teachers are just too humungous...Which is why public health and education is a largely state provided utility across the world, with almost no exceptions...It cannot magically be different in India, and of course no amount of "growth" alone wil tackle the problem...

If you take public expdt as % of GDP from the UNDP reports, India stands in stark contrast to almost everyone in the world, @ <1%, its less than pretty much everyone, including large swathes of Africa! To therefore pretend that only execution deficiencies are responsible for these outcomes is a fallacy...

[somnath]

In all this intellectual "M" on welfarist v/s laissez faire (not always intellectual though!), the big development of the last week has passed us by..

RBI hiked rates by a more-than-expected 50 bps points...Having been behind the curve consistently, RBI is trying to "smash" inflation with heavy artillery now...Unfortunately, they are likely gettign it wrong..

One, and this is well known to everyone, bulk of the inflation has been either supply-side bottlenecks (foodgrains) or global commodities...Rate hikes didnt help on these earlier, the unusual hike isnt going to help now on that...

Two, this comes at a particularly unpropitious time...Global commodities have dropped across the board - oil's below 100 dollars, industrial metals are off by 15-20%...Most houses on the street are turning tactically bearish on comms...

Three, after a year of strong "recovery", US data is looking shaky again as the impact of QE wears off...

Four, incipient signs of slowdown seem to be hitting India as well, with IIP averaging 3% in the last 4 months..

What do all three above mean? Simple, rate hikes are coming at the wrong time and with "killing" effect...Its not aiding to redice inflation (successive rate hikes over the last 1.5 years did nothign to the headline inflation rate)...And now, it is going to have a real impact on domestic growth....

Its a pity that MMS is allowing this to hapen in his watch..He saw how a similar RBI action in 1997 killed off the first flush of growth post-reforms...Publicly, MMS said recently that growth will not be sacrifced to counter inflation...Unfortunately, RBI doesnt seem to be on the same page...For the first time, it has now lowered its GDP forecasts along with inflation forecast! Given the recent track record, while the latter will perhaps remain the mirage, the former might well come to be true!

[Theo_Fidel]

Vina,

Part of the problem is not that such wack jobs exist. They exist in every country and society.

The real problem in India is that they are listened to and even followed. Take that Belgian Jean Dreze guy. Amartya Sen butt buddy. Complete insane wack job. He was drummed out of LSE of all places for being too extreme. So he comes over to India and what do we do, put him on the freaking National Advisory Council. Incredibly he's is the source for a large number of of these crazy government programs. He is the father of the NREGA. When that failed to improve hunger he moved on the Right to Food bill. Back when he almost destroyed the national midday meal scheme by demanding that it be opened to all poor people as well. Can you imagine that, thousands of poor fighting with our school going kids for free food.

This is the guy who started the whole 'India worse than Bangladesh' theme way back. At one point he strongly advocated we reduce our defence budget to Bangladesh's 1.1% of GDP. Yet there he is on the NAC, pontificating away and with defenders for some of these policies on this forum.

My god, have we already forgotten what 1991 was like. Are we crazy enough to think growth just 'happens' with out sacrifice and investment. Why are we listening to the poisonous snakes that failed us for so long. Are we doomed to repeat our history, this time as a farce.

Also I wouldn't go so overboard on TN. KK & the Dravida parties had the right idea on breaking the back of primitive social practices and social reform. Though some of the early fervor has side tracked into all kinds of dead ends now. Kinda sad that they don't bring it up so much anymore. This is after all the land with the ongoing shame of Usilampatti and what they do to the female babies/children and the continuing cradle baby scheme.

I have said this from day one. As long as we continue to treat our women like cattle, our low HDI is their revenge upon our society. No amount of money or NREGA's or 'social programs' will change that. The day dowry/ arranged marriage/female illiteracy ends in India is the day we will progress. KK still has this part right.

[somnath]

Theo-ji, characgter assassination is quite easy..Even amar singh does it well..

But given that you are unable to back about 95% of all your assertions with any data or even a theoretical understanding, maybe you should just go just a little easy on personalising stuff?

I mean, Jean Dreze! Have you even read any of his works? to critique him, at least get a modicum of understanding of the basic theory, and some receptiveness to primary data...

Its funny you talk of "sacrifices" - to be made by whom? the bottom 30% of the population? Given that likes of KP Singh with their SEZs are fair candidates for "reverse-sacrifices" for you?

[vina]

Also I wouldn't go so overboard on TN. KK & the Dravida parties had the right idea on breaking the back of primitive social practices and social reform. Though some of the early fervor has side tracked into all kinds of dead ends now. Kinda sad that they don't bring it up so much anymore. This is after all the land with the ongoing shame of Usilampatti and what they do to the female babies/children and the continuing cradle baby scheme.

