Indian Economy: News and Discussion (Apr 1 2011)

[VenkataS]

We are not even close guys. Lets just focus on literacy for the moment.

Developed countries and even China have high school graduation rates approaching 80%. China estimates 5% drop out in urban and 11% drop out in rural areas from High School FWIW. The US is b#tching and moaning about a drop to 76% High school graduation rate. We would kill for that number.

In India only about 38% get to class 10. The graduation rate is an even lower number. Once you start looking at Junior College, what we call 11&12 high school the numbers diminish further. IIRC a 13% graduation rate.

That is depressing! This implies that only 13% of our population has a chance of getting a half decent job (even considering that this represents only high school graduation rates and not college).

Does this mean that 87% of our population does not have a chance of ensuring stable/decent income through employment.

[VenkataS]

^ What happens when India achieves 100% graduation rate, say in next 10 years.

India currently has 350+ million people in 1-14yr ages. That is nearly 25-30 million graduates per year.

I fail to see how we can go from 13% to 100% in 10 years.

If we do, then we should ensure that we are creating 25-30 million jobs in the economy every year.

[RamaY]

^ Per some calculations

Every 1000 crores of investment will create 15000 permanent jobs. I think it is a very optimistic estimate.

To generate 25-30 million jobs it requires $400-$460B new investment every year. Which industry can take so much intake? What do they produce? Who will consume them?

P.S: Pls do not forget that China too will have to do the same.

[somnath]

To generate 25-30 million jobs it requires $400-$460B new investment every year. Which industry can take so much intake? What do they produce? Who will consume them?

Employment elasticities in India have actually fallen post-reforms...So we are generating fewer jobs per unit of GDP growth/investment than we were pre-reforms...@ 36-37%, the total investments in the economy every year is about 600 billion dollars, and it generates an ever-decreasing "proportion" of new jobs, more so in the organised sector..the situation isnt very different in China either..

A good analysis of employment trends in both India and China..
http://www.macroscan.org/anl/apr07/pdf/India_China.pdf

The issue today is of employability, rather than availability of jobs...Higher education, and the quality of the same, is critical...

[RamaY]

^ Could we talk in english please!

Tow questions -

1) Employability of the graduates. Since the whole purpose of "modern" education is employment (and nothing else) the market should be able to enforce the employability guidelines. Do you think the market has enough demand to employ all employable resources?

2) Assuming that we somehow achieve 100% effectiveness and deliver 30 million graduate babies per year, what is the capital investment required (pls consider the downward trend of jobs per $B investment)?

Earlier the panacea used to be democracy then it became secularism and now education. In some thread somebody opinioned that 100% education will ensure that India would become world cricket champions.

The whole economic policy making has become like IT projects. People writing software without knowing requirements.... (I work in IT industry).

[Suraj]

All the posts on bank accounts for NRIs have been merged with the NRI/R2I thread.

[Theo_Fidel]

I fail to see how we can go from 13% to 100% in 10 years.

It's doable. We need social reform however, something I keep mentioning. Without social reform all the money in the world would means nothing.

Kerala has a 7% drop out rate by class 10. Something line 78% appear to graduate from High school. Next door TN which spends just as much on education suffers a 55% drop out rate by class 10 and only has a 28% graduation rate from High school. Such is the base for TN's boom. This is why I get annoyed when people start praising the TN educational system. While we are at it Gujarat's drop out rate by class 10 is 59%.

The odd thing is there are relatively poor and disadvantaged communities within TN who have 100% High school graduation rates. Their treatment of women is key.

It is depressing when one thinks of the speed brakes this puts on the economy. OTOH TN is graduating a 150,000 + engineers even from this inefficient graduation rate. So most who graduate from High school go to some type of college education.

[Ambar]

To generate 25-30 million jobs it requires $400-$460B new investment every year. Which industry can take so much intake? What do they produce? Who will consume them?

Employment elasticities in India have actually fallen post-reforms...So we are generating fewer jobs per unit of GDP growth/investment than we were pre-reforms...@ 36-37%, the total investments in the economy every year is about 600 billion dollars, and it generates an ever-decreasing "proportion" of new jobs, more so in the organised sector..the situation isnt very different in China either..

