Why Nyuntam Aay Yojana won’t end poverty

Source: By Manish Sabharwal: The Economic Times

The 1971 surrender by Lieutenant General AAK Niazi in Bangladesh with 93,000 soldiers is a perennial source of Pakistani shame. But history is kinder to General Niazi’s legacy; he was cut off from his army, his troops were low on rations, the local population was hostile, and he presided over East Pakistan for only two days. In other words, he faced an impossible situation. But ending India’s poverty is hardly an impossible situation and the “surrender” to income without work of the NYAY scheme is an inferior bet to fixing our infrastructure of opportunity.

Why is India poor? Despite completing the more difficult project of creating the world’s largest democracy on the infertile soil of the world’s most hierarchical society, why haven’t we created the world’s largest economy? It surely wasn’t God’s will that it should take 72 years for 1.3 billion Indians to cross the GDP of 66 million Britishers.

Cultural explanations are weak; the so called Hindu rate of growth of 2% increased to 7% after 1991. India still has poverty because the brilliant politics after 1947 was coupled with nutty economics that sabotaged competition, entrepreneurship and productivity.

Too many Indians work in low productivity geographies (Karnataka has the same GDP as UP with a third of the people), low-productivity sectors (50% of our labour force in agriculture only produces 14% of our GDP, while IT employs 0.7% of our labour force and produces 8% of GDP), low-productivity firms (our 63 million enterprises only translate to 19,500 companies with a paid-up capital of Rs 10 crore) and low productivity skills (this year the bottom 10% of engineers will make less salaries than the top 10% ITI graduates).

Income guarantee proponents suggest Scandinavian social democracies as inspiration but forget that the World Bank Ease of Doing Business scale ranks Denmark 3rd, Norway 7th and Sweden 12th of 190 countries. Their dense social security nets are underwritten by remarkably free economies compared to India’s regulatory cholesterol universe; 60,000+ compliance rules, 3,600+ filings, and 5,000+ changes every year. This cholesterol is partly responsible for our agrarian distress; the only way to help farmers is to have less of them. But migration has been blunted by low formality.

Income guarantees may be interesting and viable for rich countries trying to prevent people from falling into poverty but are hardly an idea whose time has come for countries trying to pull people out of poverty. We are far from the productivity frontier, short on resources, and don’t have to be Western to be modern.

Jawaharlal Nehru said in 1955: “We cannot have a welfare state unless our national income goes up. India has no existing wealth for you to divide; there is only poverty to divide. Our economic policy must, therefore, aim at plenty.” I think he’d agree that India still can’t afford Rs 4 lakh crore plus for income without work without touching current subsidies of Rs 4 lakh crore, exploding inflation or raising income taxes.

Poverty is not like cancer where every malignant cell must be removed or will come back. Instead, poverty is like being overweight or obese. The fight is hard and slow; victories are partial, sometimes you regress. But keeping up the fight by all methods can mitigate obesity. Eventually, diet and exercise will become a way of life and a healthier body will yield tangible benefits.

For an economy this involves fixing the infrastructure of opportunity that breeds productivity; low inflation, low regulatory cholesterol, more formal enterprises, more taxpayers, good urbanisation, faster bankruptcy, higher manufacturing employment, decentralisation, payment digitisation, higher credit to GDP ratio, reliable infrastructure, better government schools, vocationalised higher education, more apprenticeships, labour reform, efficient employment exchanges, and civil service reform. The role of the government is not setting things on fire but creating the conditions for spontaneous combustion.

Indians know they get more from work than income; self-esteem, confidence, identity, and soft skills. In fact, the promise of income without work represents a panicked pessimism about India, her people and their will that is inconsistent with Tagore’s dream of a country where the mind is without fear and the head is held high.

Pessimists get more attention because they sound like they are trying to protect you, while optimists sound like we are trying to sell you something. The day I landed in the US for my MBA in 1994 there was a front page article in the Wall Street Journal that said India is more interesting than important. I hope that journalist is eating the newspaper on which she wrote it; India has been the world’s best performing stock market in dollar terms for the last 25 years.

Stock markets have challenges but they do value the future over the past; they expect us to continue being the fastest growing economy. The world realises that what is happening to India’s productivity is not once in a decade, or once a millennium, but once in the lifetime of a country. The Indian economy will soon be larger than that of France, Germany and Japan. Persisting with fixing our infrastructure of opportunity is a better bet than the surrender of income without work.

 

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Science and faith

Source: By Manu Joseph: Mint       

I used to think that no one really believes in God because if people did, as they claimed, wouldn’t they be in a perpetual stupor, stunned by the existence of such a magical force? However, I don’t hold that view anymore after observing how people have responded to recent claims of extraordinary scientific discoveries that are almost as mystical as God and more photogenic. People marvel at the announcement for a few minutes, believe it completely and then they go back to hating or loving Kanhaiya Kumar.

Why don’t people faint and the traffic stop when scientists announce that they have proof that gravity alters time, that they now know where mass comes from, or that they have conclusive evidence of the existence of black holes—objects so dense that a whole star is compressed into a blob just a few hundred metres across and where the gravitational force is so strong nothing will ever escape it, not even light?

The last pronouncement, about visual evidence of the black hole phenomenon, occurred on 10 April 2019. A black hole is now a scientific truth because of three main reasons: One, people with great authority, who have monopoly over a narrow field of study, have said so after an arcane process that is widely believed to be very rigorous; two, other people like them have endorsed it; three, most people in the world, including scientists in other fields, do not have enough information to challenge the assertion. Also, the kind of people, such as journalists, writers and politicians, who usually seed doubt in the minds of people even in areas like genetics and climate do not believe they can challenge scientists on theoretical physics.

Theoretical physics thus also demonstrates qualities of medieval religion. In a world where everything has become political and every claim is questioned, many branches of science have not survived. But theoretical physics leaps from claim to claim with the ease of an ancient religion at its peak.

What I enjoy the most about science as a lay person is that it is a simulation of religion for me. I have no choice but to accept what is told to me by an authority that has the right halo. In every other sphere of knowledge, my reading is punctuated by constant arguments with ideas. But in the presence of scientific knowledge, even when I find it hard to believe in black holes, I cannot help but quieten my mind.

The black hole has a familiar arc in the recent history of knowledge. First, an entertaining idea emerges from a mathematical equation; a purely theoretical structure is created when the variables in the equation are pushed to the extreme. Then a group of influential scientists believe it really exists in the physical world. They popularise its exotic properties by dumbing down language. The world is fascinated, including a whole generation of children. Artists then “render" stunning images. Some people then make films that feature the exotic phenomenon. Funds pour into the search for proof of the phenomenon. Eventually scientists find it, and it is remarkably almost exactly what they had hoped to find; it is very close to artistic renderings, too. And “a scientific truth" is born. Then it becomes religion, more powerful than conventional religion because it has the halo of knowledge, information, rationality and proof. Theoretical physics is probably one of the best funded religions.

Twenty-four hours after the news broke about the black hole in the heart of the Messier 87 (M87) galaxy, it was already blasphemous to ask, “But do black holes really exist?" The idea of the black hole emerges from Albert Einstein’s equations that define his general theory of relativity. He never liked the idea. Even though his concepts led to much of today’s exotic science, he himself was suspicious of esoteric things. But in time scientists began to take black holes seriously.

Regular people, when they were not watching “sci-fi", did not care much about black holes. Even on 11 April 2019 what contributed to the transmission of the news was not the power of science but of politics—of feminism.

In 2016, the computer scientist Katie Bouman, who is a key member of the team that photographed the M87 black hole, delivered a TED talk on a technique she developed to take the image. But that technique was eventually not used in the mission. Yet, hours after the image of the black hole was revealed, she emerged as the face of the project. As The New York Times reported, “In their eagerness to celebrate her…many non-scientists on social media overstated her role in what was a group effort by hundreds of people, creating an exaggerated impression…"

It is not surprising that people can argue about the exact role of a young woman in a scientific breakthrough, but not the scientific phenomenon itself. The image was created by a technology that used an array of radio telescopes located in various parts of the Earth to form a virtual telescope that could, “read a newspaper in New York from a sidewalk café in Paris", according to an official release. The process is too complicated for lay people to challenge. Theoretical physics today is where most spheres of human intellect were just a few years ago: what a group of experts said was the truth.

It will be fascinating to watch what happens when one day theoretical physics, too, ceases to be a religion, and the amateur heretics are able to transmit their ideas widely. It would be hilarious if in the end cow urine turns out to be good for health, and there are no black holes.

 

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Understanding the Culture and People

Source: By Vidya Hattangadi: The Financial Express

Every nation is perceived in the minds of people differently for its culture, for its standard of living and for some unique quality of people. Some countries are known for good things, some for bad and others are perceived with a mixed reaction. Culture is a strong element of people’s lives. It controls their views, their values, their humour, their hopes, their loyalties, and their worries and doubts. So when you are working with people and building relationships with them, it helps to have some perspective and understanding of their cultures.

