Swaminomics

[Vinod2070]

I am starting this thread for discussions about economy in general and Indian economy in particular.

I generally like the articles on economy by SWAMINATHAN S ANKLESARIA AIYAR. I will start the thread by one article of his on the impact of the current recession on Indian economy.

Other articles/views on the economy are welcome.

Please limit the discussions to economy and economic policy only. No politics here please.

 

[Vinod2070]

SWAMINOMICS

Won’t get better soon, learn to live with slowdown

SWAMINATHAN S ANKLESARIA AIYAR



Indian politicians and citizens are mostly in denial about the impact of the global meltdown on India. Politicians make brave statements laughing away the slowdown, saying India will be least hit and first out of the slump. Three stimulus packages in three months have been announced with fanfare. But the slowdown continues. Impatient citizens and Opposition parties demand additional stimuli. But this rests on the illusion that the economy will return to fast growth if only it imbibes enough caffeine.
Sorry, but this is not a problem of caffeine shortage. The world is going through the worst downswing since the Great Depression, and India willy nilly has to go downward with the rest of the world. We should expect the slowdown to continue for several quarters, until the world economy recovers. We must batten down our hatches and patiently ride out this storm.
Official data have just revealed the ugly truth that GDP growth declined to a dismal 5.3% in the October-December quarter, way below official expectations. Agriculture declined by an unexpected 2.2% in this period: poor harvests of sugarcane, cotton, pulses and oilseeds overwhelmed gains in rice, horticulture and animal husbandry. In this quarter, the Pay Commission award boosted community services growth by a whopping 17%. This is mostly illusory: higher pay does not mean better service. Despite this illusory boost, overall GDP growth only touched 5.3%.
This lends credence to the IMF’s forecast of 5.1% GDP growth for the calendar year 2009. We may experience some small improvement in the last quarter of 2009, but a return to fast growth will have to wait till late 2010, or even 2011.
Let nobody think that more stimulus packages will somehow save us. The slump was not caused by lack of government stimulus — it occurred despite an enormous stimulus from Chidambaram’s 2008 budget through the farm loan waiver, Pay Commission award, and spiraling subsidies for petroleum products, fertilisers and food. Because of these — and falling tax revenue — the overall fiscal deficit of the Centre and states in 2008-09 will be a massive 11% of GDP. Yet, this massive stimulus proved helpless to combat the global downswing.
India’s 9% growth in the preceding five years was due to an unprecedented global boom, not great reforms or cleverness on our part. A huge global tide lifted all boats — even Africa grew at an unprecedented 6%. Alas, the tide is now falling, and lowering all boats. Drinking more caffeine will not raise India’s boat in a falling tide.
We must accept that we are part and parcel of the global economy. The global boom drove up our growth to 9% and the global slump has lowered it to 5%. We must abandon the illusion that we can somehow grow fast again while the rest of the world stagnates. We must learn to live with the global downswing, and ride out the storm. We cannot end the storm on our own: we must patiently wait for it to subside.
Meanwhile, our aim must be to alleviate pain, and build infrastructure for future growth. Seen in this light, the so-called stimulus packages are actually alleviation packages. They are worthwhile measures to alleviate economic pain, and stem deterioration. But they cannot stimulate the economy back to fast growth. This crisis was not caused by us and cannot be solved by us. Our role is to ride out the storm.
What policy lessons flow from this? First, lower your expectations and targets, for false hopes can lead to policy excesses. Second, overhaul procedures for infrastructure contracts, because red tape currently prevents accelerated spending in this vital sector.
Third, don’t cut taxes endlessly in the hope that this will revive the economy. Taxes should of course be cut in a downswing, but should then be raised again in the next upswing. Raising taxes is politically far more difficult than cutting them. I support the tax cuts so far, but oppose any further cuts on the ground that they will be too difficult to reverse later.
Instead, the Reserve Bank of India should loosen its purse strings, and pump more cash into the economy. Today, huge government deficits are swallowing up all bank finance, leaving little for corporations. This squeeze has lifted interest rates for corporations even as the RBI cuts its own rates. So, the RBI must abandon its taboo on buying government bonds, and print currency to finance the government’s deficit. This has inflationary potential, but inflation is not today’s problem. Politically, printing money is more easily reversible than cutting taxes further. That’s the way to go.

http://epaper.timesofindia.com/Defa...eLabel=15&EntityId=Ar01501&ViewMode=HTML&GZ=T

 

[Vinod2070]

He is making the point that India is not insulated from the current global recession and can no nothing to avoid getting impacted by it.

What we can do is to be ready to profit from the upturn when it does come in the next 2-3 years. Meanwhile let's get ourselves the infrastructure to be able to do that.

