governance, political economy, institutional development and economic regulation

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Shashi Tharoor’s latest book originated in a debate at Oxford on whether Britain should pay reparations to its erstwhile colonies. The YouTube clip of Tharoor systematically demolishing the opposition, his brilliance evident in the thrust and parry of debate, has been watched by more than three million viewers. But the author says he felt a “moral urgency” in informing the “layman and students” in India and in Britain, about the “horrors” of colonialism and hence this book.

The book is conveniently divided into eight chapters. Unusually, each is virtually self contained though each focuses on specific topics, as for example, the extent of the loot; dividing, rather than unifying India; subverting Indian diversity in ersatz modern British institutions; the policy of divide and rule; the absence of enlightened despotism et al. Whilst this stratagem of comprehensive rendition adds to the length, it facilitates selective, speed reading. There are also 295 helpful references to other works—both Indian and foreign, a veritable treasure trove.

The Raj – long on loot short on local benefits?

The author deploys the familiar nationalist tactic of talking up the wealth and virtues of pre-British India, while playing down the inadequacies of much of post-independence India, to book-end the “horrors” of the Raj. The benefits from the Raj are dismissed as few and that too, unintended, barring the development of a pan-India modern press and media; development of canal irrigation; scattered electrification of towns; and of course -the railways. Oddly, the planning and building of regulated, urban settlements for the British, expanded versions of which, subsequently, also became the refuge of India’s political, business and professional elite and in less oppulent versions for India’s middle class, goes unacknowledged.

The “loot” neither began nor ended with the Raj 

The litany of colonial woes is expectedly long. Nothing attracts instant attention more than stories of loot and rape inserted early on in a book. The British drained 8 per cent of India’s GDP as per Paul Baran’s 1957 estimate. Annual outflows are separately estimated by William Digby at 4.2 billion British pounds during the 19th century. Extrapolating this trend onto the first half of the 20th century, the additional outflow was 2 billion British pounds. Huge as this cumulative sum seems, consider that Indians themselves are estimated to have amassed $500 billion of illegal wealth abroad in less than seven decades of India’s independence as per the CBI in 2012. Consider also, that against the less than 10,000 British subjects employed in India, the Report of the Indian States Committee of 1929 lists a total of 562 princely states, each with a retinue of vast numbers of relatives of the ruling family living off the state treasury. There is no corresponding account of how much these effete rulers and their families cost the ordinary Indian.

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Indian Maharajas delighted in maintaining humongous households and extravagant habits – and why not, since the aam admi paid for it all.

Yes, the British used India as a source of capital and raw material for their industries, which stilted Indian industrial development. Yes, they helmed organised commerce in India via the Managing Agencies. But just as surely, Jamshedji Tata’s dream of establishing a modern steel mill saw fruition because British India guaranteed the off-take of steel and built the railway to link the steel mill with raw materials and markets, thereby making it India’s first Public Private Partnership.

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Jamshedpur, 1912: The first steel ingot is rolled 

The author cites the regulations forcing Indian mills to produce only British Specification Steel as a low stratagem to make them uncompetitive. But it could also be viewed as the first step towards internationalising standards in Indian industry. Not producing to international standards was our failing till we liberalised industry and opened our markets to competition in 1991.

The Raj was neither elightened nor did it serve a moral purpose

Of course, the British, as a colonial community, were rapacious, openly racist and self-serving. But the evidence is thin that they were any worse than the long line of Indian rulers that preceded them. Admittedly, it mattered where you lived. The princely states of south and west India were generally better managed and more progressive than those in north and eastern India.

Colonial consequences: The death of institutionalised privilege & rise of the new middle class

Tharoor’s view that neither the political unity of India nor the adoption of democratic norms was a direct outcome of the pan-India political architecture of the Raj is inadequately backed up with evidence. The mere fact that Arabs refer to all Indians as “Hindi” is hardly evidence that pre-British India was already integrated. By this logic, all those living south of the Vindhyas are “Madrasis” because that is what ignorant North Indians called them and all of Arabia is one because we refer to people from there as “Arabs”.

The author ignores the greatest accomplishments of the Raj—the decimation of the old order of inherited privileges and rights; kindling of the spirit of democracy and incubation of the great Indian middle class via government jobs in the railways, the army and in civil governance.

Prime Minister Indira Gandhi, by abolishing privy purses in 1971, ended what the British began—the consigning of India’s numerous Maharajas to the dustbin of history. By institutionalising the common law and opening up vacancies—admittedly too few—at the very top, the Raj inspired millions of young, ordinary Indians to aspire to be literate and professionally qualified. That three generations of Indians had to serve as clerks to British superiors, not necessarily more accomplished than themselves, is a regrettable but possibly an inevitable consequence of gradual transition.

The Indian Constitution – equity, liberty and inclusion

The Indian Constitution is a direct outcome of the groundwork done over the previous four decades, since the Minto-Morley Reforms of 1909, to implement consultative democracy by including the professional middle class in the process. Ask any Dalit, backward caste, tribe or other minority and they will ascribe their liberation from traditional shackles to the modernist, reformist social and economic thinking which emerged, possibly as a nationalist response, to British rule.

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Babasaheb Ambedkar: Iconic messiah of dalit inclusion

It is not for nothing that Babasaheb Ambedkar wore a suit and a tie rather than a dhoti. For him the suit was a symbol of liberation from the oppressive rule of India’s traditional, upper caste elite and the Constitution was his guide to a more equitable future. Mayawati, Manmohan Singh and Prime Minister Modi are the organic outcomes of the much-needed, albeit self-serving, prising open, by the British, of India’s dormant, traditional cleavages—a black box of competing religions, castes and regions. Consolidation of these traditional identities at the national level via democratic institutions is what has changed the social landscape of India.

Sans the Raj – either a balkanised Hindustan or Red India

Tharoor speculates that if only the East India Company had not been as successful as it was, India would have found its own way to modernity. But what if we had remained hopelessly Balkanised instead? Why would we have not succumbed instead to the romance of Communism and gone the Chinese way? Would bloody revolution, social upheaval, the end of private enterprise, de-legalisation of religion and cultural diversity, unrelieved even by the constitutional promise of human rights and freedoms, have been better?

Contempt for the “box wallah” and the bania -Colonial hangover or the convenience of ersatz socialism? 

Tharoor speciously links our inward looking, anti-business attitude in the first four decades of independence till 1991, to our bad experience with the East India Company. This looks awfully like a red herring. It would be more instructive instead to examine the role played by our ineffective brand of ersatz intrusive socialism, used by the elite as a cloak, to retain domestic privilege. The ordinary Indian has looked westward for higher education and advancement, primarily because the professional choices at home have been too narrow and the glass ceilings too low.

Even the author accepts that the British Raj was more efficient than the domestic institutions it replaced. He is right that the rapacity of the Raj was exaggerated, precisely because its extractive capacity was greater than the loosely regulated Princely States. Consider the establishment of land records and the uniform and regular assessment and collection of revenue.