In large organisations, cultural differences can act as a barrier to communication, and they can affect team building. Employees need to build understanding of other cultures to work effectively with people from different cultures. Psychologist Geert Hofstede—a Dutch social psychologist and an employee of IBM—published his cultural dimensions model at the end of the 1970s, based on a decade of research that he conducted at IBM from 1965 to 1971. Since then, it’s become an internationally-recognised standard for understanding cultural differences.

Hofstede studied people who worked for IBM in more than 50 countries. Initially, he identified four dimensions that could distinguish one culture from another. Later, he added fifth and sixth dimensions, in collaboration with Michael H Bond and Michael Minkov. Hofstede, Bond and Minkov scored each country on a scale of 0-100 for each dimension. The six dimensions are as follows:

Power Distance Index (PDI): Hofstede’s PDI measures the extent to which inequality and power are tolerated.High PDI indicates a culture accepts inequity and power differences, and encourages bureaucracy. It also shows high respect for rank and authority. Low PDI indicates that a culture encourages organisational structures that are flat and appreciates decentralised decision-making responsibility, encourages participative style of management, and places emphasis on power distribution. For example, Germany scored 35 on the cultural scale of Hofstede’s analysis, compared to Arab countries where the power distance is very high (80) and Austria where it is very low with a score of 11.

Individualism versus Collectivism (IDV): This dimension considers individualistic versus collective approach of a society. A person’s self-image is defined as ‘I’ in a loosely-knit social framework. Each individual in a family is expected to take care of only himself/herself. As opposed to this, in collectivism, families are tightly-knit in society in which individuals expect their relatives or members of a particular group to look after them in exchange for unquestioning loyalty. A society’s position on this dimension is reflected in whether people’s self-image is defined in terms of ‘I’ or ‘we’. The Japanese are known as a collectivistic society (scoring 46), whereas the US can clearly been seen as an individualistic society (scoring 91).

Masculinity versus Femininity (MAS): This dimension is also referred to as ‘tough versus tender’, and considers the preference of society for achievement, attitude towards sexual equality, behaviour, etc. The masculine side of this dimension represents a preference in a society for achievement, heroism, assertiveness and material rewards for success; such a society, at large, is more competitive. As opposite to this trait, in a feministic trait, preference is given to cooperation, modesty, caring for the weak and quality of life. Such a society, at large, is more nurturing. In the business context, MAS is sometimes also related to as ‘tough versus tender’ cultures. Japan is considered to be a very masculine country, whereas the Scandinavian countries such as Norway and Sweden are considered highly feminine.

Uncertainty Avoidance Index (UAI): This index considers the extent to which uncertainty and ambiguity are tolerated. This dimension considers how unknown situations and unexpected events are dealt with in a country. High UAI indicates lower tolerance for uncertainty, ambiguity and risk-taking. The unknown is minimised through strict rules and regulations. Greece, Portugal, Italy, Spain, Belgium, Poland, Japan, France, Argentina, Chile, Turkey and South Korea score high on this dimension. Low UAI indicates higher tolerance for uncertainty, ambiguity and risk-taking. The unknown is more openly accepted. Singapore, Denmark, Sweden, China, the UK, India, Malaysia and the US score low on the uncertainty dimension.

Long-Term Orientation versus Short-Term Orientation (LTO): Different cultures have different expectations or assign different meanings to what time is. Some cultures perceive time to be scarce, while others believe time to be infinite.Some view time management as a skill, while others find it unimportant. Every society maintains a link with its own past while dealing with the challenges of the present and preparing for the future. Long-term orientated countries focus on the future. China and Japan are known for their long-term orientation. Short-term oriented countries focus on present and past more than the future. Morocco, for example, is a short-term oriented country.

Indulgence versus Restraint (IND): It’s a relatively new dimension of the model. This dimension is defined as the extent to which people try to control their desires and impulses, based on the way they were raised. Relatively weak control is called ‘indulgence’ and relatively strong control is called ‘restraint’. Cultures can, therefore, be described as ‘indulgent’ or ‘restrained’. Indulgence stands for a society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun. The best example is the US. Restraint stands for a society that suppresses gratification of needs and regulates them by means of strict social norms. The examples are Russia, and Eastern European countries such as Belarus, Bulgaria, Czech Republic and Hungary.

 

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Slow fast-track courts

Source: By G S Bajpai and Smrithi K P: Deccan Herald

Fast-track courts (FTC) in India are increasingly getting sluggish. The FTCs were established to expeditiously dispose of long-pending cases in the session’s courts and long-pending cases of undertrial prisoners. Despite spending as much as Rs 2,993 crore from 2016 to 2019, the results have not been encouraging. Speedy justice now forms a part of fundamental rights and the FTCs were supposed to cater to it but are performing much below expectations.

The National Law University, Delhi, has been entrusted a study by the Ministry of Law and Justice, Delhi, on the issues afflicting the performance of FTCs. In a base line survey of FTCs, researchers highlight some crucial factors.

The FTC system in India works on contingency. In fact, the term ‘fast-track’ is a misnomer. The criteria, method and arrangements to track the cases in a faster mode remain quite tentative. Besides, over the years, the number of cases allotted to them have also increased, which has led to slowing down of the decision process. Further, the term itself indicates that the justice delivery system is generally slow. Another problem is that there are insufficient numbers of fast track courts for the number of cases that are required to be disposed. This leads to overburdening of the courts and causes delay in disposal of cases.

All this is compounded by the fact that FTCs follow the same procedural laws that are followed by regular courts. Moreover, even if a case in a FTC is disposed of within the time specified by procedure, cases which are appealed to the high court’s and the Supreme Court are not fast-tracked at those stages.

In addition, designated staff working solely in a FTC is not always present. Sometimes the staffs from other (regular) courts end up working in FTCs as well. Staffs working in some FTCs are on contractual appointments; so they can leave at any time, and they do not completely understand their responsibilities. The solution is to offer such staff permanent appointments. Furthermore, if some staff goes on leave, a shortage arises, as a replacement is not usually given quickly.

There is a variation among states on the types of cases dealt with by FTCs in their jurisdiction. FTCs in Delhi mostly deal with cases of rape with and without murder, sexual assault against women, and cases involving vulnerable victims. But in West Bengal, the FTCs presently deal with all types of cases.

Another issue is that certain categories of offences are singled out over others, and thus are given more importance by being allotted to and decided by FTCs. However, the basis of giving priority to some cases has not been thought through before implementation. It is a fact that all litigations have the right to fast delivery of justice. But this phenomenon of fast-tracking of some cases has led to slowing down others.

Further, some FTCs do not have the equipment needed to conduct video and audio recordings of victims. Designated Vulnerable Victims Deposition Complexes, where testimonies can be conducted, are set up only in few court complexes. Since a different level of sensitivity is required to hear and handle such cases, such designated rooms provide a conducive atmosphere and great comfort to vulnerable victims to share their thoughts in a free manner. It is of utmost concern that witnesses are sometimes threatened by the system and so do not appear before the courts. This shows that the way the system treats victims who seek legal redress has to be readdressed.

In the police part of the system, there are no designated investigating officers who only investigate cases filed in FTCs. Investigating officers also do normal policing duties, so their time is shared. Additionally if an accused is in custody (rather than on bail) then police tend to work faster. Further, if offences take place in different parts of the country, then also it takes more time.

The forensic science laboratories, which are crucial to the working of FTCs, are highly understaffed and not well-equipped. They deal with reports relating to both regular courts and FTCs. This leads to delay in submitting expert reports to courts.

Lack of training, adequate funds

Additionally, FTC personnel are not given training specific to cases and offences that they will deal with while working in such courts. There is also a lack of adequate funds being given to FTCs to appoint sufficient staff and to have modern infrastructure like computers, audio-video recording devices, air-conditioning equipment, etc. In many cases, even basic infrastructure, like cupboards to keep files, is not available. The sorry state of the system is further borne out by the fact that most cases filed before such courts result in acquittals.

Merely increasing the number of FTCs to overcome their shortage is not the answer. The need is to revamp the system based on micro-level studies with the stakeholders. The FTCs cannot be allowed to routinely function like ordinary courts. Further, both internal as well as external factors affecting FTCs should be considered while deciding the issue of delay in justice.

Every litigant is entitled to speedy justice. A balance is to be made among the rights of the victims and that of the accused. The right of the accused cannot be brushed aside. Not much jurisprudence has been developed on a compensation scheme for wrongly accused persons. Further, victim-centric procedures and measures differ considerably beyond capital cities of states.

For wholesome effectiveness, even the corresponding parts of the system, such as the investigation, filing of charge sheet, the forensic reports and appeals must also be fast-tracked.

