Indian Economy: News and Discussion (Apr 1 2011)

[Supratik]

During the "garibi hatao" days there was no honest way to create wealth and since it was a single party pseudo-dictatorship, change in policy was difficult. Without creating wealth, distributing wealth becomes BS. I think that is what Theo is alluding to.
Even with the supposed successes of PDS in C'garh and TN as you allude to, an universal PDS seems like "been there, done that". Hasn't worked very well in the past and there is no guarantee it will work in the future.

[somnath]

During the "garibi hatao" days there was no honest way to create wealth and since it was a single party pseudo-dictatorship, change in policy was difficult. Without creating wealth, distributing wealth becomes BS. I think that is what Theo is alluding to.
Even with the supposed successes of PDS in C'garh and TN as you allude to, an universal PDS seems like "been there, done that". Hasn't worked very well in the past and there is no guarantee it will work in the future.

Well, unfortunately Theo seldom moves beyond sloganeering to back up any of his contentions with any amount of data/theory (unless one takes voodoo mathematics of 1900000000000000 trillion wealth required as economics) - so its difficult to fathom what he is really alluding to..

There are two diffrent constructs here - facilitating growth is one, direct state intervention in welfare is another..The two are not antithetical to each other..Indeed, country after successful country have doen exactly that..All that people like me (and much more influential people like Jean Dreze and AMrtya Sen, as well as Jagdish Bhagwati!) are saying is that the former by itself does not solve complex issues on welfare/human development automatically..

BTW, I had posted about this before - the issue in India was never about govt being too high a % of the economy...In fact, even at the height of "command economy", the G in the C+I+G framework for India was lower than most countries the "free world"...A derivative of some of the worst tax regimes in the world - high rates, and high exemption, both aiding discretionary distortions...Therefore all this rhetoric about the then policy being about "redistribution" is actually what is BS..The policies were actually quite well dovetailed to suit Indian corporate interests, in the worst possible form of crony capitalism...The issue was the straitjacket of red tape and license permit, which suited incumbent businessmen and politicians very well, but killed growth...All the while presenting the rhetorical veneer of being "redistributive" - which of course some people today fall for hook line and sinker!

None of our welfare programmes are a question of "been there done that"...The outlays have never been adequate, and outcome monitoring has never been robust...Improvements in both are relatively recent phenomena, the 2000s would be a good estimate...More importantly, there is far more imaginativeness being shown in both construct and delivery, and there is a far better civil society monitoring of the execution - RTI is perhaps the single biggest enabler in that...

[somnath]

In answer to (1), you are correct in that fiscal deficit alone can never trigger a crisis. But that is just as true for any of the other factors. Inflation, CAD, low growth, unemployment, fiscal deficit, public debt - none of them on a standalone basis can trigger a crisis

Wrong..A high external account deficit can, and almost always will trigger a crisis...Which is why it is such a closely monitored variable in India in the policymakers' table..

In answer to (2), lets look at the situation when a recession does hit India. If the country is already at a fiscal deficit of 8% in normal times, in a recession the same deficit would shoot up to say 13 - 14%, and when you add a fiscal stimulus on top of that to get out the recession - you are looking at deficits of close to 20%. That is definitely pushing the country close to the brink!

On the other hand, if you have a cap at say 4% for normal times, you then have the leeway to spend your way out of the recession

There is nothing sacrosanct about a particular number...Why 4%..why not 5, or 3, or -2 (ie, a surplus)? It all depends on the ability of the economy to fund itself domestically...And the "returns" generated out of the deficit financing...If the savings-investment gap is modest, it shows that the former isnt under stress, and one is not overly dependent o foreign investment to sustain the demand for "I" in the economy...If the returns generated out of the deficit financing at the margin is higher than cost of that financing, it is a fair game...Which is why policymakers in India are relatively blase about the fiscal deficit number, even though they pay enough lip service...The FRBM Act has been breached from the day it was enacted, and no one's raised a stink...

Anyway, the basic premise of the point is that crises cannot be caused by fiscal deficit by itself (indeed, India's public debt numbers are no different, in fact worse than the PIIGS universe), the external account is the important variable there...

For India itsefl, our public finance ratios are not much better from 1990, but we are supposed to be an emerging superpower! Dogma, whether of the Left or the Washington consensus, has no place in actual policy making..

[vina]

Which is precisely why there had never ever been, in history a default on domestic debt by any govt (barring one case by Russia)...Its tautological..

Indeed it is tautological because the govts will run the printing presses and monetize the debt and the populace will pay with hyper inflation.

The record of LatAm countries in the 60s, 70s, 80s is a testimony to that. Not to mention countries like Turkey etc, where the daily currency movements would be something like 24,000 lira per day and they had to go and introduce something called a New Turkish Lira by basically knocking off a couple of zeroes off their currency!

