Gist of The Hindu: May 2015

Gist of The Hindu: May 2015

Not measure for measure

Purchasing Power Parity or PPP has validated a long held surmise that the poorer countries are not as badly off as they are made out to be nor the richer ones as well off as they seem. A nominal GDP ranking puts India at tenth place while a PPP one pushes it up to third, behind the United States and China. The Big Mac Index of The Economist loosely corroborates. Travelling to expensive parts of the world from our country brings this home to us tellingly.

We would be wise to guardedly settle for PPP. The world too has done likewise. India, like those of several other similarly placed countries, does have an economy worth several times larger than its nominal GDP indicates. This fact has not gone unnoticed where it matters, especially in the boardrooms of multinationals or corporate India which indefatigably seek to “add an inch to every Indiaman’s shirt tail”. Some strong endorsement for this comes from the management guru, the late C.K. Prahalad. Unsurprisingly, for companies like Suzuki and Honda, India has emerged as their largest market for cars and two-wheelers and Vodafone, despite an unresolved retrospective tax issue, is very much here to stay. India of course enjoys the sheer strength of numbers.

After China, India has more mobile owners than any other country. The smartphone revolution has just hit us big and India is more likely than not to emerge as the second largest market for that too. India is also one of two largest motorcycle manufacturers. The country continues its run as one of two largest producers of rice and a third of wheat as well as fruits and milk. Of course we know that in per capita in agro and dairy products, we are still way behind much smaller producers but are likely to get “there” thanks to developments in science technology. In all these segments India is sitting on the cusp of an opportunity. If the green revolution surprised us, managed right, the future growth in agriculture will astound the world. E-commerce is another area we mistakenly thought we had lost out on. Just as we were despairing at the success of Alibaba in China, we now see serious investment coming into e-retailing. Meanwhile, Amazon, even as it threatens to leave, is expanding its footprint here. India, it turns out, is a glass half full and filling rather than half-empty and emptying.

But before we start rejoicing we need to reconcile flattering national economic indicators with some very odious social ones. India’s ranking in the UNDP’s Human Development Report (2011) is 134. In gender inequality, it comes out marginally better but still a rotten 129th out of 187 countries. Then on the ease of doing business, India is a miserable 134th, pretty much at the bottom of the heap. So things are that horrible. Or are they only being made out to be terrible? Given the scale of poverty in India, it is very difficult not to make these rankings stick and lot of visual evidence exists. Mukesh Ambani’s massive residence in Mumbai coexists with a sea of slums nearby. Get out of many of India’s airports, and most especially Mumbai, and one is confronted with every kind of misery one can think of. Stop at the traffic lights and the poor of India come knocking on your car window. The better off in our country live in sanitised islands of relative calm defended by the very kind drawn from the ranks of those it seeks to keep out. But as we all know, visuals, even powerful ones, do not so much reflect reality as point out the shocking that we tend to ignore or deliberately disregard.

The country as a whole is nowhere as bad as these indices show but together they do bring out that India is a poor bet only because we have been inept at better stating our strengths while unfailingly adept at inviting attention to our weaknesses. The question to ask is “should India be taken as a country at all for such indicators to stick”? India is more populous than the whole of Africa and roughly equal to Europe and the Americas combined on that count. We need a better way of being compared — clearly, it is absurd to rank the country alongside say Lesotho or Guinea Bissau — the first has a population of less than three million and the other two. Internal rankings of States, as what a leading Indian magazine brings out annually, is so much like water off a duck’s back, that the game changer will be when the country configures the rankings for global consumption. This will become particularly important now when States are competing with each other for investments. This should also make State governments sit up and take note that governance matters. Chhattisgarh is an early mover here.

Millions are spilling out of India’s poorer States to run services in the better off ones. Mumbai would not run for a day without migrant workers and Kerala — the entire State — would come to a grinding halt if the near three million from Assam and Bengal as well as U.P., Odisha and Bihar were to en-masse go elsewhere. The Government of India would therefore do well to bring out an annual State-wise status report on migrant labour detailing where they come from and the jobs they do and how much they contribute to State economies rather than ungratefully treat them as parasites. This should cool rampant xenophobia of the kind the Shiva Sena promotes and make us grateful for a borderless India.