 

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The repeal of Article 370 would harm the children of Kashmir

Source: By Rohit Prasad: Mint

It will come as a surprise to many that most of the vast tracts of Indian Territory affected by insurgency, not just Kashmir, are beneficiaries of special constitutional and legislative provisions. These include Fifth Schedule areas that touch 10 states in central India, Sixth Schedule areas within Assam, Meghalaya, Tripura and Mizoram, and Nagaland as a whole, which comes under Article 371A. While proximate causes may vary, the insurgencies are either related to the breakdown of trust, as in the case of Kashmir or central India, or accession having been achieved through the use of force, as in Nagaland. The breakdown of trust has been accompanied by dilution of the special provisions or by their non-implementation. The insurgencies have led to the imposition of the Armed Forces (Special Powers) Act (AFSPA), or some variation thereof, which curbs civil liberties and further dilutes the special provisions.

The unique aspect of the Kashmir case is that the dilution of the special provisions predates the insurgency by over 40 years. In its original form, Article 370 mirrored the terms agreed upon in the Instrument of Accession of Jammu and Kashmir, and was intended to give primacy to the state constituent assembly of Jammu and Kashmir on all matters other than defence, foreign affairs and communications. There was a provision for the President of India to effect changes in state laws, but only with the concurrence of the elected government, which, in turn, had to seek the assent of the state constituent assembly.

After the imprisonment of Sheikh Abdullah in 1953, a pliant Prime Minister (as the head of the state government was called till 1965) Bakshi Ghulam Mohammad was appointed. The state constituent assembly was formally dissolved in 1957. However, through the assent of the elected government, a number of provisions applicable to other princely states were inveigled into the Jammu and Kashmir system of governance. From 1954 to 1994, 94 of the 97 entries of the Union list and 260 of the 395 articles of the Indian Constitution were extended to the state.

On 27 November 1963, Jawaharlal Nehru declared in Indian Parliament that “Article 370 has been eroded… there is no doubt that Kashmir has been integrated". In 1964, Gulzari Lal Nanda, the home minister of India, said: “While normal process of constitutional amendment is very elaborate, the process of amendment made available to Article 370 is very simple—by a presidential order." The transformation of Article 370 started under the watch of a “Prime Minister" of Kashmir whose “Bakshi Brothers Corporation" gave a new and decidedly corrupt meaning to the acronym BBC, and continued thereafter in a similar fashion.

Cut to 1980. General Zia-ul-Haq was fomenting Islamism in Pakistan, and the mujahideen were being enlisted by the US to quell the Soviet invasion of Afghanistan. After the fall of the Soviet Union, these jihadis took up the Kashmir cause. The agenda of back-door accession to the Indian Constitution (via corruption), and the rigging of the 1987 elections gave the extremists a foothold. The exodus of Kashmiri Pandit families spelt the death of Kashmiriyat.

Article 35A of the Indian Constitution is the only provision in the national Constitution relating to Kashmir other than Article 370. It accords special rights to domiciles of the state on ownership of land and reservation in government jobs. Proscriptions on the sale of local land to outsiders are an integral part of most special constitutional and legislative provisions applicable across multiple states in India. However, in most states, these have largely remained unimplemented. For instance, in the districts of Khammam, Warangal and Adilabad in erstwhile Andhra Pradesh, the percentage of land controlled by non-tribals was as high as 52.79%, 71.64% and 60.69%, respectively, as far back as 1996. Jammu and Kashmir is a clear exception to this trend.

So, while some strands of the current debate on Kashmir—such as the repeal of Article 370—are largely symbolic, as the Act has already been stripped of its substantive content, others like the demands related to Article 35A reflect substantive interests at play in mainland India and Kashmir.

And yet, how pertinent are these discussions to the youth of Kashmir? Two-thirds of Kashmir’s population was born after the separatist insurgency began in the late 1980s. The latest round of unrest involves the youth to a far larger extent. These young people have grown up in a war-torn land and demonstrate the psychological brutalization of their childhood.

While earlier iterations of the conflict stressed Kashmiri ethnic identity, the current conflict reflects a sharper communal divide—a divide that extends to the young who are embedded in international digital networks of extremism. The rhythm of their radicalization keeps time with the rise of Hindu right-wing hardliners in the rest of India.

But there are avenues of hope. In a survey carried out by David Devadas for his book The Generation of Rage In Kashmir, when asked what Kashmir’s biggest problem was, the answer of just over one-fifth of respondents was “azaadi". This word means a variety of things to respondents, including, of course, independence from India, but also the establishment of human rights. Importantly, almost an equal number of respondents regarded unemployment as the biggest problem.

Given the level of disaffection of Kashmiri people, political posturing on special rights, be it in the form of demanding the repeal of Article 370 or the restoration of the title of prime minister, will drive the Valley to a point of no return. This is a time for reconciliation, to ensure that the fundamental rights of every citizen of India are made available to the children of Kashmir.

 

 

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India in tough spot

Source: By Harsha Kakar: The Statesman

The United States announced its withdrawal from the Iran nuclear deal in May 2018. The deal, also termed as the Joint Comprehensive Plan of Action, was signed in July 2015 between the five permanent members of the UNSC and Germany on one side and Iran on the other. The US re-imposed all earlier sanctions on Iran in November last year. As per President Donald Trump, this was the ‘worst deal ever’.

While China, also a signatory to the deal had some reservations, mainly that the deal permitted Iran to develop weapons outside the agreement including ballistic missiles, it accepted the same; All other members who initiated the deal were against the US action. They attempted to bypass US sanctions and continued trading with Iran.

They were hopeful that once the US presidency underwent a change, the US would re-enter the deal. However, fearing US sanctions, many European companies stopped dealing with Iran including purchasing its oil. India joined nations in claiming that US sanctions were not UN sanctions and hence it would not adhere to them.

The reality is now changing. The main opponents of the deal were Israel and Saudi Arabia, both sworn enemies of Iran. Both worked to convince the US that Iran was continuing its project of developing nuclear weapons despite agreeing to the contrary. Further they blamed Iran for supporting terrorist groups in the Middle East including in Syria and the Hezbollah in Lebanon.

Recently the US stated that since re-imposition of sanctions, Iran has been unable to pay Hezbollah fighters, proving to the world that its sanctions are working. The US is firm in its plan of seeking a regime change in Tehran and the easiest, non-costly and non-military option was to force an economic collapse by imposing sanctions. It is aware that a military option may not be easy and could fail.

Iran still controls the Strait of Hormoz and could impact movement of international oil. The main income for Iran flows from its export of oil and gas, hence targeting that is the first step. Initially it gave eight nations, including China, India, South Korea and Japan six months to steadily reduce their purchase of Iranian oil. The period ends on 1 May 2019.

After this date there would be no waiver on purchase of oil. Specific to India, they have permitted it to continue developing the Chabahar port, which would not be within the purview of sanctions. To further impress India, the US has stated that it is supporting India in its attempts to list Masood Azhar as a global terrorist, Indian entry into the NSG and in its actions to isolate Pakistan.

India is the world’s third largest oil importer, imports 80 per cent of its oil and 40 per cent of its natural gas needs.India is also Iran’s second largest importer of oil after China. Indian refineries have steadily reduced their dependency on Iranian oil; however, may not be able to stop it altogether. India has for the first time even commenced purchasing US oil, seeking to expand its procurement base.

With sanctions also imposed on Venezuela and most of Libyan oil not being available due to the ongoing civil war, the market to procure oil is smaller. Iranian oil comes with options which few suppliers can meet. These include free shipping, insurance and a 60-day credit period. With OPEC imposing a cut in production to enhance oil prices, adopting US sanctions would enhance oil prices by almost 35 per cent.

Thus, India’s new government will be forced to increase oil prices. It will also impact the value of the rupee and enhance inflation. Are there options for India? It is evident that the US is unwilling to back down. It is pushing hard and would have to act against even allies if they do not adhere to its demands.

Thus, India may shift to a rupee payment model, which may work for a limited number of barrels per day, not at the figure India imports at present. During earlier sanctions, India imported 100,000 barrels a day on rupee terms from Iran. India is also concerned with its weapons purchases from Russia including the S-400 missile system. These are likely to come under CAATSA (Countering America’s Adversaries Through Sanctions Act) which could impact India.

The US has been offering its own weapon systems as a replacement, but India is unwilling. If India stops purchase of weapons from Russia, it would push Russia into the Pakistani camp and enhance sale of Russian weapons to Pakistan. It would also impact Indo- Russian relations. India needs Russia to also control a belligerent China. Pakistan is already seeking to purchase arms worth USD 9 Billion from Russia.

India would have to push the US to ignore CAATSA in a quid pro quo for accepting its demand for reducing purchase of Iranian oil. India’s acceptance of US demands on Iran may be effective, provided all others follow suit. China has announced that it opposes US’s unilateral sanctions and is unwilling to adhere to it. In case India backs down and China continues, then it would lose the advantage it has in Iran.