It has happened in country after country including Weimar Germany. Just because the govts make the currency worthless by "not defaulting" doesn't mean that the effects are any better. Instead of impoverishing just the bond holders alone, that kind of hyper inflation will destroy the wealth of all the citizens/anyone holding that currency. The currency as a "store of value" is simply destroyed!

[somnath]

^^^Monetisation of deificts is a different discussion...Its not a lead tool for deficit financing in the civilised world anymore, not in the last 60 years...It certainly wasnt for India in 1990...

[Theo_Fidel]

Without creating wealth, distributing wealth becomes BS. I think that is what Theo is alluding to.

It is one thing to distribute wealth, a progressive tax that takes money largely from the wealthy for the benefit of all is fair in all economies. But that is not what these 'economists' peddled or continue to peddle. Their attack was on wealth itself and economic growth. Any sign of productivity and wealth accumulation was to be appropriated by the state or taxed out of existence. Note the snide attacks on India's billionaires though they are the ones investing to keep the economic growth going. The truly incomprehensible attacks on the middle class as somehow appropriating all India's 'fabulous' wealth for itself, when the truth is our middle class hustles its pants off to generate 80% of India's wealth. The less middle class money we appropriate the faster we grow.

Again, it is one thing to advocate spending on social indicators but what this lot proclaim is that economic growth, esp. of the cities and middle class is making life worse for the poor in India. They are trying to give the word growth itself a bad connotation and their attack is actually on the middle class of India. Their actual aim is to impoverish the city based middle class and to appropriate their money for the poor. Their pretense is that India is a rich country and has the money to support all this welfare spending. And it is evil cruel mandarins in Delhi who keep the people poor. These are all out right lies yet people believe them. Not one of them points out simple truths that we understand on this board.

- Agriculture can support maybe 5-10% of the population. Since 50%+ depend on agriculture some 40% of our population is condemned to poverty.
- Social conditions matter. Social reform has not been taken up in an organized way for 30-40 years in India. They pretend that our our native culture is some how noble and panchayat raj would solve all our problems.
- Petty manual labor must end for poverty to end. There is NO dignity in manual field work.
- There is no point in education and long life if there is no modern economy for those people to work in. You create a modern economy and people will raise themselves without a lot of help.
- Government can only be the supplier of last resort. In my Residence here in southern TN, the majority of kids go to private schools. No one trusts govt. schools except the really poor and those with no choice.
- Government's job is to provide security/justice, infrastructure and good regulation w/ intelligent enforcement. These are full time jobs. By getting divert down various foxholes government neglects these primary duties.

To understand why this attack is on the middle class, which they themselves are a part off, talk about self loathing, one must understand the Marxist manifesto as promoted by these charlatans.

[Arjun]

Wrong..A high external account deficit can, and almost always will trigger a crisis...Which is why it is such a closely monitored variable in India in the policymakers' table..

No. Note that one of my other conditions was that all other factors remain stable. As long as growth remains in the 8%+ territory, the country will continue to attract capital flows that will make up for a deficit on the current account.

The issue with my formulation is that it is practically never the case that all factors remain stable excepting for one particular variable - which is the same faulty assumption you have assumed as regards fiscal deficit.

If the returns generated out of the deficit financing at the margin is higher than cost of that financing, it is a fair game...

Returns to the investor or returns to the economy? The investor out here is the government and it is obviously not making any returns on its social sector investments. If you are talking about the economy, if taxes were less the same savings would be channeled to private enterprises who would make a better return on investment any day.

Dogma, whether of the Left or the Washington consensus, has no place in actual policy making..

Agreed. But the burden of proof rests with you to prove that fiscal profligacy cannot have a major role in causing a crisis...unless you prove this the logical inference is that it would be necessary to impose reasonable controls on the deficit. The bar you have worked to, which is fiscal deficit cannot be the ONLY factor, is weak - you would have to prove that it is irrelevant to a crisis (ie it is not any one of the leading causes).

[somnath]

But the burden of proof rests with you to prove that fiscal profligacy cannot have a major role in causing a crisis...unless you prove this the logical inference is that it would be necessary to impose reasonable controls on the deficit. The bar you have worked to, which is fiscal deficit cannot be the ONLY factor, is weak - you would have to prove that it is irrelevant to a crisis (ie it is not any one of the leading causes).

Well, you have not been reading (or comprehending) what I wrote..

India is THE case...
1. Fiscal deficits today are broadly the same level as they were in 1990..
2. Economic growth rates in 1990 were very very respectable - the decadal growth in the '80s was not much lower than the decadal growth rates in the '90s..
3. The only joker in the pack in 1990 (w.r.t a crisis) was the external account...Which was far worse on all counts than today..And that is what triggered the crisis...

