India adrift, optimism hard to sustain

Jean Drèze and Amartya Sen 

The recent estimate of GDP growth for the third quarter of 2019-20, at around 4.7 per cent, has prompted a predictable sense of gloom. However, even the 4.7 per cent estimate is deceptive, since in per-capita terms, the corresponding figure would be just above 3 per cent. This, sadly, is no more than half the growth rate of per-capita GDP that India enjoyed five years ago.
The reasons for alarm, however, go much beyond the slowdown of GDP growth. If anything, there is too much rather than too little concern with growth estimates. We have to look beyond per-capita growth to what the people of India get from economic progress — health, education, social security and other necessities of a reasonably good life. If per-capita GDP is distant from better indicators of human development (such as life expectancy, mortality rates, morbidity indicators, literacy, schooling rates), even more distant are measures such as the total size of the economy. And yet policymakers today seem obsessed with India’s becoming a 5-trillion dollar economy and with its ‘overtaking’ — in this oddly devised race — more prosperous economies with much smaller population size. Confusion in economic objectives yields confounded economic policies. From the comfort of the total size of the economy for a large nation, we have to shift our gaze to the incomes of individuals and families, and from there to the capabilities to lead good lives that people can in fact enjoy. Optimism is hard to sustain as we get closer and closer to the miserable lives that a great many Indians have to live.
Economic indicators today related to people’s living conditions are indeed depressing. For instance, real agricultural wages have barely risen in the last few years. According to National Sample Survey data, there was an unprecedented decline in per-capita consumer expenditure between 2011-12 and 2017-18 (just after demonetization), and unemployment rates have never been higher since the mid-1970s. It is hard to avoid a sense of malaise if not a crisis.
Even in terms of macroeconomic indicators, many of them have turned for the worse in recent years: the investment rate, export growth, and bank credit, among others.
All this has been widely noted and discussed. What is less well understood is that this economic slowdown has been aggravated by the resilient inertia of social policy. In the first edition of An Uncertain Glory: India and Its Contradictions, published in 2013, we argued that India’s development strategy is fundamentally flawed in so far as it overlooks the central role of human capabilities, both as valuable in themselves and as means of further progress. That basic deficiency has not been removed over the years — quite the contrary.
To illustrate, there has been no significant initiative in the field of education under the NDA government. Six years have been spent waiting for the New Education Policy, which is yet to materialize (a draft was finally released last year, from which it is hard to get much encouragement). Meanwhile, it is business as usual.
The Indian public is perhaps insufficiently aware of the pathological nature of the country’s frail and fragmented education system. According to Unesco data, the proportion of children having to study in private schools at the primary level is just 12 per cent in the world as a whole. Among those who study in private schools, many are enrolled in non-profit educational institutions run by NGOs, churches, trade unions and other civic organizations. In India, by contrast, the proportion of children studying in private schools is around 35 per cent and rising, and the bulk of private-school enrolment is in profit-oriented schools. As elementary education turns into a market commodity, and quality depends on ability to pay, the schooling system reproduces the social inequalities it is meant to reduce. Even within the government sector, there are enormous variations in the quality of education facilities, with the worst being normally reserved for the poorest families and communities. Every year, millions of underprivileged children, who have much the same abilities and potential as other children, see themselves condemned to a life of harsh labour as they leave the schooling system without the most basic educational skills. None of this, however, seems to be a subject of major concern or even of serious discussion in Parliament, the media, the courts or other public forums.
Similar things can be said about other critical fields of social policy, such as health and social security. Spending on the Central government’s flagship health programme, Ayushman Bharat (farcically called “the world’s largest government funded healthcare programme” by the finance minister two years ago) was a microscopic Rs 3,200 crore in 2019-20 — that’s less than 0.02 per cent of GDP. The neglect of primary healthcare for all is appalling. Social security is also neglected, with the Central government’s contribution to old-age pensions frozen at a measly Rs 200 per month since 2006 and maternity benefits restricted to Rs 5,000 for one child per family in violation of the National Food Security Act. Even child welfare programmes, such as school meals and the Integrated Child Development Services, are still reeling from the deep budget cuts inflicted by the Narendra Modi government’s first full-fledged budget in 2015-16. The more essential a public service, the less interest it seems to receive today. Meanwhile, the country’s attention and energies are endlessly diverted by Hindutva’s pet projects, from cow vigilantism and the abrogation of Article 370 to the Citizenship (Amendment) Act and the construction of a temple at Lord Ram’s alleged birthplace. These distractions, deplorable as they are in their own right, also exact a heavy price in the form of reduced engagement with economic and social issues.
Alas, the prospects for the future have also been damaged by another recent setback — the retreat of democracy. ‘Retreat’ is a mild term in a situation where all democratic institutions are under attack and the most elementary democratic norms are being undermined — starting with the freedom of expression and dissent. The government is actively promoting a dangerous notion of good citizenship aligned to blind obedience to the State. Criticism of the government is increasingly seen as ‘anti-national’, and discouraged in every possible way. Anyone who speaks out against the government is at risk of being harassed in one way or another: NGOs may lose their FCRA, media agencies may be deprived of advertisement revenue, political leaders risk a tax raid, and poor people can simply be beaten up — or worse — for speaking up. Even mild criticisms of the government on social media can lead to sedition charges, a colonial relic in the Indian Penal Code. These tactics have huge chilling effects, as more and more citizens and institutions are anxious not to get on the wrong side of the government.
Along with the general weakening of democratic freedoms goes the championing of Hindu sectarian pursuits in the political arena, so there is a simultaneous weakening of democracy and India’s long commitment to secularism. What is no less disturbing is that resistance to these attacks on democracy and secularism has often been hard to present. Editors who defy State pressure to print strongly critical headlines, vice-chancellors who defend their students’ right to protest, judges who try to be fair without favouring governmental points of view, often face — direct or indirect — punishment from the ‘authorities’. There have still been defiant voices and dissents, and they have been very encouraging from the suppressed public, but there is room for many more.
In this respect, the recent nonviolent protests against the Citizenship (Amendment) Act and the National Register of Citizens are a tremendous source of inspiration and hope. The sit-in at Shaheen Bagh in New Delhi and the peaceful demonstrations it has inspired across the country are a living expression of the constitutional values of liberty, equality and fraternity. They have forged new solidarities across old divides and unleashed an unprecedented wave of creative thinking and action around democratic ideals. It is not surprising that these protests, too, have become a target of attack. Few things are more important at this time than to defend and expand these democratic spaces.