I think that is quite sensible. The latest growth numbers (5.3%) are quite depressing. The low HDI rank, the high levels of malnutrition in children etc. make for a depressing reading.

All the GOI ads about "majboot bharat" mean little when we have a 50% malnutrition rate in Indian kids. Something that can be easily prevented given the kind of resources we already have. Its just a matter of strong will and implementation.

 

[thakur_ritesh]

I have a question on the onset of this discussion, is 5-6% growth rate that bad a growth rate figure, and if I am not wrong most of the bigger “developing” countries would be happy with this growth rate in the best of times, least this figure is looked down upon when the going is tough. I for one would not be too worried till the time this figure sees a further fall, and were to fall below 4%. are we the public in general and the policy makers in a state of denial about a significant slow down, yes we all are but the reason has to be understood and that is the closing in dates of the central government elections and no govt would like the not so positive/negative news be a sight of headlines (sorry for the political comment but thought it was important to highlight). India lived most part of its 80's and 90's in the region of 5% and 6% respectively, and clinton came in the late 90's and showered praises on the same 6% growth rate figures, so are we expecting way too much. Yes when one compares the present figures to the high growth rate figures of 9% and the targeted figure of 10% then the present rates do look peanuts but is it all that bad really, I dont think so.


The problem that a slow down brings about is an over all correction all over the place and that hurts most, as most of our prior actions/planning have been in anticipation of better and bigger target achievements which all takes a hit. Now if we reflect back on the indian economy which says some 50% is based on consumption then I am sure the stimulus packages are not that bad a thing to have for they make a very strong base for a jump back the moment the global economy comes back to its toes, and so the confidence that india will be one of the few countries to bounce back to high growth rate figures. a lot of initiatives have gone on to prop up the demand and if I am not mistaken then the indian economy has shown signs of improvements in patches off late so that does show a change in consumption pattern some where and one of the best indicators is the fmcg market which if I am not mistaken has recently grown at a rate of 20(+)% which shows a big fillip in the consumption patters. It is but human to jump to conclusions the moment there is a drastic change around but let the recent stimulus packages be passed on to the consumers and let that money effect be seen in the economy, and then pass the judgment, can we not say that recent upward trend in parts of industry has to do with the so many stimulus package initiated by this government, and if we can say that then I certainly see at least a 6% growth rate for the next fiscal.


Agriculture contributes around 18% to our gdp, so if it falls to 2.2% from the targeted figure of 4% then that translates to some 0.35% loss on the over all fall in the growth rate figures in the present context. election expenses for the year are expected to be around 10,000crores, which in it self will give a huge push to the consumption in parts to the economy, so I have faith that we will be able to bring up the consumption levels to such levels from where we can sustain 6(+)% for the up coming fiscal. Though the only long term suggestion to sustain the same big growth rate figures in long term are the reforms which sadly took a back seat for the last 5 years, hopefully we have a government which is less dependent on the left and on parties which shy away from economic reforms and seriously this is the best time to initiate the reforms and make up for the lost time, for if we can pull this off successfully when the tide is down, then when there is upsurge in the world economic growth then we are in a position from where we can make the most of the opportunities thrown at us and around and not a moment gets wasted then in absorbing capital which will be in a look out for investment destinations, are we open to the idea if yes then the targeted dream of over 10% growth rate figure is not far off but if we are still sleeping and trying to be over protectionist then this will be another “bus” missed by our great policy makers.


I loved the suggestion of non lowering of the tax regime for this is the only real source the government earns and when the going gets easy then any raise in the tax regime will be seen anti growth so the present levels should not be further touched and certainly not re-visited in the future. I am sure we can tide over this economic crisis tsunami with out bothering too much about lowering the tax regime, the other suggestion again aptly goes in, which is talking about rbi loosening its purse, and I am sure this one monetry policy by the rbi is just round the corner.


PS: Vinod thanks a lot of staring this thread, really missed writing in the economic section of flate and seriously what a wonderful topic to discuss.


Cheers mate!

 

[Vinod2070]

rst, you have made some valid points. The fact remains that when an economy growth rate slips from 9% to 6%, there is a significant pain associated with that. The mature Western economies have a trend economy growth of 3%-4% and for them 6% rate may be too good to be true, for India it is clearly inadequate.

Remember, India has just started to take off after a hiatus of decades and decades. It is important to maintain the momentum and make the right choices. Today we have the time on our side, the world is taking notice of India because India is showing promise.

We need to capitalize on this and banish mass poverty. The conditions may not be favorable again for some time if we miss the bus this time.

We have missed it too often in the past.