High taxes, yes but also efficient systems and records

Tharoor bemoans the high rates of taxes and the resultant penury for landowners since the burden of taxation fell on land and not trade. Yes, indeed. But that very system also bequeathed an embedded practice of recording individual property rights and updating transactions thereof, which is fundamental for development of private enterprise and for access to bank finance. The British left us with a treasure chest of land tenure, revenue and demographic data and an entire community of rule-bound “babus”. Better this than the institutional anarchy many other developing countries faced, post-independence.

Tharoor packs in masses of information and opinions around the British Empire in India. But it is all done in a grand, Quixotic style of tilting at windmills. The book is a hard-hitting, one-sided debate and caution is advised in succumbing to its mesmerising message, that the Gora (white man) is to blame.

Adapted from the authors book riview in Swarajyamas December 2016 http://swarajyamag.com/magazine/tilting-at-windmills

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How to junk cash and when

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Going cashless is a good idea. For the government, the biggest gain is an easy audit trail to assess individuals and businesses to tax and to ferret out illegal transactions like the financing of crime, terror, smuggling and drugs. For individuals, plastic (payment cards) and e-money provides far greater security, despite the risk from cybercrime. Businesses also gain. Studies of consumer behaviour show that paying by card or e-money encourages you to spend more than you would otherwise.

So it is no surprise that Prime Minister Narendra Modi, a man in a rush, is pushing the country to abandon cash. But how far are we from the point where a cashless economy can kick in? A US study in California noted in 2012, that even in the case of those who state a preference for paying by card, there is a 49 percent probablity that they will settle payments less than $20 by cash. The probability drops to 8 percent  for payments above $20. In India the inverse is true. At least, 95 per cent of personal consumption related transactions in numbers (not volume) are in cash.

Access to bank accounts is key for going cashless 

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A 2015 World Bank survey established that increasing the number of banked adults in the economy is the most relevant intervention till one reaches the level of around 800 accounts per 1,000 adults. India stands at a ratio of 480 accounts per 1,000 adults. This is pretty far from the point after which increase in the number of bank accounts cease to matter. Nevertheless, the extension of banking services in India is impressive given the scale of poverty, illiteracy, gender discrimination and the sparse spread of bank branches, particularly in rural areas — just around 40,000 for six lakh villages and a population of 800 million or on average 1 bank branch per 20,000 people..

“Barefoot” banks

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The high level of poverty in rural areas; low savings and consumption levels make rural branches uneconomic. So innovative mechanisms should be developed to provide “barefoot” banking to the poor. This is virtually impossible via our clunky and inefficient public sector banking system. The Reserve Bank of India revolutionised the licensing of payment banks earlier this year by bringing in a “year-around”, entrepreneur-driven approach of welcoming proposals for opening payment banks -which provide less than the full range of banking services- without inviting proposals for bank licensing through formal rounds, as previously. We need to pursue this approach and establish at least a “payment only” bank branch for every cluster of 5,000 adults. But inevitably this will take time.

e-money is a low cost, “quick win”, to digitise payments

A faster way of displacing cash payments is to scale up the use of e-money. Across economies which do not have universal financial access, over the period 2010 to 2015, the number of e-money accounts have grown at the rate of an astonishing 63 per cent per annum — more than triple the rate at which bank accounts have increased over. Mobile money accounts comprise 55 per cent of such e-money accounts. But, in India, e-money continues to languish at merely 10 per cent of transactions.

Getting merchants digitally ready for Point of Sale applications.    

A more serious missing link for ramping up cashless transactions is the relative scarcity of point of sale (POS) acceptability of cashless transactions. Easy access to POS ready merchants and vendors is key for building the credibility of plastic money as an alternative to cash.

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Photo courtesy: thehindu.com

This is a chicken and egg situation. Merchants do not see the value of accepting e-money payments unless enoigh people want to use them. Also, mechants lose interest on the deferred payments into their accounts. On top of this card providers charge merchants upto 3 percent of the transaction value for the service. All this pushes up the prices of customer purchase price of products. Customers in turn, try and dodge the servive tax and additional charges which comes with buying digitally. No wonder then that a mere 1.5 million commercial entities accept cashless transactions in India. Compare this with the 44.7 million registered micro, small and medium enterprises (comprising industrial and service related businesses) with an investment ranging from Rs 1 to 50 million, estimated in India by the 2006 SMSE survey. Bringing all these service providers into the POS net expands the market by an order of magnitude. Why not start by first “Carpet bombing” commercial entities in the 50 largest cities in India, with assistance and persuasion to say no to cash? Lets start by making cities cashless first and let the smaller towns and rural areas follow in an orderly manner.

Make cash transactions more expensive than digital ones

One cannot develop an entire ecosystem for junking cash by fiat alone. The incentive structure, which today privileges cash settlement because of its lower transaction cost, must be reviewed and reversed. The government started the RuPay debit card in 2014 with the hope that it would compete with the international biggies in the business — MasterCard and Visa – and make them look more seriously at the potential fortune which lies at the bottom of the pyramid — the small transactions end of the market.

India has 26 million credit cards and 712 million debit cards. But their use is low at just 12 times per debit card every year at an ATM and barely two transactions per year per debit card at a POS. The corresponding numbers are less than 1 transaction for a credit card at an ATM and 38 at a POS. In comparison in high income economies cards or e-money options are used to conduct around 280 transactions a year per person. We are a long way off from the frontier of cashless transactions. The good news is that we are better off than low and middle-income countries, which averaged just 22 cashless transactions per year per person.

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Plastic money becomes expensive to use if the individual transactions are small. Typically, micro-transactions of less than $5 (Rs 340) are not viable through plastic money and would need to be cross-subsidised. This is where e-money becomes the most appropriate vehicle to mop up the micro-transactions market which could account for as much as two-thirds of the total transactions. After all, cigarettes are still sold as singles in India; a paan (betel) costs just Rs 20 and a street meal is Rs 100.

Build the eco-system for expanding payments beyond traditional banks

If the government is serious about junking cash it must engage with commercial entities which have a large , diversified customer base to leverage for diversifying into the payments space. Phone carriers, progressive electricity utilities and the Railways are some options. They can quickly scale up the use of digital money by their customers in collaboration with e-pay platforms and provide some assurance to merchants against the risk of not realising the payments from the e-pay platform. Developing a “reward” based strategy to move 50 per cent of commercial transactions above Rs 500 to digital settlement by 2020 is a reasonable target.

There are some limitations which need to be overcome or gone around- the poor quality of electricity supply, dodgy net connectivity and the additional cost that needs to be borne to digitise small-value transactions via POS arrangements. Regional hackathons to find solutions to specific barriers can pay rich dividends. They can create an ecosystem of innovative thinkers focused on solving the problem. The future is digital. Engage millennials to figure out how to fast forward us there, out of turn.