Extrapolating to the East Asian crisis, the same facts play out..
1. There was no major fiscal issue with the East Asian economies..In fact, their fisc were in pretty good shape generally..
2. Economic growth was not the issue either - they were all coming off multi-decade high growth rates..
3. The joker in the pack was external account vulnerabilities - primarily on account of currency over-valuation and reduction of competitiveness vis a vis China, real estate investments, crisis of confidence and resultant capital outflows...Basically an external account "illiquidity" issue rather than a solvency issue, somewhat similar to India..

A "high" fiscal deficit doesnt cause a crisis in India today, and a "low" fiscal deficit didnt prevent a crisis in East Asia in 1997...

It is a high fiscal deficit that is financed heavily by overseas investors that is a recipe for a crisis - Argentina being a classic case..A vulnerable external account on a stand alone basis too is a recipe for a crisis, without a fiscal problem to contend with...

An uncontrolled fiscal deficit isnt in anyone's interest, there are well known issues with that..The limited point being made is w.r.t the original hypothesis made before, ie, the 1990 crisis was brought about by govt's profligacy in general, specificaly on social sector schemes, especially farm loan waivers..The entire premise is as erroneous as concluding that Argentina had low foreign holdings of its debt! And lastly, the bogey of "high" fiscal deficit in India is just that, a bogey - by all accounts we havent seen anything that shows that it is higher than what is manageable within domestic savings... Thats all..

[somnath]

An interesting book on how HDI impacts long term economic growth..For all those who sing hosannas in favour of "growth solves everything"!

http://books.google.co.in/books?id=9Mqm ... th&f=false

[Suraj]

Now let's see GoI demonstrate its ability to actually put all the extra financial resources at its disposal to use on improving HDI figures, after it's continued failure at accomplishing anything substantial in this regard. It's fashionable enough to complain about spending as a percentage of GDP; yet over the past 15-20 years in absolute terms available resources probably increased by an order of magnitude in nominal terms, but outcomes have been far behind the curve. Maternal, pre- and neo-natal care, education, basic children's health... you name it. When GoI has shown such felicity to misuse even meagre resources, it's hardly unreasonable to assert that greater resources at their disposal are just going to result in greater graft. Outcome monitoring is, as has been mentioned here repeatedly, a recent novelty that's yet to be really integrated into the whole process effectively.

[somnath]

When GoI has shown such felicity to misuse even meagre resources, it's hardly unreasonable to assert that greater resources at their disposal are just going to result in greater graft

First, I think I had mentioend this before, by their very nature, things like education, health etc need a continuous support even maintain standards to the current level, before one thinks of taking the game up..There is no reason to believe that deflators in services in these sectors are any different from the rest of GDP, hence growth in line with nominal GDP growth doesnt really mean an upping of the "game" in real terms..

Second, it is simply wrong to say that higher outlays in recent times (and better monitoring through things like Outcome budgets, and RTI) havent had impact..Enrolment ratios in schooling is a prime indicator of that..But higher outlays, though still below Asian medians, are recent yet...

Last, execution of all of this is with state govt, not GOI...And there, the smarter state govts are getting better, as eleoral results display..Its not without reason that the C'garh govt is re-elected, or Nitish Kumar is re-elected, or for that matter, the Left is (finally) thrown out in WB...A lot of it has to do with delivery of services..

[somnath]

Welfare goes hi-tech!

Wasnt aware of this, apparently JJ had promised laptops to all XI/XII students...
http://timesofindia.indiatimes.com/asse ... 411961.cms

While this is obviously tokenism, I think it is actually a great idea...If they can bundle in a datacard package along with the laptop (easier now that 3G/BWA spectrum is available), it opens up a whole new world for thousands of students..

[Suraj]

Second, it is simply wrong to say that higher outlays in recent times (and better monitoring through things like Outcome budgets, and RTI) havent had impact..Enrolment ratios in schooling is a prime indicator of that..But higher outlays, though still below Asian medians, are recent yet...

...which has nothing to do with what I said. When resources available are up by 10x while underlying population has only increased 10%, something will stick. It doesn't in anyway change the fact that relative to the massive proportionate increase in available resources in absolute terms, the outcomes have not scaled - or even come close to scaling.

Asian peer comparison nations utilized their resources better at a comparative stage of development, and still do. While PRC's HDI metrics improved significantly post 1978, those metrics were still far higher than ours in relative terms even while their socio-economic scene was at its nadir; if our literacy rate was in the mid 20%s in the 50s, theirs was double that - a level we didn't achieve until as late as 1990.

