India as Failing State

“Incredible India” was ranked 78 among 128 nations in the “Fund for Peace” report published by an international agency. The index considered multidimensional approach to classify countries as sustainable state, failing state and failed state. The cumulative result of the multi-dimensional analysis placed India among the failing states.

Indeed it is surprising to see India ranked so low even when it has over performed many developed nations during the present financial crisis and had been registering GDP growth rate higher then many others. But a rational person will factor in other parameters like poverty reduction, unemployment rate and life expectancy level achieved during the given period. Human development index reflects India’s position on above stated parameters, thus it is not hard to grasp why India is ranked 78th among 128 nations.

If that is not sufficient then put social and political dimension in perspective along with above economic dimension to get holistic picture. The corruption in polity has dented in a big way; the case in point is Koda’s miraculous rise in less then a decade time. Law and order is marginalized by powerful bureaucrats, the case in point is Justice Dinakaran and DSP Rathore among many. These were the incidences that impacted middle class most but what about those which occur every day in rural India and are never reported.

In India every thing seems to function well for wealthy and powerful, it is still a curse to born in poor family as it was before liberalization. Moreover, prior to liberalization we have never heard of incidences of farmer committing suicide. The fact is our effort to liberalize economy has worked counter to the argument of growth and poverty eradication. In last 20 years of liberalization only a small strata of population grew in economic wellbeing but the social and political rights of even these people are marginalized. Majority of the population in India does not have access to hygienic water supply, electricity supply and health care, picture of rural India is unthinkable. Indian democracy is surviving because poor people still have faith in it. Urban population hardly turns for voting during election. They have their priorities which rank higher over national interest. They make fuzz about every public policy but avoid shouldering responsibility. Soon the nexuses of politician, business giants, bureaucrats and media will silent the uproar of these minuscule intellects. Paid news is changing the opinion of people silently; if this practice continues then poor will have no means to fight for their rights. Politicians and Bureaucrats are already getting together to strip the power that RTI Act provides to the people the power of questioning the action of government.

Gandhiji dreamt India as a federation of republic villages in independent India. But what we have today is democracy in which poor (economically, socially and politically…. In a sense we all are poor) have no say. We need to change the present situation but for that we need to change the way we act. Unless we come out of our comfort zones we will not see any change happening. At the economic front we need to make our laws more democratic and liberalization to be complete & transparent. To make democracy function effectively we need to decentralize every government functions apart from law and order.Privatization is good for economy as long as it generates not only private returns but also social returns. The integrity of Indian democracy will be questioned if we fail to act decisively and swiftly.

ECONOMICS OF SUGARCANE IN INDIA

Academically, I am not an economics graduate but my recent exploration in this field has made me understand an iota of this mammoth subject and how do various economic systems work in real world.

A noteworthy of these explorations is, why did we failed to have a common understanding or agreement on climate change?, why are farmers  getting even poorer even after they are provided huge subsidies (baring leakages)?, why PSUs have failed to perform? and many similar questions. The answer to all these questions has been explored by this year's Nobel Prize winners of Economics, Mr. Williamson and Ms.Ostrom, though not in the form as I mentioned here.

I hope, rather then looking at the government for support to sort out issues which are very much in our own reach must be tackled by us through collective effort. Amul is the classic case of such effort where in community takes the ownership of the asset utilization, distribution of gains and responsibility. Why cannot we replicate this kind of system which is arguably better than other two forms of organizations namely private and public.

Mr. Williamson has made a case where in it is more profitable for farmers to vertically integrate with firms rather than integrate with markets. Therefore, it makes us understand the efficient functioning of Amul. We can take a leaf out of his work and apply that in our sugarcane industry. The present day sugarcane industry in India is of seller’s market character. The sugarcane industry is constrained by its very nature of being non-footloose industry. Thus the farmers have to sell the produce to the nearby mill owners, which makes them vulnerable to the price volatility in case of sudden surge of supply in local market which is often the case in local markets. Thus mill owns buy sugarcane at the local market price rather than national price for the same good. This situation can be dealt with community partnership that means if farmers collectively agree to produce and sell it to the mill owned by them self. This way they can share the profits and responsibility.

