The future of monetary policy


Source: By Meghnad Desai: The Financial Express


With a new president in town and only a year left in the first term of the Fed chairman Janet Yellen, speculation is mounting about the future of the Fed. Given that Donald Trump has strong views on everything and many of them are, at the least, unorthodox, and, at the worst, an anathema as far as many critics are concerned, the debate is likely to get bogged down in personalities—who gets what rather than asking whether the whole question of monetary policy needs a rethink.

Consider the idea of central bank autonomy. This is a pillar in the conventional wisdom about monetary policy. Many people think it is a permanent feature of a sound economic policy. Yet, central bank autonomy is of recent origin. I recall no such idea before the monetarists became dominant in economic debates. It was during the 1980s when it was firmly believed that money supply should be and could be controlled to contain inflation that the idea of central bank independence was floated. Governments were suspected as fiscal profligates. A firm, external, supra-democratic control was needed to keep those governments in check. This idea has now become so firmly fixed that many commentators think it is immutable.

It is instructive therefore to read Sebastian Mallaby’s massive book, The Man Who Knew, on Alan Greenspan who served as Fed chairman under four presidents. The book is vast in its ambitions, extended in the width of its coverage, scholarly in its meticulous search of sources and well-deserving all the many honours it has garnered. Mallaby has written the history of monetary theory and policy making of the last 50 years with an enviable eye for contemporary politics. He tells the life of Greenspan as an intellectual history of the last 70 years.

Mallaby’s account of the rise of monetary theory and policy in the US begins at the beginning in the 1950s with a few robust intellectuals, Milton Friedman chief among them, who ignored fashion and stuck to their beliefs. Greenspan began as a good student of Arthur Burns who, along with Wesley Mitchell, had pioneered detailed measurement of the microeconomic industrial and commercial data to monitor macroeconomic movements.

Greenspan was always a conservative, but meeting Ayn Rand gave him a faith. He became a libertarian and took market competition as the basis for a sound economy. There was, then onwards, a tension between the man who looked at data and the faithful libertarian. Often, he let his faith overcome the warnings of data.

Even so, Greenspan did get to the top and made monetary policy for over 20 years. Mallaby covers the stock market bubbles being debated. There is the fallacy here of the true free marketeer that bubbles cannot be spotted or even checked when blowing up. The policy maker cannot and ought not to interfere. But when a bubble bursts, instant help is at hand from the previously unwelcome policy maker. There is a similar refusal to see that control of inflation is not enough. Financial stability is a different problem. Even with low inflation, it is possible for markets to go berserk as they did to Greenspan’s regret. He could not let go of his Ayn Rand fundamentalism till the very end. He knew that markets are not always vigilant against excesses, but he could not admit it to himself nor base his policy on the likelihood of markets being wrong.

For two decades, the developed world stayed with the twin ideas of rational expectations and efficient markets. These in turn dictated fiscal prudence—making the debt-GDP ratio a totem and low deficits a constant feature and an anti-inflationary monetary policy, including central bank independence. The crash of 2008 showed that these principles are not sufficient for economic and financial stability. Yet, no one has really questioned them.

The time has come therefore to get back to first principles. Who are central bankers independent of? If they are zealous about their autonomy from the elected representatives, but not mindful of the redistributive results of their policy, they are merely serving the asset-holders who just happen to be the very rich. Keynesianism, now in disgrace, trusted the elected representatives to look after the many, not the few. A sustained attack on Keynesian policy in the 1960s well covered in Mallaby’s book, shows that it came from politically motivated academics.

But their arguments were couched in economic-theoretic terms. Milton Friedman did win the battle for conservatism. Many of his ideas were radical such as negative income tax. But we found out during the halcyon days of monetarism that money supply could not be defined, much less controlled. Inflation came down due to large scale unemployment, not monetary policy. We are now realising that the days of QE are over. A full recovery has not taken place. GDP growth is low in G7. Fiscal policy needs a new boost. We also need new thinking about monetary policy.


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Towards assured healthcare



Source: By the financial express



Over the last few months, from Budget announcements to the National Health Policy (NHP), it is clear that the government has been pushing the needle substantively towards making universal access to health a reality. More laudable is the focus on a holistic, wellness approach that takes into consideration the risk factors that impact physical, mental and emotional well-being of each and every citizen. In true spirit of ‘Antyodya’, NHP 2017 emphasises creation of ‘an enabling environment for realising health care as a right in the future’.


The intent to upgrade 1.5 lakh rural sub-centres to health and wellness centres in the Budget along with increased budgetary allocation for AYUSH and emphasis on skill development programmes for the rural community, signal the shift towards a 360-degree approach for public health. NHP by raising the targeted public health spending to 2.5% of GDP from the current 1.4% level with focus on NCDs, has given a long over-due thrust to disease prevention and health promotion.


Currently, India faces health challenges on multiple fronts, including the double burden of both communicable and non-communicable diseases (NCDs), many of which can be prevented with timely screening and appropriate interventions. While the mortality rate from NCDs such as cardiovascular, metabolic disease, obesity and cancer has increased to 60%, the incidence of tuberculosis, diarrhoeal disease and water-borne illnesses still remains daunting. The growing burden of NCDs is estimated to lead to a loss of $6.2 trillion by 2030—nearly three times our current GDP.


Given the narrow window of opportunity, a ‘Total Health’ approach, entailing a shift from the current paradigm focusing on a sickness model to focusing on creating a culture of wellness, is the way forward. The challenge lies in replicating successful pilots and leveraging partnerships to reach the last mile efficiently. It is therefore encouraging to see that the NHP has emphasised on an integrated approach towards prevention of NCDs with focus on timely screening and providing a larger package of comprehensive primary health care. Above all, the NHP has also called for an increased collaboration with the private sector for operationalising health and wellness centres across the country. It is now the implementation that holds the key to its success.


Corporate Social Responsibility (CSR) has been identified as an important area in the NHP that can fill critical gaps in the public health facilities. Several private sector organizations have been working pro-actively in healthcare as part of their CSR. With a more integrated approach under the health mission, it will be possible to scale up substantial projects to achieve the national goal of universal health within a time-bound framework. Our experience with Apollo Foundation’s Total Health Program in the Aragonda village of Andhra Pradesh has shown how mapping and screening of NCDs helps in managing the disease burden and reducing out of pocket expenditure effectively. Providing end-to-end solutions ranging from medical, nutritional, clean water and sanitation to education and livelihood, have led to positive health outcomes for the community. Such efforts, if integrated with the Union and state government initiatives, can be replicated and sustained across the country.


In this direction, the NHP has taken a laudable initiative for the private sector to invest and innovate, by providing a far-sighted patient-centric healthcare delivery framework. The implementation of the NHP framework along the following areas will reinvigorate public private partnership and strengthen the healthcare infrastructure. Incentivisation of private sector to invest in healthcare by providing them financial and non-financial incentives, Fostering PPPs for capacity building, skill development, disease surveillance and management, will go a long way in meeting public health goals.


Setting up of the National Digital Health Authority (NDHA) and health information exchange platform will create the much needed digital backbone of health infrastructure and will become a game-changer in continuum of care. Deploying technology through SEHAT—our telemedicine partnership with the government has shown how technology can be leveraged across rural and remote areas to deliver patient-centric health care. Enthused by the results, we are certain that a lot more is achievable with the application of digital health as advocated in the NHP. Implementation of NHP key strategies will also help understand health financing needs of the local population better, especially since raising out of pocket expenditure for healthcare remains a key concern.

We are confident that a comprehensive database, an inter-sector and interdisciplinary approach along with a supporting infrastructure is the way forward to achieve national health goals. It is now time to roll-out the national health mission in earnest as its implementation augurs well for a strong public-private partnership.

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Civil-Military construct~II


Source: By Ashok kapur: The Statesman


It is the clear verdict of history that the Cold War between the Allies and the former Soviet Union, that was to last half a century after the Second World War, was a direct result of British and American generals repeatedly ignoring civilian directions at the concluding stages of the war. The Allied military leadership, while marching into Germany opened a broad front for the liberation of Berlin, ignoring warnings that Stalin was making a straight dash for the Capital city. The civilian leadership could rightly anticipate that if the latter were to reach there first, Berlin would be a divided city.

In retrospect, the civilian strategy proved to be wiser. For half a century, the two nuclear blocs ~ NATO and the Soviets ~ were locked in an ‘eyeball to eyeball’ confrontation in Berlin, putting the whole world under the threat of a nuclear holocaust. And it was a similar story of warped military thinking that landed many of the East European nations into the iron grip of the former Soviet Union through their local Communist parties ~ agents of the Soviet Communist party. The most tragic case was that of Poland.

Overrun by the Nazis, Poland was fighting with its back to the wall. The Polish Resistance was fighting the occupying Germans in alliance with the local communist party, waiting for the promised help from the Soviet Army. The Red army did march all the way from Russia but halted abruptly at the gates of Warsaw. The Allied military leadership was supplying arms to the Polish Resistance to fight the Nazis, in close alliance with the local communists, who betrayed them to the Nazis when the moment arrived.

The British civilian leadership had cautioned their military not to encourage the Polish resistance to trust their communist allies, who were merely acting as proxies for Moscow. The tragic scenario unfolded precisely as the Allied civilian leadership had anticipated. The Polish communists betrayed the Polish Resistance ~ behind their back ~ to the occupying Nazis who butchered them mercilessly. It has been described as the most pernicious act of perfidy in the Second World War. Only after the butchery was complete, did the Red Army enter, with Polish communists ~ who did not fight ~ riding piggyback.