"Shake down the rich and throw money at the problem and hope something sticks" presses the right emotional buttons but that's it; GoI/GoS already has already seen ~15% nominal growth in available resources for a decade now, yet our HDI developmental metrics are classifed as stagnant or 'low growth'; there are subcontinental peers with better improvement figures. That should be enough evidence that there are more fundamental hurdles to delivery of basic services than money.

[RamaY]

A good cartoon in Eenadu news paper



IRB: Higher interest rates will control consumption and bring down inflation

Farmer: If interest rates go up, we will have to sell the little we have paying debts and will be forced to commit suicides

[RamaY]

Welfare goes hi-tech!

Wasnt aware of this, apparently JJ had promised laptops to all XI/XII students...
http://timesofindia.indiatimes.com/asse ... 411961.cms

While this is obviously tokenism, I think it is actually a great idea...If they can bundle in a datacard package along with the laptop (easier now that 3G/BWA spectrum is available), it opens up a whole new world for thousands of students..

Better option would be setup village Wi-Fi hot spots...

[Virupaksha]

Rs 30,000 crore black money recovered by CBDT in two years

http://economictimes.indiatimes.com/new ... 416002.cms

CBDT chairman Sudhir Chandra said they have gone after big shots and every search or survey has yielded more than Rs 100 crore in black money.

and we know what they truly did. They did not even scratch the surface.

[somnath]

...which has nothing to do with what I said. When resources available are up by 10x while underlying population has only increased 10%, something will stick. It doesn't in anyway change the fact that relative to the massive proportionate increase in available resources in absolute terms, the outcomes have not scaled - or even come close to scaling

You ignore the impact of increased coverage and inflation (or deflator that I had mentioned earlier)..the latter especially so in services...So if the expdt-to-GDP number remains constant, and (say) outlay on education of 100 rupees goes up by 13% - 6% of it is inflation, leaving 7% as the real increase...2-2.5% is just the gross population growth, so just on those terms the increase is limited to 4-5%...4-5% increase in real spending capcities barely make a dent on "quality" when coverage is also being sought to be enhanced at the same time...The original 100 itself was grosssly inadequate to start with for a lower coverage...Inadequate funding leads to the service delivery always running to catch its tail...Exacerbated by deificiencies in execution...

[somnath]

Better option would be setup village Wi-Fi hot spots...

Good idea, but IMO more difficult to implement...Plus it would require 24/7 power supply!

[somnath]

A few days back one had spoken about the policy credibility of RBI, in light of rate hikes and simultaeneous statements saying that rate hikes dont really help much in inflation fighting...

Here's a nice article by Ila Patnaik - says pretty much the same thing..
http://www.indianexpress.com/news/defla ... y/792882/0

[somnath]

X-posting from the Education thread..
Not sure if people have seen this (or I might have posted this before) but an organisation called Pratham does outstanding work on primary education in India...Its best (most visible) output is the ASER (Annual Status on Education Report) report...they do it for rural areas only - but its fantastic..

http://images2.asercentre.org/aserrepor ... Report.pdf

The stated objective is to see how increased outlays (and legislations like RTE) are impacting outcomes on the ground..Especially w.r.t the education cess imposed by UPAI in 2006 - so its a comparative "before after" analysis...

Broadly conclusions are:
1. The higher outlays have made a difference to coverage - enrollment ratios have gone up massively, hearteningly for the vulnerable groups (girls) as well..
2. Quality of education is still a challenge - there is no discernible difference in that outcome..
3. Quality of infrastructure (now objectively defined under RTE Act) is abysmal - <5% of schools score 7 out of the 7 factors defined..
4. Surprisingly though, learning outcomes seem to not show much correlation to infrastructure quality!

Good stuff for those interested...

[Arjun]

A "high" fiscal deficit doesnt cause a crisis in India today, and a "low" fiscal deficit didnt prevent a crisis in East Asia in 1997...

The fact that it has not caused a crisis so far is not 'proof' enough...the same erroneous thinking that the world is never going to deviate from historic 'models' is what led to the global crisis of '08.

The government's ability to repay the domestic borrowings is dependent on models that assume linear growth in tax revenue in line with expected GDP growth. A particularly bad recession in between that disrupts the 'model' - and the GOI may be forced to default or 'monetize' the deficit. And I know you agree that deficit monetization can lead to a crisis.

My last post on this topic.

[vera_k]

India’s Anti-Poverty Programs Are Big but Troubled

For all the discussion about how the country isn't spending enough on HDI improvement, turns out that it is spending 3x more than China. So this is the quantifiable disadvantage of India's model of government!

India spent 2 percent of its gross domestic product, or $28.6 billion last year, on social programs to alleviate and prevent poverty, the World Bank said, a higher percentage than any other country in Asia and about three times China’s spending.