Jean Drèze is visiting professor, department of economics, Ranchi University; Amartya Sen is professor of economics and philosophy at Harvard University. A new edition of their joint book, An Uncertain Glory: India and Its Contradictions, has just been published by Penguin

The results of the NSO survey 2017-18 are truly bizarre

Surjit S Bhalla
Some results of the National Statistical Office’s consumer expenditure survey (CES) for 2017-18 have been leaked. It is hoped that the official release (not endorsement for the reasons enunciated below) of the unit-level data will follow soon, so that researchers, analysts, politicians and even former prime ministers can evaluate for themselves how bad the NSO data really are.

The previous NSO survey on employment (PLFS) estimated the population in 2017-18 to be 1,074 million, when even mathematically challenged individuals estimated it to be upwards of 1,300 million (actually 1,339 million). That error of a 265 million under-estimation is a national record for the highest under-estimation of such a basic number — most NSO surveys have under-estimated population by around 5-10 per cent. The underestimation in 2017-18 at 20 per cent is a record.

This under-estimation has consequences for a major policy variable of interest — jobs and job growth. The unemployment rate is not affected by the estimate of aggregate population; but the number of jobs is affected. Most scholars have estimated employment generated by the PLFS data to decline by around 18 million in the number of jobs in 2017-18 relative to 2011-12. This is according to the usual status of employment, a measure which counts both half-time work (employed for 30-182 days) and full-time work (employed for more than 182 days) as full-time employment. In a detailed (forthcoming) paper on employment, Tirtha Das and I find that the desired full-time jobs (defined as principal status) increased by eight million between 2011-12 and 2017-18 — an increase not that different from what was obtained in the high growth years of 2004-5 to 2011-12 (a 14 million increase, but over seven years).

It is much easier to count people as employed or not employed, than to ask about their monthly per capita expenditure. This is where the world record is on the way to being established. The CES survey for 2017-18 shows that the per person real monthly expenditure (mpce in NSO parlance and not income as mistakenly assumed by some) declined from Rs 1,573 in 2011-12 to Rs 1,514 in 2017-18 (data converted from 2009-10 prices to 2011-12 prices to make it consistent with other data)

In my book, Imagine There’s No Country, I had documented how there was a declining trend in the amount captured by the surveys over time. Household surveys (S) were capturing less and less of consumption as revealed by an alternative calculation — the national accounts (NA). While the two definitions (survey and national accounts) are not identical, they are broadly comparable.

The average S/NA ratio, around the world, was in the mid 80s in the 1980s, that is, if the NA estimate of per-capita consumption was 100, then the household survey would estimate it to be 85. It is worth remembering that the S/NA ratio in India in the 1950’s and 1960’s was upwards of 95 per cent. Too high to be true? In a manner of speaking, yes. For then, the household survey provided the estimate of consumption for national accounts.

But, with time, economies became complicated, and the national accounts data moved with the times, became more sophisticated and captured the trends in the economy much better than the surveys. Survey organisations like the NSO refused to move. In 1983, the S/NA ratio in India collapsed to 63 per cent from the high 70s level just a decade earlier. It was to be 30 years later (in 2012) when the world reached the low 60’s average.

That year (2011-12), India recorded a 55 per cent ratio for S/NA. Just six years later (2017-18), the S/NA ratio in India has collapsed to just 33 per cent — the second lowest ever recorded around the world for economies without hyper-inflation (when S/NA ratio really gets distorted) and with populations above 10 million. The worst ever was Nigeria in 2009 with a S/NA ratio of 27.2 per cent.

There is yet another comparison one can make. The two most recent consumption surveys in India, just six years apart, yield a decline of 22 percentage points. This is the second worst sequential decline in the world. The worst was Pakistan in 2001 when the S/NA ratio was 46.9 per cent, down 26.9 percentage points from the 73.8 per cent estimate recorded in 1998.

The secular decline in NSO has now persisted for some 50 years and marks a sad occasion for an institution that was a trend setting statistical institution in not only the emerging economies, but in the world as well. In the early 1950s, the world famous statistician P C Mahalanobis was its head.

I was privileged to be a member of the first National Statistical Commission of India headed by an internationally renowned economist Suresh Tendulkar. I was sent to Calcutta by Tendulkar to interact with the NSSO and to find out why the Indian S/NA ratio had sharply declined and what could be done to improve survey response. I met with little success and came back frustrated with the ancient techniques being followed by them.

The most recent statistical commission chairman, P C Mohanan, was a colleague. He has been quoted as not being surprised with the decision of the government to not accept the findings of the latest record-low NSO survey. His view is that the government is suppressing reports that are not “favourable”.

If I thought that the NSO consumption surveys were misleading and not acceptable in 2002 and 2006, I can be forgiven for thinking that the surveys are even less acceptable today. The results of the NSO survey 2017-18 are truly bizarre — a decline in average real consumption of 0.6 percentage per year between 2011-12 and 2017-18, when the NA consumption estimate is of a positive 5.8 per cent annual growth. As discussed above, the NSO estimate for 2017-18 is so out of the box that it is actually out of any (reasonable) ball-park. If the government does not accept the findings of the survey (as has been suggested by a recent press release) then a genuine reform of the NSO can actually begin. Even if it does not return to its previous glory, a reformed NSO can become a respectable institution. That will not be easy, but it is a path worth embarking upon.