Soon after Second World War, the most serious conflict was the Korean War. The Allied forces were led by the US General, Douglas MacArthur, the hero of many a battle during the earlier war. Undoubtedly, he was a great military commander but a poor political strategist. The North Koreans had invaded South Korea, with the support of the Chinese communists. MacArthur wanted to cross the river boundary between Korea and China, and take the fight right into China.

By which time, China had come under Communist rule led by Mao Zedong. He was a ruthless dictator who was prepared to sacrifice a few lakh Chinese soldiers, for a “cause”. His army had just one gun for three soldiers, so that if the gun-carrying soldier was to be killed, his weapon would be passed on to the next soldier. For this reason, he had developed the ‘human wave’ tactics. MacArthur completely misread him, convinced that the Chinese would not intervene, their army being ill-prepared and under-armed. For his poor military judgment, he was dismissed from service.

The world was on the brink of a nuclear holocaust in 1962, over US-USSR confrontation over Cuba, a Soviet satellite. The former Soviet Union had clandestinely smuggled offensive nuclear missiles there, posing a nuclear threat to the USA. The Americans imposed a blockade of Cuba, preventing any ship from either entering or leaving. At the time, both the USA and the USSR were super powers, heavily armed with nuclear weapons. The USA had imposed very tough conditions on the USSR. A blockade, by itself was a somewhat humiliating ban on the then other major power.

President Kennedy was the US P resident, who, incidentally, was himself a former naval officer with experience of war. The US military advised him to maintain the blockade which could possibly have led to a nuclear exchange, and the whole world could have been faced with a catastrophe. The civilian advice to him was wiser ~ a quarantine, which would permit the Soviet ships access to Cuba but after inspection by the US Navy so that no offensive cargo was being ferried.

The US move was complied with by the Soviets, and proved to be a face-saver for the other super power. Shockingly, the then US Air Chief in an unprecedented show of utter defiance of civlian authority made his intention open ~ his bombers would start bombing Cuba within the hour. It was an unprecedented act of open defiance of civilian authority that could have resulted in a nuclear war with the Soviets. The threat was issued after President Kennedy had publicly declared cessation of the dispute with the Soviets. The Air Chief had to be almost physically prevented from doing so.

Modern psychologists tell us that a man acts according to his experience and training. A soldier who has been taught the art of war and trained to fight all his life to win, and win decisively by annihilating the “enemy” cannot suddenly turn a peacenick. For him, there is only one glory ~ to be recognised for ‘victory’ in battle. To be denied this, for whatever reason is to question his very existence and being.

In sum, the question of a Defence Supremo is closely linked to the question of primacy of the civil or military viewpoint not only during peacetime but even during war. The issue assumes critical importance in the age of nuclear weapons when the nuclear powers, both declared and undeclared have a combined destructive capacity of a million Hiroshimas. History is replete with instances of disasters whenever the military viewpoint has prevailed even during war.

Galbraith, the top civilian adviser to President Kennedy during the Cuban crisis, was a witness to the US military functioning during the last time almost the entire humanity stood on the edge of a precipice ~ “In the US, as in other democracies, it is thought wise and even necessary that the military power be kept subordinate to civilian authority and restraint … in nearly all recent Pentagon confrontations when faced with the strongly conditioned attitude of the military, civilians have surrendered thereto.”
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Civil-Military construct~I


Source: By Ashok kapur: The Statesman


Napoleon Bonaparte, arguably one of the world’s greatest military strategists and generals, had crafted his own obituary ~ “Let my children and grandchildren study history. It is the only valid philosophy and the only true psychology”. Few leaders and military commanders would have known better about diplomacy, inter-state relations and the conduct of war.

The rare wisdom and insight of the great military commander comes to one’s mind in the context of the long-drawn campaign undertaken by a handful of retired Indian military officers to somehow exert pressure on the political executive to create a ‘post’ of Defence Supremo to proffer a ‘single-point’ advice to the Government on matters military. He is projected as a five-star general and the present chiefs of Army, Navy and Air Force will report to him. And the Supremo will report directly to the PM.

In a cruel irony of history, the aura surrounding the persona of Napoleon, a genius, if one may use the term in the context of military strategy, was shattered in his own lifetime. In the hour of his greatest triumph and dazzling glory, he faced a humiliating defeat. His military campaign in Russia resulted in an unprecedented disaster. His war strategy culminated in the decimation of his Army. And then, he eventually lost to the British and was incarcerated in a faraway island.

Napoleon’s wisdom only underscores something known and acknowledged by statesmen the world over, especially in modern civilian democracies. ‘War is too serious a business to be left to the military leadership alone’. More so, a war in the age of nuclear weapons. And history provides a host of instances where the civilian leadership has repeatedly proved to be superior in its overall judgment of matters military. A war strategy at higher levels is the rightful domain of experienced civilians who have a wider exposure and a richer insight into statecraft.

‘War’ has been defined as ‘pursuit of politics by other means’. The issue of civilian control even during the time of war is of critical contemporary relevance especially to countries like India. Undeniably, our democracy has roots, but these are not deep enough. The military needs to be told, once and for all that its place is in the barracks, not in the boardroom. This imperative of subordination of the military to the civilian leadership is certitude of democracy not only during peacetime but also during wartime. Historically, whenever the military viewpoint has overruled civilian leadership even during war, the result has been a disaster.

The explicit subordination of the military to the civilian leadership is embedded in the constitutional rule of law in modern times, beginning with the first such arrangement in the USA in the late 18th century. Thereafter, it has been formalized in modern civilian democracies the world over, notably in the UK, France, Canada, Australia etc. With the adoption of the Constitution In India in 1950. The military has been made accountable to the permanent civilians manning the Defence Ministry, headed by the elected Defence Minister.

The first comprehensive law in India crafted by one of the greatest jurists of the 19th century, Lord Macaulay, was the Criminal Procedure Code1860. He was the first Chairman of the Law Commission of India, an entirely new invention of the British Raj. According to it, even during serious law and order situations when the civil administration has to summon the assistance of the Army, the most senior military officer is “required” to obey the civilian magistrate’s orders on the scene. The ‘chain of command’, as the military jargon goes, with a civilian in charge, is explicit.

It goes to the credit of India’s sovereign Parliament that it adopted the said legislation verbatim in 1950. Secondly, the CrPC set the model for future legislation in independent India. The military has not been given any role in civilian governance, the powers being vested in the civilian magistracy. This is based on the sound democratic norm that defines civil service (that runs the government) as “that form of governance whereby the armed services of the government are excluded from governance”.

The last century has been one of the bloodiest in history, beginning with the First World War during 1914-18. The traditional military aristocracy, by and large still dominated the politics of major European powers ~ save Great Britain ~ that were engaged relentlessly in mindless bloodletting for years, without a clear political goal save the “destruction of the enemy”. For more than four years, major land battles were fought not so much as to advance into Germany as to fight each other in trenches, to “regain lost ground”. See-saw battles were fought by both sides, killing each other’s soldiers by the thousands every day. In the words of an eminent military strategist, it was “trench stalemate ~ blind (military) leaders blindfolding people.”

The stated objective of military leadership on either side appears to have been “Total War”. The eventual surrender of Germany was achieved at high human cost, as the political objective was lost sight of in between. The military leadership ~ on either side ~ that dominated the conduct of war throughout, was more engaged in an ego play. Personal glory underscored battle objectives, whereby thousands of soldiers were sacrificed daily. There was virtually no counting of the dead or the wounded. “To and fro the struggle swayed, with equal slaughter and ferocity.”

By the time of the Second World War (1939-45), democracy had gradually developed roots in Europe and America save Japan, Germany and Italy. Little wonder that these three powers were the major aggressors in starting the war. In Japan, the control of the civilian government was nominal even prior to the World War. In the early 1930s, the autonomous Japanese military on its own launched an entirely unprovoked attack against China, and occupied Manchuria. The Japanese civilian government was shocked. It could do nothing except acquiesce in impotent rage.

During the Second World War, France was a major world power. Ironically, it was the French military that capitulated to the Nazi invader, and let it overrun and occupy France for four years, ignoring the earlier forebodings of the French Government. The civilian leadership had been repeatedly urging the French military to read the writing on the wall but to no avail. For four years, the occupying German army ravaged the country and caused untold suffering to the hapless civilian populace. The French army leadership imprisoned its own Prime Minister!


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The welcome idea of more maternity leave



Source: By Nidhi Gupta: Mint



The Maternity Benefits (Amendment) Bill, 2016, passed by the Rajya Sabha and the Lok Sabha, will become an Act as soon as it receives the President’s assent. The salient features of this Bill include an expansion in the paid maternity leave from 12 weeks to 26 weeks, a leave of up to 12 weeks for a woman adopting a child below the age of three months, and provision of crèche facilities by employers with more than 50 employees. This article aims to make a case for a more progressive and nuanced debate about the pros and cons of the Bill.


The supporters of the Bill argue that it would allow a woman to take care of her infant in the most important, formative months of a child and provide her with much needed work-life balance at a time when she is most likely to drop out of the workforce. They maintain that this would help increase women’s participation in the workforce.


However, it is important to understand that the definition of workforce here is limited to the 10% of women working in the organized sector. A substantial percentage of women in the organized sector already enjoy these, and in many cases far more flexible and inclusive benefits, owing to their companies’ existing policies. The unorganized sector, which employs 90% of the women, remains outside the purview of this Bill. So, while there is reason to celebrate, it is also prudent to not exaggerate the impact that the Bill is likely to have in the present context.


Opponents of the Bill argue vehemently that an increase in maternal leave and a mandate to provide crèches would result in adverse incentives for employers to hire women. This argument is made because the Bill calls for employers to bear the additional costs resulting from the extension in the maternity leave. These critics point out, will show that this move by the government will either lead to more unemployment for women or will drive down their wages.