[vina]

Yawn.. For those who say "Fiscal Deficits in India Dont Matter" , ..
ToiLet says 25p coins go out of circulation after June-30 .

Well, the beloved chavanni is gone. What next, the 8 anna? Already the 8 anna is barely seen these days and the minimum seems to be Re 1 for all transactions. So.. if that happens, the decimal point in the Indian currency will be gone (like the Japanese Yen, Indo Rupiah etc) and it will be a whole number onree. Quite an achievement I suppose by the "Keep 'em presses rolling" wallahs.

I remember as a kid how the 1 paise, 2 paise , 5 paise and 10 paise coins were like! As a kid ,the "toffee" sold one the street opposite school used to be 10paise! So, they basically manage to raise the minimum from 1 paise to a 100 paise .. a 100% inflation "achievement" . Jai Ho onree. Nice eh?

And of course, the commies leave Bengal in a right royal fiscal mess with borrowings sky high, interest payments eating up all revenues and running a PRIMARY DEFICIT! Very nice!

[somnath]

And of course, the commies leave Bengal in a right royal fiscal mess with borrowings sky high, interest payments eating up all revenues and running a PRIMARY DEFICIT! Very nice!

Vina-ji, I thought the penchant for using terms without understanding the context or concept was the preserve of certain uber nationalist types! Why are you enlisting yourself in that league?

Firstly, Gross Primary Deficit is Fiscal Deficit MINUS interest payments, so interest payments have no bearing on the indicator - high or low (levels of interest) is immaterial..

Second, a lot is rotten in the state of WB, but it is hardly an "exemplar" in running a Primary Deficit!
http://www.rbi.org.in/scripts/Publicati ... x?id=13167

Most states in India run a PD, including such well-run (read, governed by film actors!) states as TN..

In fact the indicator to look for is PD/FD - higher it is, higher the "quality" of fiscal deficit being run...Lower it is, at the margin it indicates that a larger part of the deficit is simply to make interest payments..WB's record there again isnt the worst (TN's better!)...that said, GDF is an issue with WB, and Mamata-di needs to confront that, how only God knows....

For those who say "Fiscal Deficits in India Dont Matter

This is very different from saying India's "current (and generally seen) level of FD cannot trigger a crisis and dont matter materially", and certainly very different from pointing out the obvious fallacies of claims that the "1990 crisis was due to high FD (which in turn was brought about by farm loan waivers)"...

There isnt any dogma in the topic of FD (for that matter in anything), only a practical view...FD can be an issue if left uncontrolled beyond limits, but a bigger issue is of external a/c vulnerabilities...For India certainly we have no evidence that our FD has been destabilising to the extent of triggering a crisis - not empirically is but obvious, and I havent seen a theoretical construct either (beyond maybe blogs and TV channels )...

India’s Anti-Poverty Programs Are Big but Troubled

For all the discussion about how the country isn't spending enough on HDI improvement, turns out that it is spending 3x more than China. So this is the quantifiable disadvantage of India's model of government

Its a typical media/blog type article, referencing random numbers picked up without bothering to do basic sanity checks, or even telling the reader what those numbers are about..No one knows what is being classified as "social programmes", and what is being compared with China...Granular numbers for China are notoriously difficult to come by, but for pretty much all of East Asia (and Latam and East Europe), for all social sectors (education, health) India's expdt-to-GDP numbers are below the global median comfortably (I had posted a link for health indicators sometime back)..Education here..
https://www.cia.gov/library/publication ... 6rank.html

[vina]

Vina-ji, I thought the penchant for using terms without understanding the context or concept was the preserve of certain uber nationalist types! Why are you enlisting yourself in that league?

Firstly, Gross Primary Deficit is Fiscal Deficit MINUS interest payments, so interest payments have no bearing on the indicator - high or low (levels of interest) is immaterial..

Second, a lot is rotten in the state of WB, but it is hardly an "exemplar" in running a Primary Deficit!
http://www.rbi.org.in/scripts/Publicati ... x?id=13167

Ah. I happen to know what a primary deficit means! And I did choose my words well, though probably not to the extent to which I would have liked to type up enough during working hours. But all the same.

In plain Inglees, what it means is that the WB Govt does not take in enough revenue to cover it's expenditure..

There used to be a old tamil movie which had a song..
" Varavu (Income) 8 (ettu) Anna, Selavu (Expenditure) 10 (puth) Anna, Baaki (ie remaining) 2 (rend) anna, thakita thundanaa.. thundanaaa (ie..dance dance ..)" .. See, I told you, you need to watch Tamil films. Lot of wisdom and joie de vivre in it, unlike the Tollywood melanchonic tear jerkers and pathos!