The present company law does not allow sugarcane farmers to own a company thus it requires a sanction from the government.

I think government needs to understand the holistic picture and thus it must take necessary steps in this direction rather then working on patchy solutions that cost to the tax payers and to the nation at large.

Complicity-------It kind of matchs my taste!

  

Complicity by Julian Barnes

 

       "I used the word “complicity” a bit ago. I like the word. To me, it indicates an unspoken understanding between two people, a kind of pre-sense, if you like. The first hint that you may be suited, before the nervous trudgery of finding out whether you “share the same interests,” or have the same metabolism, or are sexually compatible, or both want children, or however it is that we argue consciously about our unconscious decisions. Later, looking back, we will fetishize and celebrate the first date, the first kiss, the first holiday together, but what really counts is what happened before this public story: that moment, more of pulse than of thought, which goes, Yes, perhaps her, and Yes, perhaps him.

I tried to explain this to Ben, a few days after his party. Ben is a crossword-doer, a dictionary lover, a pedant. He told me that “complicity” means a shared involvement in a crime or a sin or a nefarious act. It means planning to do something bad.
I prefer to keep the term as I understand it. For me, it means planning to do something good. She and I were both free adults, capable of making our own decisions. And nobody plans to do anything bad at that moment, do they?"

 

Why India needs World Bank?

Recently a friend of mine argued that ever since liberalization our financial sector is getting stronger and resilient and now that we have alternate source of financing our economic needs through FDI and bilateral loans then why should India take loan from Work Bank particularly for infrastructure which can be and which are financed by Public Private Partnership.

Adding to that, we are already paying millions of dollar of interest on idle loans that we took from Bank.

His argument if weighed in pure financial terms makes sense, however if we take a holistic picture of the case in point and state of Indian economy than things fall in line. Following points we must consider while evaluating the case:

· Growth rate of GDP vis-à-vis rate of interest charged on loan by world bank

· Stage of Economic growth

· Projected Growth rate of Indian Economy in coming two decades

· Saving-foreign Investment Gap

· State of Infrastructure (social and physical) in India

· Impact of external market volatility and disturbance on domestic demand

· World Bank loan terms and conditions

· State of Foreign exchange reserves

It makes complete sense to take World Bank loan owing to the fact that our economic needs are immense and we have the capacity to pay back the loan, as our economy is growing at a higher rate than rate of interest charged by World Bank.

World Bank loans are attractive since these the loan which comes at (a) relatively easy terms of servicing and

(b) technical consultancy.

As we know that the technical consultancy that World Bank can provide can not be bought anywhere else, reason being World Bank controls huge knowledge pool. Thus the financial argument underestimates the economic need.

How we all are responsible for growing Naxalism?

The stories of Lalbagh, Salwa Judam and rise of many similar movements in tribal areas every now and then are know to us. If turn the pages of history we will that such movements have one single cause and that is multi-dimensional inequality. The inequality has got even starker after 50 years of independence. We all are in some way or other are contributing to this persistence rise in inequality.

An analysis of inequality growth,( done by some NGOs and economist ) reveals that the externalities are pervasive in every single land acquisition in tribal areas. The largest gainers of these acquisitions are industrialist then we who live in urban area. The recent discloser of “Biggest land grab after Columbus” makes all of us the consumers of unethical products. Just like every single diamond bought by us made us promoters of blood diamond trade. It is time that we raise our voices and make change in the socio-political system.

This change will not occur without people’s participation. History shows no such evidence when changed occurred by mere serendipity. It takes lot of courage and commitment vis-à-vis people’s involvement. Unless we the people of India, who calls ourselves sovereign (supreme power of democracy), unleash our power to make it a mass movement, as we did to make ourselves free from the hands of colonial rulers, will not see this change occurring soon.