With doors closing, India may have to toe the US line. If that happens and oil prices continue to rise, the Indian economy would be impacted, for which there are no options. Hence, in all probability India would bargain that if it reduces oil procurement from Iran, the US would have to accept Indian military purchases from Russia, without imposing CAATSA. Will the US agree remains the mute question.

 

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Kisan Samman Nidhi makes more sense than NYAY

Source: By R. Jagannathan: Mint

The noteworthy thing about the Bharatiya Janata Party (BJP) election manifesto for 2019 is that there is little that is noteworthy about it. And rightly so. A government seeking re-election should use its track record as its manifesto, and focus only on the incremental things it will do if given another term.

One sentence in the manifesto that went largely unnoticed, but may have huge significance, is its reference to the Pradhan Mantri Kisan Samman Nidhi Yojana, which has already been implemented partially through the interim budget. Under this scheme, small and marginal farmers are being paid 6,000 per annum in three instalments.

In the BJP’s Sankalp Patra, there is a proposal to “expand the coverage of the scheme to all the farmers in the country". This sentence can be significant for two reasons: One, it can actually enable a deeper reform of agricultural subsidies; and two, it is a bigger step towards universal basic income support than the Congress party’s Nyuntam Aay Yojana (NYAY) scheme to give 20% of the poorest Indian households 6,000 per month, or ₹72,000 a year.

While the Congress scheme needs precise targeting, the BJP promises to extend the Kisan Samman to all farmers, making it near-universal. The scheme currently covers around 85% of farmers with land holdings of up to two hectares, but extension to the rest will not bust the budget math too much. There is no need for any targeting, since the annuity will be paid to all farmers, whatever the size of their land holdings.

One can’t say whether BJP really had this in mind, but this is its import. In one fell swoop, it has the wherewithal to make good on its promise to directly increase farmers’ incomes and also achieve subsidy bill reductions by substituting price subsidies with cash transfers. In all probability, while the Congress’s NYAY could be fiscally problematic if it replaces no existing subsidy, BJP’s scheme has the potential to steadily replace subsidies, if implemented in phases, and smartly.

The Kisan Samman has a current annual cost of around ₹75,000 crore at an annual payout size of ₹6,000 to nearly 120 million farmers. If this is extended to all farmers, its cost could rise at most to 85,000-90,000 crore. But it would be universal and make subsidy reductions elsewhere more feasible.

Consider this: If all farmers are, for example, offered an additional 6,000 as compensation for an abandonment of fertilizer subsidies, which conveniently works out to around 75,000 crore annually, no farmer will be worse off through the bargain. The fertilizer subsidy bill can be eliminated or drastically curtailed, and overuse of urea ended.

A small attack on food subsidies also becomes possible. These target two groups, whose interests are not aligned, urban food consumers and rural food producers. If it extending by the same 6,000 cash payment to urban consumers (which means another 100 million households), the food subsidy bill could perhaps be cut by half, then that would mean another saving of 90,000 crore. The balance of ₹94,000 crore budgeted as food subsidy this year will be enough to take care of minimum support payments and any remaining food subsidies that cannot be avoided in some parts of the country. If the annual payment even needs to be doubled to 12,000 for urban consumers, it would still be worth it so long as we can wean citizens off opaque subsidies that distort India’s food and fertilizer markets.

A politically unsure government can offer cash in lieu of super-subsidized rice, wheat and coarse cereals as a choice in rural areas, and as a compulsory scheme in urban areas. Over time, cash will probably triumph, as it gives the citizen flexibility in terms of how she wants to use the money. From a dole recipient, she becomes an empowered consumer.

The one wrinkle that remains in Kisan Samman is that it does not distinguish between landed farmers and tenant farmers, which means the cash transfer may end up in the wrong pockets. The scheme can thus be prioritized in states with good land records, especially those which record tenant farmers. Over a period of five years, it should be possible to offer cash payments directly to those who till the farms, and not only those who own farm land.

The big difference between the Congress’s NYAY and BJP’s Kisan Samman is that the latter is scalable and flexible, and can be universalized pretty easily— first to farmers and then even to urban consumers. It is also fiscally more prudent, because cash payments can be substantially counter-balanced by reductions in current subsidies, thus preventing leakages and keeping fiscal spends at more sensible levels.

The Congress’s scheme does not even talk of reducing any of the major subsidies, and is thus more likely to be fiscally irresponsible than BJP’s scheme. This means we are more likely to end up with runaway inflation under NYAY than Kisan Samman. It is possible that one is imagining the potential of the latter scheme in a way the BJP’s manifesto drafters did not, but if a potential exists for greater sanity in welfarist schemes, one cannot but flag that potential.

 

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Rank Injustice

Source: By Samantak Das: The Telegraph

The National Assessment and Accreditation Council started in 1994 in response to the call by the National Policy on Education (1986) to “address the issues of deterioration in the quality of education”, and the Programme of Action of 1992. The vision of NAAC is “to make quality the defining element of higher education in India through a combination of self and external quality evaluation, promotion and sustenance initiatives” in order to do which it set itself the mission to “arrange for periodic assessment and accreditation of institutions of higher education…; to stimulate the academic environment for promotion of quality teaching-learning and research...; to encourage self-evaluation, accountability, autonomy and innovations in higher education;... and to collaborate with other stakeholders... for quality evaluation, promotion and sustenance.”

Higher education institutions have by now become used to the five-yearly assessment by NAAC, conducted on the basis of a self-assessment report furnished by the institution which is then verified through means of a visit by peers (typically senior academics with the requisite experience and expertise) to the institution in question. At the end of the assessment by the peer team, an institution is assigned a grade — comprising letters (‘A’, ‘B’ and so on, with or without plus signs added) or, as is the case now, a score on a four-point scale. There are seven broad areas which are examined and assessed by NAAC, ranging from curricular aspects to research, innovation and extension; to governance, leadership and management; to institutional values and best practices and so on.

The idea is to get a holistic view of an institution of higher learning and look at ways in which it is contributing to national development, preparing students for an increasingly globalized world, inculcating positive values: all of which, ultimately, will foster a culture of excellence in campuses across the nation. The NAAC assessment process takes into account the disparities that exist in institutions of higher education, so that, for example, a university located in a rural area with students from predominantly tribal and backward communities is assessed differently from one located in a large metropolis with relatively affluent and educated students vying for admission to its courses.

Most academics and academic administrators have come round to the view that carrying out a NAAC-mandated SWOC (Strengths, Weaknesses, Opportunities, and Challenges) analysis of their institutions is, in the final analysis, a good procedure, one which, moreover, helps institutions to make the necessary course corrections so that they can deliver the benefits of education more efficiently, more equitably, with greater transparency, and with the involvement of all stakeholders.

Two things need to be noted here. First, the gap between two assessments — typically five years — allows institutions to carry out reforms in a manner best suited to their own internal dynamics. Second, since NAAC is a continuous process, no ranks are awarded to institutions. Of course, some issues still remain. Quantifying publication and citation data has tended to favour STEM (science, technology, engineering, mathematics) disciplines and created complications for quantifying the quality of research outputs in the humanities and social sciences. Assessing outcomes for outreach activities (for example, in slums or among rural communities) is difficult at the best of times since these are — by their very nature — difficult to quantify.

Despite all this, NAAC has had a beneficial effect on India’s higher education. But things changed dramatically with the entry of the National Institutional Ranking Framework in 2015, which, as its name announces, is concerned with ranks, not just scores, and which, moreover, is an annual exercise, with few of the checks and balances of NAAC. The NIRF institutionalizes the belief that competition is beneficial and leads to overall improvement, an assumption that might be valid for sports but seems highly unlikely for institutions of higher education in a country as bewilderingly diverse as ours.

Most crucially, such an annual exercise — involving thousands of institutions — cannot possibly carry out the verifications that ought to be the cornerstone of any process of evaluation of large, often unwieldy, and indubitably complex, entities. To overcome this, the NIRF has made the submission of accurate data the responsibility of the institute and asked institutes to upload submitted data on their websites and keep them there for three years in the interests of transparency. It has also threatened any institution found manipulating data with removal from the NIRF list and future ranking.

But, perhaps not surprisingly, institutions have not always been above tweaking data to get favourable scores and move up the ranking ladder. To take just one example, this year’s NIRF ranking places the University of Calcutta at fifth spot among all universities in India, and makes it the top-ranked state university in the country, a matter of pride for all of us who are denizens of this city. Yet, as newspaper reports have pointed out, there seem to be strange discrepancies between the figures the university furnished to the NIRF in earlier years and the same data submitted for this year’s ranking.