And thanks for the link . Per that in table V.1, WB ran a whopping 3.4 Revenue Deficit AND was unique in running Primary Revenue Deficit while everyone runs a primary surplus! What this basically means, that the state has been borrowing to finance it's consumption.. Other states ran a primary deficit with significant headroom left to borrow to basically finance capital expenses and current expenditure

WB on the other hand borrows to spend on consumption!

Jai Ho indeed. Do this on the national scale as per the commie/JNU wet dream, a debt trap will loom in double quick time indeed.

[Arjun]

I thought the penchant for using terms without understanding the context or concept was the preserve of certain uber nationalist types!

Not to worry...uber feudalist types win that battle any day !

[somnath]

And thanks for the link . Per that in table V.1, WB ran a whopping 3.4 Revenue Deficit AND was unique in running Primary Revenue Deficit while everyone runs a primary surplus! What this basically means, that the state has been borrowing to finance it's consumption.. Other states ran a primary deficit with significant headroom left to borrow to basically finance capital expenses and current expenditure

It is often useful to know the background the context, though must say this is perhaps a bit too arcane for most..WB has a fiscal issue, there is no doubt..However, the reason why it typically manages to run higher revenue deficits is because of the large capital receipts it has trough mobilisation of small savings...WB has the most efficient network to mobilise these savings, the credit risk of all of which is of GOI, and the mobilisations are passed on a pari passu basis to the state..Therefore, as long as the number doesnt go completely unmanageable, the state can fund its deficits largely through this route...Its not the best alternative, but given the state govt financing structure in India, not the worst either...

But Mamta-di has a job in her hands...

Not sure about the continuous references to "commie" etc and fiscal deficits..there is no empirical evidence of uber nationalists (read BJP) govts, either at state or Centre having any special feelings towards fiscal conservatism, not any mroe or any less than any other govt..Certainly not INC, with its preponderance of JNU types

[Theo_Fidel]

^^^^^

So far on the previous page the post score is.

Somnath - 19

Rest of India - 21

I now risk burning up the internet. Need more chauka's from rest of India in this page.

[Theo_Fidel]

Meanwhile..

..the World Bank report on the $30 Billion welfare project in India. Just welfare mind you, not education, hospitals, etc.

http://www-wds.worldbank.org/external/d ... UBLIC1.pdf

Thought I'd post one little chart...



One additional number. Say we have 300 million poor in India. If we simply cut a cheque out of that $30 Billion to each person they would get about Rs600 per month. A family of 5 would get a guaranteed Rs 3000 every single month, again not including schools, hospitals, etc.

[vera_k]

Its a typical media/blog type article, referencing random numbers picked up without bothering to do basic sanity checks, or even telling the reader what those numbers are about..No one knows what is being classified as "social programmes", and what is being compared with China...

The entire report is available here, and most of that article are direct quotes from the report. The encouraging part I suppose is that the report was commissioned by the Planning Commission, but it remains to be seen if they can change themselves. Inertia is strong enough in most cases to prevent meaningful change in the absence of a crisis.

Social protection for a changing India

[somnath]

The entire report is available here, and most of that article are direct quotes from the report. The encouraging part I suppose is that the report was commissioned by the Planning Commission, but it remains to be seen if they can change themselves. Inertia is strong enough in most cases to prevent meaningful change in the absence of a crisis.

Social protection for a changing India

Its a good report, though says almost nothing that various studies done by PC et al hasnt already done - looks to be quite a "sponsored" report..Nevertheless, have you noticed the conclusions? It talks of a three pillar strategy - a cash transfer scheme, an NREGA type programme and one for the informal sector, all aided by smart cards/UID...Pretty much in line with what leading mandarins have been saying in any case...Not much incongruence here..

Even the weaknesses outlined, in terms of "targeting" mechanisms etc, are precisely those that Jean Dreze & Co have been talking of - Table 2 shows the conclusions quite well..Ditto on PDS, where they have merely reproduced the well known data on issues with BPL-based targeting...

Finally, the solution is, well, a better designed programme, and high marks for NREGS...The tenor is quite different from that blog article..Snakes all of them, I tell you!

[RamaY]

One additional number. Say we have 300 million poor in India. If we simply cut a cheque out of that $30 Billion to each person they would get about Rs600 per month. A family of 5 would get a guaranteed Rs 3000 every single month, again not including schools, hospitals, etc.

Welcome to http://forums.bharat-rakshak.com/viewto ... =24&t=5479

Please outline your idea with projections.

[saip]

IRB: Higher interest rates will control consumption and bring down inflation

Farmer: If interest rates go up, we will have to sell the little we have paying debts and will be forced to commit suicides

Is it not true that only the future interest rates would be affected and not the interest rates on loans already taken wont be affected? So the farmer's worry is not based on facts. If the higher interest rates controls then won't the farmer benefit?