A good analysis of employment trends in both India and China..
http://www.macroscan.org/anl/apr07/pdf/India_China.pdf

The issue today is of employability, rather than availability of jobs...Higher education, and the quality of the same, is critical...

Somnath, could it also be that as economies become more mature, ICOR for employment generation increases? Higher wages,better infrastructure and logistics requirements and more training could all be reasons for generating fewer jobs/unit of GDP ?

[RamaY]

Somnath, could it also be that as economies become more mature, ICOR for employment generation increases? Higher wages,better infrastructure and logistics requirements and more training could all be reasons for generating fewer jobs/unit of GDP ?

That is the reason. As a nation moves from one tier of industrialization another tier it requires more capital per unit job creation. It is assumed/expected to be compensated by productivity gains.

But all this discussion is diversion to the main question. Even if we assume that Rs 1000 crore investment would create 15,000 permanent jobs (this is the criteria taken in developing SEZs in some states IIRC), it would require minimum $450B NEW Investment every year to create 30 million jobs.

The question was what jobs we plan to create, what do we plan to produce and who would consume those products?

[somnath]

Somnath, could it also be that as economies become more mature, ICOR for employment generation increases? Higher wages,better infrastructure and logistics requirements and more training could all be reasons for generating fewer jobs/unit of GDP ?

Ambar-ji, well yes, as a country develops, the economy has a greater capital intensity of output...However, ICOR is one elemetns..A better estimate of efficiency is Total Factor Productivity (TFP), which requires more dtaa and hence is dififcult to compute and compare across countries...

^ Could we talk in english please!

Ramay-ji, which part of the post was French?

About "what jobs" are created by this 36-37% investment rates, well, everything...From the new metro lines to more barbers in "Cool" barber in Churchgate as more finance professionals throng to Mumbai...Unless I am missing something in your question...

[somnath]

Why India has a long way to go before attaining mass literacy..

http://www.indianexpress.com/news/over- ... t/773225/0

Now Bihar is a successful test case - its progress in the last 10 years on literacy has been pretty impressive..But even then...

[RamaY]

Ramay-ji, which part of the post was French?

About "what jobs" are created by this 36-37% investment rates, well, everything...From the new metro lines to more barbers in "Cool" barber in Churchgate as more finance professionals throng to Mumbai...Unless I am missing something in your question...

I get confused when people start giving peer-reviewed references. In my opinion even an Amartyasen's paper is his inference of the facts. I would prefer to make my own inferences based on the data, in those papers. I also fail to understand any paper that is longer than 1 page

The discussion started with over emphasis on "modern" education. What education a barber in "Cool" requires, how much of it has to be modern (in the sense of modern finance, modern science, modern etiquette etc) and how much can be traditional (outlook, values, traditions, etiquette etc)?

Even the so-called 'modern' professions such as Risk Management etc need the traditional education to remain health, happy and content. Unfortunately this essential aspect is missing in 'modern' education system.

The link to economy thread is can 'modern' education alone (measured by percentage of graduates in the eligible population or >21 years) ensure economic growth? If so (my question was) what are the capital requirements for that (I estimated it to be ~$450B per year, yours even more)? and What is the distribution across various economic sectors? and so on...

P.S: If you are interested, I request you to go thru this thread and make your comments http://forums.bharat-rakshak.com/viewto ... =24&t=5479

[somnath]

I get confused when people start giving peer-reviewed references. In my opinion even an Amartyasen's paper is his inference of the facts. I would prefer to make my own inferences based on the data, in those papers. I also fail to understand any paper that is longer than 1 page

Then you have a problem...None of the issues are so simple that they can be analysed in one-pager pamphlets...And usually, the peer-reviewed stuff tend to have greater credibility...In case you just need data, for India data is pretty much available at multiple sources...

About the "investment rate", its not my "estimate" - these are the real numbers..India invests ~36-37% of GDP, translates @ current prices to about 700 billion dollars...And the sectoral split of that investment is availabe in the standard sources - Economic Survey, RBI Annual Report etc..

Not sure what is your thrust vis a vis "modern" v/s "traditional" education...Idnia's education gap is across-the-board....From primary to higher education...I have a degree of deep scepticism about the so-called "traditional" education..what we really need are kids to be equipped with the basic tools - maths, english, logic, science...After that, they can determine their own destinies..But in terms of skill sets required in the market, maths, english, science and logic are sine qua non...