The economic arguments against the Bill don’t hold for a few reasons. One, it is unwise to make a blanket argument that employers’ incentives to hire women will be driven down. This will not bear out for women employed in high-skilled jobs or those who are higher up in companies’ hierarchical ladder, who make up a substantial portion of the organized sector under consideration. Studies have in fact hinted that the financial and opportunity cost to companies to recruit another high-skilled worker is higher than retaining an employee through paid maternity leave. That said women in low-skill jobs might be discriminated against.


Two, there is pressure on the companies, both from within and without, to position themselves as diverse and willing to retain employees. In an employee market, companies can ill-afford to reject one half of the population for worries that it might cost more. It holds to reason that initially, bigger companies will find it easier to hire and retain women, while smaller companies will face an uphill task trying to cope with the additional financial costs. There is no reason to think that this will be a permanent impact.


Three, there is a fair level of unpredictability attached to any such policy changes. There will be multiple cycles of peaks and troughs before a new equilibrium is reached, which is usually true of any new policy. Indeed, as Tim Harford points out through the examples of the Equal Pay Act and the minimum wage changes in the UK, contrary to the predictions of pundits, the Acts did not lower women’s participation in the workforce. There is need for more evidence before it can be said with certainty if the maternity leave expansion actually increased or reduced the women’s share in the workforce.


Critics also point out that India should become economically strong before it apes Western countries in doling out such social benefits to its citizens. This way of reasoning is a slippery slope and can be used to argue against any social policies of the government. Infants’ access to nutrition and care are part of their inalienable human rights. A country’s economic standing should not have any impact on how healthy it wants its population to be. It’s the duty of the state to ensure that health, a fundamental human right, is available to all families, especially for their children.


Finally, there are those who think that this is mere posturing by the government to appear progressive and caring. While it is true that the Bill addresses only a limited set of issues, it opens up avenues for women (and men) to negotiate with their employers to set up a system that would benefit them as a parent and as an employee. It is a strong signalling by the government to show that biological commitments will not be held against a particular gender.

India’s new maternity benefits Bill must be seen as a social and moral revolution, rather than in purely financial terms. Indeed, the directive principles in the Constitution, through Article 42, provide for “just and humane conditions for work and for maternity relief”. This Bill, while inadequate, is a step in the right direction. What needs to be done now is to integrate various disparate maternity laws in India into a single parental leave law that gives a parental unit the benefit of dividing post-natal care leave. It will go a long way in erasing of restrictive gender norms.

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Making the case for a uniform civil code


Source: By Sunil Gupta: The Statesman


The Uniform Civil Code (UCC) is one of the most contentious issues staring the Indian polity in the eye. Although Article 44 of the Directive Principles of State Policy in the Constitution speaks of a Uniform Civil Code for citizens, it has remained a distant dream, with no government thus far addressing the issue with seriousness.

This has been primarily on account of the fear of a possible backlash at elections from sections of voters. The present government's attempt to implement UCC has been vehemently resisted by large sections of Muslims led by clerics and their ilk. Endless debates and discussions between stakeholders have not succeeded in carrying the issue to fructification. Religious sentiments have prevailed over aspirations of all right-thinking men and women of the nation for a level playing field.

A Uniform Civil Code for all citizens is in agreement with the secular ethos of the nation. Unlike in the West, where secularism is a mere act of the State distancing itself from the Church, the concept means in the Indian context, equal treatment of people of all religions – a proactive stance on the part of the State.

This calls for respect from the government for the sentiments of the people of different religions, without leaving any room for favour or prejudice. While the endeavour to treat all citizens alike before law is in keeping with the exhortation of the relevant Article of the Directive Principles of State Policy as well, the State is hard put to carry out the implementation without its action being perceived by people of the minority communities as an attempt to trample upon their sentiments or to curtail their freedom to live in terms of their religious beliefs.

At the same time, people of any religion cannot be viewed or treated as clones cast in the same mould and should not be expected to unquestioningly fall in line with the provisions of the personal law applicable to their community. That is because such personal laws were fashioned and designed on the basis of religious tenets and cultural mores, dating back to medieval times to primarily suit people living in a distant land in harsh conditions, fighting for the perceived supremacy of their religion.

In the Indian context, a community is made up of individuals with their own views, beliefs and opinions in their vital personal matters and private lives in changed circumstances and conditions prevailing in the country. They may not be faulted for seeking redressal for a grievance in terms of natural justice, just like any other citizen, without prejudice to their religious standing or beliefs. In the matter of personal law, interpretation of its provisions is heavily loaded in favour of the clerics and other religious entities and agencies. An individual's inalienable right to natural justice is stifled by his or her religious identity, in matters such as marriage, divorce, maintenance, adoption, inheritance, etc.

The issue of triple talaq is a case in point. The fundamentality of a divorced woman's right to alimony is at stake. The self-esteem of a woman to live a life of gender equality is in question. This is the kind of a helpless situation in which a large number of persons, mostly women, of the minority communities find themselves in. The question of such men and women being able to contribute their optimal share to the nation's and society's development in accordance with the evolved social situation is a matter of equal concern to the majority community.

When aggrieved individuals find their voice to protest against provisions of their personal law and choose to step out of the line and try to seek justice in a court of law, the State cannot afford to stand on the wings as a mute spectator and do nothing to ameliorate the situation.

Judiciary, on its part, finds hardly any maneuverability in the present system to address the situation, leaving the aggrieved person to fall back into the mire of personal law. Lack of conviction on the part of politicians or their obstinacy to take any measure for social welfare that would impinge on their vote bank politics prevail over the concern of judiciary for fair play and natural justice for all the citizens, as was witnessed in the Shah Bano case during the Congress rule.

The individual liberty of members of a community which is governed by personal law thus falls prey to the stubborn attitude of the community elders and their insistence on the freedom to have their own personal civil code. The government cannot continue to turn a blind eye to the travails of forlorn individuals on account of their vulnerability against the personal law code.

The resulting situation is simmering discontent among individuals, particularly women, in minority communities, who find themselves victims of a lacuna in the system. In a society such as the one in India where people of diverging religious beliefs have been living in harmony despite grave instigations and provocations, for the State to continue to allow this kind of despair among vast numbers of its citizens does not augur well.

It is not only the various religious groups in the country but also the faceless individuals who form these groupings and yet feel left out who have to be carried along by the State in the interests of fair play and its own survival lest discontent have a detrimental effect. Failure on the part of the government to be proactive in such a crucial matter would not only reflect poorly on its efficacy but also be a sad commentary on the shape of democracy in the country.

Speaking at the Jaipur Literature Festival on January 23 this year, Bangladeshi writer Taslima Nasrin, who is well-known for slamming misogynistic ideas in Islam, rightly asserted that India urgently needs a UCC to protect the democratic rights of Muslim women as well as to stop the issue of fatwas by some religious clerics. To cut a long story short, the UCC is long overdue. To further delay its implementation would be tantamount to the State abandoning a section of its own people, no matter how small or large their number, purportedly on account of lack of a consensus, while, in reality, on account of lack of political conviction.

The returning of the Law Commission's questionnaire on the UCC by the Chief Minister of Bihar purportedly because "the questions have been framed in such a manner so as to force the respondent (Bihar government) to reply in a specific way" is a classic attempt on the part of the naysayers of Indian politics to tactfully avoid taking the bull by its horns.

As the first step in the long way to be traversed, the people of our country need to be educated by the government about the issues involved. How several countries around the world, including a fair number of Islamic ones, have opted for UCC in the interests of their own social and overall development needs to be projected?

The people of the minority communities should be spurred on to realize that the time for self-introspection and rejection of complacency in matters vital to their interests is well at hand. The foremost task at hand is for the government to convince the people to stir out of their comfort zone and help themselves.


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Why India needs a new logistics network


Source: By Jayachandran: Mint


One of the central promises of the new goods and services tax (GST) that is set to be rolled out in July is that it will allow companies to restructure their supply chains once the domestic market is truly integrated. It is hard to see how the production structure can be improved radically unless India builds a new logistics network to allow inputs, components and finished goods to move across the country seamlessly. The success of the flagship Make in India programme is also critically dependent on a modern logistics network. The man who will have to put in the plumbing necessary for it all to work is Union road transport and highways, shipping and ports.

In his last budget speech, Union finance minister Arun Jaitley said: “An effective multi-modal logistics and transport sector will make our economy more competitive. A specific programme for development of multi-modal logistics parks, together with multi-modal transport facilities, will be drawn up and implemented.” This programme—talked up by Gadkari —aims to shift from India’s current point-to-point logistics model to a hub-and-spoke model. This will entail setting up 35 multi-modal logistics parks at a cost of Rs50,000 crore, developing 50 economic corridors and inviting investment from the states and private sector. Crucially, this will all be done with an integrated approach that will utilize railways, highways, inland waterways and airports to create a transportation grid that covers the country.

It is an ambitious plan and a necessary one for multiple reasons. For one, efficient transportation and logistics are important for boosting India’s competitiveness. They reduce transport time and costs, of course—but they also reduce cost of production by minimizing the need for large inventories. This means less capital required for warehouses, insurance and the like.

Second, while the conventional view of demand in the logistics sector states that it is derived demand, growth in transport and logistics enterprises can create markets for other goods. Third, efficient logistics networks can reduce divergence in regional growth. Fourth the last Economic Survey points out, inter-state trade flows in India stand at a healthy 54% of GDP. Reducing friction via improved logistics could boost this. And lastly, while the demand for transport grew at around 10% annually in the 1990s, it has accelerated since. Failing to keep pace will hamstring everything from the manufacturing push and attempts to boost farmer earnings to the benefits of urban agglomeration economies.