Prospects for peace

Doubts over the durability of peace in Ukraine despite the ceasefire that formally came into effect on Sunday, represent a dangerous augury in the months-long, bloody and bitter conflict between government and separatist rebel forces. Prospects of any swift cessation of hostilities were thrown into jeopardy after differences surfaced even as the deal was being drawn up, with some players advocating an immediate suspension of violence and others insisting upon some preparatory delay. During the run-up to Sunday, the objective of the opposing forces seems to have been to consolidate their respective positions. The sea coast near Mariupol and the city of Debaltseve, which are in Ukrainian control, are said to be critical for the breakaway republics of Donetsk and Luhansk. Thus, uncertainty seems to have been written into the accord brokered last week by the leaders of France and Germany with their Russian and Ukrainian counterparts. The current developments remind you of how the September 2014 ceasefire fell apart almost as soon as it was agreed upon, leading to a further escalation in the crisis that has now claimed more than 5,000 lives and led to the displacement of a million people.

The fluid situation on the ground is bound to strengthen the Congressional hawks, who have been urging Washington to rethink the current provision of non-lethal aid in favour of backing Kiev with arms. Conversely, the conservative and social democratic partners in Germany’s ruling grand coalition, with French President Francois Hollande, have been almost categorical in their opposition to any military solution to the crisis in Europe’s eastern flanks. The German Chancellor, in fact, made an analogous reference to the erection of the Berlin Wall as she elaborated on Europe’s position on Ukraine at the annual Munich security conference the previous weekend. Angela Merkel pointed out that the western powers did not resort to force to counter the action. Republican Senator John McCain’s allusion, in his speech at the same conference, to the response of the western powers to the Berlin blockade provided shades of the American stance. An unequivocal commitment to finding a peaceful resolution to the conflict is imperative, given the interdependence between Europe and Russia in the areas of economic and energy cooperation. The conflagration in Ukraine also demonstrates that the prospects for peace over the long term depend in no small measure on containing nationalist tendencies in the states of the former Union of Soviet Socialist Republics (USSR). In this context, the continued expansion of the North Atlantic Treaty Organisation (NATO) into Russia’s neighbourhood about 25 years after the end of the Cold War, could prove counterproductive.

A social role for NITI Aayog

NITI Aayog has had its first meeting with the economic experts. This was crucial since the government is trying to revive economic growth. The economy has experienced slow growth in spite of the revised national income data that has indicated faster growth. Industry, exports and so on, have shown tepid growth in recent years. The National Democratic Alliance’s electoral promise of an economic turnaround seems elusive in spite of its accelerating “reforms” by liberalising foreign direct investment (FDI) flows and land acquisition policies to signal its pro-corporate sector and big business inclinations. The budget is first a macroeconomic exercise and then a micro one catering to sectors of the economy. Two contradictory macroeconomic views are emerging from the government and its policy advisers. This is similar to the policy dilemma that the United Progressive Alliance faced earlier. The first view is to have a larger fiscal deficit so as to boost demand. The other view is to cut the fiscal deficit to keep the credit rating agencies (proxy for financial interests) happy so as to prevent a downgrade of the economy.

The Finance Minister favours the latter view and argues that a fiscal deficit imposes a burden on future generations who will have to repay the debt. This conservative view assumes that resources are constrained, so if the government spends more, the private sector has less to spend. But that cannot be true when the economy has spare capacity and can produce more. Increased government expenditures then boost the economy and lead to more investments via the accelerator. If increased spending is financed by increased direct taxation, that is even better. This is feasible in India since direct taxes are around 7 per cent of GDP which is low when compared to most other countries. But a government trying to signal its pro-business inclination would not wish to raise direct taxes like income, corporation and wealth taxes. Actually, tax rates need not be raised but only the concessions given in taxes (these are called tax expenditures and amount to 4.5 per cent of GDP) need to be curtailed to get more resources. But this may also be seen as anti-business. The other possibility is to tap the black economy (more than 50 per cent of GDP, according to me.) This requires political will which is not yet visible. The business community, the largest generator of black incomes, would see this also as anti business — it has been opposing introduction of general anti avoidance rules (GAAR).

Actually, tax rates need not be raised but only the concessions given in taxes (these are called tax expenditures and amount to 4.5 per cent of GDP) need to be curtailed to get more resources. But this may also be seen as anti-business. The other possibility is to tap the black economy (more than 50 per cent of GDP, according to me.) This requires political will which is not yet visible. The business community, the largest generator of black incomes, would see this also as anti business — it has been opposing introduction of general anti avoidance rules (GAAR). India’s current economic dilemma has global roots. The eurozone, Japan and Russia are in trouble, the Chinese economy has slowed down and the U.S. economy is the only big one that has improved. In such a scenario, increasing exports in a big way would be difficult. Declining commodity prices (like that of petroleum goods) signal a weakening global economy. Uncertainty is deepened by the arc of instability due to failing states, from Afghanistan, Syria, Iraq, Libya, Nigeria to East Africa. The war in Ukraine and the rise of IS are compounding the problem. Greece threatens the economic stability of the eurozone. The new government there is defying the dictates from the world of finance and has promised to end the austerity regime hoisted on the people of Greece.