I went through the thread, espeically your posts...Lots of issues with the basic maths...

For example, estimate of "black money' and the "taxable" amount on that - year after year...The BEST tax amnesty scheme that we had, and it was a one-time affair, yielded about 10k crores..Very often, people get confused with the "flow" of black money income with "stock"...Differetn concepts...To get a perspective, you can see here..http://www.oxusinvestments.com/files/pd ... eyline.pdf

Second, assumptions on tax-to-GDP - while the commonly held wisdom is that its "low", given that we have had extensive direct tax reforms and reached this level 15 years hence, the situations may not be all that much different from the equilibrium...On indirect taxes, yes, the GST should help...For another perspective, here goes..http://www.business-standard.com/india/ ... io/202113/

Third, state govts cannot be summarily asked to take a hike on allocations of central taxes - it has been one of the redeeming features of the reforms process that state allocations have been hiked by successive Finance Commissions...The next step in fact is to not have any centrally sponsored scheme at all...Just give the money to the state and the latter can do what it wants to with it...

To be honest, the thread was too long and didnt go through everything - but prima facie these are the issues...

[RamaY]

Thanks Somnath-ji for the comments. Yes most of the posts are by me as people stayed of that discussion; either they thought it was trash or in agreement.

On second read, I do agree that the numbers have to be reworked. Will do.

On the black money the old methods have failed. We need new ways to bring them back.

Assumption on tax-to-GDP - are you saying my estimates are high?

You missed the point on allocation of central taxes to states. The funds will be spent thru state-district-panchayat bodies as long as they are going towards the NDP. We have seen states doing whatever they want to do with central funds and it didn't work. Going in the same path will not result any different outcomes, thus the new paradigm.

I thought you liked the skipping state and district level administrations in NERGP.

No probs. You can go thru that thread when you have time. I was expecting your criticism at a different level.

[Abhijeet]

I think the questions about "if we educate everyone what jobs will they perform?" are misguided. With a strong basic education grounding , people will create opportunities for themselves. As it is, it is hard to get skilled labour of many sorts in India. From recent personal experience, a skilled baby nurse costs Rs. 1600 per day in Mumbai.

In a fast-growing economy, there will be plenty of opportunities even if everyone starts graduating high school. People will figure out what they can do -- they only need to be given the tools to think for themselves, which most Indians are not at present.

[RamaY]

Abhijeet ji,

In a market economy what is the cost of producing a skilled nurse? Why is so high?

[somnath]

You missed the point on allocation of central taxes to states. The funds will be spent thru state-district-panchayat bodies as long as they are going towards the NDP. We have seen states doing whatever they want to do with central funds and it didn't work. Going in the same path will not result any different outcomes, thus the new paradigm.

I thought you liked the skipping state and district level administrations in NERGP

RamaY-ji, will go through your estimates in the evening when I am home..

To this point though, NREGA funds do NOT bypass the state-district-panchayat at all..It is implemented through the same network..Which of course is the main challenge - so the performance of NREGA in each state is a function of the delivery system in that state...

Central schemes, (NREGA included - but I will cover that a little later) are rapidly becoming out-of-date as a concept...This is because no "one size" can fit all...Kerala has a differen use for its pot of tax revenues to (say) Bihar...A straitjacketed system of central schemes take away the flexibility at the ground level to innovate with policies...I like NREGA as a concept for cash transfer, and there is more flexibility built into NREGA at an implementaion level than most central schemes...But at its final avatar, NREGA has to morph into a direct (or conditional) cash transfer scheme...But individual state govt still have a large agenda of providing services to citizens, much of which cannot be done by the pvt sector...And indv states need the flex to dovetail their own policies...

[Virupaksha]

http://eenadu.net/panelhtml.asp?qrystr=htm/panel4.htm

I had told some time ago, how Andhra Pradesh govts budget and figures during the last 6-7 years of congress/ YSR have become a joke.

News in article: Central govt stops 1406 crores to AP govt for giving false estimates of GDP, growth and debt, FRBM prizes by centre to states, states effort to get them.

http://www.thehindubusinessline.in/2003 ... 301700.htm
in 2003, APs budget was 42K crores - last budget from Babu
in 2004, APs budget was 51k crores - YSR under congress came to power, 20% growth

in 2011, it is 115k crores.