The social transformation that has happened in TN, Kerala (which Vivekananda described rightly in those days as a mad house), parts of KA and definitely large parts of India is incredible if you compare the last 50/60 years. Lot of that has to do with education, nutrition, healthcare and general economic prosperity and most importantly social mobility. The day you have social mobility the old feudal structures start breaking down and the ghastly practices and stuff that made sense then get unhinged.

This Usilampatti business is a passing phase in the transition. Social transformation is happening, the laggards and dead enders who refuse to participate will be islanded and be anachronistic remnants sort of like characters from an anthropological museum in a very changed society.

KK still has this part right.

Dr Artise is way past his sell by date. That kind of reformism and idealism in the Dravidian movement died with CN Annadurai I guess. The rest lived off his and the others halo and now it is degenerated in to the ghastly Dr Artiste kind of politics.

Once he is gone, the TN politics (definitely DMK atleast) will undergo a serious churn and hopefully something new and exciting and more forward looking comes out of it. TN politics as it is is just simple sterile and devoid of content, the slogans, shibboleths and programs , issues and mobilization methods work no more, the issues are different, the future is different from the past. I do hope the polity throws up a set of people who promise to make TN rival Malaysia in per capita wealth in 20 years, make it into a South Korea level industrial power and get it to first world HDI (eminently doable from where they are currently) and basically liberate the last vestiges of fuedal relation structures and oppression of the Dalits in Southern TN by getting that area industralized and moving the Dalits off the farms into factories.

[vina]

RBI hiked rates by a more-than-expected 50 bps points...Having been behind the curve consistently, RBI is trying to "smash" inflation with heavy artillery now...Unfortunately, they are likely gettign it wrong..
............Global commodities have dropped across the board - oil's below 100 dollars, industrial metals are off by 15-20%.. snip

Well, there is nothing cast in stone that the RBI should follow through with the rate increases if commodities drop lowering the imported inflation into India. The RBI might decide not to increase rates in future and change their policy bias going forward!

Policy is decided per a specific context and scenario. Context and scenarios change, policies change!

The 50 bps was quite expected (atleast I expected it).

So there are you are. Dont worry have curry. The RBI will change it's mind if the inflation scenario brightens. The more important thing than the big M is the big F ! The problem is with the F word deficit. The oil price hikes if they go through will get the F back in sync and any further falls will get the F. Deficit well under control and inflationary expectations coming crashing down in future. The political timing is right too. Elections are over, nothing holding you back from doing the right thing. And yeah, send the administered pricing in to the great beyond and kick the commies in the nuts if they start howling about direct subsidy payments/entitlements instead of subsidizing producers/intermediaries (fertilizer, fuel, electricity etc, etc).

[somnath]

Well, there is nothing cast in stone that the RBI should follow through with the rate increases if commodities drop lowering the imported inflation into India. The RBI might decide not to increase rates in future and change their policy bias going forward

Well, the essential fact is that rate hikes have little impact on commodty-price inflation..More so when most oil prices are somehow "regulated"...Which was the basic issueevn earlier, when commodity prices were hardening, and remains so now, when they are softening!

The 50 bps was quite expected (atleast I expected it).

You should join the ranks of "central Bank" forecasters - they are a special breed But seriously, the street wasnt expecting 50 bps at all - bond yields reacted after the announcement...

The RBI will change it's mind if the inflation scenario brightens. The more important thing than the big M is the big F ! The problem is with the F word deficit. The oil price hikes if they go through will get the F back in sync and any further falls will get the F. Deficit well under control and inflationary expectations coming crashing down in future. The political timing is right too. Elections are over, nothing holding you back from doing the right thing. And yeah, send the administered pricing in to the great beyond and kick the commies in the nuts if they start howling about direct subsidy payments/entitlements instead of subsidizing producers/intermediaries (fertilizer, fuel, electricity etc, etc).

You are mixing up multiple issues again...RBI itself has said many times that the inflation is largely on account of commodity prices and supply side bottlenecks...Rate hikes have limited utility therefore in adressing the core issue...

As far as the fisc is concerned, first of all its too early in the day to start worrying about it...Epecially as the budgeted numbers (its a stretch of imagination, but still) project fiscal deficit to be better than last year...Typically state of the fisc starts becoming a variable in the second half, whcih is when real trends on expdt are available..

As for the quasi APM - it is anyway partially gone, on petrol prices..Some of the inflation expectation is on account of expected price hike by marketing copanies looking to "catch up" on prices of petrol..For the rest - LPS and diesel, there are right nooises, but we will believe when we see something...