India- U.S Relationship: Triumph of Diplomacy or Demise ?

“Diplomacy is an art of conducting relationship for gain without conflict”. It is the chief instrument of foreign policy. The goal of diplomacy is to further the nation’s interest as dictated by geography, history and economics. Diplomacy is vital in international relations to safeguard the nation’s independence, security and integrity. The triumph or failure of diplomacy is subject to achievement of both short term and long term objectives. India’s relationship with the United Sates has always been subject of debate. The recent developments show signs of transformation in relations between world’s largest democracy “India” and world’s oldest democracy “U.S”. The changing perception of U.S administration about India’s capabilities and its desire for restoring peace & security, economic growth has helped them work together. At times like this when terrorism coupled with nuclear proliferation is matter of global concern, U.S considers India as a responsible partner to help him in restoring balance in Asia. The interest of U.S in India is also because of its strategy of balancing Chinese power and other axis of evil in Asia. The intricacies involved in this new found relationship of India and U.S needs a thorough understanding to assess correctness of diplomatic stance taken by India.

It is now well accepted fact that the India will soon become global economic power, next to only China and U.S in coming years. Therefore, it is but natural that developed nations must acknowledge the role that India wish to play in shaping global economics and politics. United States has geo-political interest in Asia in general and economic interest in India particularly and to pursue these interests it has forged diplomatic ties with India. On the other hand India too has vision for itself in global arena and it is probably the best of the times for it to give meaningful shape to those dreams and thus it has changed its diplomatic stance in resent years. India has forged couple of agreements with U.S in resent years. Assessing some of the key strategic agreements between India and U.S and there implications can be taken as the proxy for understanding the stance taken by Indian diplomacy. The strategic implication of India and U.S relationship has three most significant facets namely Economic, Defense and Political.

Case I: 123 Nuclear Deal

The Indian Interest in civil nuclear deal can be at best understood as:

ECONOMIC GAINS:

· Growing demand for energy, for sustainable high economic growth but at the same time respecting Kyoto Protocol and thus providing access to Nuclear energy as viable source of clean energy

· India’s desire to enhance and advance in strategic areas like Nuclear R&D, Pharmacy, Healthcare and Science and Technology

POLITICAL GAINS:

· Nuclear waiver leading to elimination of psychological barriers, thus India is de-facto recognized as Nuclear power state that would mean now, India’s desire to have permanent seat in U.N (means increased say in international geo-politics) is not far from reality

· Increase soft power to pressurize Pakistan and make him rethink its policies towards India

· Increased ability to keep China in check and to be able to counter China, as it claims over a portion of Arunachal Pradesh and has secretly developed advanced warfare in recent years

DEFENSE GAIN:

· Diversification of military hardware supplier, over last 40 years Russia had been the most reliable supplier but presently he too had become money minded. Therefore, now India can access the advance hardware form other countries such as Israel and France.

e.g: Airborne warning and control system (AWAS) which India has recently got it from Israel is a direct outcome of 123 engagement

· Enhancement of military R&D capabilities in coming years and making India self reliant.

U.S INTEREST:

What U.S got from this deal, is access to our defense market and expects to grab half of the Nuclear power plants projects which are to be awarded, to fall in his kitty. India, as strategic partner to counter increasing power of China in Asia and a low cost outsourcing hub for U.S auto parts and pharmaceuticals industry. Major chunk of oil supply to U.S passes through Indian Ocean Sea lanes. Sea pirates pray on commerce as this portion is unprotected. Indian cooperation can help in keeping sea lanes clear.

Case II: 26/11 Mumbai Attach

It is a case which throws light on United States geo-political interest in South East Asia and India’s diplomatic ability to pressurize Pakistan.

………………………………. In part II

Union Budget 2009-10... Analysis

The Annual Budget is a statement by the government about its policies, priorities and goals. The crux of a good budget or fiscal policy lies in striking a balance between revenue and expenditure side vis-a vis achieving Distributive justice, Allocative efficiency and Stabilization in the economy.