APs figures are slowly becoming worse than Pak's figures

[svinayak]

It is a ponzi scheme

[Virupaksha]

It is a ponzi scheme

I had not thought about these madrassa statistics from COng/YSR from the corruption angle.
Now that I think about it

[Abhijeet]

In a market economy what is the cost of producing a skilled nurse? Why is so high?

It's not the cost of "producing" a skilled nurse as much as the cost of "procuring" one -- a simple supply-demand mismatch.

People with skills are rare in India. At the same time there is a huge, huge underclass of people who have no marketable skills and eke out a living doing subsistence farming or entrepreneurship. That's why talk of people not having enough work if we educate them all are premature.

[devesh]

It is a ponzi scheme

I had not thought about these madrassa statistics from COng/YSR from the corruption angle.
Now that I think about it

YSR and Cong looted AP and India. Jagan himself went from a nobody to controlling 5000 Crores worth of assets.....unfortunately, AP public doesn't seem to mind that looting as long as they get their share. as a digression, in this aspect, i do agree with American libertarians and real small govt folks in US. they have a valid point when they say that addiction to govt largesse is a dangerous disease where people don't care for the traitoristic policies of the govt as long as they get their share.

[Theo_Fidel]

http://www.ft.com/cms/s/0/bfa352fa-6418 ... z1J92LWMqu

Data reveal investment fall in India

Industrial production in India grew by a slower-than-expected 3.6 per cent in February, the result of a sharp contraction in capital goods output, reflecting a significant slowdown in investment in the country. Capital goods output, seen as a proxy for investment, was minus 18.4 per cent compared to February 2010, dragging down industrial production well below the 5 per cent range forecast by many economists.

“Investment is still the culprit,” said Sonal Varma, India economist for Nomura. “The entire negative surprise is only because of investment still not happening.”

Despite the slowdown in capital goods production, economists said India remains on a growth trajectory, underpinned by strong consumer demand. “India’s overall solid growth story remains intact,” Matt Robinson, a senior economist at Moody’s Analytics, wrote in a note. “High frequency data such as the purchasing managers’ index and credit growth indicate consumer demand remains robust.”

Still, Ms Varma cautioned that the imbalance between strong consumer appetites and companies reluctance – or inability – to invest could add to the already strong inflationary pressures in the economy, further weakening the investment climate. “We are in a situation where consumer demand is very strong and investments are not, so the supply demand gap is getting exaggerated and that’s fuelling inflation,” she said. “That is not good news for growth.”

This is a bit lower than the 9%+ forecast earlier...

http://www.sify.com/news/india-set-to-g ... abihi.html

Washington, April 11 (IANS) Growth in India is expected to be moderate but remain above trend, with GDP growth projected at 8.25 percent in 2011 and 7.75 percent in 2012, the International Monetary Fund (IMF) forecast Monday.

Infrastructure will remain a key contributor to growth in India, and corporate investment is expected to accelerate as capacity constraints start to bind and funding conditions remain supportive, it said in its April 2011 World Economic Outlook (WEO).

[chaanakya]

It's not the cost of "producing" a skilled nurse as much as the cost of "procuring" one -- a simple supply-demand mismatch.

People with skills are rare in India. At the same time there is a huge, huge underclass of people who have no marketable skills and eke out a living doing subsistence farming or entrepreneurship. That's why talk of people not having enough work if we educate them all are premature.

+ 1 to that. Very perceptive.

[Ambar]

http://eenadu.net/panelhtml.asp?qrystr=htm/panel4.htm

I had told some time ago, how Andhra Pradesh govts budget and figures during the last 6-7 years of congress/ YSR have become a joke.

News in article: Central govt stops 1406 crores to AP govt for giving false estimates of GDP, growth and debt, FRBM prizes by centre to states, states effort to get them.

http://www.thehindubusinessline.in/2003 ... 301700.htm
in 2003, APs budget was 42K crores - last budget from Babu
in 2004, APs budget was 51k crores - YSR under congress came to power, 20% growth

in 2011, it is 115k crores.