I have been surprised by how many respected analysts have pointed to the “findings” of the NSO 2017-18 and are relating it to the slowdown in the economy in 2019-20. Some of these very same “analysts” were cheering the RBI/MPC a year ago when it raised the repo rate to 6.5 per cent in June 2018, the very last month of the 2017-18 survey. Their reason for cheering the MPC — growth was too high, so high that it was leading to high and accelerating inflation. Both views cannot be right, and it is worse than disingenuous to hold both views simultaneously. The so-called experts have to make up their mind — if growth was disturbingly high in June 2018, then it cannot under any stretch of the imagination be argued that the CES 2017-18 survey is even close to being right.

Not every government report should be accepted. Just like individuals fail exams, and editors reject papers (and columns), sometimes, institutions fail to produce a credible report. But, I do believe that the unit-level data should be released. Let the world, and experts, find out for themselves how truly informative and credible the NSO CES data really are.

This article first appeared in the print edition on November 27, 2019 under the title ‘Rebuilding credibility’. The writer is executive director IMF, representing India, Sri Lanka, Bangladesh and Bhutan.

Combating Hunger, Malnutrition and National dishonour

Harsh Mander
The abiding disgrace of new India is that despite unprecedented quantities of wealth and the vulgar ostentation which has become customary in the gaudy glitter of city life, India is unable to overcome hunger and malnourishment. This is even more unconscionable when government warehouses are overflowing with stocks of rotting rice and wheat. The 2019 Global Hunger Index (GHI) report brings sombre tidings this year: India’s poorer neighbours — Bangladesh, Nepal, and even Pakistan — have overtaken India in the battle against hunger.

Hunger is the failure to access the calories that are necessary to sustain an active and healthy life. It results in intense human suffering and indignity, as parents are forced to helplessly watch their children ache as they sleep hungry, as their brains and bodies are unable to grow to full potential, and, as they fall ill too often and are snatched away too early.

This is a colossal national dishonour for two reasons. One, this suffering is entirely preventable. Given appropriate public policies — sensitively designed, adequately resourced and effectively implemented — the country has both the wealth and the food stocks many times over to end hunger entirely. The relative success of our neighbours in combating hunger — Nepal emerging from 15 years of civil war and Pakistan still torn by internal conflict — is a sobering reminder of what India has not accomplished. Two, this failure does not spur public outrage and the introspection that it should.

The GHI report ranks India at a lowly 102 out of 117 countries listed. The GHI scores are based on four indicators — undernourishment (the share of population with insufficient calorie intake); child wasting (children with low weight for height, indicating acute undernutrition); child stunting (children with low height for age, reflecting chronic undernutrition); and child mortality (death rate of children under five).

Among all the countries included in the report, India has the highest rate of child wasting (which rose from the 2008-2012 level of 16.5 per cent to 20.8 per cent). Its child stunting rate (at 37.9 per cent) also remains shockingly high.

The report is instructive as it explains why Bangladesh and Nepal have surged ahead of a much wealthier India. The Bangladesh success story is attributed to pro-poor economic growth raising household incomes as well as significant improvements in “nutrition-sensitive” sectors like education, sanitation and health. Nepal, likewise, shows increased household wealth, maternal education, sanitation, health and nutrition programmes.

What must India do better to at least keep pace with its South Asian neighbours in tackling hunger? This is the question that Dipa Sinha, Parth Shrimali and I seek to answer in our essay in the latest 2018-19 India Exclusion Report of the Centre for Equity Studies.

We observe the cruel irony of the largest population of food-insecure people being food producers — farm workers, tenants, marginal and small farmers, fish workers and forest gatherers. To end hunger, food producers must be supported to receive adequate remuneration. We recommend sound measures to protect farmer incomes, including income transfers to farmers, minimum support-price guarantees and crop insurance, and a massive expansion of farm credit. For farm workers, a refocus on land reforms is called for, and, a greatly expanded and effectively managed rural employment guarantee programme with attention to land and watershed development, small irrigation and afforestation. There must also be an urgent and comprehensive shift to sustainable agricultural technologies less dependent on irrigation, chemical fertilisers and pesticides, to reverse our agri-ecological crisis.

The other large food-vulnerable population comprises informal workers. Hunger can’t be combated without addressing the burgeoning job crisis. It also entails labour reforms which protect job security, fair work conditions and social security of all workers. We also argue that the time has come for an urban employment guarantee programme, to help build basic public services and infrastructure for the urban poor — especially slum and pavement residents, and the homeless. This should also include employment in the care economy, with services for child-care, children and adults with disability and older persons.

The Public Distribution System must be universalised (excluding income tax payees), and should distribute not just cereals but also pulses and edible oils. Further, we need to reimagine it as a decentralised system where a variety of crops are procured and distributed locally. Both pre-school feeding and school meals need adequate budgets, and the meals should be supplemented with nutrient-rich foods such as dairy products, eggs and fruits. Social protection also entails universal pension for persons not covered by formal schemes, universal maternity entitlements to enable all women in informal work to rest and breast-feed their children, a vastly expanded creche scheme, and residential schools for homeless children and child workers.

Malnourishment results not just from inadequate food intakes, but also because food is not absorbed due to frequent infections caused by bad drinking water, poor sanitation and lack of healthcare. India’s nutrition failures are also because of persisting gaps in securing potable water to all citizens, and continued open defecation despite optimistic official reporting. There is an urgent requirement for a legally enforceable right to healthcare, with universal and free out-patient and hospital-based care, free diagnostics and free medicines.

All of this is not unknown. Yet, India continues to fail children born in impoverished households, to homeless people and single mothers, and to oppressed castes and social groups. Our economic policy continues to be trapped in an elite capture, dominated by measures that support big businesses to the exclusion of farmers and workers. Social rights are broken and betrayed.

At its core, the reason for India’s continuing failures to end hunger and malnutrition of its millions is the indifference of people who have never known the agony of involuntary hunger. This is ultimately the result of our enormous cultural comfort with inequality, our gravest and most culpable civilisational flaw.

The writer is a human rights worker and writer

Through the 3D glass: India in the global economy

Chetan Ahya 
The global economy has been stuck in a low growth environment since 2012, largely as a result of the 3D challenge: Debt, Demographics and Disinflation.
Indeed, while the developed market (DM) economies have been grappling with these issues for some time, a number of emerging market (EM) economies have also joined the 3D club.