Before making any judgment about the Union Budget 2009-10, it is vital to understand the conditions under which it is presented. Current economic scenario of global economy is bleak as global trade is shrinking, industrial output is falling and stock markets are at substantially low level. The scenario at home is quite better, as our industrial output has started to show signs of recovery. The good news for Indian economy is, it grew by over 5 percent when most of the world economies are contracting. The sad news is fiscal deficit had grown by 5.5 percent of GDP because of fiscal stimulus targeted to promote and protect domestic production and consumption.

The Union Budget 2009-10 is clearly an “aam aadmi Budget” with focus on development and inclusive growth. Some of the beneficiaries of Budget are: Infrastructure, agriculture, education and rural development. The key features of the Budget are following:

• An aim to reach and sustain 9% growth which had earlier slipped to 6.7%
• A present acknowledgement of a fiscal deficit of 6.2%
• A focus to improve infrastructure and PPP (Public Private Partnership)
• Stimulus package for print media
• Benefits to exports (includes services like Software)
• Focus on Inclusive development and rural reforms (might include a specific allocation for telecommunication and access in rural sectors)
• UIADI (Unique Identification Authority of India) to setup an online data base.
• Centralized processing Centre (CPC) at Benagluru - moving towards E-Governance
• Implementation of GST by 1st April, 2010
• No changes in corporate taxation policy
• Fringe Benefit Tax eliminated
• Deduction fo 150% on expenditure incurred on in-house R&D
• MAT (Minimum Alternate Tax) increased to 15% of book profits from 10%.
• Tax disputes resolution Mechanism for international transactions

****Sectoral specifics are:

Infrastructure Development

• IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical sectors over the next fifteen to eighteen months. IIFCL and Banks are now in a position to support projects involving total investment of Rs 100,000 crore (US$ 20.61 billion).

Highway and Railways

• Allocation to National Highways Authority of India (NHAI) for the National Highway Development Programme (NHDP) increased by 23 per cent over B.E. 2008-09 in B.E. 2009-10 and allocation for Railways increased from Rs 10,800 crore (US$ 2.23 billion) in Interim B.E. 2009-10 to Rs 15,800 crore (US$ 3.27 billion) in B.E. 2009-10.

Urban Infrastructure

• Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) stepped up by 87 per cent to Rs 12,887 crore (US$ 2.65 billion) in B.E. 2009-10 over B.E. 2008-09.

Power

• Allocation under Accelerated Power Development and Reform Programme (APDRP) increased by 160 per cent to Rs 2,080 crore (US$ 429 million) in B.E. 2009-10 over B.E. 2008-09.

Gas

• Blueprint to be developed for long distance gas pipelines leading to a National Gas Grid to facilitate transportation of gas across the length and breadth of the country.

Agriculture Development

• Target for agriculture credit flow set at Rs 325,000 crore (US$ 67.14 billion) for the year 2009-10. In 2008-09 agriculture credit flow was at Rs 287,000 crore (US$ 59.3 billion).

Restoring Export Growth

• Adjustment assistance scheme to provide enhanced Export Credit and Guarantee Corporation (ECGC) cover at 95 per cent to badly hit sectors extended upto March 2010.

Health

• Allocation under National Rural Health Mission (NRHM) increased by Rs 2,057 crore (US$ 424.3 million) over Interim B.E. 2009-10 of Rs 12,070 crore (US$ 2.49 billion).

Education

• Rs 2,113 crore (US$ 436.32 million) allocated for IITs and NITs which includes a provision of Rs 450 crore (US$ 92.91 million) for new IITs and NITs.
• The overall Plan budget for higher education is to be increased by Rs 2,000 crore (US$ 412.86 million) over Interim B.E. 2009-10.