APs figures are slowly becoming worse than Pak's figures

Ravi, remember we did talk about this a while ago : http://forums.bharat-rakshak.com/viewto ... start=2680

The 2011 budget of AP is infact 128k Rs. At ~44 Rs/$, that turns out to be around 30 billion$! They claim their largest components are public healthcare and infrastructure. One look at the govt run hospitals, and it is enough to conclude thats the place you wanna be treated if you are contemplating suicide!

I'm not surprised they've been cooking the growth,debt and ofcourse expenditure figures. If a 'developed' state like AP is cooking numbers, one can imagine the scale of mismanagement in central and eastern states.

[Ambar]

http://www.ft.com/cms/s/0/bfa352fa-6418 ... z1J92LWMqu

Data reveal investment fall in India

It could be the interest rate hikes that are killing the investment. Having said that, as RBI mentioned, it is not just the energy/food inflation that is a cause for concern, but also a core inflation of around 12% that is forcing them to take monetary tightening. This probably explains why despite a output gap, we still have a stock market/real estate near historic highs. There is a capital misallocation that is sending easy money into stocks/real estate instead of investment.

[somnath]

It could be the interest rate hikes that are killing the investment. Having said that, as RBI mentioned, it is not just the energy/food inflation that is a cause for concern, but also a core inflation of around 12% that is forcing them to take monetary tightening. This probably explains why despite a output gap, we still have a stock market/real estate near historic highs. There is a capital misallocation that is sending easy money into stocks/real estate instead of investment.

Month-on-month numbers are too fickle to base long term trends on, though banking research analysts are forced to do some of that! Rising interest rates are a challenge, and at the margin might be hurting some investments, but in case investments had really slowed down there would be a flood of money chasing G-secs and G-sec yields would have come off drastically - nothing of that sort has happened, yet...There is no extra-ordinary level of interest in G-sec auctions...

BTW, stock investments as a % of total savings/investments in India is typically very small - <5% of the pie.....

[somnath]

An interesting idea - on population density..And how India fares better than China on that respect..

http://worldarticles103.blogspot.com/20 ... -dyer.html

Almost half the total land area of India is good arable land, whereas only 15 per cent of China is. So although China looks bigger on the map, India has a significantly lower real population density: 753 people per square kilometre of farmland compared to 943 for China. Add in the fact that China is currently losing about one per cent of its arable land per year to buildings, roads and parking lots, and the numbers for China start to look seriously bad.
They look even worse for the East Asian countries that are already fully industrialised: around 2,900 people per square kilometre

Seems a bit like pop-agronomics, but interesting nevertheless!

[Abhijeet]

Seems odd to claim that farmland is being "lost" to buildings or roads -- which generally allow people to produce far more output than farming the land. By that measure the US and other developed countries where farming is not a major activity would also have very high population densities per acre of farmland.

[harbans]

Almost half the total land area of India is good arable land, whereas only 15 per cent of China is. So although China looks bigger on the map, India has a significantly lower real population density: 753 people per square kilometre of farmland compared to 943 for China. Add in the fact that China is currently losing about one per cent of its arable land per year to buildings, roads and parking lots, and the numbers for China start to look seriously bad.
They look even worse for the East Asian countries that are already fully industrialised: around 2,900 people per square kilometre

Somnath ji, i have been mentioning this for some years now when people give me the population crap (India has too much population). It's quite evident too on the relief map if one looks at China and India. China looks big because it incorporates Tibet and Xinjiang. Chat up with most Indians and they claim our biggest problem is 1. Population and 2. Corruption..not necessaily in that order though. Corruption IMHO opinion will ease up particuolarly at the lower levels of income groups when the economy does well and pay packets rise up. I doubt Mr Hazare's initiative though appealing to lots of people, will bring any change. It might just burden us with more bureacracy.

[Sri]

harbans ji,

I totally agree with you. One of the reasons why India through the ages has refrained from annexing and looting foriegn lands was the absolute fertile lands that we have. We were almost always through our history have been resource rich. Mordern China is not the XinHua (the middle Kingdom) of yester years. Generally Chna was ristricted to the River basins of Xi, Yangzi and Yellow rivers. Even land around Wei river was not completely arable.