Specifically within Asia, except for Japan (which accounts for 68% of EM), of the 10 top economies in the region, seven have debt-to-GDP close to 200% or above; six are facing a rising age dependency ratio (ageing population is growing faster than workingage population) and eight have GDP deflator growth below 2%.

These challenges have led to a slowdown in global growth. We estimate that the global economy will grow by 3% this year, which will mark the fifth consecutive year that global growth will be below the 30-year average of 3.6%. Moreover, a large number of EM economies are facing both the cyclical challenge of wide output gaps and the structural challenge of decelerating potential growth at the same time.

Against this backdrop, India stands out as one of the few large economies that does not face these issues. However, strong structural fundamentals are clearly necessary but not sufficient in ensuring strong growth outcomes.

The deep cyclical slowdown that occurred from 2011to early 2014 was due to a systematic distortion of the productivity dynamic arising from poor policy choices in the post-credit crisis environment.

We attribute it to the four key macro policies: high revenue deficit, high rural wage growth with labour market policy intervention, persistent negative real interest rates and breakdown in investment approval process post emergence of corruption scandals.

Over the last three years, there has been a concerted policy effort to reverse the productivity distortion and the results have been reflected in macro stability indicators such as inflation, current account and financial stability returning to within the comfort zone.

This marks the first stage of recovery from a typical EM down cycle — where improvements in macro stability reduce the macro risk premium. Despite these improvements, the transition to Stage 2 — a path of growth recovery — has taken longer than expected, as the continued weakness in the global economy weighed on exports and manufacturing business sentiment, while the recovery in the domestic market proceeded at a very gradual pace from the deep cyclical slowdown of the preceding years.

The initial pick-up in growth was driven by public capex as the government increased capex spending largely through off-budget sources.

The government also took measures to improve the investment climate through streamlining of approval processes and creating an overall conducive, business-friendly environment. This led to a significant acceleration in foreign investment flows with FDI flows rising to an all-time high.

Over the last three months, the recovery has encouragingly broadened out to private consumption, particularly discretionary spending after a prolonged period of weakness.

Incoming data on retail loans, auto sales and gasoline consumption are pointing to apick-up in consumption growth. A sustained pick-up in discretionary spending to sustain the next stage of the growth recovery is expected. An improvement in purchasing power with sustained deceleration in inflation, lower cost of borrowing, higher wage payouts for government employees and pick-up in job creation will be supportive of consumption.

Rural demand, too, could provide an additional fillip given the expectations of a normal monsoon season this year, following two consecutive years of below-normal rainfall.

Exports and private capex, particularly in the manufacturing sector, however, are likely to remain relatively weak in this recovery. This is due to the headwinds from sluggish global and the huge excess capacity challenges, particularly in China.

In this cycle, minimal risks of overheating are expected and this should be a longer duration expansion cycle with GDP growth expected to accelerate and inflation expected to remain at or below 5% over the next two years given the prudent policy approach of the government and central bank.

To be sure, while there are good reasons to feel confident about the growth recovery, policymakers will still need to pursue important policy reforms related to taxation, land, labour and public finances: implementation of the Goods and Services Tax Bill, measures to enhance flexibility in land laws and labour laws, steps to reduce revenue deficit and public debt. These medium-term policy reforms will be necessary for India to fully capitalise on its structural positives in this 3D world.

(The writer is global co-head of economics, Morgan Stanley)

Time for Feminist Economics

TCA Ramanujam

A recent article in the Economist expressed the opinion that feminist economics deserves recognition as a distinct branch of the discipline. Feminist Economics has its own journal. Just about 12 per cent of the economic profession in America has women as professors and only one of them, Elinor Ostrom, has won the Nobel Prize for Economics.

Feminist analysts of public policy have noted that men gain most from income tax cuts and women are most likely to plug the gap left by the state as care for the elderly is cut. Economists are blind towards social norms that are unfair to women. Economics as commonly practiced, misses out an element of inequality between the sexes, namely, unpaid work. Her share

The main measure of economic activity, GDP, counts house work when it is paid but excludes it when it is done free of charge. This can be both misleading and perverse. Paul Samuelson humorously pointed out the truth when he said a country’s GDP falls, when a man marries his maid. Diane Coyle, an economist and author of GDP: A Brief but Affectionate History asks whether statistical agencies have not bothered to collect data on unpaid house work because women do most of it.
 

 

Marilyn Waring, a feminist economist, suggests that the system of measuring GDP was designed by men to keep women “in their place”. OECD pointed out that women spend roughly 5 per cent more time working than men.

But simultaneously, they spend roughly twice as much time on unpaid work. By leaving unpaid work out of the National accounts, feminist economists argue that economists diminish women’s contribution and gloss over staggering inequality in who does it. Raising well cared-for children, says Mrs. Waring, is just as important to society as making buildings or cars. The former is excluded from official measures of output making it less of a priority sector. Women are disadvantaged by the failure to measure the value of parenting properly.

A recent paper from the Bureau of Economic Analysis attempted to calculate an augmented version of GDP that included unpaid work. Ignoring the feminist perspective, said the Economist, is bad economics. Indian scene

There was a social and legal transformation of the role of women in India when the Hindu Succession (Amendment) Act 2005 was passed. It recognised the daughter as a coparcener with equal rights to the son.

A recent Judgement of the Delhi High Court laid down the law that a woman can be the karta or Manager of the ‘HUF’ after the passing of this Act. The Constitution guarantees protection to women under articles 14, 15 and 16 as well as in the Directive Principles of State Policy.

Despite the strident march of law, the truth is that at the social level, women are discriminated against. There is a huge gender gap in education. There is pay disparity, too. Job portal Monster India notes that the gender pay gap in India stands at 27 per cent.

The Government recently released the Draft National Policy for Women 2016. The most important part of the policy is that it shifted from just welfare to “welfare with heavy dose of rights”, which is reflective of change in women’s attitude. Societal attitudes are changing along with the law. Manu Smriti is turned upside down; this can be the design of the society for the future.