Adapted from the authors article in the Asian Age November 28, 2016 http://www.asianage.com/opinion/columnists/281116/in-rush-to-go-digital-dont-junk-cash-yet.html

 

Deep freezing India

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Terminally ill people are opting to deep freeze their body hoping for a cure some day which would make them come miraculously alive and be well. But would you opt to temporarily freeze 85 per cent of your bodily functions merely because you cannot compete with the explosive, short burst speed of Usain Bolt but are running well ahead of Haile Gebresellaise  – the Ethiopian long distance champ? Not likely, given the huge risks and the meagre reward.

Shockingly, the Government of India chose to do just that on November 8, by de-legalising notes of Rs 500 and Rs 1,000, which comprise 85 per cent of the Indian currency in circulation. This deep froze the world’s third (or fourth?) largest economy which was ticking over happily at a growth rate of just under 7 percent. It also irreversibly, hit the sentiments and the pockets of its most ardent supporters – the 400 million citizens who comprise the middle class earning between Rs 2.5 to 50 lakhs (US$ 3,500 to 73,500) per year.

Exit “old”black money enter “new” black money

If the government’s actual objective was to destroy black money, estimated at 25% of the US$ 2 trillion economy, think again. A widely dispersed “new black money” machine has already mushroomed, exchanging the frozen Rs 500 and Rs 1,000 notes into new legal tender at a cost of between 20 to 40 per cent of their face value. Many people prefer this route rather than declare their hoarded stocks and lose 33 per cent to tax -if the amount is the current year’s income- or 100 per cent as tax and penalty if it is undeclared income from previous years.

But not all sellers are owners of undeclared wealth. Many are ordinary people who got caught short on cash and are desperate to buy things they need — medicines, food or pay for transport to get home. The banks are inaccessible for exchanging currency and ATMs are by and large not operative. This mess will take at least till the end of the year to be straightened out.

In the meantime, scores of small establishments and workers will accumulate debts to pay daily expenses while the economy loses potential value added over this period. The direct economic cost for a two month deep freeze is at least 1% of GDP foregone. The loss of individual credibility from contracts not honoured because of a cash shortage; loss of savings or atleast the interest on it; the permanent shut down of small businesses due to bankruptcy and the consequential loss of self-respect even for hard working people. is far more permanent and immpossible to tabulate.

No to Black Money – but focus on its sources. 

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Who would oppose hunkering down systematically on black money? Surely not more than 15 percent of the “black” wealth  (undeclared to tax) is held as cash in Indin Rupees mostly to transact, not as store of wealth. Much of it is held abroad; invested in real estate bought partly in cash to save tax and invested in gold and diamonds. Going after the cash component, whilst neglecting the other “black” assets, is like impounding the fuel in the tank of a highly polluting car, in the hope it will reduce smog. So long as the car exists it will  find the fuel; smog will result and new black money will be generated.

Prime Minister Narendra Modi has targeted election financing and corruption as the root of the black economy. But we are a long way from doing anything substantive. Even the accounts of political parties are not yet open to public scrutiny under the Right to Information Act. As for bureaucratic corruption it is a long haul with patient , deep surgery needed to unclog the pipes of good governance. There are no quick wins here.

High minded objective but low tech implementation

The declared objective is noble. But did we choose the optimum implementation mechanism? What have we achieved by the secrecy; the haste and the resulting action without adequate preparation – all of which are reminiscent of the anti hoarding drives against food grain traders of yore. Why not, instead, have given adequate notice of the government’s intention to crack down, specifying a future date? The efficacy of the step would not have been diluted. If anything, it would have been enhanced. Brandishing a big stick is better than using it.

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A notice period would have allowed better logistics to be in place — sufficient new notes; working ATMs and mobile exchange units for the unbanked. Ordinary people could have been educated and prepared for accessing the new currency. There was nothing to stop the tax authorities and the police from clamping down, during the notice period, on the activities of potential black money aggregators to dissuade leakages — just as they are doing today. After all social media and electronic surveillance has vastly increased the powers of government to monitor the activities of citizens.

Leakages are inevitable in any currency exchange programme. Around 53 per cent of our 400 million bank accounts are dormant. Many may be multiple or “benami” accounts of the same person. These accounts are viable vehicles to launder black money by paying the nominal holder of the account a small fee.

The government says it will not scrutinise deposits up to Rs 2.5 lakhs in each account. But even an average deposit of Rs 40,000 in each of the 200 million dormant accounts can convert Rs 8 trillion of black money in old notes into temporarily white money, in new notes. Other avenues are for small businesses to deposit their old notes as an advance in the accounts of their suppliers. Employers can similarly deposit advance salaries in the accounts of their employees.

The math of who holds how much currency

Thirty per cent of the Rs 14.5 trillion currency in the high denomination notes is held legitimately in banks and other government agencies as working capital. Another 30 per cent could be the legitimate savings in cash of around 170 million households, after excluding the poor households, and the cash working capital of the 10 million registered businesses in India.

This leaves 40 per cent, or Rs 6 trillion, as the potentially unaccounted wealth held as cash. The expectation is that the “black money” component, held in cash, will not be deposited for exchange because the depositors would then become liable to tax.  But don’t hold your breath — it would be very surprising if the amount extinguished is more than just 15 per cent or Rs 1 trillion. After all, the government’s tax amnesty scheme which closed in September 2016 required a sacrifice of 45 per cent of the amount as tax and penalty. It netted just Rs 0.65 trillion in undeclared money. In the late 1970s, when gold was smuggled into India because legal import was prohibited, a small proportion was regularly and ritually “caught” and confiscated by the customs authorities — a “nazarana” for retaining the “izzat” of the “sarkar”.

Much the same may happen now. Around Rs 1 trillion may fail to be deposited in the banks. This is the amount the RBI can write off from its liabilities, enabling the government to declare victory, while individual hoarders of black money take a haircut. With inflation at historic lows already, the two month economic deep freeze will push it down even further. The windfall in RBI resources could be useful in FY 2017-18 to boost the economy, which would still be reeling from the internal shock and disruption. But caution on stoking inflation is fiscally and politically advisable.

Fix whats broken  

Recapitalising public sector banks and waiving the debt burden of state governments can give decent economic returns if it kickstarts investment in projects or if it generates the necessary political capital to implement GST on schedule. Using some of this largesse to reduce the tax rate for low and middle income earners in FY 2017-18, particularly for senior citizens, may compensate them for the pain unnecessarily inflicted on them. Some significant salve is necessary to restore the credibility of the government as an efficient protector of the aam aadmi. There are two lesson from the mess. First, never fix what isn’t broken? Second, think before you deep freeze tomorrow’s lunch.