The main hurdle so far has been that India’s logistics and transport sector has developed in silos. This has resulted in overly complex regulation and administrative procedures as well as missing modal links and an inefficient modal mix. As of 2008, the mix was 50% of total freight flow via roads, 36% by rail, 7.5% by pipelines, 6% by coastal shipping, 0.2% by inland waterways and 0.01% by airways. The ratios may have shifted somewhat since then but they are unlikely to have changed substantially. This is a pity: Transport by rail and inland waterways is far more cost- and time-efficient than transport by roads, for instance, and should account for high proportions of the freight flow.

Gadkari’s integrated policy is thus essential, pulling together the Narendra Modi government’s planned road and rail dedicated freight corridors and suggesting a solution to the long-running lack of last-mile connectivity for India’s ports. It also offers more scope for boosting the use of technology than development in silos would. Containerization, for instance—shipping freight across modes in standard containers—would enable live tracking via chipped containers. This in turn would enable greater security and predictability, as well as providing the granular data that is important for business projections and policymaking alike.

An integrated multi-modal policy is not a new idea. In 2014, the national transport development policy committee had written in its report to the erstwhile Planning Commission that India should have “a single unified ministry with a clear mandate to deliver a multi-modal transport system that contributes to the country’s larger development goals”—standard operating procedure for other large economies and India’s major emerging economy peers.

The Bharatiya Janata Party (BJP) government is now looking to deliver on the multi-modal aspect of that recommendation. But it should not lose sight of the unified ministry goal. The BJP’s electoral dominance, and thus reduced reliance upon coalition partners, gives it more scope to consolidate the clutter of ministries gumming up the works—across sectors—than any government has had in decades.

And here’s a thought. This is an opportunity for states to compete for hosting the logistics hubs and reaping the economic benefits. Will it be Nagpur and Varanasi that dominates the network or cities in centrally placed Madhya Pradesh or entrepreneurial Gujarat? The Modi government has made competitive federalism a plank of its economic agenda. This is a chance to see it in action.


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Gradual change underway


Source: By S Ananth: Deccan Herald


Mechanisation of agriculture, especially in harvesting, has triggered a discernible, albeit gradual transformation of the rural economy. Using machines in harvesting has been rapid and overwhelmingly visible. Mechanisation of parts of the agricultural value chain is not new. Tractors have been used since the 1980s. The adoption of mechanical harvesters started in earnest about 7-8 years ago.

In south India, these changes are visible in large tracts where paddy cultivation is central to the rural economy. In many places, the rapid adoption of mechanical harvesters is reminiscent of the boom in the truck business in the 1980s and early 1990s which created a whole new ecosystem that was non-existent.

The need to adopt harvesters was triggered by the increasing cost of labour which was largely a consequence of increased emphasis on education and migration to cities. Additionally, the easy availability of financing meant that it required less upfront payment to invest in a mechanical harvester. As a generalisation, the cost varies from Rs 10 lakh to Rs 18 lakh. Each harvester requires an initial investment of about Rs 5 lakh.

Broadly, there are two types of mechanical harvesters: 'chain' harvesters and 'tyre' harvesters. The difference between the two is that a chain harvester can work even when the soil is soft. However, chain harvesters require larger investments by way of higher cost, number of staff and other forms of maintenance that makes them less preferable. The major financiers of mechanical harvesters are the Non-bank finance companies (NBFCs) rather than banks. A prospective buyer must possess at least 4-5 acres of land before they are eligible for a loan.

A large number of the harvester owners are usually those with higher than average holdings (usually above 10 acres) keen on increasing their incomes after the completion of their own agricultural operations. It takes a harvester an hour to harvest one acre. They can work for about 12 hours in a day. The charges for harvesting an acre varies from Rs 1,200 to Rs 2,000 depending on urgency of the farmer, the number of machines operating in the vicinity and personal relationship between the harvester operator and the farmer.

The net profit excluding labour and other costs for the owner varies from Rs 500 - Rs 1,000 per acre. In a good season, a harvester owner makes a net profit of about Rs 2 lakh excluding finance costs. An overwhelming part of their business is through 'brokers' and even referral by old customers.

The increased adoption of harvesters is grounded in the cost savings that it facilitates and the speed that it offers. In the past decade, the cost of manual labour has more than doubled while in the more prosperous paddy cultivating areas, it has increased by at least three times. Moreover, labour is not easily available during peak season. It takes about 10-12 labourers working for at least half a day to harvest an acre while the machine it takes one hour.

The total cost of using manual labour for harvesting is Rs 4,000-Rs 5,000 per acre. The problem of mobilising manual labour and its related logistics compounds with the increase in the size of landholding. Hence, a farmer with 5-10 acres of land can complete harvesting in a maximum of one day, unlike in the past when it required at least a week in normal times and longer during peak season. This waiting time increases the cost incurred in mobilising labour with a looming risk of losses that may strike in case of a cyclone.

Net result

Thus, the net result of mechanisation is that the harvesting process is not only cheaper but also faster. In fact, it has helped agriculturalists stay afloat by cutting costs at a time when agriculture is becoming increasingly unremunerative. As a generalisation harvesting and sowing are the most labour intensive parts of cultivation.

Thanks to mechanisation and the concurrent improvement in transportation, communication and banking, it now takes a maximum of 3-5 days to harvest the crop and deliver it to the doorsteps of the buyer in the market. This is in sharp contrast to the past when it took 30-45 days for harvesting, weighing and delivering it to the buyer. Thus, an important economic impact of mechanisation is that it has shortened the agriculture production cycle from the previous 4-5 months to the present 75-80 days.

This in turn has helped speed up almost all those parts that were dependent on agricultural production apart from reducing anxiety about the timely completion of harvesting and freer time at their disposal. This enables them to take up a broad range of activities - from business to more active participation in politics. In many parts, this increased availability of time has served to reinforce the demand for more harvesters as an additional and profitable diversification.

This shortening of the agricultural production cycle along with other changes like spread of banking, technology and 24-hours television has profoundly altered the way people in rural areas live, work and perceive the world around them. There are two other interesting facets to mechanisation: First, rather than leading to increased unemployment in the villages, the increased attraction was a consequence of a shortage of labour and its increasing cost. Migration to towns and increased emphasis on education played an important part in the growing shortages.

Second, adoption of mechanisation often defies conventional economic logic in that the areas which have embraced mechanisation in earnest were not those areas where labour was more expensive but rather those which are considered "backward". In Andhra Pradesh and Telangana, the areas with a large density of harvester ownership are not the coastal parts where labour is expensive and in short supply but rather in the poorer districts like Mahabubnagar where is not uncommon for farmers to own more than one harvester.


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The economics of maternity leave



Source: By Jayachandran: Mint



Parliament more than doubled the extent of paid maternity leave from 12 weeks to 26 weeks, placing India in the league of wealthy Western countries that have some of the most generous benefits for new mothers. In fact, once the amendment to the Maternity Benefit Act, 1961, comes into effect, only Canada and Norway will be ahead of India, with 50 and 44 weeks of paid leave, respectively. This development deserves a cautious welcome.


On the one hand, the many benefits of maternity leave, particularly for the new mother and child, are well documented: data from around the globe shows that access to maternity leave reduces the risk of infant mortality, and improves breastfeeding rates and duration which has a positive bearing on the child’s physical and mental health. Studies also show that adequate maternity leave (of at least 12 weeks) helps prevent postpartum depression and stress in new mothers. On the economic front, there is ample evidence to suggest maternity leave does not hurt businesses and is actually good for the economy—women workers who have access to maternity leave are more likely to return to the workforce, allowing their firms to not just retain but also attract the best talent. Moreover, the cost incurred by employers in the process (reimbursements for temporary replacements or overtime expenses) is considered to be negligible.


On the other hand, however, there have also been instances wherein pro-women, family-oriented policies have backfired. For example, after Chile made it mandatory for companies of a certain size to provide free childcare (India is doing something similar by making it compulsory for companies with either 30 women employees or more than 50 employees to provide access to a crèche) it was found that companies responded by reducing women’s salaries by nine to 20%.


Similarly, when Spain introduced a new law in 1999 allowing all workers with children under 7 to work reduced hours without being fired, it was only women who took the benefit—and soon companies were found to be hiring and promoting fewer women while women of childbearing age were 45% more likely to be fired, according to a study by the IE Business School in Madrid. One way to offset this problem is to offer fathers paternity leave, as well as have the option of parental leave wherein both parents can share an extended leave period—as is already the norm in many developed countries.


Still, it is worth noting that even in the advanced economies of Scandinavia which boast of gender parity in the workforce, it has been found that while expanded parental leave increased women’s participation, much of the increase was in part-time work, as Chinhui Juhn and Kristin McCue note in Specialization Then And Now: Marriage, Children, And The Gender Earnings Gap Across Cohorts. Their results were corroborated in a Cornell study across 22 countries which found that while generous maternity leave ensured that women returned to the labour force, they were more likely to have unstable contract jobs. In fact, Juhn and McCue observe, women in these countries were less likely to be in management and professional occupations than women in the US who only get 12 weeks of unpaid leave—a rarity in the developed world.


So how will this play out in the Indian context? A survey by the Associated Chambers of Commerce and Industry of India last year found that 25% of urban Indian women quit their jobs after having their first child. Extended maternity leave might help change this pattern, but the question to be asked is: will this be enough to bridge India’s appalling gender gap in the workforce? Or could it actually make things worse?