(The writer is a former chief commissioner of income tax)

An unkind cut for senior citizens

Alok Ray

The Government recently announced a significant reduction in interest rates on the so-called ‘small savings’ instruments — including various postal savings schemes, Senior Citizen Savings Scheme (SCSS) and Public Provident Fund (PPF) — to bring them in line with comparable bank fixed deposit interest rates. With rates likely to go down further, senior citizens, who depend on interest income for survival, are naturally upset.

The Government has stuck to its fiscal consolidation targets which the RBI considers a precondition (along with falling CPI inflation) for further cuts in the ‘repo rate’ (the rate at which RBI lends short-term funds to banks). 

Combined with the RBI dictum to banks to use ‘marginal cost’ (instead of average cost) of funds to determine the ‘base rate’ for lending, this should reduce interest rates for all depositors and borrowers across the spectrum. It implies that senior citizens would suffer more in the coming days.

Basic logic

What is the basic argument for bringing down interest rates for small savings instruments in line with bank interest rates? One major reason why banks fail to pass on the rate cuts to customers is that the effective interest rates on postal savings instruments, Senior Citizen Saving Scheme (SCSS) and PPF (specially if the tax benefits from PPF savings are taken into account) are significantly higher than those offered by bank FDs. As a result, even if the RBI reduces the repo rate, banks cannot afford to reduce the interest rates on FDs which, in turn, restricts their ability to lower interest rates to borrowers. So, in the interest of more efficient transmission of monetary policy, the RBI has announced substantial cuts in interest rates on postal savings schemes, SCSS and PPF.

Most economists would agree with the arguments advanced up to his point. The trouble arises because, in India (as in most developing countries), the interest rate instrument is used to promote more than one policy objective. 

In the absence of a workable social safety net, the interest earnings from accumulated savings serve as the only available means to protect the real income of senior citizens other than those receiving inflation-indexed monthly pensions. The across-the-board reduction in interest rates, even when justified in the interest of more efficient monetary policy transmission, may go against the objective of income stabilisation for the retirees.

Some economists argue that real interest rates (equal to nominal interest rates minus inflation) would remain the same when, along with reduction in inflation, the nominal interest rates are also being cut equally. Hence, there would be no adverse impact on interest earners. This argument is invalid since consumer prices are rising even when consumer price inflation is falling, unless, of course, we are considering a negative inflation rate (which is not the case in India). 

So, the nominal income from interest earnings would be falling while the nominal cost of living as reflected in expenditure on food, house rents, electricity bills and medical costs are rising or at best remaining the same. Clearly, the standard of living of the people depending on interest earnings for survival would be squeezed.

The question is, how to cushion the impact on less affluent retirees living on interest income, with least damage to monetary policy transmission. Several options can be considered. One, the interest rate on the SCSS may be left unchanged. Since one can invest only up to a maximum of ₹15 lakh in this scheme and even a 10 per cent interest would fetch only ₹1.5 lakh interest income a year, the major beneficiaries would be senior citizens with income well below the tax- exemption limit of ₹3 lakh a year. 

Given that only bonafide senior citizens can avail themselves of SCSS and that, too, up to a maximum total investment of ₹15 lakh, the additional interest cost on banks would be limited.

Finding solutions

There is much less justification for not reducing the interest rate on PPF which offers triple tax benefits (‘EEE’ meaning tax exemption on investment amount, interest earnings and withdrawal). Only relatively affluent people (not limited to senior citizens) with surplus income to save can make use of this scheme to save taxes. 

Each year, a person can invest up to ₹1.5 lakh in PPF, saving taxes of more than ₹45,000 (if in the 30 per cent tax plus surcharge bracket). Further, given that the interest income from PPF is totally tax exempt, the effective return from this instrument is much higher than all other schemes, including SCSS. Since all (affluent) people, irrespective of age, can invest in PPF, the additional interest cost and tax revenue loss could be a lot more than in the case of SCSS.

Raising the extra interest rate for senior citizens from the current 0.5 per cent to, say, 1 per cent, while reducing the general FD rates, is another possibility. 

Since the FD interest income is taxable, the biggest benefits would again accrue to poorer senior citizens below the tax exemption limit and progressively less for people in higher tax brackets. As postal deposit rates are being brought in line with bank FD rates of comparable maturity, the same extra interest benefit should be offered to senior citizens by post offices also (which is not the case now). 

All these modifications should be supportable on both equity and progressivity principles of public finance.

Apart from the economic justification advanced above, in a democracy, the electoral power of senior citizens (whose number is increasing with rising longevity) cannot be ignored. The recent roll-back of the Budget proposal for (partial) taxation of withdrawal from EPF, due to public outcry, is a case in point.

The writer was a professor of economics at IIM-Calcutta

Labour Code on Industrial Relations Bill 2015-Who cares for labour?

Gopalakrishnan Sundar 

In April this year, the Centre introduced the Labour Code on Industrial Relations Bill, 2015, the second in the series of codes aimed at consolidating the existing central labour laws.

The code seeks to replace the three principal pieces of legislation governing industrial relations in the country, namely the Trade Unions Act, 1926 (the TU Act), the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947 (the ID Act).

We argue that the code has been drafted keeping in mind only employer demands for greater labour market flexibility and labour discipline, ignoring the longstanding demands of trade unions, and that on account of such a blinkered approach, the code not only fails to strengthen labour rights but also weakens them.

Labour flexibility
The ID Act requires industrial establishments employing 100 or more workers to obtain the Centre’s permission before effecting any layoff, retrenchment and closure. The code enhances the threshold number to 300 without any rationale. The revision has the effect of reducing the accountability of employers and exposing a much larger number of workers to arbitrary closures and en masse termination.

As a trade-off, the code raises the retrenchment/closure compensation payable to workers from 15 days’ wages for every completed year of service to 45 days’ wages. At the same time, it leaves avenues open for avoidance of payment of the statutorily mandated compensation.

The ultimate flexibility provision in the code is the one empowering the government to exempt any establishment or class of establishments from any or all the provisions of the code if it is satisfied that adequate provisions exist for the investigation and settlement of industrial disputes in respect of workers employed there.