Adapted from the authors article in Asian Age, November 20, 2016 http://www.asianage.com/opinion/columnists/191116/a-noble-objective-but-the-execution-is-faulty.html

 

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Ramchandra “Ram” Guha’s latest book- Democrats and Dissenters – a collection of sixteen essays – is a meandering but delightful read. Part one explains India. Part two is about the scholars who have helped Ram do so. The link between the two parts is a stretch unless part two is the marshalling of a scholastic framework used in part one. By this logic inverting the sequencing – reading part two before part one, helps.

Ram Guha’s thought leaders

In this pantheon of six scholars, Dharma Kumar (1928 to 2001) is the only woman. The Delhi School of Economics professor and economic historian is the archetypal “nurturer” – mentoring students; incubating research; being a role model for unselfconscious women’ s empowerment; a “liberal polemicist”; determined opponent to fundamentalism and to the politics designed to take advantage of such bigotry.

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Professor Dharma Kumar, Ram Guha’s “fellow radical” and the “last Liberal”

Possibly Dharma Kumar was the engaged academic, the one Ram decided never to became. Eulogising Dharma is his way of atoning for the consequential social loss.

Eric Hobsbawm’s (1917-2012) life-long commitment to Marxism illustrates the perils of sacrificing scholastic distance to wed ideology.  Guha builds on this theme in the chapter on the eight barriers to freedom of expression in India -ideologically committed writers being one.

The rooted, intellectual energy of the revered Kannada novelist U.R. Ananthamurthy (1932-2014) is implicitly contrasted with Hobsbawm’s dogmatic obsessions. Ananthamurthy, a Lohiaite had scant regard for identity obsessed Lohia descendants. His advocacy for sustainable development strikes a chord with Ram’s green roots, as does his dismay with Narendra Modi’s style of combative politics. For Ananthamurthy – and one suspects for Ram – building a “supple” India is far more important than building a “strong” India.

Benedict Anderson (1936 to 2015), an Irish scholar earned his spurs by deepening the study of nationalism in Latin America and Asia. His is the framework, Ram prefers, for nation building – “modern, contingent, forged out of struggle and contest…. replacing faith in God with faith in the nation …. never rooted in ancient history or in ties of blood or soil”. This is Guha’s elliptical manner of pointing out where Indian nationalists are going wrong.

Guha poses a provocative question – why are there so few right wing, conservative Indian intellectuals, other than in economics? R. Jagannathan, writing in the Times of India, has riposted that bench strength is not a good measure of intellectual vigor. Independent scholastic thought depends crucially on the availability of a supportive environment, which is rarely a feature of developing countries.

Guha’s gold standard for right wing conservatives is C. Rajagopalachari 1878-1972. Out of sync in the post-independence, ersatz socialist, Congress party, Rajaji left to found the Swatantra party in 1959. Rajaji defies conventional pigeon holing – a devout Hindu and a liberal, he presciently advocated against “big government” and the “megalomania of …. big projects”. His advice to the Hindu right wing Jan Sangh in 1968 was to go beyond mere toleration of the minorities. Guha’s view is somewhat similar – “a credible conservative intellectual tradition can only emerge outside the…. (reactionary) …. ecosystem of the Sangh Parivar”.

Andre Beteille is to sociology what Amartya Sen is to economics. More high praise for the sociologist comes by way of Ram labeling him the C. Rajagopalachari of our times. Devoted to field work related research; committed to no ideology or utopia other than his vocation; far removed from the convivial seductions of Delhi (much like Ram), Beteille embodies the ultimate scholar. Consider this understated gem from him, which speaks to the divide between Bharat and India: “While educated Indians are inclined to think and speak well of the village, they do not show much inclination for the company of villagers”

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Andre Beteille, sociologist extrodinaire and diligent practioner of evidence based analytics.

Roots and how to not abuse them

There is a long chapter on Ram’s book review of Sen’s, “The Argumentative Indian”. Ram objects to Sen imposing modern concepts like “constitutional secularism” or “judicially guaranteed multi-culturism” to the pre- modern practices of emperor Akbar’s court. Sen’s motives are progressive, in portraying medieval Muslim rule as not wholly anachronistic. But Ram apprehends unintended negative consequences from other revivalists, similarly departing from historical rigor, by sanctifying the past to further current political objectives.

A distant glorious past dictating the present is Guha’s worst nightmare as in Pakistan – a revivalist country so devoid of outstanding current accomplishments that it compulsively harkens back to medieval times for inspiration. Vignette one is Pakistani liberals being nostalgic over dinner for the “high noon of Muslim political power in the sub-continent”. Vignette two is the rewriting of Lahore’s history – casting over it “an Islamic glow” whilst ignoring past accretions to its culture by the Sikhs, the Hindus and the British.

“likes” and “unlikes”

Ram does not take kindly to the political philosophy of Hindutva. For him accepting majoritarianism means abandoning inclusion and secularism – fundamental principles that India, unlike Pakistan, was founded on. In a similar vein, he privileges democracy versus authoritarianism. This is the message Ram carries on his travels to China in 2008, to a conference on multi-culturism.  His host- a Professor Lin – whilst generally approving of Ram’s credentials as a proselytizing, liberal, gently remarks “If India were not so economically backward, it would persuade the world more easily about how it has nurtured democracy and diversity.

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India: Free to be desperately poor

The Congress party – makers of modern India or merely savvy rentiers

Ram is an intellectual- one who has much to be immodest about. But often the polemicist prevails.  How does one square his more than fulsome praise of the Congress party for making India “less divided, less violent, less hierarchical, less patriarchal, less intolerant, less unequal and less unfree” with his assessment of its progressive decline and its eminent death due to its conversion into a family business by Nehru’s “abysmally incompetent and self-seeking” successors.  He may yet have to eat his words as political Phoneixs rise routinely in India. Add to this that he flags the ill-judged, abandonment of the party’s liberal, secular credentials for perceived political gains in 1975-77, 1984, 1986 and 1992? Three of these figure in Ram’s list of the eight worst years for India. Consider also his assertion that India lacks a culture of actively preserving the constitutionally mandated freedom of expression and the acknowledgement that subversion of this right occurred as far back as 1951 via an amendment to Article 19 (2) inserting “public order” as an additional exception for curtailing this freedom. Put all this evidence together and you would be hard pressed to align it with Ram’s assessment of the largely benign impact of the long years of Congress rule.

Make peace not war

On the use of violence as an instrument of self-determination Ram’s conclusions are pragmatic and surprisingly conservative. He notes that in the past half century only two nations have been born from armed struggle – Eritrea and Bangladesh. He could have also included the most recent case of South Sudan in 2010. His advice to armed secessionists in Kashmir is sound. Learn from the failed insurrection in Sri Lanka. Emulate the Dravida movement of Tamil Nadu and the Mizos. Both abandoned entrenched isolationist ideologies seeking independence – the former in 1963 and the latter in 1966. Both are better off for it.

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The no-where people: Adivasis of Central India – caught between joining the rat race at the bottom or remaining at the top of a hunter-gatherer past.