In 2012, which is the most recent data available, only 27% of Indian women worked compared to 55% in OECD countries and 63% in East Asia. This deficit shaves off an estimated 2.5 percentage points from the country’s gross domestic product every year. Worse still, India is one of the few countries where women’s participation in the workforce has actually fallen—the International Labour Organization reported last year that female participation declined from 34.1% in 1999-00 to 27.2% in 2011-12. There is also a stark rural-urban divide: In 1972-73, women comprised 31.8% of all rural workers; in 2011-12, that figure had dropped to 24.8%. For urban workers, the number has increased only marginally, from 13.4% to 14.7% in that same time period.


What explains this poor participation number—that too in spite of high economic growth and rising school enrolment numbers for women? According to the ILO report, a complex interaction of social and economic factors is at play here. For one, an adequate number of jobs which could easily absorb women workers especially in the rural areas were not created. Second, even if there were jobs available, women didn’t always take them up because household incomes were rising anyway and they had no incentive to step out. Add to this the long list of barriers that women face in accessing employment opportunities, such as the risk of exploitation particularly in the informal sector, the lack of wage parity, concerns regarding safety and security, etc., and the paltry numbers begin to make sense.

It also becomes clear that India’s problem is not just about ensuring women return to the workforce after childbirth but in bringing women into the workforce in the first place. Resolving this will require more than just maternity leave—let us keep that in mind as we celebrate our newly acquired progressive credentials.

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Civilization's crisis



Source: By Samantak Das: The Telegraph



Michael Madhusudan Dutt's 1854 pronouncement, in The Anglo- Saxon and the Hindu , " Long before the blind beggar Homer told the tale of ' Troy divine' enchanting the fair land of Greece — bards as sublime, breathing music as sonorous, as dulcet, had built the lofty rhyme in Hindustan!", is an early example of a modern Indian celebrating the glories of ancient Hindustan. More would follow in the years after MMD. Rabindranath Tagore's assertion that the West's only hope of salvation from its habit, " whenever confronted with non- western races in a close contact", to take recourse to " extermination or expulsion by physical force", and European nations' only hope of overcoming their violent tendency to be " perpetually making preparations for deadly combats, wherein entire populations indulge in orgies of wholesale destruction unparalleled in ferocity", lay in learning from India's experience of spiritual accommodation and reconciliation struck a powerful chord when he articulated Vision of India's History in 1923.


Both Madhusudan and Rabindranath were engaging with and trying to make sense of colonization, with the older poet celebrating the arrival of the Anglo- Saxon whose " glorious mission" was " to regenerate, to renovate the Hindu race!" while Rabindranath, typically, was more concerned with providing a salutary corrective to such uncritical celebrations of European puissance. In both instances, even if there are significant differences in temperament and attitude, the seriousness of intellectual engagement with matters of vital social and political import cannot be denied.


Both essays critically analyse the fact and significance of colonial dominance and seek to accommodate the Indian experience within a larger, global perspective. Most importantly perhaps, both are predicated on the belief that the exercise of intellect and reason will be able to throw light on the past, explicate the present and make logical projections into possible futures. Consider, in contrast, what seems to be happening here, now. A prime minister who tells a gathering of scientists and doctors that Karna's birth and Ganesha's elephant- head are instances of ancient Indian expertise in making test tube babies and plastic surgery, respectively, and suggesting that Gandhari's one hundred sons were the products of successful stem- cell research; the education minister of Rajasthan claiming that the " holy" Indian cow both inhales as well as exhales oxygen; a leading ideologue, the prime mover behind the banning of Wendy Doniger's The Hindus: An Alternative History , claiming " whether it be the first spacecraft, television or car, or plastic surgery, or rockets there's nothing that wasn't conceived, designed and executed by Indians aeons ago" ( Dinanath Batra in Outlook , October 6 2014); and an MP and former chief minister who states that the sage, Kanad, had conducted a nuclear test roughly lakhs of years ago.


What binds these later statements and distinguishes them from the pronouncements of Madhusudan and Rabindranath is the barely disguised attempt to 'glorify' India, never mind if such glorification has evoked as much mirth as it has bolstered nationalistic pride. And therein lies the rub. For underpinning such apparently bizarre statements is a certain notion of what constitutes nationalism and, perhaps more crucially, what makes for anti - nationalism, seen as a wholly ' Hindu' figuring of India's past. In this scheme of things, Indian (= Hindu) civilization has been one of unparalleled genius, trampled upon and desecrated by foreign invaders, from the base ( Persian, Arabic) Mussalman to the ignoble ( European) Christian.


For such latter- day chauvinists, it seems to be a truth universally acknowledged that India that is Bharat is the greatest civilization the world has seen, is seeing, or will ever see. Anything the world can do, we can do, and have done, bigger, better, and much before anyone else. Philosophers have only interpreted India in various ways, they say; the point, however, is to reclaim its properly Hindu spirit.


Human social organization, as Sigmund Freud pointed out in his discussion of Civilization and Its Discontents, back in 1930, is a means of repressing our libidinal instincts and controlling our desire for sex and violence for the sake of safety and security. In the eternal struggle between Thanatos, the death- instinct, which Freud saw as hardwired into all human beings as an essential component of the " pleasure principle", and the principle of Eros or love, which gives rise to civilization, there is always the danger that Thanatos will prevail.


This is particularly true in eras of crisis ( such as the one Freud himself was living through), when one is forced to confront the overwhelming question, "[ M] ay we not be justified in reaching the diagnosis that, under the influence of cultural urges, some civilizations, or some epochs of civilization — possibly the whole of mankind — have become ' neurotic'?" One way of escaping from this neurosis is to throw off the shackles of civilization and deny the restrictions that civilization imposes on a human being's instinctual desire for violence and sex. "In fact," Freud tells us, “primitive man was better off in knowing no restrictions of instinct." The neurotic individual seeks a target, a focus, for his unhappiness. Once this source is located, it is a small step to work towards its (preferably violent) destruction.


This, more or less, is what happened to the Jews in Hitler's Germany: unhappy, neurotic Germans found the "septic focus" for their unhappiness in the figure of the greedy, unclean Jew, posited the uncontaminated “pure, Aryan" German as counterpoint and well, one need not dwell on what happened next. But this, alas, is what seems to be happening in India now.


Our neurotic civilization — the child of a global system that thrives on insecurity and fear— has seen the rise of the strong, nationalistic leader in country after country across the world. As the intermeshing and interconnectedness of the global economy, of manufacturing processes and intellectual property rights, grow, one sees the rise of leaders who prey upon these neurotic fears and offer the pabulum of national grandeur and virulent anti-' foreigner' rhetoric to win friends and influence voters from among the increasingly impoverished and increasingly neurotic masses.

When, at one end of the spectrum, a respected doctor who one went to school with declares, in all seriousness, " Not all Muslims are terrorists, but all terrorists are Muslims," and, on the other end, the chairperson of the Indian Council of Historical Research claims that the iconic ' Dancing Girl' figurine from Harappa is none other than the Hindu goddess, Parvati, one can perceive the forces of distrust, suspicion, hatred, xenophobia and unreason slowly but surely taking root. The same man who wrote of the unparalleled ferocity of Western nations, and whose last public talk was called "Civilization's Crisis ( Sabhyatar Sankat )", nevertheless, warned that to lose faith in humanity was a sin. I wonder, had he been alive, what he would have said now.

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Finances of the Nation ~ II



Source: By Shantanu Basu: The Statesman



The political reluctance in matters of taxation and enforcement is pronounced. Governments lose several thousand crore each year owing to collusion between revenue officers and assessees. There is very limited reconciliation of revenues between revenue collection agencies, their accounts officers and receiving banks. CAG’s customs audit report for 2015-16 reports that 89 indirect tax commissionerates shows gross amount of Rs.6.20 lakh crore as unreconciled.


Even if a single per cent of revenue were not paid at all or was showed as having been paid (using forged bank stamps and pay-in forms), this would amount to a whopping Rs.6200 crore, enough for about 2.43 lakh jobs paying Rs 20000 per month and bringing 4-5 times that many people well above the poverty line. Owing to the cash basis of government accounting, the quantum of revenue lost by lack of enforcement owing to their own ranks never figures in the annual accounts. As if this were not enough, extortion at toll gates takes its own toll as legitimate revenues of the state are converted into private wealth and then applied to various purposes, mostly illicit. Tax demand notices likewise are often inspired and adjudication often ends up costing more than the settlement terms. All this while governments live off borrowed moneys.


While low global oil, commodity and shipping prices allowed the Government of India the luxury of raising central excise on imported oil, 2016-17 and onwards is seeing a rise to $60 dollar/barrel levels. This would invariably reduce the Government’s fund-raising capacity. Cesses are not ad hoc substitutes for revenue collection by manufacturing that shows few discernible signs of revival.


Cesses collected over the years that ought to run into several lakh crore, notably on education, are nowhere manifest in our educational institutions while state spending steadily declines in this sector, as in many others. Governments in India no longer have the financial muscle to enhance spending much more nor incentivise consumer spending by tax rebates notwithstanding political grandstanding. What then of alternative financing from India’s financial institutions (FI)?


Defaulted dues are of broad types ~ non-performing assets (NPAs) and restructured debts (CDRs). When a loanee fails to pay back principal and interest when instalments are due, nor is there any prospect of their business being revived by FI intervention, it is declared an NPA. On the other hand, CDRs are attempted bailouts by loaning FIs by extension of time (e.g. owing to adverse business scenario, sudden change in state policies, etc.), conversion of debt into equity or by management participation of the loanee entity.