To take just a couple of examples, according to the documents available on the NIRF website, the number of male students in the three-year undergraduate programme in Calcutta University seems to have fallen precipitously from 1,644 in 2015-16 to a mere 28 in 2017-18, while the number of female students has shrunk from 1,453 to 1,417 in the same period. Even more curiously, the median annual salary earned by students after completing their three-year undergraduate degree in 2015-16 was stated to be Rs 4,00,000 in the NIRF report for 2017, but the figure for the same graduating year (2015-16), as stated in the 2019 NIRF report, is given as Rs 8,04,400. Since none of the university’s NIRF reports is available on its website, such figures cannot be double-checked. Quite obviously, there is something amiss with the data published by the NIRF on one of the three oldest universities in the country, and, very likely, there was no cross-checking of the submitted data to remove anomalies and inadvertent errors.

The mad scramble for ranks and the concomitant economizing with truth that the NIRF has unleashed seem to be tied to the devaluation of the idea of a university in our country that has accelerated under our present ruling dispensation. Universities are being seen, more and more, as training institutes designed to impart useful, practical skills, not knowledge. While it may be true that a university does create knowledge and perhaps even wisdom, the first step towards such knowledge creation has to begin by challenging given knowledges, by questioning and overturning existing ways of thinking and doing. This is something that only universities can do, and they can do so if and only if they are built around a set of core values that are found in so-called ‘impractical’ and ‘un-utilitarian’ disciplines.

Our leaders do not seem to want real universities, and they do not want real universities because they already know what is right and wrong, good and bad, proper and improper, and so on, for all of us. They certainly do not want universities to challenge or break or make redundant any kinds of knowledge, especially the knowledges they want us to internalize and disseminate. Which is why they want ordinary academics, such as your writer, to spend their time tweaking data to run up high scores and rise in rankings, rather than doing what they are mandated to do — show younger people how to think critically, both for themselves and for others around them.

 

 

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Economic growth is a moral obligation to the poor

Source: By Shruti Rajagopalan: Mint

Boosting the rate of economic growth is the most important and urgent need in India. This is a simple fact so universally known and universally ignored that it warrants repetition. Unfortunately, policies raising the growth rate have found no room in the country’s current political dialogue, which is entirely focused on pandering to voters and interest groups.

The wretched economic reality imposed on hundreds of millions of Indians because of two centuries of colonial oppression and half a century of socialist oppression started changing in 1991. Since those reforms, a higher rate of GDP growth sustained over the years has lifted over 170 million Indians out of poverty.

But the job is far from complete. About 75 million Indians still live below the $1.90-a-day threshold in what is termed extreme poverty. Using a different figure by the World Bank of $3.20 a day for “lower middle income" countries like India, about one-third of all Indians (450 million) are poor and vulnerable to economic stress that could push them back into extreme poverty. According to a working paper by Pradeep Agarwal for the Institute of Economic Growth, a single percentage point increase in GDP per capita reduces poverty by 0.78%. In other words, a additional 1% increase in the GDP per capita can potentially lift about 3 million Indians out of poverty.

In 2011, the growth rate of GDP per capita was 9%, but it slipped just below 6% last year. In political speeches and on news channels, we see people quibble over data. And the common man is left wondering if a 3 percentage point rise or fall really makes a difference. The reality is that such a difference in GDP per capita is the difference between lifting 9 million out of extreme poverty or leaving them in deprivation. If we had the job of personally telling these 9 million Indians why we choose policies that hurt economic growth and leaves them poor, we would realize the moral imperative of reforms. An additional 3-percentage-point growth in GDP per capita over the current levels can help eliminate extreme poverty in a decade. Boosting economic growth is thus not just a policy imperative, it is a moral obligation. And to choose policies that prevent us from making the poorest Indians better off is unconscionable.

Economic growth has been beneficial in dramatically reducing extreme poverty in India, but it has not pushed these hundreds of millions of Indians into the safety of the middle class. India’s harsh regulatory environment creates an enormous informal sector, leaving those lifted out of extreme poverty trapped in that sector highly vulnerable to economic stress. We got a stark reminder of this during demonetisation, which hurt the informal sector the most, destroying millions of livelihoods overnight.

To elevate the vulnerable into the middle class requires a long and sustained period of rapid economic growth, coupled with a thorough streamlining of the labour and manufacturing regulatory system. And the two are neither mutually exclusive nor contradictory. In fact, reforming India’s myriad labour and industrial regulations might boost the pace of the economy’s growth while also bringing the informal sector out of the shadows.

Focussing on faster growth is also crucial for those interested in social welfare programmes and transfers to reduce the vulnerability of the poor, especially in the agrarian and informal sectors. Important ideas like direct and unconditional cash transfers have been successful in targeting the poorest and reducing economic vulnerability. Some version of a universal or quasi-universal basic income is on the agenda of most political parties. But even those interested in welfare transfers need to realize the imperative of growth to support these schemes.

According to the Handbook Of Statistics On Indian Economy 2016-17, since the 1991 reforms, the Union government’s revenue has increased 25 times and state government revenues have increased 28 times in nominal terms, and about 4 times in real terms. Economic growth and the consequent increase in revenue also increase the ability of the government to focus on inequality and deal with sector-specific distress.

A sustained period of high economic growth brought millions of Asians out of poverty in South Korea, Taiwan, and most notably China. Thanks to the liberalization of the Chinese economy and its integration into global trade, China lifted over 800 million out of poverty. Recently, the Modi government declared economic victory over China as Chinese growth slumped and India managed to pass the 7% mark. But the celebration is premature. The Indian economy today is only as large as the Chinese economy was back in 2002. And from 2002 until its recent slowdown, China managed to consistently grow at over 8% a year, even passing the magical 10% figure for many years.

The problem is that both the current government and opposition parties are making an unconscionable moral choice by ignoring economic reforms and pandering to voters with freebies. In the current election, candidates have not even bothered with the usual lip service paid to economic progress. There is silence on reforms, no talk of growth and little being said about aspirations and opportunity. It is down to promises of loan waivers, jobs in government and reservations in educational institutions—in exchange for votes. Across the board, our political leadership has displayed a policy as well as moral bankruptcy that will leave hundreds of millions of Indians impoverished.

 

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Ind AS 109

Source: By Muzammil Patel: The Financial Express

The transition to Indian Accounting Standards (Ind AS) has been a landmark change for Indian industry, bringing about a paradigm shift in accounting and reporting practices. The new standards are increasingly principle-based and enable alignment of accounting with an entity’s risk management practices. By reducing the emphasis on statistical hedge effectiveness testing, Ind AS 109 allows for hedging instruments to qualify as effective hedges based on their economic relationship with the underlying exposure. Removal of the bright line (i.e. the 80:125 rule) puts the focus on actual economic offset as opposed to a theoretical statistical offset between hedges and underlying exposures. The standard also recognised that an entity may choose to hedge only part of its price risk (for example, the pricing benchmark portion) and allows for effectiveness to be assessed only against this component of the entire exposure.

So, how does Ind AS 109 make life easier for hedgers? One major change introduced by Ind AS 109 over earlier standards is with respect to time value of options. Risk managers widely recognise that, for an initial outlay, options can be a very effective risk management instrument in terms of flexibility, cost and no commitment to giving up upside in a hedging transaction. The price for an option contract is the option premium, i.e. the price that the option buyer pays, and the option seller receives for the rights granted under the option. This option premium has two components: intrinsic value and time value.

Intrinsic value is determined in terms of the difference between the strike price and the current market price of the underlying, while the remaining value of the option is time value that reflects the volatility of the price of the underlying, interest rates and the time remaining to maturity. From an accounting perspective, however, time value of options, whether on plain vanilla options or option structure, had the propensity of introducing volatility to earnings. This is because earlier hedge accounting standards required time value to be reassessed at each reporting date. Change in time value was required to either be recognised in the earnings statement or treated as part of statistical hedge effectiveness testing depending on whether time value was split or not at the time of hedge designation.

Where time value was not split, volatility in time value could impact adherence to the bright line, thereby causing far greater volatility to earnings. Hedging is supposed to reduce earnings volatility and this asymmetric accounting treatment, at times, deterred risk managers from engaging in option transactions, thereby taking away a significant instrument from the risk management toolbox.

Under Ind AS 109, where hedge accounting is applied, option premium can be either amortised over the life of the hedged item (i.e. underlying exposure) or can be included in the carrying value of the hedged item depending on the nature of the hedged item. Both these accounting treatments allow for reduction in earnings volatility and a more accurate depiction of the risk management strategy of the organisation.

In the first scenario, an entity can amortise time value (i.e. cost of hedging) over the life of the hedged item where the intention of the hedging transaction is to obtain protection over a period. Where an entity holds inventory whose value may fluctuate and impact earnings, such an entity may buy an option with the intention to protect earnings statement from volatility in inventory revaluation. In such cases, it is possible for the entity to amortise time value of options in a systematic manner. This allows for greater stability and predictability in reported earnings.

In the second scenario, an entity can carry the change in the fair value of the time value component in ‘other comprehensive income (OCI)’, i.e. as part of equity. When the hedged item is recognised in the books, the amount is recycled from the OCI to the carrying value of the hedged item in case of non-financial hedged items. In case of financial hedged items, the amount is recycled to the earnings statement at such time where the hedged item impacts the earnings statement.