The theme of alienation and marginalization continues into the essay on the Adivasi tribes of central India. Unlike tribal communities in the North East, the Adivasi do not dominate the region they inhabit. In no state are they in a numerical majority, despite the creation of Jharkhand and Chhattisgarh. Consequently, they remain politically disempowered.  Predictably the result has been the convenient “harvesting of souls”, earlier by Christian and Hindu missionaries and most recently by the Maoists – none of whom have the welfare of the Adivasi as their prime objective. Ram, ever the pragmatic peacenik, advocates that the government give Adivasi tribes the safeguards assured to them by the constitution and the Maoists learn from the evolution of the CPI, the CPI (M) and the Maoists in Nepal and reconcile themselves to electoral democracy – though he admits that this advice is likely to fall on deaf ears.

This book is mixed fare from the high priest of Indian liberal thought.

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Ram Guha, historian and creator of word symphonies.

What is sorely missing in this book is recognition that this “unnatural nation” has moved on, along the lines suggested by Professor Lin, to Ram, a decade ago. Even as revivalist conservative scholars dredge up past glories- somewhat futilely; right wing, conservative politics is creating the space – economic and political, for strengthening this great but “unlikely democracy” that is India. Meanwhile vigilant, liberal, alarmism – as by Dharma Kumar earlier and now by Amartya Sen and Ram, to flag deviations from this path, can only help.

Adapted from the authors book review in Swarajyamag, November 2016 http://swarajyamag.com/magazine/in-guhas-latest-book-the-polemicist-often-prevails-over-the-intellectual

 

Fly India, fly

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Udan — the new regional air connectivity scheme — is not likely to get the aam aadmi (common man) to fly, but it will correct the historical wrong done to the air transport business in India. The hallmark of faux socialism was the targeting of some services and goods as “luxury” and by implication, anti-common man, anti-growth and pro-inequality.

Air transport was one such service. It’s early face was to serve the rich or the privileged. But all this has changed. Indian workers travelling from Etawah in Uttar Pradesh to the Gulf travel by road or rail to Delhi before taking an international flight. Why not facilitate them to fly straight from Etawah to Delhi, thereby securing their luggage end-to-end and avoiding the choking of our inter-state roads?

Udan is refreshingly simple and timely in its objectives. It is not populist even though it is being marketed in that manner. The “hawai chappalwallahs” would prefer to get subsidy in hand rather than as a low-cost air junket. Udan is not about giving the poor a taste of luxury, Evita Peron style.

Air transport for growth and jobs

Udan is about growth and jobs as the policy note avers up front. It quotes the International Civil Aviation Organisation (ICAO) that every rupee invested in civil aviation add Rs 3.5 to the economy and every job created directly generates 6.1 jobs indirectly.

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There is no reason to take the ICAO at its word. The ministry has been baking this scheme since November 2014. It should have estimated similar value and job multipliers in the Indian context. That could have better evidenced the benefits from the allocation of public funds on the “value for money” principle. But the economic rationale can be intuitively surmised.

What! India has more airports than commercial planes

There are as many as 398 “unserved” airports which have no commercial flights and 18 “under-served” airports host less than seven flights per week. One may well ask why this large number of airports exist if there are no commercial flights to them and who pays for their upkeep? Anecdotally, these airports have existed for the convenience of the elite political class for their infrequent “in and out” inspections, disaster surveys and election time visits to the hinterland. Less frequently India’s small business elite may also use a few.

Not all of them are owned by the Airports Authority of India (AAI), the Central agency which manages airports. Some are owned by the ministry of defence, others by state governments. It would have helped investors if the policy note had listed the ownership and management of each.

Democratise these public assets

So what are the likely benefits? First, commercialising these 416 airports will “democratise” publicly-owned sites which have hitherto been reserved for elite use. The average citizen would get a participative stake in their use and development. This is a vital aspect that policy note ignores.

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Rationalise air taxes & spend on infrastructure

Second, the government has rightly slashed taxes and charges on regional connectivity flights to narrow the viability gap. AAI will not charge any landing or parking charge and only 42.5 per cent of the route and navigation facilitation charge. The owners of these airports will similarly exempt such flights from all charges whilst ensuring the full package of airport facilities. Most of these charges are exorbitant in any case and need to be rationalised. Consider that AAI earns a profit after tax of around `800 crores. This surplus is better used for regional air connectivity than to subsidise Air India, which should be privatised.

Kick start new businesses and services in rural areas

Third, whilst Udan is branded as a new passenger facility, an additional business opportunity is the potential for moving existing perishable cargo, fragile goods and high-value export-oriented products by air. It is only a combination of passengers and cargo which can make the scheme sustainable. Public investments should be leveraged via private management model used for major airports. Investor consultations in state capitals being planned should include potential investors in airport management and development.

Fourth, some of the additional economic value and jobs are from developing these airports as growth centres. Providing secure and high quality road links, 24×7 electricity, clean water and sanitation are key for private management to step in with malls, airconditioned warehouses, hotels and new businesses which need secure air connectivity.

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Udan has got it right.

The Udan policy ticks all the right boxes. It retains the potential for business innovation by limiting the seats at the Udan price to 50 per cent of capacity. The remaining seats can be sold at market rates. Operators shall be chosen competitively via reverse auction for the minimum amount of “viability gap funding” (VGF) required. The policy is carefully and explicitly drafted to avoid ex-post disputes.

The policy is market driven. Flight operators must do their own due diligence and come forward with proposals which would then be put out to bid. If a proposer fails to submit the lowest bid, they could still win by agreeing to match the lowest bid. This provision preserves the incentive for initiating proposals, whilst retaining competitive energy in the bid process. In the past, in roads and telecom, irresponsible bids resulted in projects being abandoned subsequently. Most of these airports are challenges for business development rather than ready-baked money spinners. Hopefully, only responsible bidders would respond.

The policy carries forward the spirit of cooperative federalism. The Central government will fund 80 per cent (90 per cent in the Northeast) of the subsidy amount to be paid to the operators as VGF. The state government shall fund the residual marginal amount.

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Udan targets medium term dividends

It is a policy reform which does not just eye the popular vote. It courageously demolishes the economic posturing of the past and the earlier demonisation of air transport. It looks, instead, towards medium-term economic growth and job creation. Habitual leftists, dyed-in-the-wool faux socialists and related do-gooders are likely to label this policy a sellout in the name of the poor. But young entrepreneurs yearning for growth opportunities and young workers looking for good jobs should support it. Even those who are ideologically bound to oppose this policy are sure to use these services as they travel “cattle class” to the hinterland.

Adaapted from the authors article in the Asian Age, October 28, 2016  http://www.asianage.com/columnists/will-udan-be-able-make-bharat-soar-536

 

Is a machine kicking u out?