Over the years, PSBs have suppressed their actual NPAs by the subterfuge of sanctioning many more loans than those defaulted. CDRs partly supplemented PSB efforts by staggering declaration of NPAs in misrepresentative but audited PSB balance sheets. GNPAs of PSBs in the last five fiscals rose three-fold. As of December 31, 2016, of every Rs 100 loaned by PSBs, Rs 11 is in default. These figures do not include NPAs en route in the form of CDRs that may multiply this figure alarmingly given the steadily worsening domestic and global economic scenario.


Recently, a former Deputy Governor of the RBI, Dr KC Chakrabarty, estimated that NPAs, as on date, were about Rs.20 lakh crore. Obviously, this figure could stretch into an unknown abyss and did not include historical loan waivers over the last 2-3 decades. Some PSBs like IOB and UCO Bank have GNPA in the range of 17-23 per cent. For IOB, gross bad loans are more than 2.5 times its net worth; both UCO Bank and United Bank of India have eroded their net worth by at least double while IDBI Bank is 1.3 times negative in its net worth.


These worrisome figures do not include loans given to projects where the dates of commencement of commercial operations had passed, but the projects had failed to take off, presumably mostly in the infrastructure and telecom sectors. At the same time, international conventions demand a minimum percentage of liquidity that banks must maintain viz. Basel-III. Although PSBs currently comply with these norms, a rapid rise in NPAs in the coming months, matched by poor recovery record, could cause them to fall below these stipulations.


The Indradhanush plan of the Department of Financial Services, Ministry of Finance of August 14, 2015, estimated the extra capital requirement up to 2019-20 at about Rs 1.80 lakh crore. This estimate was based on credit growth rate of 12 per cent for the current year and 12 to 15 per cent for the next three years depending on the size of the bank and their growth ability. It was also presumed that the emphasis on PSBs financing would reduce over the years by development of vibrant corporate debt market and by greater participation of private sector banks.


Accordingly, budget provision of Rs 25000 crore each in 2015-16 and 2016-17 and Rs 10000 crore each in 2017-18 and 2018-19 was proposed in Budget 2016-17. Owing to revenue shortfalls and rising revenue expenditure, the full amount has not been paid in most fiscal years. This tendency would only be exacerbated in 2017-18 and onwards. Obviously, such ad hoc allocations for recapping PSBs take away development funds from the public exchequer and are not a sustainable solution. Further, ever-rising NPAs cast a shadow on the Department of Financial Services’ estimates of Rs 1.80 lakh crore required for recapping PSBs.


At the same time, Budget 2017-18 proposed the creation of a Distressed Assets Agency (DAA) to which distressed loans of PSBs would be transferred and that would look for buyers for them. Although the fine print on financial arrangements for DAA is not yet in the public domain, there are grave doubts about the Government of India’s ability to bankroll the share capital for such an entity.


It bears recall that the collapse of Lehmann Brothers in 2008-09 in the US was rooted in its taking over distressed housing assets from Wall Street banks and then not being able to sell them, although pay-outs for such takeovers were met by Wall Street banks, acting individually or in consortium mode. A similar situation could happen if, for instance, builders were to attempt to sell apartments and commercial buildings in the ghost towns on the Greater Noida Expressway since the sale value would be appreciably lower (maybe 40-60 per cent) than what is owed to financing agencies, a very likely event.


Even if they refinanced their defaulted loans with fresh lower-interest ones from PSBs (after recent interest rate cuts), no real accretion to infrastructure development would occur while the option of further default remains omnipresent. PSBs, now increasingly, under close watch of vigilance and investigative agencies, are also loath to loan further funds.


With such huge pressure building on it, the Government of India is left with very few options. Accordingly, over the last year or so, relatively healthy CPSUs are mandated to return a minimum 30 per cent of their net profits to the Government as dividend. With looming wage revisions, many CPSUs that are holding companies are now resorting to milking their subsidiaries for their cash balance to pay off dividend.


For others whose profits are recession-hit or minimal, the choice is to dip into their reserves. Recently, the Ministry of Railways reportedly protested to the Finance Ministry against the latter’s demand for transfer of Rs 850 crore dividend earned by 14 Railway CPSUs after the merger of the Rail and General Budgets in 2017-18, stating that such transfer would only add to the shortfall in railway earnings.


Compounding these is RBI’s recent decision to cut back its dividend to 12 per cent in order to absorb costs of printing new post-demonetisation currency. The Government, mainly via its FIs, also owns large chunks of shares of the private corporate sector. Companies/FIs like ITC (34.43 per cent), ACC (14.66 per cent), Axis Bank, L&T (45 per cent), Bharti Airtel, Gammon India (63.4 per cent), Monnet Ispat (50.14 per cent) and Tata Steel (19.66 per cent) have several lakh crore rupees of government investment in them.


Faced with an unenviable situation, the government has now started divesting part of such holdings, some in the open market, and the rest being picked up by state FIs such as LIC. Many relatively healthy CPSUs have also been coaxed in the past year into buying back government shares that have reduced their liquidity further, at least till their next IPO. Given the less than average performance of the stock market, offloading shares of CPSUs is unlikely to garner huge resources, even when the government has recently listed its four general insurance companies.


With President Trump promising large public-private sector investments in America’s crumbling infrastructure, interest rates would invariably rise and cause FDI to flow back from India to the safer confines of the US that may depress Indian bourses even more, and, with it CPSU divestment offerings. The layman understands that unless consumer incomes rise (with employment), demand will remain depressed.

In turn, this will depress manufacturing and along with it, supporting services. Momentary spikes in GDP from increased revenue collection owing to extraneous reasons are not much cause for optimism. A stasis has emerged in which all expecting fingers are pointed towards governments that do not have large-scale spending wherewithal any longer and must rely on increased borrowing. Stop-gap measures like the ones stated in the preceding two paragraphs eat into the nation’s cash reserves, particularly when ploughed into revenue expenditure and uncertain public projects. The Union Finance Minister’s job has never been as unenviable, not even in 1989-90.

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Finances of the Nation ~ I



Source: By Shantanu Basu: The Statesman



The rapidly growing indebtedness of governments and mounting non-performing assets of banks, mostly in the public sector, both of which strike at the heart of financial administration and include our legitimate personal finances as well, are of the highest concern. In seven successive fiscals till 2014-15, governments, state and central, cumulatively expended Rs.1.72 lakh crore while earning revenues of Rs.1.23 lakh crore, leaving a revenue deficit of Rs.0.49 lakh crore, i.e. 40 per cent of gross revenues on an average each year. While expenditure grew, only in absolute terms, by a factor of 2.33, revenues increased by a factor of 2.54. Yet the revenue deficit multiplied by a factor of 1.87.


Why did this paradox arise? The inflation rate in India averaged 7.38 per cent in 2012-16, reaching an all-time high of 12.17 per cent in November 2013 and a record low of 3.27 per cent in November 2014. This had an invariable effect on government spending. Although revenues rose by an average of about 25 per cent each in seven fiscals and in absolute terms, yet relatively high inflation and rampant waste and leakages massively reduced the value of every rupee the governments earned and spent. Social and community services accounted for about Rs.2.88 lakh crore or approximately Rs.2400 per head of India’s 1.20 billion populations in 2007-08.


Reduced to 1990-91 prices, the real annual expenditure declines to about Rs.1.34 lakh crore or Rs.1160 per head or Rs.3 per day. If this were further conservatively reduced by 35 per cent for leakage and wastage and 8 per cent to a conservative inflation rate, the per capita development expenditure outlay collapses to barely Rs.661 per annum or a ludicrous Rs.2 per day. Today when lentils retail for over Rs.100 or sugar at Rs.50 a kilogram, the cost of government is almost the same as that of governance (development). Therefore, it is not as if there was any dramatic rise in government revenues and spending over the last several decades, notwithstanding substantial media publicity.


Today, the Indian rupee is worth less than a third of what it was in 1947 at a simple compounded average of 3 per cent per annum. Historically, governments have tried to make their ends meet via generation of internal revenue and resorted to deficit financing by market loans, small savings, provident funds, special treasury bills, overseas multilateral and bilateral borrowings, etc. All these instruments carry rates of interest that vary from 5-11 per cent per annum that must be mandatorily discharged. Non-tax revenues such as dividends and share of profits of state-owned utilities and companies have not risen commensurate with the giant cumulative state investment in them. Forty-seven CPSUs accounted for about 13.50 per cent of total market capitalisation as on January 31, 2017.


Not surprisingly, the capital-intensive monopolistic ONGC’s BSE share price at Rs.202.15 compared unfavourably with ITC’s Rs.258.05 and Infosys’ at Rs.929.30 per share. Likewise, SBI’s Rs.260 share compares unfavourably with HDFC Bank’s Rs.1,286.95, on the same date. A few CPSUs & PSBs turned in profits that were rooted in monopolistic control of the market, e.g. petroleum and telecom. Most others lived off grants and unending loans from the public exchequer with many having eaten away their net worth several times over. Of course, such non-performance and habitual indebtedness was not entirely the making of an entity’s management, rather imposed upon them partly by successive governments and dynamics of the economic environment. Yet the professional stewardship of these entities has seldom been questioned.


Simultaneously, whatever revenues were raised, lost a significant portion to sustaining unsustainable PSUs/autonomous bodies, foundation-stone projects by the thousands, unremunerative politically-motivated projects, write-down/waiver of loans advanced to various entities, rampant delays in completion of public projects, private and public and a giveaway culture of subsidies without much accountability.


Rising indebtedness has therefore not translated, into the extent of on-ground development that should have happened. Today the public exchequer is caught in a giant cleft, viz. the huge demands of development versus availability of public finance, with the gap substantially widening every year and causing an almost unbridgeable chasm to emerge in popular demand and their realisation. In 2014-15, the revenue deficit of the Government of India was Rs 8.85 lakh crore. To cover this deficit, the Government resorted to market borrowings of Rs 6.82 lakh crore. As on January 1, 2016, the public debt of the Government stood at a whopping Rs 64.95 lakh crore.