This removes any interim volatility in earnings and recognises time value of options as a cost that can be adjusted in the carrying value of a hedged item. Where an entity hedges the forecast purchase of gold using options whose intrinsic value is zero (i.e. strike price is equal to market price) and time value is `1,00,000, the entire `1,00,000 and any subsequent changes in the value of `1,00,000 can be carried in the OCI. Once the physical gold is actually procured, the amount carried in the OCI will be added to the value of the gold procured. This treatment enables elimination of earnings volatility. More importantly, it allows for accounting to align with the risk management intention, i.e. pay for protection against rise in future prices at a predetermined cost, thereby effectively procuring in the future at a price adjusted for time value of options.

In both the scenarios, however, it is important for organisations to consider aligned time value, i.e. time value should only relate to the hedged item in such a way that it aligns all critical terms of the hedged item and hedging instrument. The accounting treatment for option contracts permitted by Ind AS 109 represents a significant enhancement from earlier standards. It also allows risk managers to execute their hedging strategy without worrying about asymmetrical accounting treatment as per earlier standards.

Where organisations are ready to incur an initial outlay to ensure downside protection without giving up upside, Ind AS 109 removes accounting vagaries associated with option transactions. In a nutshell, Ind AS 109 provides for delivering the value of commodity risk management appropriately on the balance sheet and to make risk management a culture amongst commodity ecosystem stakeholders.

 

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A hundred years after Jallianwala Bagh

Source: By Amitabha Bhattacharya: The Statesman

Few other events in our struggle for independence made a greater impress on the nation’s collective consciousness as the coldblooded massacre at Jallianwala Bagh hundred years ago on April 13, Baisakhi day. The barbarity inflicted on a peaceful congregation left hundreds dead and many more wounded. Following Curzon’s partition of Bengal in 1905 that gave a fillip to the nationalist cause, this carnage in 1919 changed the narrative of the freedom movement decisively. It is about time to reflect on what had inexorably led to this incident and how it altered the course of history.

Curzon’s decision to communally divide Bengal triggered nationwide protest and gave rise to revolutionary activities on such an unprecedented scale that the partition had to be annulled and the capital shifted from Calcutta to Delhi in 1911. But the revolutionary activities continued in different parts under different garbs. World War I started in 1914 into which India was dragged. Santanu Das in his recent work India, Empire, First World War Culture has recorded India’s enormous contribution to the imperial war effort. Of a total of over 1.7 million Indians including over 1.4 million fresh recruits, between 50,000 to 70,000 were killed in the war. ‘Punjab had contributed one-third of all the Indian recruits and over 40 per cent of the total number of Indian combatants mobilised.’

India’s cooperation with the war effort was appreciated but, shockingly, the British attitude towards India changed after their victory in the war. Public dissatisfaction against foreign rule had been rising on account of various factors – economic slump and attendant huge price-rise as a consequence of the great war, and the influenza epidemic of 1918-19 in which over 12 million people died without adequate medical attention. As Churchill admitted, “Collisions between troops and native populations have been painfully frequent in the melancholy aftermath of the Great War.”

The Montagu-Chelmsford Reforms (1918) came as a betrayal and protests against it were ruthlessly suppressed. Shortly thereafter, the report of the Sedition Committee (known as Rowlatt Committee) denounced nationalists as anarchists and concluded that the situation demanded the ‘strengthening of the Executive permanently by arming it with similar powers as they had temporarily acquired under the Defence of India Act.’ As subsequent events would show, the Jallianwala Bagh massacre was the first unequivocal demonstration of brutal imperial might under the Rowlatt Act, designed to keep Indians under subjugation.

This was also the time when Gandhi, armed with his unique moral force, was emerging as the key national leader. His unique call for Satyagraha against this Act struck a sympathetic chord in the public psyche. Events started accelerating from early February and reached near crescendo on April 9, the day of Ram Navami, celebrated in Amritsar as ‘National Solidarity Day’. This must have unnerved Lt. Governor Michael O’Dwyer who, some historians argue, decided to provoke people first and then strike hard.

Two local leaders were arrested and Gandhi was not allowed to enter the city. On 10 April, unprovoked firing killed and injured a few of the agitating mob. Further firing killing about twenty turned the mob violent who indulged in arson and destruction of public property, murdering a few British men and assaulting a missionary lady, Miss Sherwood. The battle lines were drawn.

General Reginald Dyer on 12th and early 13th April marched through Amritsar with a strong striking force. A proclamation that every assembly of people would be dispersed by force of arms was disseminated. A counterproclamation declared that a meeting would be held at 4.30 pm on the 13th at Jallianwala Bagh ‘at which Lala Kanhya Lal would preside and give valuable advice to the people.’ From 2 pm, people started assembling at the Bagh, some ignorant of and many wilfully disobeying the government order.

The crowd strength had reached between 5,000 and 20,000 (as per different estimates), when Dyer ordered firing by fifty riflemen, without any warning. 1650 rounds were fired at the crowd – in which around 380 died and over 1100 were wounded. The Congress Enquiry Committee estimated the figures to be several times higher than the official ones. Over a thousand persons reportedly lay bleeding throughout the night.

The protests against this atrocity rose all over. Gandhi though deploring ‘the murder of Englishmen and destruction of property by ourselves’, commented, “I cannot imagine a graver wrong than the massacre of the Jallianwala Bagh and the barbarity that followed it, the whitewash of the Hunter committee, the despatch of the Government of India, the refusal to remove officials who made the lives of the Punjabis a hell during the martial- law period…”

Following the shock of the Rowlatt Act and the Punjab horrors, Gandhi said, “I came reluctantly to the conclusion that the British connection had made India more helpless than she ever was before, politically and economically…”

The national mood was articulated by Rabindranath Tagore who, through a letter to the Viceroy relinquishing his Knighthood, wrote “…the disproportionate severity of the punishments inflicted upon the unfortunate people and the methods of carrying them out… are without parallel in the history of civilised governments… The time has come when badges of honour make our shame glaring… and I for my part wish to stand, shorn of all special distinctions, by the side of my countrymen who… are liable to suffer a degradation not fit for human beings…” Gandhi, too, returned his Kaiser-i-Hind medal.

Both O’Dwyer and Dyer remained unapologetic and justified their action. Back home, Dyer faced disciplinary punishment, but he had many supporters too. Winston Churchill, the Secretary of War, whom current scholarship demonises for many ills including the Bengal famine, said in the House of Commons, “That is an episode which appears to me to be without precedent… in the modern history of the British Empire… It is an extraordinary event, a monstrous event, an event which stands in singular and sinister isolation…”

Jallianwala Bagh exposed how ruthless the colonial administration could be to suppress nationalistic violence. Although this did not end violent activities, especially in Bengal and in the Punjab, Gandhi’s non-violent ideologies of non-cooperation and civil disobedience attained national acceptance and became the dominant course. In Young India, Gandhi wrote, “Jallianwala Bagh though atrocious was the cleanest demonstration of Government intentions and it gave us the needed shock… Our duty therefore… is to invite martial law…and evolve the courage to draw the rifle fire not in our back as in 1919, but in our open and willing breasts and without resentment.” The Gandhian path of Ahimsa proved more effective than the British could ever imagine or know how to tame.

It also showed the arrogance of power in which no serious consultation with local leadership had taken place and the basic norms of administration flouted. Raja Ram has shown in his book The Jallianwala Bagh Massacre how pre-meditated the plan was.

Twenty-one years later, Udham Singh, belonging to the Ghadar Party, shot dead O’Dwyer in London for his role in the massacre. He was hanged shortly thereafter. Gandhi condemned Singh’s act as ‘an act of insanity’ and hoped this will not be allowed to affect political judgement. But Singh became a hero to millions of his countrymen. A century later, while the country remembers its martyrs, it should also learn how, in the absence of sane counsel, the administration can get alienated from the people it is meant to serve.

 

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[email protected]

Source: By Chandra Bhushan: The Financial Express

While we have made enormous progress in 25 years, the world is still running behind climate change. Today, the urgency to address climate change has never been greater. But because of the work begun 25 years ago, we are also better coordinated to take it on. We have the Paris Agreement, and we have the guidelines strengthening that agreement. What we need now are results’. This is the summary of the statement that Patricia Espinosa, executive secretary of the United Nations Framework Convention on Climate Change (UNFCCC), put out on the occasion to celebrate the 25th anniversary of the entry into force of the UNFCCC on 21 March 2019.

While I agree with the sentiments of the above statement, especially the urgency to address climate change, I disagree with two points: one, the progress made by the UNFCCC so far and, two, the potential of the UNFCCC to deliver results in the future.