[RamaY]

^ Farmer loans are generally short-term > one crop to two crops that is less than a year. That automatically increases their production costs. But the suppressed inflation will push the purchasing prices down evaporating profit margins.

BTW - majority of farmers do not get bank loans, they tend to get them from open market which is ~2-3 times the bank rates. So every 1% increase in bank rates will cause >1% increase in market interest rates.

JMHT

[Suraj]

Using the PDS pilferage data, assume 60% of allocation on a social outlay like education is lost to pilferage, so that 40% is utilized. Those who would like to resolve the matter by doubling allocation (i.e. 200% of current allocation) ought to consider that without improving the efficiency of delivery, graft will worsen. Assuming a worsening to 70%, that means 140% of current allocation is lost, for a 50% gain in utilized resources (from 40% to 60% of current allocation).

Besides the fact that the same benefit can be accrued with a 33% reduction in current pilferage level, such an approach is poor public policy for it essentially acquiesces pilferage of what amounts to close to 1.5x current allocation in the process, which is particularly ironic when the same proponents dismiss trickle down economics while this amounts to effectively the same thing in policy terms; one cannot encourage efficiency through such a policy framework.

The bottomline remains that outcomes will not scale with budgeted allocations as long as efficiency of delivery remains awful, and the entire policy prerogative focusing on allocations and implicitly acquiescing pilferage will hamper efforts to improve efficiency. The entire policy framework remains poor, particularly when viewed from the context of simultaneously dismissing productive entities like SEZs as scams. None of that rhetoric changes the fact that underlying outcomes have remained far behind compared the massive increase in absolute allocations in the past decade or more.

[Theo_Fidel]

^^^^

Its actually worse than that. I didn't post all the charts. The one before that says that the poorer the state the more likely it is to return welfare money unspent. So all this pilferage is just from the amount that gets spent. I've said this before that the really poor in India do not interact at all with the modern economy or even governance. More money is meaningless. The poorer you are the less likely it is that any welfare money will reach you.

How sad is it that this is GOI statistics. Yet despite this knowledge, they keep shoveling more money out the door and the Jean Dreze types encourage this craziness. As our economy grows, in 10 years just from growth we will be shoveling $150 Billion into this money pit. Yet apparently even this is insufficient for the poverty wallahs.

[somnath]

Besides the fact that the same benefit can be accrued with a 33% reduction in current pilferage level, such an approach is poor public policy for it essentially acquiesces pilferage of what amounts to close to 1.5x current allocation in the process, which is particularly ironic when the same proponents dismiss trickle down economics while this amounts to effectively the same thing in policy terms; one cannot encourage efficiency through such a policy framework

No one's saying that...Building accountability and outome monitoring is as big a concern as outlays...Why do you think the Jean Dreze types made so much of a song and dance about RTI? Why do you think so many people (though not Jean Dreze) are counting on the UID project?

The issue with PDS plferage is (relatively) simple, and it started with the whole "targeting" busines launched in PVNR's time (or was it ABV?)...Without a correct database and distribution dependent on local class/caste equations, the programme became one of less coverage and more leakage - a double whammy..The WB report above says exactly that - all programmes that are self-targeting in some way have low leakage, while all "targeted" programmes (PDS, Indira Awas Yojana) have high leakages (Table 2)...Not surprising, this is what everyone's been saying - from YK Alagh to Abhijit Sen and Himanshu and many others...Which is why most people want universal coverage of welfare programmes....

And it should be instructive to everyone what the "washington consensus" wallahs have uniformly and consistently said about the NREGS - from WB to ADB to UNDP - it is held up as one of the best anti-poverty programmes attempted, both in terms of execution models as well as in terms of outlay...With UID and better banking penetration, its only going to get better...THIS is the model - cash transfer, universal coverage, self-targeting....

There is no issue in people critiquing execution models, which finally can only work with civil society oversight at a local level, and electoral accountability of state govts...But caviling over (already inadequate) allocations when revenues foregone each year on tax exemptions (not rate reductions) keep rising exponentially is not something that is saleable in the political economy, or even in pure macroeconomic terms...Its in fact a lot more eggregious than the recent argument we read about "high" fiscal deficit being the cause of India's inflation currently! A more intellectually righrous argument is required!

[vina]

It is often useful to know the background the context, though must say this is perhaps a bit too arcane for most..WB has a fiscal issue, there is no doubt..However, the reason why it typically manages to run higher revenue deficits is because of the large capital receipts it has trough mobilisation of small savings...WB has the most efficient network to mobilise these savings, the credit risk of all of which is of GOI, and the mobilisations are passed on a pari passu basis to the state..