The states accounted for another Rs 143.23 lakh crore making a total of about Rs 208 lakh crore. At a conservative 7 per cent interest rate and assuming 50 per cent retired debt reduced by the amount of state government debt annually, this could translate to a crippling Rs 8-10 lakh crore in 2017-18 and eat away 40-42 per cent of the total expenditure budget of all governments, provided states succeed in retiring 50 per cent of their previous debts during the year. In addition, 30 per cent of all non-development expenditure goes into salaries, establishment and pensions.


However, there is a caveat here. There are several lakh personnel ~ regular, casual, temporary and contract ~ whose salaries and establishment costs are met from development budget allocations like the cost of a field agricultural extension officer, his staff vehicle, assistants, office expenses, mobile labs and computers, etc. In effect, interest, personnel and establishment costs alone account for 80-85 per cent of the full budget of the Centre, leaving a paltry 15-20 per cent for development on the ground. Leakages such as the recent fraud in Assam of Rs 2250 crore on nearly 150 ghost Anganwadis (creches) that were fraudulently funded for Rs 250 crore/annum for close to a decade, plague agriculture, energy, public health, medical services and irrigation, reducing the money value of limited finances of governments further and reducing development to fodder for electoral campaigns alone.


Where such borrowing and expenditure cause appreciable rise in GDP and capital formation (hence income levels), budget deficits are seemingly justified even with relatively high inflation at the initial stages, such as in Japan that reported an estimated 7.01 per cent deficit in 2016. Attempts to peg the deficit artificially to low levels in a bid to curb inflation, is likely to damage capital formation, as little else changes in the pattern of non-development (revenue) expenditure, and low rise or even fall in GDP and capital formation could happen. This also often leads to camouflaging non-developmental expenditure in the development category.


In the end, governments that borrow but disproportionately devote such funds to revenue expenditure that have no return on investment, often run up high levels of debt. Owing to excessive revenue expenditure, borrowing for capital items like roads, bridges, etc., becomes inevitable. Every day of delay in commissioning projects runs a high potential of driving governments to unsustainable indebtedness and default, as happened in Greece.


Unfortunately, India is gradually progressing into a cusp of indebtedness that hovered around the 50 per cent of the GDP barrier in 2015-16. However, rising market borrowing, a large part of which is diverted to revenue expenditure could adversely raise this ratio in the next 5-10 years to unsustainable levels. Media reports show that the default on commercial borrowings by the infrastructure sector is alarming. While lenders are reluctant to lend, rising investigations and raids may be additional dampeners. What is worse is that cash surpluses available with the private sector are not forthcoming owing to uncertainties in acquisition of land, revenue sharing and tolls, etc. In 2007, the India Infrastructure Report stated that the country required about $320 billion in 2007-12 to repair and add to its physical infrastructure.


Similar moneys were required for capacity enhancement of the energy sector to meet a 55 billion unit energy shortage in 2006-07. Therefore, such brakes as the 3 per cent deficit of GDP in Fiscal Responsibility & Budget Management Acts may prove counterproductive unless sustainable and credible restrictive corresponding steps are taken to curb government spending on its establishment and personnel. Rampant leakages must also be curbed. In 2014-15, there was a divestment bonanza that reduced market borrowings by governments by only about 6 per cent. Although the lease of spectrum garnered about Rs 50000 crore plus some more in coal mine auctions, the revenues on these accounts were not substantial to appreciably reduce market borrowings.


The single major reason is that licence fees become payable in specified percentages every year over the long-term lease period (10-30 years) that does not make much major positive impact in annual budgets that run into several lakh crore rupees each year. The overweening obsession for revenue generation, post-2G CAG telecom report, has caused spectrum leases and FM radio licences to net just about 10 per cent of the estimated amount, leaving a gaping hole of about Rs.6.50 lakh crore in the Government of India’s budget estimates.

The 300 per cent explosion in splitting Ministries/Departments since 1947 has not caused much appreciable improvement in governance and accountability either. Instead, it has diffused responsibility considerably and slowed down decision-making. Unending command, control and coordination chains have also had the undesired effect of enhancing rent-seeking across levels, apart from rampant delays. Costs of administration have thus hardly kept pace with revenues. Even assuming that Rs.6.50 lakh crore were obtained, how much would have gone to sustainable development remains debatable.

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The choppy Indus

Source: By Salman Haidar: The Statesman

The Indus Waters Treaty (IWT) of 1960 is an important landmark in the bilateral affairs of India and Pakistan. When the country was divided in 1947 no issue seemed more likely to lead to violent conflict than the sharing of the waters of the Indus and its tributaries. For each of the two new countries, the Punjab, already torn and devastated, was the crucial breadbasket, source of food security and repository of hopes for the future, and neither felt it could afford to lose any part of the water supply from the elaborate modern irrigation system of the Indus that had brought prosperity to the expanses of the north Indian plains.

But the terms of Partition took little account of this requirement; the boundary line bequeathed by the British made an impossible tangle of the irrigation system of Punjab, with the head works often located in India while the canals were downstream in Pakistan. In the seriously disturbed conditions of the time it was feared that unresolved claims on the waters could drive the two countries to war. In the event, these apprehensions proved unfounded but in the charged situation of the time there was real fear that the issue could spin out of control, which brought the two countries to make a serious effort to come to agreement so as to head off risk of conflict.

The IWT needs to be seen against this background as something more than a water-sharing arrangement, for it has features of a basic agreement aimed at preserving the peace. The gravity and complexity of the issues is such that negotiating the IWT was a long-drawn and immensely complicated process. Apart from the sustained effort of the two principals, it also needed the good offices of the World Bank to bring it to a conclusion, both as a facilitator and as a source of funding for dams and other structures that neither of the countries at that stage could readily provide on their own.

To ensure that the agreement would function as envisaged, and that there was no tampering with the agreed arrangements, a bilateral Commission was established to meet regularly and keep a watchful eye on Treaty implementation. It was also decided that in the event of the two countries failing to agree among themselves, neutral experts acceptable to both sides would be appointed to go into the issues, and, eventually, should the need arise, for third party arbitration to decide on conflicting demands and claims. Thus implementation of the IWT is backed by groups of experts who can help maintain agreed procedures and resolve problems of implementation.

Since 1960 when the IWT came into operation, the regular consultation process mandated by the treaty has been maintained, not always smoothly or without dispute, but without any threatening disruption. With this, the IWT has survived decades of the troubled relations between India and Pakistan because both countries continue to find value in what it provides, and also because from the start it has been strongly backed by the World Bank. Meetings of the Commission have helped resolve many complex technical differences that could have threatened the IWT if left to themselves. As the lower riparian, Pakistan has always been very alert to anything that can look like denial by India of its proper downstream share of the water, and from time to time it has indulged in allegations of large-scale diversions by India. However, such suspicions have only reflected the general mistrust that affects bilateral ties and were unsupported by evidence, for it is obvious that engineering works for diversion structures cannot be constructed by stealth or be concealed from view.

Another supposed infringement by India that figured at one stage in Pakistan’s complaints arose from what were believed to be the military implications of India’s upstream projects. At least two of them, respectively on the Jhelum in Kashmir and Baglihar in Jammu, were held up because military strategists in Rawalpindi feared the storages could be manipulated to cause floods to gain tactical advantage in the event of Indo-Pak hostilities ~ the fears were always fanciful and had no tangible basis but give an idea of some of the hidden fears that may lie within the IWT.

The main challenge to the IWT, now as in the past, is not to be found in its intrinsic complexity so much as in the uncertain relations between India and Pakistan. As has been seen time and again, a downturn in bilateral relations can lead to demands to re-examine the relevance of the IWT, with it being argued that there is no benefit in continuing to remain engaged at times when India is being targeted by terrorists succoured from across the border.

Some considerations of this nature seem to have led India to suspend its participation in the IWT Commission after the Uri attacks last September. Though India did not rescind its commitment to the IWT, it showed its unwillingness to maintain even minimum relations owing to these cross border attacks. Thereafter For some months implementation of IWT was suspended but now it seems the World Bank has been active in persuading the two sides to resume engagement and a meeting of the Commission is imminent. This is to be welcomed for the complicated issues of the IWT require attention if they are not to fester and lead to further complications.

It is not the standoff in the IWT alone that could be affected by the limited resumption of contact now planned, and India’s decision to attend the Lahore meeting can perhaps become a small step towards restoring a measure of normality in overall ties. Dialogue between the two countries has been in suspension but maybe some signs of easing are to be discerned, as in India’s readiness to acquiesce in the appointment of a Pakistani Secretary-General to head the SAARC Secretariat.

This is not the first time that India has given its support to a Pakistani candidate, and SAARC has always sought to diversify its Secretariat by making room for all member states. Whatever may be its reservations about Pakistan’s role in South Asia; India has been supportive of SAARC and has tried to enhance its effectiveness by giving it more room for initiative, especially at the level of the Secretariat, so that it can hold its own in a diverse and fast changing world.

Bilateral differences within SAARC have thus not been permitted to stand in the way of what can benefit the organization as a whole. The Indian decision to join the consensus in favour of the Pakistani candidate as SG of SAARC can be a small chink to encourage better cooperation in the region and perhaps even help restore some of the presently moribund ties.

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Educating the educator

Source: By Avijit Pathak: Deccan Herald

Lately I got an opportunity to interact with a vibrant group of teacher educators; and one of their primary concerns was how to alter gender stereotypes, and make school education more sensitive to a refined practice of culture and socialisation.