Budget Estimate 2009-10

• Budget Estimates provide for a total expenditure of Rs 10,20,838 crore (US$ 211.1 billion) consisting of Rs 695,689 crore (US$ 143.81 billion) under Non-plan and Rs 325,149 crore (US$ 67.31 billion) under Plan registering an increase of 37 per cent in Non-plan expenditure and 34 per cent in Plan expenditure over B.E. 2008-09.
• Total expenditure in B.E. 2009-10 increased by 36 per cent over B.E. 2008-09.

*** Courtesy Economic times and Business Standard

Below is an analysis of each policy and its implications.

The Budget has tried to put money in the hands of consumers by cutting Taxes and increasing spending. The abolition of FBT (which was deceptive in nature) and surcharges on income tax is encouraging. However, the important benefits covered under FBT, such as employee stock options would now be taxed directly at the hands of employee. The introduction of GST by April 2010 will also help in simplifying taxation system, reducing leakages and arbitrage between organized and unorganized sector. The increase in MAT from 10% to 15%, it would hurt corporate profitability. In a way the increase in MAT will widen the Tax collection because at present there are many corporate that are enjoying low tax rate. Overall the Direct Taxes are revenue neutral. On the Indirect Tax front the central excise duty has been increased form 4% to 8% on wide array of goods. At the some time the excise duty on branded jewelry is reduced from 2% to nil, which is an open promotion to great Indian habit of Hoarding.

In times like this when investor’s sentiment is low and investment needs are high for development of Infrastructure. The Budget does reflect upon these needs and rightly allocates considerable amount to their development through its own going various schemes.

• Allocation made to key infrastructure programs is as follows:

Program	Allocation (Rs.)		Increase (%)
Bharat Nirman	454 bn		45
Indira Awas Yojna		88bn	63
Pradhan Mantri Gram Sadak Yojna	120bn		59
Rajiv Gandhi Grameen Vidyutikaran Yojna	70bn		27
JNNURM	129bn		88
ARDRP	21bn		160
AIBP	350bn		75

Continuing its (government) effort to promote PPP projects in Infrastructure, it enhanced the scope and role of IIFCL to facilitate lending to player of this sector. Infrastructure hold key to the sustainable development over long run and in short run as well it has a strong multiplier effect on economy. In short run it provides employment and thus pushing purchasing power upward which leads to improvement in high standard of living. While is medium and long run, the access to markets changes the complete dynamics in rural economy starting from changing crop pattern to access to credit to improvement in social capital formation. Thus investment in Infrastructure is need of the hour and increasing focus on it is a welcome development.
The budget also reflects upon the agenda of inclusive growth and social equity. Moreover, establishment of social equity without imposing progressive taxation further. The sharp increase in allocation to NREGA and its expansion to include more households will ensures increased purchasing power of poor who spends most of their earnings over basic necessity goods. On a lighter note, increase in market size for FMCG companies. Other initiatives like Bill to ensure food security to be moved soon, full interest subsidy on education loans to weaker sections, increase in allocation to rural health schemes and schemes for inclusion of women.

The mid term policy perspective to ensure stability, once economy is again on the track of high growth momentum, would be to bring down deficit in shortest possible time. As most businesses fear that high deficit will crowd out there investment needs by increasing cost of borrowing. Some economist fears that, BoP crisis will once again crop up if deficit is not controlled in time and at times they claim that fiscal deficit in India is more of structural in nature than of cyclical. Thus India needs second wave of reforms to tackle these problems. It is hard to decide the nature of the cause of deficit because of the lack of appropriate indicators. Since times like this demand fiscal stimulus to promote production and consumption demand, hence, the argument of reforms based on size of deficit is logically unconceivable. And the possibility of BoP crisis is also distinct, because since 1990 the Indian economy has undergone drastic change. And at present when investment possibilities in developed countries are limited because of lower interest rates offered and negative business sentiment where as Indian economy continue to grow and offers better returns to investors as interest rates are appropriate to make investment. Thus the fear of drying up of exchange reserves is distinct. But government must push to restore the deficit to lower levels as it does crowd out the medium to long term business needs.