Net net, fisc isnt a variable, even RBI isnt saying that...

Didnt undersatnd the point on direct payments versus subsidizing companies - its actually a great idea, the govt is anyway moving towards that - note the announcement on DCT for LPG/Kerosene subsidies in the Budget...

The biggest worry is growth - RBI is now behaving uncannily alike C Rangarajan's RBI in 1996-97...And for the first time after teh crisis, RBI has come out with a growth projectio that is lowered..So clearly it is aiming to moderate growth..Given that the utlity of the measure to moderate inflation is doubtful, it might be a self fulfilling prophecy...

[vina]

You should join the ranks of "central Bank" forecasters - they are a special breed But seriously, the street wasnt expecting 50 bps at all - bond yields reacted after the announcement...

Well, I was short on a interest rate sensivtives (banks and autos) and made money there. It was no brainer. There wasn't much upside in the market which was pricing a 25bps anyways, little risk in going short in interest rate sensitives if there was a surprise and well there was one.

You are mixing up multiple issues again...RBI itself has said many times that the inflation is largely on account of commodity prices and supply side bottlenecks...Rate hikes have limited utility therefore in adressing the core issue...

Nope. This inflation has multiple sources. 1) imported via high commodity and weak dollar 2) food inflation 3) liquidity led (loose monetary policies).

The problem was 2 and 3 were feeding into the core inflation in addition to 1. So RBI is actually trying to stanch 2 and 3 and hoping for the best in 1. I think with commodities falling, a good monsoon and arrivals in the market 1 and 2 will start to stabilize and if that happens, then growth takes off and 3 (excess liquidity) will get demanded by the growing economy and the RBI can sit pretty by not raising rates from here.

As far as the fisc is concerned, first of all its too early in the day to start worrying about it...Epecially as the budgeted numbers (its a stretch of imagination, but still) project fiscal deficit to be better than last year...Typically state of the fisc starts becoming a variable in the second half, whcih is when real trends on expdt are available..

Oh no. The F word is the biggest thing I worry about. I think the gambled on growth to the the F thing under control. Now with growth threatened, that F thing is threatened as well. 2 more months of trending lower growth showing up at the next quarter number, I would about F big time and expect serous macro problems , especially if they dont have the cojones to correct the imbalances they sustained so far by subsidizing fuel prices and expanding the welfare (that word again) programs.

Net net, fisc isnt a variable, even RBI isnt saying that...

If you worry about the F word when the RBI talks about it, you are late, you are acting on "news", everything is already priced in.

a growth projectio that is lowered..So clearly it is aiming to moderate growth..Given that the utlity of the measure to moderate inflation is doubtful, it might be a self fulfilling prophecy...

There is no way out now. For far too long the monetary policies have continued. They have reached a stage their capacity to hold the line in the light of high commodity prices is nearly breached (if commodities fall, the day might yet be saved though) and they are signaling that. In fact that is what the RBI is "saying" . Read signals not words. Afterall, action speak better than words!

[somnath]

^^

I would about F big time and expect serous macro problems , especially if they dont have the cojones to correct the imbalances they sustained so far by subsidizing fuel prices and expanding the welfare (that word again) programs

In my 10 years in the capital markets, I havent seen a single year where fiscal deficit in India was the source of any serious fundamental macro issues...Historically too, India has never had fundamental macro issues (tactical constraints, yes, nothing fundamental) resulting out of "large" fiscal deficits (reaons are many, I am sure we have disucssed this here before)...I would be interested if you point out a case otherwise...

And yes, if the fisc worsens, the blame on tax exemptions for the rich (and crooks like KP Singh and Shahid Balwa) will be much higher than that on welfare

Anyhow, the issue is of policy credibility...Its incorrect to say that monetary poicy has been "loose", far from it..We have now had 7 or 8 rounds of rate hikes, with no discernible impact on inflation...The danger is that RBI will manage to choke off growth more than it manages to control inflation...Lets see..

[vina]

In my 10 years in the capital markets, I havent seen a single year where fiscal deficit in India was the source of any serious fundamental macro issues..

1990 VP Singh , farm loan waiver, fiscal deficit rose very high, Saddam invaded Kuwait, oil shock, , interest rates nearly 19% , perfect storm, reserves disappear, inflation shoots up (nearly 22% iirc), growth craters (even below from the already low Hindoo growth rate), rest is history.

At state level, look at he recent record of all govts in Kerala when they were commie run , esp the earlier one to the current one , following the great commie advice of "Fiscal Deficits dont matter", spend like there is no tomorrow and effects of it.