Any exercise of this power could result in workers being deprived of various basic rights including the right to organise and the right of access to justice. While a similar provision was inserted into the ID Act in 1982, it was never brought into force.

The right to strike
The ID Act permits workers in public utility services (PUS) to resort to strike only after they give at least two weeks advance notice. Conciliation proceedings are immediately triggered upon issue of such notice and workers are required to abstain from going on strike during the pendency of the proceedings and seven days thereafter.

On account of these restrictive conditions, it is impossible for workers in PUS to go on a legal strike. The misuse of the power to classify industries as PUS has resulted in curbing the right to strike of workers in a large number of industries that are not really essential.

The code now uniformly places all industrial workers in the same boat as PUS workers. This means workers in all industries will be governed by the strict conditions which have so far applied only to PUS workers.

Moreover, the penalties for participating in or instigating or aiding an illegal strike are very steep, ranging from ₹20,000 to ₹50,000 with possible imprisonment. These measures significantly reduce the capacity of workers to go on strike. That apart, the definition of ‘strike’ has been widened under the code to include casual leave by 50 per cent or more workers in the industry. Thus, even a coincidental absence by several workers on a given day may be treated as an illegal strike. 

Freedom of association
The TU Act permits outsiders to be office-bearers of trade unions. On the other hand, the code mandates that all the office-bearers of a registered trade union be persons actually engaged or employed in the establishment/industry with which the trade union is concerned. Such a restriction flies in the face of the standards contained in the ILO Convention of Freedom of Association and Protection of the Right to Organize (C.87) as it interferes with and limits the ability of workers to choose the persons they think best to be their leaders. Further, the code prohibits a person holding office in more than 10 unions. This again is contrary to the principles of freedom of association.

The range of grounds on which the registration of a trade union may be cancelled is wider under the code than under the Trade Unions Act and includes the failure to hold bi-annual elections and the failure to submit annual returns. Thus, the code seeks in many ways to rein in trade unions and interfere with their internal governance.

The code requires workers who are not members of any trade union to pay subscription to a workers’ welfare fund established by the government or the employer. While one possible justification for this measure would be that it encourages workers to join trade unions, the requirement of compulsory contribution is not just incompatible with the freedom of choice but also raises issues of propriety. 

TUs and collective bargaining
The TU Act merely provides for voluntary registration and not recognition of trade unions. This legal vacuum has resulted in the non-recognition of many representative unions and led to unions waging prolonged struggles for recognition. The ILO Governing Body’s Committee on Freedom of Association has therefore recommended that the government consider introducing suitable provisions on the subject.

The code, however, shockingly neither mandates employer recognition of representative trade unions nor prescribes any procedure for that. The lapse becomes even more significant as the code refers at various places to the recognised negotiating agent or certified bargaining agent. Further, although the government is obliged to respect and realise the principles contained in ILO Convention No 98 requiring the promotion of collective bargaining, the code does not contain any provisions aimed at promoting collective bargaining.

The reform exercise sought to be achieved through the code is thus partial and arbitrary. It cannot be expected to promote industrial governance according to constitutional values and ILO standards.

Gopalakrishnan is an advocate in the Madras High Court; Sundar is a professor at XLRI, Jamshedpur

Higher Education: Death by a thousand cuts

Ramachandra Guha
When, a year ago, Smriti Irani was first chosen as the Union minister for human resource development, I did not share in the general scepticism about her appointment. I had seen HRD ministers in UPA governments, with a string of foreign degrees themselves, display a conspicuous lack of interest in their portfolio. Irani seemed energetic and articulate; perhaps keenness and interest would trump lack of formal academic qualifications.

My optimism was misplaced. A year later, Irani is by far the most controversial cabinet minister, and with good reason. Stories of her arrogance and rudeness are legion. Her own senior officials have sought transfers to other ministries because they have found it impossible to work with her. Even more distressing has been her treatment of distinguished academicians such as the directors of the IITs. She has come across as bullying and overbearing, and as interfering in decisions that lie within their domains of expertise.

Irani’s lack of respect for intellectual excellence has also been manifest in some key appointments she has made. Early in her term, she appointed a certain Y. Sudershan Rao chairman of the Indian Council of Historical Research. Rao’s name was unknown to the community of professional historians; not surprising since he has not published one peer-reviewed paper in his life. While his scholarly pedigree is obscure, Rao has been a longstanding fellow traveller of the RSS. Since taking office, he has assured us that the Vedas are “the best evidence” for reconstructing the past, and that the Mahabharata is the “anchor for the history of Bharat”.

The HRD minister’s anti-intellectual instincts are also manifest in another of her appointments, this to the chancellorship of the Maulana Azad Urdu University in Hyderabad. University chancellors are either those holding constitutional posts (such as governors and presidents) or senior scholars of distinction. For instance, the great sociologist André Béteille has been chancellor of the North-Eastern Hill University in Shillong.

The last chancellor of the Maulana Azad University was Syeda Hameed, herself a biographer of Azad and an eminent literary scholar. After the NDA came to power, she was replaced by Zafar Sareshwala, whose contributions to scholarship are even harder to identify than Rao’s. Sareshwala is better known as a dealer in luxury cars, and as being very close to Prime Minister Narendra Modi. When his appointment was announced, one senior scholar told the Hindustan Times that “now it seems you just need the right political clout to head reputed institutions”.

Over the years, the quality of university education in India has been steadily undermined by political and bureaucratic interference. This has been especially marked in universities under the control of state governments. Forty years ago, Calcutta University, Bombay University, and Baroda’s M.S. University still had some excellent departments. This is no longer so. So long as the CPM was in power, all major academic appointments in West Bengal were in the hands of party bosses. The Shiv Sena played the same role in Mumbai, and the BJP in Gujarat. The universities were further damaged by parochial “sons of the soil” policies, whereby scholars from outside the state were discouraged from applying for jobs.
 

While state universities have visibly deteriorated, some Central universities have maintained reasonable academic standards. Delhi University has good departments of history, sociology and economics. Some of our finest film-makers are alumni of Jamia Millia Islamia’s department of mass communications. Both Jawaharlal Nehru University and Hyderabad University have top quality scientists, as well as social scientists on their faculty.
 