 

only-humans

Davenport and Kirby’s book “Only Humans Need Apply” Harper.2016 comes with a whiff of optimism and plenty of specific practical advice- based on real life cases- for professionals – scientists, radiologists, teachers, actuaries, financial analysts, lawyers and all “knowledge workers” who fear loss of jobs. This is where it is different from the previous, scarily sensational non-fiction on machines versus humans. The title is an inversion of Jerry Kaplan’s memorable “Humans Need Not Apply”.

Yes, computers are after your job.

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Yes, computers could be coming after your job. And yes, machines are very smart and becoming smarter. So ignoring them or trying to compete against them is a zero-sum game- the machine will win and you will lose. John Henry, a West Virginia driller learnt that in 1870. He competed against a steam powered drill. He won- only to die from over exertion soon after.

Dirty, dangerous, physically demanding and highly structured jobs like on an industrial production line have been doomed since the 1990s. The US lost more jobs to automation at home, than to outsourcing to India. This trend will worsen. Even “knowledge workers”, highly educated professionals – 25 to 50 percent of the workforce in advanced economies- will get flooded out via automation by 2040. McKinsey estimates automated systems will replace the equivalent of between 110 to 140 million human jobs, by as early as 2025.

Five ways to win the battle

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The way out is “augmentation”- keeping humans at the center whilst farming out work machines can do better, as opposed to “autonomy”- progressively substituting humans with machines. Steve Jobs illustrates – a human, “augmented” with a bicycle, becomes far more energy efficient that even a condor, the most energy efficient of all species. Augmentation is more than mere “complementarity” or co-existence with machines. It means actively collaborating with automation and artificial intelligence to sharpen our skills in areas where humans are most competitive.

Take apart your job into two components – structured tasks which can be codified and tasks which cannot – or at least not just yet. Focus on honing the latter. The former will be automated. You have five options to adapt to the future.

Step in: You can’t beat them so collaborate

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You can “step in” by learning how machines can offload your “dodo”, routinized tasks, thereby freeing up space for your core “human” skills. This presents the largest opportunities to partner machines, oversee them, point out errors they have made or help in improving them.

Step forward: Join the race to make computers better

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You could also “step forward” by acquiring the highly specialized quant skills, engineering knowledge and coding expertise needed to create newer and better machines. But the skill requirements would be of a very high level with the need for continuous upgrades.

Step up: Use computers to widen or deepen decision making skils

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“Step up” options involve honing the expertise to take unstructured decisions by integrating information from multiple sources. Warren Buffet defines one such which defies codification – what should a car driver do if the choice is either to mow down a child, who has strayed onto the road, or to plough into a car with four adult passengers? Complex, corporate “trade-offs” in business strategy are no different.

Step aside: Develope skills in managing human behaviour 

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Others may prefer to “step aside” or take up jobs machines cannot do, like explaining in plain language, to an irate Ben Bernanke, the erstwhile Chairman of the US Federal Reserve, why a computer assessed him as too risky for a mortgage refinance or building relationships in business.

Stepping narrow: Specialise in what computers can’t do.

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“Stepping narrow” is the fifth option. These are jobs so specialized and so restricted- like dealing with special kids or translating lost languages -that they lack the scale required to make automation efficient. In 1997 film maker Errol Morris featured four such narrow specialisations – a topiary gardener, a lion tamer, an authority on the colony behavior of naked mole rats and ironically Rodney Brooks – inventor of autonomous robots.

Computers are  like a horse or a car: They get you where u want to go

Is automation, Keynes’ leisure filled utopia, or a jobless dystopia, scarred by rising inequality and violence? Elon Musk thinks artificial intelligence is “our biggest existential threat”. Stephen Hawking warns that it “could spell the end of the human race”. Bill Gates wonders why “some people are not concerned”.  The authors are clearly not concerned. Nor are 52 percent of nearly two thousand experts polled by PEW. But the near term problem of managing the transition, particularly in poor countries like India, remains a public concern. The authors rightly debunk the option of universal income transfers, as short term palliatives –like NREGA in India – with potentially negative fiscal and work-ethic related unintended consequences.

Governments need to teach us differently for us to adapt

Governments need to reorient education. The focus on science, technology and quant skills is good for those who step in, up or forward. But one half of workers will be stepping aside or narrowly. Education policy does little to encourage these skills. Corporates should get incentives for generating “humans-only” work as Innovation for Jobs (i4j) is doing. International regulation of autonomous machines and artificial intelligence is critical, but absent. We need to collectively “trade off” the benefits from automation against the social cost of increasing joblessness and inequality. Such complex decisions should be a humans-only skill. Unfortunately, we have rarely made wise public choices. This skill needs to be augmented. A first step could be all those concerned reading this book.

Adapted from the authors book review in Business Standard weekend October 22, 2016 http://www.business-standard.com/article/specials/human-factors-in-the-automation-debate-116102101369_1.html

i4j

ghosh

Amitav Ghosh’s latest book—The Great Derangement—is an exploration of why contemporary culture, imagination and political systems have failed to prevent global warming, despite its cataclysmic long-term effects and disruptive short-term outcomes.

His choice of the book’s title reflects the conundrum facing poor nations. They are not the ones who benefited from the carbon economy. But to aspire to do this now, when there is no carbon space left, is a one-way ticket to self-annihilation. Hence, the derangement of the modern world, racing towards a future, where consuming itself becomes the only option. Curbing global warming means debunking the fundamental values on which the modern world is built. Central to this artifact is the notion that man is the centre of the universe. Non-human forces, like nature, have no place in this calculus of liberty and modernity.To recognise global warming as a problem, you first have to reject the paradigm that the unconstrained liberty of man is a leitmotif of human progress. Hence the unwillingness and the inability to face or deal with the problem.

Nature’s pawns

This is a cleverly crafted book, as would be expected from a novelist extraordinaire. Divided into three parts, it starts with “Stories”. This segment situates humans as powerless, organic sub-systems of a larger force—restless and dynamic nature. Stories of his family—climate refugees from Bangladesh; of self-doubt after a sudden, destructive tornado in Delhi; of raw beauty and sudden death in the muddy, torpid, densely tangled greenery of the Sundarbans reinforce that we are not masters of the universe.

Inequality and the urge to splurge

The second section on History, draws together three defining strands of the late 17th to the early 20th centuries. First, the availability and use of fossil fuels which were an important precondition for wealth and power. Second—the use of technology to improve productive capacity. Third—the growth of modern empires as the political mechanism for extracting the supply of raw materials; controlling access to technology and keeping overseas markets open for exported manufactured goods. Empires faded in the late 20th century but the extractive process continued. The elite—foreign and domestic—comprise not more than one fourth of the world population, but continue to become wealthy at the expense of the bottom three fourths.

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The third section is on Politics. Ghosh argues cynically that so little has been done to mitigate climate change because the rich world will be able to insulate itself from the horrific outcomes. The shock will primarily be borne by the poor. Littoral countries like Bangladesh, Seychelles and Vietnam and poor communities, within countries, will be the worst affected.