25 years and little to show

UNFCCC was adopted with an objective to ‘stabilise greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system’. Over the past 25 years, GHG concentrations, far from stabilising, have reached record levels. The atmospheric concentration of carbon dioxide (CO2), the main GHG, has increased from 358 parts per million (ppm) in 1994 to 412 ppm in 2018. The amount, 400 ppm, of CO2 was last witnessed on earth about 3 million years ago.

The global temperature, too, has steadily increased from 0.25oC above the pre-industrial era in the early 1990s to an increase of 1.1oC in 2018. Very soon, the temperature increase is likely to hit 1.5oC, declared recently as a guardrail by the Intergovernmental Panel on Climate Change (IPCC) to avoid catastrophic impacts of climate change. All this while the intensity and frequency of extreme weather events have significantly increased, destroying lives and livelihoods. Between 1997 and 2016, extreme weather events caused more than 500,000 deaths and economic losses of around $3.16 trillion worldwide. And, if we do not heed the warning of the IPCC’s special report, Global Warming of 1.5oC, these numbers would seem minuscule 10 years from now.

Despite agreeing on a protocol (Kyoto Protocol), two agreements (the Cancun Agreement and the Paris Agreement) and hundreds of decisions on a myriad of climate change issues, UNFCCC has little to show as results. Instead of reducing, annual emissions of GHG continue to increase and are, today, 60% over 1994 levels. In fact, in 2018, global CO2 emissions increased by 2.7%, one of the highest annual increases in the decade. Emissions are increasing in almost all countries, including developed countries that had pledged to reduce emissions.

The fact is that the global energy system has changed little over the last 25 years. In 1994, about 80% of the global primary energy supply came from fossil fuels. This figure has remained unchanged in 2018. The number of energy-poor has also remained the same. In 1994, about 2.8 billion people used polluting solid fuels to cook food—this number, too, remains the same in 2018. So, we have neither been able to shift the global energy system away from fossil fuels nor have we been able to provide adequate amounts of clean energy to all. And, this has happened because global cooperation on energy and climate change has weakened, rather than strengthened, over the years.

Future of UNFCCC

IPCC’s special report makes it clear that the Paris Agreement cannot limit warming to even 2oC. In fact, global warming is likely to reach 1.5oC between 2030 and 2052. To limit warming at 1.5oC, CO2 emissions will have to be reduced by 45% by 2030 from 2010 levels and reach net-zero by 2050. This means that we have 12 years to turnaround the energy system of the world and cut emissions drastically.Can the UNFCCC deliver on this?

The UNFCCC has moved from a top-down legally binding Kyoto Protocol to a bottom-up ‘self-determined’ voluntary Paris Agreement. Today, there is a question mark over the survival of the weak Paris Agreement itself. The United States has left the Agreement and, on its way out, it, along with other big polluters, fatally weakened the Paris Rulebook.

Under the Paris Agreement and its Rulebook, all countries are now on their own to mitigate, adapt and pay for the costs of climate impacts. The UNFCCC is now simply a platform to collect, synthesise and disseminate information. It doesn’t have the tools to drive global collective action to combat climate change. In such a situation, one needs to seriously question the continuation of the international effort at the UNFCCC.

The fact is that combating climate change now requires actions from all levels of government (national, subnational and local), private sector and civil society. It requires hard targets and a roadmap for rapid transition in all sectors of the economy. This can only happen if we adopt some radically different strategies. Let me propose two strategies:

First, let’s create multiple sectoral and regional platforms to drive transformation. We could push for international ‘sectoral’ treaties to achieve real transitions in energy, transport, agriculture and industrial sectors like steel and cement. To support countries to implement these treaties, regional platforms could be set-up to build capacity and facilitate technology transfer.

Second, climate change is too important an issue to be left to governments alone. We need government-plus strategy, especially concrete actions from the private sector. Many would argue that the Paris Agreement engages the private sector. But private-sector engagement in the Paris Agreement is voluntary and has not added up to much. To push the private sector, we will have to make climate change a fiduciary duty of corporations and hold them accountable for polluting the climate. I know that all these ideas would be considered a non-starter. But it is better we try something different now than regret later.

 

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Emigration Bill of 2019

Source: By Amarendu Nandy: Mint

The draft Emigration Bill 2019, recently released by the ministry of external affairs (MEA), and currently pending parliamentary approval, proposes a new legislative framework for matters related to emigration of Indian nationals. It is set to replace the extant one under the Emigration Act of 1983. India is among a handful of countries that has explicit legislation for promoting emigration. Historically, countries which have enacted emigration laws—like the Soviet Union in the post-World War II period, restricting East-West migration in the Eastern Bloc, or North Korea today—have used such legislation to essentially prohibit international movement of their nationals. The laws of most countries today address only immigration.

The intention of replacing the old Act is consistent with the government’s effort to weed out anachronistic laws and update them in line with modern conventions. The United Nations’ “2030 Agenda for Sustainable Development", for example, has for the first time recognized migration as a core element of the global development agenda, and has set several targets that relate to it. These cover student mobility, human trafficking and exploitation, labour migration and employment, migration governance, remittances and migration data. While not explicitly stated in the draft bill, one objective of the new legislation is to draw up appropriate regulations that would conform to the contemporary global agenda on these matters.

The emigration bill also assumes significance for two other aspects. First, since 1983, there has been a structural shift in the quantum, nature, pattern and direction of emigration from India. As per the latest World Migration Report published by the International Organization for Migration, India features as the largest country of origin for international migrants (about 30 million in 2017); the largest recipient of remittances (about $80 billion or ₹5.6 trillion in 2018); and figures in five of the top 20 migration corridors from Asian countries. The 1983 Act, enacted in the specific context of large-scale emigration to the Gulf, falls short in addressing the wide geo-economic, geo-political and geo-strategic impact that emigration has today.

Second, the government’s attitude towards international migrants has changed over time. From labelling NRIs as “non-required Indians" at the height of the “brain drain" in the 1970s and 1980s to addressing them as “India’s brand ambassadors" and “symbols of our capacities and capabilities", as the Prime Minister did at this year’s Pravasi Bharatiya Divas, India’s position on the phenomenon has come a long way. The proposed bill, with its thrust on strengthening the institutional framework for emigration management, affirms that shift in outlook.

The draft bill proposes a three-tier institutional framework, with the MEA as the nodal ministry. At the top, a central Emigration Management Authority (EMA) has been proposed for policy guidance and supervision. In the middle, a Bureau of Emigration Policy and Planning, and a Bureau of Emigration Administration shall handle day-to-day operational matters and oversee the welfare of emigrants. At the bottom, nodal authorities in states and union territories shall coordinate aspects of management related to both emigrants and returnees. This could allow vertical policy coherence on emigration matters—particularly in promoting and managing safe, orderly and regular emigration.

That said the contours of the new bill still appear to focus on managing blue-collar emigration, a la the 1983 Act. This is evident as the draft bill lists at length the duties and functions of recruitment agencies and sub-agents, which, inter alia include skill upgradation and pre-departure orientation programmes designed to serve only such emigrants. While the need for this is clear, since blue-collared workers are more vulnerable to exploitation and migration shocks, the bill must also offer management structures and policies that better reflect the current nature and pattern of emigration—specifically, concerning the aspirations of and challenges for white-collared emigrants.

For example, as per the draft bill, the EMA shall have representation from only two other ministries: home affairs and human resource development. It notably excludes representation of the ministry of commerce and industry; the nodal ministry involved in Mode 4 negotiations (movement of natural persons) under the General Agreement on Trade in Services at the WTO. At a time when nativism has led to heightened protectionism in the labour markets of destination economies, policy formulation on migration will increasingly need integration with trade and investment agreements. This shall necessitate a cross-sectoral approach in emigration management. However, in its proposed form, such horizontal policy coherence is unlikely to be achieved.

The draft Emigration Bill 2019 does improve upon the extant legislative framework by adopting a whole-of-cycle migration approach. But, the current international paradigm relating to labour market protectionism demands a wider approach. We need to graduate from merely enacting emigration management legislation to practising more broad-based diaspora engagement policies that could provide a cushion in these turbulent times.

 

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Deals to rules

Source: By Manish Sabharwal: The Indian Express

Philosophers wondering why a benevolent god created fear often hear from other philosophers that some fear is conducive — if not essential — to good behaviour. The response finds interesting support in the Vishnu Sahasranamam: Saha-srarchi sapta-jihvah saptai-dha sapta-vahanah, Amoorti ranagho chintyo bhaya-krudbhaya-nashanah (Why has fear been created? So it can be taken away). Not creating the fear of immediate, automatic and borrower-blind consequences for default is one reason why India’s credit to GDP ratio is a low 50 per cent (Arunachal is 1 per cent, Bihar is 17 per cent, 100 per cent is the average for rich countries).