These departments and universities would be even better were it not for the dead hand of bureaucratic interference. For some years now, the University Grants Commission (UGC) has steadily encroached on the autonomy of Central universities.
 

A UGC chairman appointed under the UPA introduced a “points-based” promotion scheme that all universities had to adhere to. This gave more weight to organising student extracurricular activities and attending seminars than publishing papers in refereed journals.

One hoped that, when Irani took office, she would work to make our best universities more autonomous in their choice of curricula, students and faculty. For, the world over, it is only when scholars are in charge of scholarship that real intellectual progress takes place. Instead, the new HRD minister has sought to further centralise an already over-centralised system of higher education. Rather than let the best departments in the best universities design their own academic curriculum, the UGC now wants them to adopt a single uniform curriculum, this designed not by scholars but by incompetent (and occasionally malevolent) babus.

Worse may follow. A diabolical scheme is afloat to have a single, centralised cadre of university faculty, whose members can be transferred from place to place at a moment’s notice. If implemented, this will seriously damage existing research programmes, which crucially depend on the long-term involvement of the same set of faculty members.
 

While uniformity is congenial to bureaucrats, it is deeply antithetical to intellectual work. Scholarship and research depend on innovation and creativity from within. Most academic disciplines change rapidly. New discoveries, new methods, new theories, should all lead to changes in teaching and research. But how can this happen if every change in curriculum, every new addition to the reading list, has to be vetted by an array of babus sitting in the UGC’s gloomy office in central Delhi?
 

The scheme to allow the transfer of professors, on the other hand, is most likely the work of political apparatchiks. Suppose an outstanding physics professor in Delhi University (and there are some) signs, in his capacity as a citizen, a petition chastising the government for its failure to adequately protect minority rights. This may, if the current scheme is implemented, lead to him being transferred to the Central University of Mizoram (which, given how many recalcitrant governors have been sent here, appears to be the NDA’s preferred purgatory).
 

For some 40 years now, I have closely studied the Indian university system. I have seen some of India’s best scholars battle cuts in funding, pressure from bureaucrats, populism, parochialism and worse, while bravely continuing to teach well and produce books and papers based on original research.
 

University teachers in India suffer from hurdles and handicaps foreign to their counterparts in Europe and North America — and even Singapore and China. Past governments and ministers have been indifferent or interfering. But the present government and minister exceed them all in their outright contempt for scholars and scholarship.
(The writer is fellow at Yale, Stanford, the LSE and the IISc.)

Food security and Rodrik’s trilemma

Mihir Shah

The Princeton don Dani Rodrik is one of the world’s leading economists. He is a firm believer in and supporter of globalisation. However, he has also posed a famous “globalisation trilemma.” A trilemma describes a situation where only two of three things can hold true at the same time. If any two out of three conditions prevail, the third cannot. Thus, according to Rodrik, “economic globalisation, political democracy, and national determination are mutually irreconcilable. We can have at most two at one time. Democracy is compatible with national sovereignty only if we restrict globalisation. If we push for globalisation while retaining the nation state, we must jettison democracy. And if we want democracy along with globalisation, we must shove the nation state aside and strive for greater international governance.”

As Rodrik argues, if we want to deepen both economic globalisation and political democracy, we would require global institutions that are truly democratic, which respond to legitimate demands, the very basic needs of world citizens — that is governance at a global level. Since such a global political community is as yet a distant, quite unrealisable dream, we have to accept the sovereignty of nation states responding to the demands of their citizens. That is if we respect the democratic ideal.

Prioritising food security

What the government has shown is that it is unwilling to sacrifice the basic requirements for food security of the Indian people at the altar of what Rodrik terms “hyperglobalisation.” The needs and rights of the Indian people must always come first for a democratically elected regime and the Modi government is to be congratulated for affirming its commitment in this regard, despite the humongous pressure it was placed under, both by lobbies within India and powers abroad. Sacrificing the national agenda of food security for the sake of an even deeper globalisation is not an option for a sovereign government of India.

But Rodrik actually demonstrates something even more important. He suggests that re-empowering national democracies places the world economy on a stronger footing. Developing strong markets and open economies requires more government, not less. He says, “Markets need to be embedded in institutions of collective deliberation and social choice. Weakening democracy in the quest for deeper globalisation is one of the worst bargains we could strike.” Building on the work of David Cameron (the Yale political scientist, not to be confused with the British Prime Minister), Rodrik shows that contrary to popular expectation, governments have grown the largest in those economies that are the most exposed to international markets. And after testing out a number of possible alternative explanations for this counter-intuitive result, Rodrik finally concludes that this is because in highly globalised nations, citizens demand that their governments compensate them against the risk that international economic forces expose them to.

I would suggest that there is no better way to understand India’s position at the WTO negotiations. Let us first highlight two outstanding facts about the situation regarding food subsidies and the WTO. One, that the U.S. and the European Union currently provide four to ten times the agricultural subsidy per person compared to that provided by India. And two, that India faces a real crisis of hunger and malnutrition among a very large number of its people. In such a situation, it is only natural that a sovereign democratically elected government will seek to protect the interests of its citizens, rather than be subject to palpably unfair trade agreements.

Unfair agreements

Let me explain why I call the agreements unfair. There are two decisions that have proved contentious here: the Ministerial Decision for an agreement on trade facilitation (TFA) and the Ministerial Decision on public stockholding for food security purposes. India has refused to sign the TFA in the absence of a “permanent solution” on subsidies on account of public stockholding for food security purposes. This is at the heart of India’s entire architecture of food security built up over the last four decades, which includes the system of procurement from and assurance of minimum support prices (MSP) to its farmers and the public distribution system (PDS), culminating in the recently passed Food Security Act.