A captive media

Ghosh believes the deafening silence in the media around climate change is because it has been bought out by the huge corporates who own fossil fuel assets. The silence in literature is because his peers—writers, poets and intellectuals—are bludgeoned into conformity by the formulaic path to success of shunning the unpredictable and situating a story within the predictable activities of everyday life, with the individual as the central character.

Can religion help where politics has failed?

Not much can be expected from politicians either. They are so immersed in “bio-politics”—catering to the short-term interests of a defined population of voters—that they have little appetite for long-term global risks. For what it is worth, differences in economic ideology across parties have become minimal in India. All the political parties which have ruled India since 1991 have adhered to the broad neo-liberal construct of economic development. So, quite possibly, the devil lies in the incentives created by this economic model to produce and consume in larger volumes. He cites the December 2016 Paris Agreement as subterfuge and doublespeak, promising to do much without, in effect, doing anything.

He compares this shallow and evasive, politically negotiated international agreement with the direct and forceful Encyclical Letter of Pope Francis issued at the same time. The latter fingers the ruling “technocratic paradigm” and the objectification of endless growth as the problem rather than the solution. It calls for tempering individualism with the balm of social and ecological justice. Ghosh notes that similar voices are being heard within the Hindu, Muslim and Buddhist faiths. This leads him to believe that greater community activism led by religious leaders could be the answer to mobilize opinion for definitive steps to abate global warming.

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Ghosh’s stand is unusual for a secular rationalist. But this is consistent with an approach which absolves religion of its divisive outcomes. He speculates (page 150) that Mahatma Gandhi was assassinated by a former member of a Hindu party because he was perceived as weakening India by opposing industrialisation and consumerism. No references are quoted to support this “economic” explanation. The more usual view is to attribute the killing to Hindu apprehensions that the Mahatma was too politically accommodating of minority interest.Ghosh also seems to step lightly away from the conundrum that using religion for secular purposes is akin to riding a tiger, particularly in India’s surcharged environment, perpetuated by religious faultlines. Indira Gandhi paid the price for doing just that.

The world is increasingly more not less sustainable

 

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Ghosh’s rhetoric is elegant and elegiac. His reasoning is impeccably logical. But his morbid assessment of where we are today and of our future prospects does not triangulate with reality. The world is becoming less carbon-intensive. Every incremental unit of output requires less energy than the previous one. It is true that explosive economic growth in Asia since 1980 has negated this advantage and the global mean temperature continues to increase. But renewable energy options are being developed for air, road and marine transportation, thereby further diluting the link between the use of fossil energy and economic growth. Similarly, technology developments like LED lighting have vastly improved the efficiency of energy services. Climate risk is increasingly being factored into the cost of insurance and the hurdle rate of return for investors. This will drive smart green investments.

We are winning the war on poverty

International aid agencies, governments—of which China is the exemplar, and communities, all working in tandem, have successfully reduced poverty and are on track to eliminate it by 2030. Yes, inequality is on the rise but at a significantly elevated base income level. The opening up of international trade has diluted the link between political domination and market access. Even small nations like Vietnam or Mauritius have benefited from international markets. International trade has democratised resource endowment by making petroleum, minerals and metals available to resource-poor countries. Three out of the four largest economies today—China, Japan and India—are natural resource-poor. They have grown over the last half century by importing fossil fuel and technology. None of the three tops the charts in military might.

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Choice and progress

The spread and deepening of democracy has expanded opportunities for the disadvantaged and smashed earlier glass ceilings, including for women. Adoption of the open economy model has expanded imported competition while deregulation has nurtured domestic competition, for the benefit of consumers. There is more choice today than at any point in history.The world is a more peaceful place than a century ago. That this holds true despite growing sectarian violence in India’s near abroad and an increase in the number of nations armed with nuclear weapons, illustrates the high stakes everyone has in an enduring peace.

Plurality rules

Today, plural models for progress exist. These models are not country or culture specific. They are instead domain specific. Of the top 20 corporates in the world which accumulated the maximum value over the period 2009-2015, not a single company was in oil or gas; as many as eight were in technology or health care. All of them excelled at the capacity to innovate, communicate and compete. It’s a new world out there which defies explanation using traditional paradigms.

None of this means that we are on top of the problem of global warming, yet. But just as surely, there is more light visible, at the end of the tunnel, than has ever been seen before.

telescope

Adapted from the authors essay in Swarajya October 7, 2016 http://swarajyamag.com/magazine/its-not-that-scary

 

India’s “green” moves

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Solar powered sun and rain shades in India!

India formally ratified the Paris climate agreement on Sunday, notwithstanding that Donald Trump trashed global warming, last week, as a hoax and efforts to control it as expensive and ineffective.

The United States contributes around 16 per cent of world carbon emissions. Truculence in its approach to manage global warming can scuttle the efforts of the rest of the world. Mr Trump’s cavalier approach to climate change can only be explained by his belief that a slowing US economy should not be the one which pays to set the world’s climate right.This abdication of international leadership appears to resonate with his not inconsiderable supporters.

Clearly, the expectation is that China, which contributes 28 per cent of global emissions, needs to step up to the plate of international burden-sharing. China is now the world’s second largest economy. Despite the slowdown it is growing at three times the rate of the American economy. That is reason enough for higher expectations from it to play the role of a global leader.

china-smog

Photo credit: huffingtonpost.com

India is also a fast-growing economy. In the long term we may be where China is today. But not for a while yet. We are just one-fifth of the Chinese economy. Our emissions are just six per cent of world emissions. Our global ambitions should be commensurate with our constraints. This is why, unlike China, we have not committed to cap our emissions at a predetermined level.

Paris – the agree to disagree concord

Under the Paris climate agreement countries have agreed to disagree. It is now left to individual nations to exercise “strategic direction” in developing their future energy profile and “tactical restraint” in energy consumption.The decentralised responsibility is welcome but worrisome on two counts. First, countries which are too small to make a difference but which will face the wrath of global warming like island countries now have to depend not on covenant but on the generosity of others to survive. Second poor, technologically deficient countries will now pay more to mitigate global warming since there are no pressing compulsions for the rich to change consumption patterns or develop carbon benign technology for domestic use.

India’s challenge is to remain green

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Laurie Baker’s characteristic green building in Kerala

Altogether 37 per cent of India’s energy consumption is non-fossil fuel based. This is fairly similar to the world non-fossil fuel energy consumption of 33 per cent. But the big difference is that bio energy accounts for only two per cent of the world’s green energy consumption, unlike in India, where biomass accounts for 92 per cent of the renewable energy used.Hydro power and new renewables — solar and wind- account for just six per cent and nuclear for two per cent of our green energy profile.