[somnath]

.S: If you are interested, I request you to go thru this thread and make your comments viewtopic.php?f=24&t=5479

The Union Budget this year has total est revenue receipts of ~7.9 lac crores..Add ~55k cores of capital receipts, you have total of ~8.5 lac crores..Actually I would take ~8 lac crores, as most of the latter (40k) is disinvestment, which is really a hit-and-miss affair...

Now, out of the 8 lac crores, 3.68 lac crores is debt servicing, or about 45% of revenues...Defence rakes up another 1.6-1.7 lac crores, or 20% of revenues...Pensions take up 54k crores, ~ 7%...Police 30k crores, ~ 4%...There is no separate head of salaries in the budget, but it should be in the ~80-100k range, or 10%...Add all of these up, and you will see that room for "discretionary expenditure" purely out of revenues is restricted to no more than ~10-15% of revenue receipts....Which is obviously not enough, and hence there is a borrowig plan of >4 lac crores, or ~30% of the total expenditure budget...

Therefore, in the immediate future, given the large developemnt agenda, it is well nigh impossible to cmpletely eliminate fiscal deficit ...

Two, tax-to-GDP ratios in India, and you need to include state govt taxes as well, not just central taxes, will be ~13%...A lot fo people have been talking about this being low, but given extensive (direct) tax reforms over the last 15 years, if the level is what it is today, at least on direct taxes any iprovement can only be marginal...Frankly, I tend to agree with Surjit Bhalla (the article I referenced earlier), that maybe the tax-to-GDP for India is already optimal...

three, allocations to defence (as a %) cannot go up anymore than what they are today...After many years has the combined allocation for the social sector outstripped defence..What kind of a country are we trying to build if our defex is consistently above social sector spending....

Four, growth in revenues will broadly keep pace with growth in expenditure - both in tune with nominal GDP gorwth..And given FRBM obligations, the room for expansion (as % of GDP) will remain constrained...

Also went through the programme of redeploying farm labour to food processing...Issue is in execution....What type of timeframes is required??What is the real "market", given the high and growing demand for both giffen AND superior goods? Consultant presentations on market sizes often ignore inter-related issues of execution around the political economy and/or pure infrastructral bottlenecks...To me, the bigger oppotunity for farm labour is migration to cities for the massive infrastructure spend that is on...It is a large programme, large parts of it are on auto-pilot, mot importantly funding tied up and execution models perfected...Add to it real estate - and that is the big farm labour replacement opportunity...

JMT...

[RamaY]

It's not the cost of "producing" a skilled nurse as much as the cost of "procuring" one -- a simple supply-demand mismatch.

People with skills are rare in India. At the same time there is a huge, huge underclass of people who have no marketable skills and eke out a living doing subsistence farming or entrepreneurship. That's why talk of people not having enough work if we educate them all are premature.

Abhijeet,

I am assuming a "trained" nurse would prefer to have the same quality of life of a junior IT professional. Assuming a 20-23 day/month work period, that translates into Rs 32-40,000 Rs per month. Is it that high for Mumbai's cost of living?

Pls do not get irritated by my line of questioning. I am not against moving towards a well educated and trained Bharat. I am trying to understand/learn the best strategy to reach there.

[RamaY]

Somnath,

Thanks for the feedback.

We have different approaches to progress and development. You favor urbanization (and believe that associated infra-spend will fuel growth), where as I took the root of taking technology to existing civilian centers (villages & towns); you want to migrate people to infrastructure, I want to take infrastructure to people.

These are two different strategies and I think we need to do a thorough cost/benefit analysis. Yes, execution is a key ingredient for success but it applies to both strategies. Even today we see city planners building 2-lane flyovers which are undercapacity even before they are opened for public use.

Coming to your observations -

1. Budget outlay - Both existing and proposed budgets are given so there is no need to assume. There won't be separate header for salaries in budgets as they are covered under the respective departments. If you go thru budget making process a given govt function's budget includes two aspects - capital requirements (maintenance of buildings and other assets) and operational expenses which covers the salaries (my understanding)

2. Limiting the deficit - I mentioned my approach in the beginning of the thread. My first focus is to balance the budget. If it means no "Planned Expenditure" so be it.