 

[Vinod2070]

SWAMINOMICS

Expect continuity, not radical reform

SWAMINATHAN S ANKLESARIA AIYAR



The stock market has zoomed 20% hoping that the Congress victory will usher in radical economic reforms that were earlier thwarted by the Left Front. This is a serious error. The Congress sees its victory as a vote for continuity, not radical change. Having won despite a global recession, its policy will surely be more of the same.
To be sure there will be some economic reforms, too. But these will be modest, not game-changing, like the reforms of the early 1990s. The main thrust of policy will be to strengthen existing approaches — rural development, employment generation, infrastructure, and skill development.
The Congress is by instinct a left-of-centre party. Foreign investors may think of the Congress as the party that ushered in market-friendly reforms in the early 1990s, but was an exceptional phase after a balance of payments crisis. The collapse of the Soviet Union and success of Deng in China helped change the old socialist mindset, but only grudgingly and gradually. When in 2004 the Left Front made support for Congress conditional on emphasizing rural development, social spending and poverty, Congress agreed out of conviction no less than compulsion.
The Common Minimum Programme promised huge increases in spending on education, health, employment guarantees and rural development. Congress went well beyond this with its own Bharat Nirman programme. It will now build on the Common Minimum Programme even without the Left Front.
Its election pledge of 25 kilos of grain at Rs 3/kilo for poor families will be a prominent part of its new agenda. Its manifesto promised affirmative action for scheduled castes and tribes in the private sector. Thankfully, this stops short of job reservation that Mayawati and Co demanded. But some additional obligations will probably be imposed on the private sector, hopefully obligations the private sector itself welcomes — training and skill development programmes for historically handicapped sections.
Montek Singh Ahluwalia’s vision for the next five year plan emphasized infrastructure and skill development. So, too, will the new government agenda. Hopefully, ministries like telecom and roads will no longer be entrusted to ministers of dubious reputation. Human Resources Development has an added importance today because of the need for skill development.
The Left Front vetoed legislation on a few issues. One was fuller pensions reform via the PFRDA bill. Legislation to permit private sector entry into coal mining has been hanging fire for over a decade, so the Left alone can be blamed for this delay. The Left Front stymied the bill allowing foreign investment in insurance to rise from 26% to 49%, as well as entry for branches of foreign re-insurers and Lloyds of London. Another stalled bill would have abolished the 10% cap on voting rights of foreigners in banks even when they have a larger shareholding. Bills for disinvestments in sick units like the Tyre Corporation and NEPA were stalled. Even if all these bills now go through, they will amount to just marginal reform.
More reform can come from executive action. The government is expected to relax price controls on petroleum products, enabling oil companies to change the price of diesel and petrol in line with global prices, but this flexibility will probably be limited. Massive underpricing of kerosene and cooking gas will continue. FDI in retail may be gradually liberalized. Foreign airlines will finally be allowed to invest directly in Indian counterparts, ending the crazy rule that only foreigners who have nothing to do with airlines can invest in the Indian airline business. The sale of minority stakes in some public sector units will begin again. Foreign investment may be allowed in managing pension funds.
All this put together adds up to no more than modest reform. The government has no intention of reforming labour laws to permit easy retrenchment. Nor is it keen to liberalise operating norms for foreign banks. Many of the reforms mentioned in the last two paras could have been implemented after Congress and Left Front parted company in August 2008, but Congress desisted because of the low priority it accords to such reforms. It was and is much keener on populist moves like loan waivers, subsidized grain for consumers, and higher support prices for farmers.
The global economic picture has brightened recently. Indian companies have dramatically improved access to global finance, and have raised $2 billion in the last few days. Almost $5 billion of global money has flowed into stock markets this year, reversing last year’s outflow. While the Congress agenda may be mainly one of continuity, it will not contain the nasty surprises that would have come with an unstable, populist Third Front government. So, there are indeed reasons for cautious optimism on the economic front. But radical economic reform is not one of them.

http://epaper.timesofindia.com/Defa...eLabel=15&EntityId=Ar01503&ViewMode=HTML&GZ=T
http://epaper.timesofindia.com/Default/Client.asp?Daily=TOIH&showST=true&login=default&Enter=true&Skin=TOINEW&GZ=T

 

[Vinod2070]

Why rich Indians are malnourished too

India is the world's 10th largest economy with a GDP of $3.57 trillion and $3,100 as per capita income. Sub-Saharan Ethiopia has the 79th largest economy, with $900 as per capita income. It's far behind India. Yet, Ethiopia and a handful of other sub-Saharan nations beat India in one of the most critical social indices – 35% children in sub-Sahara are malnourished and the figure jumps to 47% for India.

Does this embarrassing state of affairs mean that the massive wealth generation in India gets deposited only in a few hundred thousand pockets? That despite our multi-trillion dollar GDP, nearly half our population doesn't get basic nutrition? That food-insufficient sub-Sahara does better in nutritional intake than food self-sufficient India?