But over the last three years, the new Insolvency and Bankruptcy Code (IBC) and the RBI’s Revised Framework for Resolution of Stressed Assets (RFRSA, issued on February 12 last year) have begun to show impressive results in recognition (we know the truth), deterrence (defaults are reducing), resolution (defaults are being cured) and speed (defaults are being cured faster). This is great news for financial inclusion of the small, honest, and non-politically connected.

The “willful defaulter” tag is a distinction without a difference; banks face pain irrespective of whether a default is caused by Fraud (poet Sahir Ludhianvi’s transposed quip “Jo baat teri tasvir mein hai, tujh mein nahin”; that which is in your image, is not in you), Competition (Schumpeter argued that capitalism works because successful businesses stand on ground that is crumbling beneath their feet), or Unsustainable Ambition (what Norwegians call Stormannsgalskap or the madness of great men). Current court petitions by defaulting sugar, shipping and power companies against the IBC and RFRSA should be dismissed because they want pre-IBC bank behaviour (discretionary bad loan recognition via restructuring or evergreening) that created our pre-IBC regime (Eagle’s Hotel California, where you check in but never check out).

India’s new policy regime for defaultsIBC plus RFRSA — ensures a time-bound exploration of all business, capital and ownership restructuring options before liquidation (an outcome in which everybody loses and therefore nobody wants). It is working; bad loans went from 2.4 per cent in 2007 to 11.6 per cent in 2018 but may now be down to 10.2 per cent and the direct impact of RFRSA lies in annualised reduction in bad loans for recent quarters being the highest in recent years with a huge acceleration in two-way mobility between standard and non-standard loan classifications.

Of the 82 accounts resolved by the IBC, the average realisation by financial creditors was 48 per cent and average time taken for resolution was 310 days (versus World Bank estimates of 27 per cent and 1,580 days). RFRSA fixed birth defects of past RBI interventions like SDR, S4A, JLF, CAP, etc by requiring weekly reporting by banks on all accounts in default anytime during the week with exposure greater than Rs 50 million, requiring all lenders to initiate steps to cure a default with any lender, requiring an independent credit opinion for resolution plans, and setting a 180-day implementation deadline for resolution plans in loans greater than Rs 2,000 crore. Contrary to myth, the Febrary 12 RFRSA circular doesn’t apply to small borrowers.

I don’t want to oversell the current state of change; litigation has choked the pipeline with resolution for only three of the RBI’s first IBC list of 12, only 63 of the total 1,484 cases admitted under the IBC have the highly desirable outcome of being withdrawn under Section 12A (withdrawal from insolvency prior to expression of interest stage with consent of 90 per cent of lenders), recovery rates are still lower than global averages, and 31 per cent of the 898 ongoing insolvency cases at the end of 2018 have breached the 270-day deadline. But the recent Supreme Court judgement upholding the constitutional validity of the IBC, clarifying the relative position of secured and unsecured creditors, and holding the line on Section 29A (defaulter rebidding restrictions) means that the IBC is not a passing shower but climate change. Consequently, action under Section 12A withdrawals is accelerating, a market for corporate control is emerging, and more equity is being raised (not borrowed or stolen).

China can teach us a lot about labour markets but not about banking. Their share of bank lending to the private sector has shrunk by 80 per cent since 2013, total bad loans may exceed $3 trillion, and total debt now exceeds 300 per cent of GDP (most loans went to construction because China produced three times as much cement between 2012 and 2016 as the US did in the entire 20th century. While China’s treatment of defaulters is tempting — they recently expanded restrictions on travel, buying homes, holding high-level jobs, kids school eligibility, etc for defaulters — these practices are inconsistent with a democracy.

There is no dishonour in default and Machiavelli estimated “that fortune is the arbiter of half our actions”. But he also believed “she leaves the other half for us to govern. God does not want to do everything”. RFRSA represents the RBI’s atonement for decades of irrational bad loan accounting norms and the IBC recognises that stupidity is not illegal. The Lok Sabha was told in 1969 that “bank nationalisation was being done to help farmers, self-employed and SMEs”. Few of them got credit because the politically connected captured loans and the financial inclusion was retarded because the due process, rule of law and fairness for bad loans created by RFRSA+IBC did not exist. Novelist Ernest Hemingway’s quip — bankruptcy first happens gradually and then suddenly — suggests he was not familiar with pre-IBC India where bankruptcy happened gradually and then became even more gradual. Transferring information from your head to your heart happens via your arms but the long arm of the law has been missing in bad loans for decades.

Over the last three years, India’s bad loan policy moving from deals to rules means the long arc of economic history is finally bending towards justice. This remarkable reform will not only recover Rs 3 lakh crore plus for banks but has hugely positive consequences for India’s productivity, wages and prosperity.

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The role of FC in sustainable development

Source: By Pradeep S. Mehta: Mint

Irrespective of controversies around the remit of 15th Finance Commission (FC), it is evident from its terms of reference that the government wants it to play a key role in fostering sustainable development in India. Indeed, constitutional status and the ability to suggest far-reaching reforms on financing, allocation and use of funds by three tiers of governance makes the central (and state) FCs completely capable to discharge this role. However, effective implementation will be the responsibility of the three tiers, which is an issue of good governance.

Education and health expenditure by states play a key role in improving developmental outcomes. Additional financing requirements of ₹12.1 trillion and ₹53.6 trillion have been estimated for health and education, respectively, to meet the sustainable development goal, or SDG targets, by 2030. Aware of the importance of social sector expenditure, over the years, poor states including Rajasthan, Bihar, Jharkhand, Uttar Pradesh and Madhya Pradesh, have increased their expenditures in social services, education and health as a percentage of gross state domestic product (GSDP).

Despite such increase in education and health spending, experts indicate that efficiency of education spending has deteriorated in Rajasthan, Uttar Pradesh, Madhya Pradesh and Odisha between 2002 and 2015. Similarly, it has been suggested that there was no evidence of poorer states “catching up" with richer states in quality of human capital formation and health-related expenditure. A recent report by Crisil also highlights that while Rajasthan, Jharkhand, Uttar Pradesh and Telangana spent most out of their budget on capital expenditure, health and education sectors remained impoverished. Good governance, coupled with growth, is key in achieving spending efficiency in education, health and social sectors.

Alas, these states may no more be left with sizeable funds to consistently invest in human development. Punjab, Rajasthan and Kerala already have their debt ratios over 30%, which are not only highest across states, but deteriorating. In recent years, some of these states have experienced declines in grants-in-aid and their own revenues as a percentage of GSDP, consistently reporting revenue deficits and fiscal deficits of over 3% of GSDP. Takeover of debt of distribution companies under the UDAY scheme and farm loan waiver announcements were key reasons for several state governments experiencing high deficits. Achieving long-run sustainability of debt and deficits continue to be a major challenge for such states.

Consequently, states such as Rajasthan were faced with a double whammy. Not only did they not have adequate funds to spend on sustainable development, their existing expenditure has not been delivering desired outcomes. This calls for a radical course correction.

The role of local governments has often been ignored in human development, despite them being closest to ground and having the ability to make investment choices based on evidence and consistently monitors outcomes. In the spirit of fiscal federalism, while the Constitution envisages a bottom up approach in determining resource allocations among the three tiers of governance by mandating state FCs to take into account requirements of local governments and inform the central FC, it rarely happens. Local government expenditure as a percentage of total public sector expenditure is only around 7% compared with 24% in Europe, 27% in North America and 55% in Denmark.

The term of several states FCs has been repeatedly extended and there is no coordination between central and state FCs to understand a consolidated account of the reality at the sub-state level. FCs will need to look within and improve internal processes for better coordination, making realistic assessment of ground realities and improving outcomes.

Over the years, several suggestions have been made on mechanisms, which FCs can adopt to empower local governments. For instance, Swaminathan A. Aiyar recommended that central FCs propose substantial rewards for states that are serious about decentralisation, and penalties for those that are not.

Noted econocrat Vijay Kelkar recently suggested some radical changes in our fiscal federalism framework. He recommended creating a consolidated fund for municipalities and panchayats to ensure that revenue allocated by central and state FCs flow directly to it. He also advocated that states and the Centre should share an equal percentage of their respective goods and services tax collection with the third tier. This will lead to creation of better public goods resulting in growth of economic activities, resident citizens’ incomes and consumption which, in turn, will provide high fiscal resources to the local governments.

Suggestions have also been made to create market-based mechanisms for financing government expenditures and fixing accountability. At present, states are neither rewarded nor penalised for their debt management. An index of debt sustainability and fiscal prudence performance indicators for measuring performance can be created, wherein fiscally strong governments can get themselves rated to get better rates in auction of bonds. Cash surplus state governments can be allowed to lend to those in deficit at a market-linked rate.

Similar market-based mechanisms allowing inter-municipality borrowing and lending, and performance measurement on predefined indicators could be designed to incentivise productivity and fix accountability of local governments. FCs need to become agents of change. To this end, they must examine these suggestions, and make appropriate recommendations to empower local governments, enable good governance and play their part in fostering sustainable development.

 

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