Possibly, the growing violence against women (the images of the Bengaluru incident are still haunting us), the objectification of female sexuality, and the legitimisation of dowry (the recent illustration is a pathological school text in Maharashtra) cause acute anxiety; and sensitive educators feel the need for a new culture of gender sensitive learning.

However, this is possible only when we are willing to accept that education is not merely about passing examinations and becoming 'successful' in life; its goal is not to reproduce the existing structure, but to alter it and create a new mode of critical thinking and creative practice. It is in this context that I wish to emphasise on the three desirable qualities that young learners, irrespective of biological differences, ought to cultivate to create a gender sensitive/compassionate society.

First, reflect on the ethic of care. This means that we learn about the world and relate to it through love, empathy and extraordinary care. The pursuit of knowledge is driven by an urge that unites reason and love, critical enquiry and empathic understanding. This leads to the transformation of the inner being of the learner. From a hyper-competitive/aggressive/utilitarian being she/he is transformed into a caring person.

Second, think of self-reflexivity. It is important to know oneself, get adequate contemplative moments to understand one's inner world, and acquire the courage to hear and pursue what the inner voice dictates. With this calling one finds one's vocation. If it is encouraged, one can resist the temptation of following the mob mentality, and gain clarity to see beyond the societal pressure and hypnotising mass culture, and realise one's spiritual autonomy. And third, imagine the beauty of a non-hierarchical consciousness.

This is the capacity to embrace differences without hierarchising. There are diverse cultures- a spectrum of occupations, wide range of aptitudes and skills. This variation enhances the beauty of the world. But when we hierarchise, and begin to say that my language is superior to that of others, my occupation is more challenging than yours, or my intellectual capability is 'pure' and your manual labour is 'polluted', I cause violence, and strengthen caste/class/gender hierarchies. Instead, a non-hierarchical consciousness is inherently inclusive, pluralist and compassionate.

The problem is that gender stereotypes and ideologies which children often inherit from the larger society go against these three core qualities. Take, for instance, patriarchy as a social institution or structure of consciousness. It doesn't understand the ethic of care because it is based on asymmetrical power-the power that controls women, brutalises men, and negates the possibility of a relationship based on trust, care, comradeship and love.

It hierarchises consciousness, spheres of work and activities. For instance, it is thought that for a boy it is not normal to learn Bharatanatyam dance, while there is no problem in becoming a boxer. Or a male chef working in a hotel is doing real 'work', whereas a mother in her kitchen is not a 'working' woman. In other words, patriarchy divides the world - to be hard, competitive, aggressive and professional is to be 'masculine' and superior; and to be tender, poetic and caring is to be 'feminine', and it is not so important in the practical sphere of 'hard' work!

Patriarchy redefined

In our times, we see the alliance of patriarchy and the growing market-media induced culture of consumption. In fact, patriarchy is redefined; it becomes rather sleek and colourful. It reduces us into captive consumers of products and packages of 'success', 'beauty' and 'vitality.' Men have to earn more, make women 'contented' with material comforts, gifts (recall some of the ads of diamond jewelleries) and mythologies of 'happy life'.

And women, despite their education and outward mobility, have to orient themselves as good looking, glamorous, smart bahus (see the popularisation of television soap operas of the Ekta Kapoor variety) or ornamental companions of men. Not solely that. With its implicit commodification, it transforms sexuality - particularly female sexuality - into objects of greed. The result is the negation of the ethic of care, non-hierarchical consciousness and self-reflexivity.

Instead, it leads to a broken relationship - achievement-oriented men patronising women; or women are seen as attractive dolls (the Barbie doll syndrome is the symptom of the age) without soul, intelligence and autonomy. Simone de Beauvoir's 'second sex' remains subdued in a world that normalises 'masculine heroism' consuming 'feminine passivity'.

At this juncture, I wish to ask the moot question before young teachers and educators: can we take a step forward, despite all these difficulties and obstacles? This demands that as educators we have to educate ourselves and critically examine the prejudices and stereotypes we have internalised. This means our willingness to critique the culture of patriarchy, and redefine schools as a new possibility for an alternative practice of culture and socialisation through innovative curriculum, critical pedagogy and reflexive practices leading to the formation of an integrated personality guided by the ethic of care, self-reflexivity and non-hierarchical consciousness.

And I would argue that this is a move towards androgyny as a state of consciousness which, despite biological differences, transcends the duality of 'masculine' and 'feminine', and strives for a set of shared human traits that unite reason and emotion, outer and inner, and courage and compassion. Is it possible for our schools to encourage a boy to learn the art of cooking, the aesthetics of dance and the practice of nursing? Or, for that matter, is it possible to encourage a girl to climb a tree, repair electric fans and lead the school team? I want my readers to think.

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The Growth forecast
Source: By M Govinda Rao: The Financial Express

The growth estimates put out by the Central Statistical Organisation (CSO) in the Second Advance Estimates of National Income for the year and the third quarter estimates have raised many eyebrows. As against the Bloomberg consensus estimate of 6.1% for the quarter, the CSO’s estimate shows the growth of 7%. The second advance estimate of GDP for FY17 is 7.1%, which takes account of the effect of the note-ban, and is exactly identical to the first estimate.

In fact, both the Reserve Bank of India as well as the Economic Survey put out by the Union ministry of finance have admitted to the fact that the note-ban would have adverse impact on growth and the latter speculates the reduction in the growth by 0.25-0.5%. The growth estimate remaining unchanged at 7.1% in the second advance estimate has led some to erroneously conclude that demonetisation has not had any significant impact on the growth rate while others have raised suspicions on the estimate itself.

The fact is that there has been an effect and this is revealed by the analysis of growth composition of different sectors. Besides, as stated by the chief statistician, TCA Anant, the impact of the note-ban is yet to play out completely. Thus, there is no need either to be jubilant about the note-ban nor is there any case for stating, “Lies, damn lies and statistics!”

From the policy perspective, it is important to note that the growth rate of GDP in the current year has decelerated significantly over the previous year from 7.9% to 7.1%. The deceleration in the gross value added (GVA), which is the real measure of economic activity, has been much sharper, from 7.8% to 6.7%. Except for agriculture and public administration, the growth rate was either stagnant or declined by various magnitudes in other sectors. In agriculture, thanks to the bountiful monsoon, the growth is estimated to have accelerated from 0.8% in FY16 to 4.4% in the current year, and in public administration, thanks to the pay revision, the growth rate increased from 6.9% to 11.2%. The sharpest decline in the growth was in mining (from 12.3% to 1.3%), financial and real estate sector (from 10.8% to 6.5%) and manufacturing (from 10.6% to 7.7%).

More importantly, the gross domestic capital formation (GDCF) has shown a steady decline from 29.2% to 26.9% (in current prices). This is really a matter of concern as the estimate is the lowest in the last 15 years. Sustained acceleration in growth rate is possible only when the investment climate improves and that underlines the urgency in solving the twin balance sheet problem. The third quarter estimate of growth for FY17 at 7% as against the Bloomberg consensus estimate of 6.1% has raised many eyebrows.

The estimate of growth in private consumption at 11.1% in the third quarter over the previous one has only added to the confusion. While some have questioned the legitimacy of estimates, others have argued that the note-ban had no impact on economic activity! A close scrutiny of the estimate shows that the conclusion that the note-ban has had no impact on economic activity would be erroneous. There are a number of reasons for this.

First, the note-ban affected only the latter part of the quarter and its effect is not confined to the quarter alone. We will have to see how the economy fares in the next quarter as well. Second, much of the impact of the note-ban has been on the informal sector and small and medium industries. The data set from ministry of corporate affairs and the Index of Industrial Production (IIP) on which manufacturing GDP estimate is based mainly captures the trend in the formal sector and the informal sector numbers are projected based on these.

It is only when more detailed information on them comes in will we get a better picture. It must be stated that the GDP estimates undergo revisions for almost two years. Third, the impact of the note-ban cannot be assessed on the basis of simple trends. That can be assessed only in counter-factual terms, i.e., what would have been the growth in the absence of the note-ban. In other words, in the absence of the note-ban, the growth rate in some of the sectors could have been higher if there was no demonetisation. Even so, the financial and real estate sector grew at only 3.1% in the third quarter, as against 7.6% in the previous, and similarly, the construction sector grew at 2.7% as against 3.4% in the previous quarter. In fact, the high growth was mainly on account of agricultural sector which is estimated to register 6% growth in the quarter as against 3.8% in the previous quarter and -2.2% in the third quarter of the previous year.

Another sector which showed a sharp surge in growth is mining, which accelerated to 7.5% in the third quarter as against -1.3% in the previous. Similarly, the note-ban has nothing to do with the acceleration in the growth of manufacturing (from 6.9% to 8.3%) or public administration (from 11% to 11.9%). Despite this, as mentioned earlier, the GVA according to the second advance estimate for FY17 at 6.7% is lower than the first advance estimate put out in early January (7%). A careful analysis of the growth trends, excluding agriculture and public administration, shows that the economy actually slowed down from 6.9% in the first half of the year to 5.8% in the third quarter, which gives sufficient evidence of the adverse impact. This is clearly more than one percentage point slowdown even when the demonetisation impacted only in the second half of the quarter. Indeed, as mentioned above, the full impact of the measure will be known only when the revised estimates come in.

The simple point is that the economy was already slowing down on account of the poor investment climate, and demonetisation compounded the problem. While the disruption caused by demonetisation will be overcome with passage of time as the economy gets remonetised, the government will have to address the poor investment climate in the country to arrest declining investments and credit off-take. Hopefully, action on this front will happen soon.

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