3. Key Objective of my approach - Then I tried to layout the necessary "Planned Expenditure" to achieve key national objectives - 100% literacy, assured health care, employment (Both rural and urban), development of Civic infrastructure, Military-industrial infra, national security, Internal affairs etc., Since most of these projects are long term (I put a 10 year goal) I tried to calculate the total plan and yearly allocations (and targets). If a plan fails to achieve +/- 10% of the objectives then it has to be re-analyzed to calibrate the strategy. That wouldn't change the overall program objective though; ofcourse exceptions apply.

4. Allocations on Defense - I belong to the "thought process" that believes in the inter-dependence of military, economic, political, social and geopolitical interests of a nation. They have to maintain a ration to be effective. Too much emphasis on any one item is detrimental to the nation, especially when it is economy.

5. Tax rates - If I remember correctly, I pegged the tax collection target at 15% of GDP +/- 1%.

Coming to execution. This is the biggest gap (interms of practice), IMHO, that Bharat has compared to west; but it is not rocket science and I see lot of advancement in this area in the past 5-10 years. I tried to put some basic details under these programs. I will be more than happy to get into program management details (what I do for a living).

[VenkataS]

Is our tax to GDP ratio really optimal?
Are our revenues enough for us to meet our huge social sector obligations, infrastructure deficit, and defense requirements.

If you do a comparison with China (2010 estimates from CIA factfile):
India: $1.43 trillion (GDP), Revenues $170.7 billion, Revenues as a % of GDP (11.94%)
China: $5.745 trillion (GDP), Revenues $1.149 trillion, Revenues as a % of GDP (20.0%)

Not counting the fact that magically their revenues are exactly 20% of their GDP,
I am wondering why the revenue as a percentage of GDP is higher for them (compared to us).
Do they have simplified tax-base coupled with a better performing tax/revenue service?

[Ambar]

Being a commie country, they probably put a bullet through the head of tax cheats and send the bill of execution to the family! The number of people who pay income tax in India is staggeringly low. Most small business owners don't maintain receipt books and deal only in cash. No wonder the govt has to tax fuel 60% + to make up on the revenues.

[harbans]

We have different approaches to progress and development. You favor urbanization (and believe that associated infra-spend will fuel growth), where as I took the root of taking technology to existing civilian centers (villages & towns); you want to migrate people to infrastructure, I want to take infrastructure to people.

Ramay Ji, i've posted this before. But who do you think is literally making 'India Shining'? It's village folks. A nation needs people to build. India is doing this. Building up Real estate, Airports, Stadia, Malls, Dams, NPPS, Thermal and gas Power plants, Ports, ,Metros, Roads at a pace that's getting hectic each year. And it's happening all over the pace. Who's working there? I've talked to Metro workers in Delhi-Gurgaon. All villagers including skilled electricians and welders. One can do rough calculations on the back of the envelop and get figures of 200-400 million people building India. I estimate a good 90% come from lean agricultral seasons right from the Naxal belts. Personally i did a little more than just collect some prelim data. I talked to some rural development experts who were looking at taking development there. A few could not grasp the magnitude of the figures working outside their villages/ small towns on these projects. Is it not simpler to give these people better than the minimum wage now. These people invest in their villages. They send money back. A higher wage would enable them to send more money to their villages. Enable them to invest in mechanized agriculture in their villages. Invest in market products increasing demand for better quality goods in villages.. the problem is not going somewhere to invest. Building an expressway from Jaipur to Delhi empowers and enriches millions of villagers around the highway. Building a dam may see most power being generated used in the urban areas, but it also electrifies a lot of rural land. Industries today are not being set up in some urban areas..they are being set up in rural hinterlands. The old socialist way of looking up to rural development must take a backseat. In another 50 years, we are not looking at RK narayans quanit Indian village..we're looking at a more urbanized set up. Thats a future that is difficult to avoid..no?

[somnath]

Is our tax to GDP ratio really optimal?
Are our revenues enough for us to meet our huge social sector obligations, infrastructure deficit, and defense requirements.

VEnkataS-ji, a couple of issues with the calcs - I have mentioned them before..

Tax revenues - for India, most people tend to pick up the central govt revenues only, as that is the variable that is easily available..Now state finances are a bit dodgy, but going by RBI numbers, states are estimated to collect ~ 5.25 lac crores this year alone (net of central grants/share of central taxes to avoid double counting)..
http://www.rbi.org.in/scripts/Publicati ... x?id=13174
So the total tax pie is ~ 13-13.5 lac crores (central taxes of 8 lac crores + state taxes)...On an est GDP base of ~ 80 lac crores, that is >15% of GDP already...