What about the Integrated Child Development Scheme (ICDS), in operation since 1975, which feeds 23 million children under five and 4.8 million expectant and nursing mothers 300 days a year? In addition, about 120 million schoolchildren are served lunch for free under the midday meal scheme (MDMS).

The ICDS and MDMS are the world's largest nutrition supplement programs. These apart, 160 million families are given food grains at highly subsidized rates. With about half-amillion fair price shops, India's public distribution system (PDS) is rated as the world's largest food subsidy program. But, the evidence shows that all these welfare measures have not made a difference.

Health experts would clearly blame poverty. Public policy advocates have been asking that free food be supplied to half the Indian population. The Right to Food Act (RFA) campaign has gained currency. Will the RFA work where ICDS, MDMS, PDS etc have not? Or, are we diagnosing dengue when it is malaria and administering the wrong pills?

The '47% malnutrition' figure reportedly comes from the National Family Health Survey (NFHS-3) 2005-2006. Study the NFHS-3's bulky book, you won't find the 47% figure. A table that has figures for malnourished children shows an all-India average of '42.5%'. Did someone read the NFHS-3 findings too casually and invent '47%'? Or did someone play a prank on public policy enthusiasts?

The figure might have been '48%' but certainly not '47%'. NFHS-3 deploys three criteria to measure undernourishment -- height-for-age, weight-for-height and weight-for-age. If we take 'height-for-age', 48% children are malnourished. If we take weight-for-height, only 19.8% children are malnourished. If we take 'weight-for-age', 42.5% children are malnourished. But, for the Survey, 'weight-for-age' is the composite index for height-for-age and weight-forheight. That means 42.5% children are malnourished. This is not to argue that the '42.5%' figure is a solace. It paints as grim a scenario as '47%'.

On the basic question -- is poverty alone causing malnourishment amongst Indian children-- NFHS-3 has data that has been ignored so far. It has a 'wealth index' as well and classifies households into 'lowest' and 'highest'. It says that 19.7% children from the richest households are malnourished as well. As for the moderately rich, 33.6% children are malnourished.

This data questions the received wisdom on the causes of malnutrition in India. The top two quintiles --richest and moderately rich – comprising 40% of the households NFHS-3 studied – throw up figures that are moderately better than sub-Saharan Africa. But poverty is not the only reason for child malnourishment. This raises several questions. First, if we cannot tackle malnourishment among the rich, how can we do so for the poor? How can welfare measures such as the ICDS, MDMS, PDS and RFA take poverty to be the cause of malnourishment? Second, if not poverty, what is the real cause of malnourishment among the children of the rich?

Third, is it not possible that the same cause – not poverty - is the reason both rich and poor children are malnourished?

The Survey reveals that the four southern states of Andhra Pradesh (32.5%), Karnataka (37.6%), Kerala (22.9%) and Tamil Nadu (29.8%), have lower malnutrition rates than Haryana (39.6%), Rajasthan (39.9%) and Uttar Pradesh (42.4%). The data also reveals that consumption of fish, chicken or meat at least once a week by women in Andhra Pradesh (69.5%), Karnataka (45.9%), Kerala (89.6%) and Tamil Nadu (66.1%) is much higher than in Haryana (5.5%), Rajasthan (11%), and Uttar Pradesh (14.7%). Karnataka fares worse of all the southern states in terms of malnourishment and intake of fish/ chicken/meat.

Gujarat and Punjab don't present a rosy picture either. In cash-surplus Gujarat, 44.6% children are malnourished, and in food-surplus Punjab, the rate is 24.9%. Is it mere coincidence that women in Gujarat (12.4%) and Punjab (20.1%) have a lower intake rate of fish/chicken/meat than the national average of 40.9%?

Might food habits be a bigger cause than poverty of malnutrition in India? As we know, caste rules impose many taboos on food sources and food habits. Not just non-vegetarian food, there are taboos even on vegetarian food sources. Do any of the public policy packages mentioned above target caste-based food morality as one of the prime causes of malnutrition affecting millions of Indian children? Being kind-hearted and liberal is good, but being brain dead is worse. It's time for a policy rethink.

Read more: Why rich Indians are malnourished too - The Times of India http://timesofindia.indiatimes.com/...hed-too/articleshow/6762541.cms#ixzz12bW4RF1e​

 

[Vinod2070]

Some surprising results here. So even the better off in India are malnourished!

As most people won't turn non-veg in a hurry, a major push should be made to tackle this. It shouldn't be so difficult to tackle this, just needs commitment and creating awareness. Alas that is what is lacking in our country's pathetic leadership, not money or resources.