In 2011, Mr. Warren Buffett gave a call to tax the rich more not only for the sake of equity but also to tackle the global economic crisis. This call was picked up in Europe with 16 of the wealthiest French urging their government to tax them more. Fifty wealthy Germans backed this petition. In Italy, the chief of Ferrari also lent support. Inequity has grown in most countries since the mid-1970s following the domination of global financial capital over policies — spearheaded by the World Bank and the International Monetary Fund (IMF). These policies have not only marginalised other sectors of the economy but also promoted bubble economies that are prone to periodic collapse as it happened beginning 2007 and from which the world economy has yet to fully recover.

The dilemma currently facing Indian policymakers reflects these global trends. India’s rightward drift started with the Emergency in 1975 when Sanjay Gandhi marginalised the left of Centre thinking in the Indira Gandhi government. The trend continued during the Janata regime and thereafter under the Indira Gandhi government which had to approach the IMF for adjustment in 1980. Rajiv Gandhi, under considerable influence of the liberalisers, pushed this tendency faster. With the New Economic Policies in 1991 and the emergence of the World Trade Organization (WTO) in 1995, there was a paradigm change, with the policies of finance capital becoming entrenched. For India, which remains very poor and very unequal, policies based on the interest of finance capital and a narrow section of society can only spell disaster. These policies push markets and technology-based solutions which marginalise the individual. The underlying idea is that if making democracy work is difficult, substitute it with technology. Those lacking faith in democracy and social institutions are (in the name of the poor) pushing an autocratic agenda based on greater use of technology. The hard work of creating and nurturing institutions that can deliver to the people and strengthen democracy is sought to be circumvented. So, one of the key proposals today is to push Goods and Services Tax (GST) even if it does not suit the needs of the vast unorganised sectors of our economy and benefits the MNCs and big business.

New thrust in India-Sri Lanka ties

Relations between India and Sri Lanka have not just been reinforced during the visit of President Maithripala Sirisena but have also gained new direction and momentum. As Sri Lanka’s closest neighbour that has ethnic links to its most significant minority, India is a huge influence in the island nation’s political, economic, social and cultural consciousness, and its world view. President Sirisena was hewing to a long and unbroken tradition of newly elected leaders making New Delhi the first port of call for foreign visits. But in a departure from the routine nature of such visits, both sides signed four substantive agreements. Of these, the agreement on Co-operation in the Peaceful Uses of Nuclear Energy was the most significant as it imparts a new strategic element to bilateral relations. Since 2010, Sri Lanka has wanted to utilise nuclear energy in industrial applications as well as in fields such as medicine and agriculture. Two years ago, Colombo had indicated it was exploring such an agreement with Islamabad, with which too it has a warm bilateral relationship. Its decision to move ahead on this front with India shows the maturity of the new Sri Lankan leadership and the importance it attaches to its relations with New Delhi. The agreement envisages “exchange of knowledge and expertise, sharing of resources, capacity building and training of personnel in peaceful uses of nuclear energy”. Two years ago, Sri Lanka had also expressed safety concerns arising from the geographical proximity of the Kudankulam nuclear reactors. That the signatory to the agreement on the Sri Lankan side was Power and Energy Minister Champika Ranawaka who had voiced the concerns, shows that Colombo is now sufficiently reassured.

The two sides have also agreed to enhance their defence and security cooperation in the existing trilateral format with the Maldives. New Delhi should press any security concern it may have, such as that which arose with the docking of a Chinese submarine in the Colombo harbour, without dictating Sri Lanka’s choice of friends and allies. The travails of fishermen on both sides of the Palk Bay received attention with Prime Minister Narendra Modi and President Sirisena pledging to resolve them in a “constructive and humanitarian” way. Sensibly, fishermen’s associations on both sides are to continue talks begun two years ago to find their own solution. There were no public statements on the Tamil question during the President’s visit. Nevertheless, this remains top of the agenda in bilateral relations. New Delhi must encourage Sri Lanka’s new leadership to be determined in addressing the issues of ethnic reconciliation and power-sharing with Tamils.

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