The present WTO ceiling on domestic support is pegged at a mere 10 per cent of the value of production, which is itself calculated at fixed reference prices of the 1986-88 period. This is ridiculously low, and unrealistic and unfair, not just to India but to many other nations with a large farm sector. It may be useful here to remember that despite all the efforts to move people to urban areas and away from agriculture, the latest United Nations population estimates show that even in the year 2050, around 800 million Indians will continue to live in rural areas. No democratically elected and accountable government of India can afford to ignore the interests of these people, especially given the vulnerability of farming, deeply aggravated by the newly emerging context of climate change. More than 80 per cent of India’s cultivators are small and marginal farmers, who grow crops on less than 5 acres of land. They face increasing challenges of water and livelihood security and need continued government support to enable them to earn a sustainable income. This support that we need to provide our farmers cannot be given within the limits set by the WTO agreements.

Paragraph 47 of the Doha Ministerial Declaration is abundantly clear on a “single undertaking,” which means that all agreements come into force — together as a package. Thus, India is absolutely right in insisting that the TFA can be agreed to — if and only if there is an agreement on subsidies on account of public stockholding for food security purposes. Apart from the massive support the government has received from farmers’ organisations and civil society groups within India, it has also secured the support of countries such as South Africa, Bolivia, Cuba, Venezuela and the tacit support of the G-33, except Pakistan.

What is much more surprising is the kind of media furore that the Indian government’s position has evoked. This can only be seen as a reflection of the way in which the discourse on “free market fundamentalism” has acquired a dominant position over the last 20 years. A deeper reflection on Rodrik’s trilemma would hopefully disabuse many people, who assume that any and all steps towards the free market are an unmixed blessing in themselves, forgetting that robust structures of governance are essential to the functioning and legitimacy of the market mechanism in all capitalist democracies, including the most advanced among them.

It is to be very much hoped that Prime Minister Modi will continue to stand firm on India’s position, even during and after his forthcoming visit to the U.S.

(Mihir Shah is former member, Planning Commission, Govt. of India.)

A new index to measure social progress

K. Srinath Reddy 

Is Gross Domestic Product (GDP) an adequate measure of a country’s development across many dimensions? This has been debated vigorously in recent years. The discontent with GDP stems from the fact that it focusses exclusively on economic growth. Even there, it does not capture the level of inequity which can exist in a society despite overall economic growth. The inequity can in fact even be exacerbated by it. More importantly, it pays no attention to the social and environmental measures of development which are as important as economic development. Indeed, the United Nations has identified three pillars on which the post- 2015 Sustainable Development Goals (SDGs) must rest: economic, social and environmental. 

Alternate measures
Several alternative measures have been proposed to capture the social dimension of development, combined with or independent of economic indices. Bhutan has embraced and espoused the concept of Gross National Happiness. A World Happiness Report is now periodically published from the Columbia University which compares self-reported levels of happiness of people from different countries. A composite Wellness Index was proposed by noted economists Stiglitz, Sen and Fitoussi in response to a request from the then President of France, Nicolas Sarkozy, for a measure of development that looks beyond GDP. A Global Multidimensional Poverty Index was developed at Oxford to gauge inequity within and across societies.

However, none of these has really caught on because economists, industrialists and politicians alike are conditioned to place a high premium on economic development as the measure of progress and do not like to see the clarity of a single measure like GDP cluttered by a host of other indicators they view as imprecise or even irrelevant. So, an index of social progress is needed which does not try to displace GDP (not yet anyway) but has additive value. Such an index can be used to remind political leaders that their bifocal vision must accommodate both economic and social progress as being important for a country, recognising, of course, that these two tracks are closely interlinked and sometimes inseparable.

Such an index of social progress has recently been created by a group of academics and institutions constituting the Social Progress Imperative (www.socialprogressimperative.org). This index has three major domains: Basic Human Needs, Foundations of Wellbeing and Opportunity. Each of these has several clusters of specific indicators (as shown in the table).

The environmental dimension is partly incorporated into the Social Progress Index (SPI) as a cluster of indicators related to ecosystem sustainability. While there can be debates on which other indicators could have been included in any of the clusters, the SPI does provide a list of key areas which need to be tracked and acted upon to ensure a higher level of social progress. The index is still evolving, with validation studies being conducted on data from different countries. The authors have extended an open invitation to groups from anywhere in the world to use their data sets for validation and suggest refinements.

The designers of this index draw our attention to three overarching findings of their study so far: social progress is distinct from economic development, though correlated with it; some aspects of social progress are more closely related to the level of economic development than others; countries have relative strengths and weaknesses in social progress, both across the major dimensions and across components within the dimensions.

Of the three domains, Basic Human Needs is best correlated with per capita GDP, Foundations of Wellbeing being intermediate and Opportunity the least so. However, in each domain there is variability in the degree of correlation between the individual components and per capita GDP. As the developers of SPI affirm, the index offers a new tool to explore the complex two-way relationship between economic and social progress. At the same time, it provides a metric for comparison of countries, and States within a country. 

Inter-country comparisons
In inter-country comparisons, the top three countries were New Zealand, Switzerland and Iceland. Not surprisingly, Netherlands, Norway, Sweden, Finland and Denmark feature in the top 10. India scored lower than the other four from the BRICS group because of lags in areas such as water, sanitation and access to higher education. In specific indicators, there is variability across these countries. For example, China lags in personal rights and Brazil in personal safety. Costa Rica has an SPI close to that of far richer countries like Spain and Italy. Costa Rica’s outstanding health status and access to education may be related to investment priorities (it has no defence budget) and social harmony. For the present, India need not concern itself with comparisons with other countries or even debate on how accurately the individual components of the index measure social progress. It would help if the SPI indicators serve as a checklist to monitor our progress over time in each of these important areas of human welfare.

Even as the country commits itself to move on the fast track of economic growth, it must be mindful of the need to invest in improving the social indicators as well. We may continue to measure GDP if that is still considered the talisman of economic progress by the worlds of politics and finance, but we must also simultaneously measure social progress lest we end up as a soulless society characterised by gaping inequality and glaring social backwardness despite gaining wealth. Let GDP and SPI be the inseparable Gemini twins that herald our ascent to higher levels of balanced development.

(K. Srinath Reddy is president, Public Health Foundation of India. The views expressed are personal.)