Indeed it does. The root cause of the WB & Kerala under Nayanar regimes was the "advice" given by the JNU/Commie Ding Dong ideologues such as the "Vice Chairman of the State Planning Commission of Kerala" (under Achuthanandan..google for who it was) that ficscal deficits were good to run so that you could dole out "welfare".

And yes, it was well known that the WB govt was playing hanky panky with small savings (they were always at the forefront of higher interest rates for small savings over others.. boggles imagination, how a higher cost to service and administer deposit regime will enjoy higher interest rates over a lower cost one like bulk deposits.. but then the commie logic was always inverted) and I read somewhere in the passing if I remember, that small savings deposits were treated as "revenue" by the WB commies!

Therefore, as long as the number doesnt go completely unmanageable, the state can fund its deficits largely through this route...Its not the best alternative, but given the state govt financing structure in India, not the worst either...

Sure. if you use the accounting shenanigans like treating deposits as revenue, indeed you can. That said, something is very fishy about the WB small saving stuff. In no other place in India is "para banking" on the scale of WB present. I don't understand that bit.. But folks like PeerLess and even the Sahara Group (with it's can you believe it kind of corp culture and dodgy credibility) become main sources of finance that even the Commie WB govt used to drawn down money from Peerless (unbelievable things do happen..). Very dodgy indeed.

But Mamta-di has a job in her hands...

Not sure about the continuous references to "commie" etc and fiscal deficits..there is no empirical evidence of uber nationalists (read BJP) govts, either at state or Centre having any special feelings towards fiscal conservatism, not any mroe or any less than any other govt..Certainly not INC, with its preponderance of JNU types

The commies (JNU and the CPI-M , Yechury is on record on that thing) were against the FRBM act, they want to enlarge fiscal deficits (in Inglees.. borrow and spend) and do their damnest when in power to bloat the balance sheet to dole out "welfare".. Check out the rants in macroscan.org on this, there used to multiple stuff there by the usual worthies.

Check out the record of even Jharkhand or Bihar under the new dispensations from the same table V.1 that you posted. Much better and cleaner records, and yes, the BJP and others do run a tighter, cleaner and better ship than the commies and their socialist fellow travelers.

[vina]

Following up on my post to Somnath on the Tamil film song about income 8 annas and expenses 10 anna, I think it is from the movie Bama Vijayam

That entire song is very well done in a now quaint 60s style with kids dancing around.. Just listen to that song , it is on Youtube. It was a pretty hit comedy movie in those days and I remember the song very well. A timely reminder to all the commies out there to borrow and spend on "welfare" . Highly recommend listening to the song.

[youtube]UnYktYuvIZM&feature=related[/youtube] .

One of the punch lines from the song.. Hired Sofa..cost of hire Rs 20, but if you buy it, it costs Rs 30 only!

Notice, that those were the days when the south Indian film industry (telugu, tamil,kannada ) were all based out of Madras and Andhra went Paki and a Telugu film industry came up in Hyderabad and a pale Sandalwood in Karnatka,and the actors are a mix of tamil, telugu and kannada . To this day, much of the film industry (Vijaya Studios, Gemini studios etc) are of Telugu heritage.

[somnath]

The commies (JNU and the CPI-M , Yechury is on record on that thing) were against the FRBM act, they want to enlarge fiscal deficits (in Inglees.. borrow and spend) and do their damnest when in power to bloat the balance sheet to dole out "welfare".. Check out the rants in macroscan.org on this, there used to multiple stuff there by the usual worthies.

Check out the record of even Jharkhand or Bihar under the new dispensations from the same table V.1 that you posted. Much better and cleaner records, and yes, the BJP and others do run a tighter, cleaner and better ship than the commies and their socialist fellow travelers

Yechury wasnt Robinson Crusoe in criticising the FRBM Act...But forget Yechury, what did the minister piloting the bill (an MMS/INC legacy btw) say right after the bill was passed? Its just a "guidance" (or some such), and proceeeded to flout the provisions from the first year itself...This was of course Yashwant Sinha, the biggest disaster to have occupied the FM's chair in the last 20 years...

And yes, there is actually no evidence that "BJP and others" have any greater faith in fiscal conservatism than commies and fellow travellers...Since you like that report I referenced (always say, go to the primary source!), chekc out Kerala and Gujarat - yes, chalk and cheese! the trend for Kerala is better than Gujarat on FD - wonder who was advising NArendra Modi ! In fact there is no trend at all, most state govts manage within a general level, no discernible punctiliniousness around the fisc displayed..

Also check out the trend of NDA at centre versus INC or even UF) - its in the Economic Survey - they show no great respect for ultra fiscal conservatism...So all this hypothesis is more in the "mind"
For good reason as well, but that is a different discussion...