Two, given the extensive level of direct tax reforms that have taken place already, I tend to agree with Surjit Bhalla's hypothesis (artcile referenced above) that the levels are perhaps optimum for our level of income..Indirect tax is WIP, and the new GST should add a % point or two....

Three, China's tax compliance, esp on direct taxes will be higher on account of two reasons - higher per capita income and more importantly, a much higher proportion of organised sector employment - which makes direct tax administration far simpler...In India, bulk of the population is engaged in the unorganised sector..

[somnath]

RamaY-ji,

A few observations - btw your attempt is laudable, mandarins in the Finance Ministry would be doing something similar every year!

If you go thru budget making process a given govt function's budget includes two aspects - capital requirements (maintenance of buildings and other assets) and operational expenses which covers the salaries (my understanding)

The distinction between plan and non-plan has become quite irrelevant, most people agree on this point....there are heads of "capex" in non-plan and there are heads of "revenue exp" in plan...In govt spends on health for example, bulk of the spends will be in salaries of health workers and purhase of consumables and medicines - to classify it as "non plan" is a bit of a contradiciton in terms..

But the key point is different - as I said, once you take out the "non discretionary" heads of expenditure - the amount of money left (as a % of revenue) is relatively small..

2. Limiting the deficit - I mentioned my approach in the beginning of the thread. My first focus is to balance the budget. If it means no "Planned Expenditure" so be it

Well, that doesnt work in the political economy...And really, even on economic rationale it is hard to justify for a high gorwth, development-starved country...(Heck, its tough to implement even in a country in dire straits like Greece!).....Balanced budget is not an end in itself, and as long as deficits are being managed at prudent levels, for India trade-offs between higher deficits and economic growth will always skew towards the latter...In a simplistic manner, if govt of India was a company, which was borrowing @ 10% and generating a nominal growth in topline of 17-18%, it would be wise to do it, right? Those are esentialy the numbers...

3. Key Objective of my approach - Then I tried to layout the necessary "Planned Expenditure" to achieve key national objectives

If you cut down on "planned expdt", there wont be too much left! But seriously, the issue on a number of the social sector deficiencies is not on outlay, but outcomes...It is an execution problem, not a funding one, not anymore..

. Allocations on Defense - I belong to the "thought process" that believes in the inter-dependence of military, economic, political, social and geopolitical interests of a nation

Well, no problems genericaly...But looking at numbers, a share between the classical "guns and butter" (for India more like "guns and BSP"!) reflects what kind of society that the nation is trying to build...We are already IMO spending as much as we possibly can on defence without going the way of societies like Pak or the erstwhile Soviet Union...We can do more when our tax base increases...In any case, the issue with defence again isnt of outlay anymore, it is of outcomes...

Last on the question of agro-industries etc, I have no problem with the approach..The question is really what works...If we have a large infrasturcture and real estate programme running all over the country, it creates automatic demand for labour...the same ambient conditions (of demand, supply, policy and infrastructure) are not there for agro-processing right now..And employment intensity of investment too will be much lower in agro than in real estate/infrastructure...

[RamaY]

The old socialist way of looking up to rural development must take a backseat. In another 50 years, we are not looking at RK narayans quanit Indian village..we're looking at a more urbanized set up. Thats a future that is difficult to avoid..no?

Harbans garu,

I am not talking about Khadi grameen yojana type rural development. I am talking about modernization of villages in the model of latest trend in cities - gated communities. Some of the planned communities are self-sufficient in terms of eco-economic activity.

Imagine we achieve that in the existing towns and large villages (populations 10-50,000).

I am talking about a healthy combination of mechanized agriculture, food processing industry, renewable energy, and service oriented economy in required balance. Throw a pinch of tourism (there are tons of historical places in India) and Indic arts (yoga, dancing, music, ayurveda, pakasastra, and so on) and you have my dream project.

That said, big ticket items like large-scale factories, dams etc., have to be built in economically optimal places.

The infrastructure that connects these two nodes are industrial corridors- Road+freight+train+information highways/