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The challenge for India is to ensure that as incomes grow, poor consumers – who use non commercial biomass sources today like dung, firewood and agricultural residue for heating and cooking – should graduate to new renewables like solar and wind, rather than go down the fossil fuel route, as the OECD countries have done. This challenge is principally for the government, not consumers. Consumers typically want energy services — cooling, heating, cooking and transport. They don’t really care about the fuel that provides these services. It is for the government to put in place the incentives which drive energy suppliers to provide renewable energy services.Energy users are underserved in India particularly in dispersed habitations. This presents the opportunity to use renewables to bridge the gap in innovative ways.

To be sure, domestic compulsions like smog do compel us to clean our energy profile. India already has economic incentives in place for this. High energy prices induce energy efficiency in industry. High taxes on petrol and diesel are expected to result in frugal consumption for personal transport. Scarce public funds are allocated to subsidise renewable electricity. Investment in public transport is being stepped up to substitute high energy-intensity personal vehicles. Rail freight has been reduced to stem the shift to the more energy-intensive road transport. Bulk public purchase and supply of low-energy intensive LED bulbs help manage domestic electricity peak load. The path to carbon sustainability is fortunately closely aligned to the the path to make our economy competitive by squeezing out the fat along he supply chain. But gains in the efficiency with which energy services are delivered  can only mitigate, at best, around 20 percent of our additional energy needs.

The compulsions to consume more energy services are stark.India’s per capita energy consumption is just 0.6 tons of oil equivalent (toe) versus global per capita consumption of 1.9 toe. India will likely consume four times the energy it does today to provide welfare enhancing energy services to its citizens. Similar compulsions face most developing countries in South Asia and Africa.Only a technological revolution in clean energy and in energy storage systems can delink the growth led increase in energy consumption from unsustainable levels of carbon emissions.

Target renewable energy services

Setting up clunky publicly owned entities to research and transfer renewable technology to industry is not the way to go. Backing selected private firms willing to invest in renewables in anticipation of an assured domestic market is also tough. We don’t have the democratic space in India, unlike South Korea, to back industrial winners.Transparent subsidies on the “viability gap funding” template will suit the private sector best to innovate, implement and increase the consumption of renewable energy. Shifting the subsidy from energy generation to the provision of energy services can enlarge the pool of potential investors whilst retaining the objectives of efficiency and effectiveness in subsidy provision.

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Prime Minister Modi flags off a solar bus service for MPs

Link green subsidies explicitly to revenue – social cost based levies on fossil fuel and a green cess

India’s clean energy strategy is built around the principle of minimising environmental damage whilst maximising economic growth. But the implementation of good principles also needs accurate and timely monitoring mechanisms to ensure that progress is along the desired trajectories. One such mechanism is to monitor the social cost of our fossil energy consumption and to use the data for fiscal allocations. The Arvind Subramanian report on pulses has suggested the inclusion of social cost, with respect to water intensity, while determining the maximum support price of agricultural food products, to ensure that subsidies do not deplete our water reserves. This is a good way of allocating public resources.

Social cost filter for resource allocation

If a social cost filter is adopted for allocating finances, public investment in the railways and in coastal shipping would surely trump investment on road transport. This is also a good mechanism for making users pay differentially for the energy they use. Charging more from those who use electricity at peak time is justifiable beyond the additional financial cost it imposes, to being an affirmation of commitment to going green. Habitats, offices and homes all impose social costs and must be taxed in proportion to the extent of their footprint. This “green tax” should be used to directly subsidise green energy and energy conservation.

A green balance sheet – green tax revenue and expenditure 

The government should consider including a green fiscal resources allocation and tax collection balance sheet along with the annual financial budget. This would provide, at a glance, the revenues collected by taxing fossil fuel and the capital allocated for green energy initiatives. Similar green fiscal resource balance sheets at the state and municipality level could feed into a green national fiscal framework.

India has traditionally punched above its weight in international affairs. Preserving the global commons is a lofty goal; an opportunity to upstage the international economic Goliaths and to improve well-being at home.

laurie-baker

Laurence Wilfred “Laurie” Baker 1917-2007 – architect & practioner of the science of living comfortably with nature. Seen here with his wife Elizabeth, in their home in Thiruvananthapuram, Kerala.

Adapted from the authors article in Asian Age October 4, 2016  http://www.asianage.com/columnists/green-taxes-cleaner-india-600

Plough deep for reform results

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Deep ploughing is necessary for reform results. Photo credit: hardrainproject.com

The government is stacking up its “reform credentials”. The long elusive Goods and Services Tax is now part of the constitutional scheme for taxes. This has been followed up with a double-punch by putting to rest the colonial tradition of a separate railway budget.

Bye bye separate rail budget

Rail budget reform was well received by the opposition, including the Congress and the Biju Janata Dal. In contrast Mr. Nitesh Kumar’s criticism that this will make the railways less autonomous appears to be reflexive dissent with an eye to the potential media coverage. Didi’s Trinamool Congress was similarly truculent. But Mr. Dinesh Trivedi, a previous minister of railways from the TMC, dulled the edge of the attack by not opposing the move.

The net budget support for the railways is just Rs 5,000 crore or one quarter of one percent of the annual budget. But having to get its budget passed, independently by parliament – a colonial tradition when the railways were a major public asset – exposes the railway minister to the inevitable “populist” demands to steer the budget through. This additional burden will now be borne by the finance minister – the redoubtable Mr. Arun Jaitley – whose reform credentials are growing by the day.

There is some concern that the granular information in the railways budget may no longer be available. But the concern is misplaced. The railways are reportedly implementing commercial accounting standards. Mr. Suresh Prabhu – the energetic minister for railways – could consider tabling an advance supplement based on the results for the first three quarters of the fiscal year- April to December, with the Budget documents for next fiscal followed up by yearly outcomes in the annual report tabled in parliament.

But let’s not kid ourselves. Well begun is only half done. Process reform, like the new rail budget mechanism, whilst necessary, is low hanging fruit. To show results process reform has to induce management and operational changes. In the age of “Big Data” access is not the constraint. It is using data to change behavior that matters.

1991 reforms had a narrow, central government focus

Some change in track is also necessary. Since 1991, the economic reforms have primarily focused on the sunrise sectors –  industry, commerce and finance. Tech grew under the governments radar because it remains export oriented. Inevitably urban boats have risen significantly. Two third of jobs are generated in cities, which explains the continuing in-migration from rural areas.

But connectivity and business as key drivers of growth blur the urban rural divide. Business is more concerned about seamless supply chain networks as the critical cartographic feature, not administrative borders. Similarly, markets do not end at the city limits, particularly if mass e-tailing is to grow.

SMART cities and dumb villages; broken supply chains.

We cannot hope that cities will be the sole engine of growth. There were nearly 19,000 villages, with a population of more than 5000 persons each and nearly 4000 villages, each with more than 10,000 persons, in 2001. Merely reclassifying these villages as urban spaces could increase the statistical level of urbanization from 31 to 50 percent of the total population. Estimates of the share of urban population in 2030 would then increase to 70 percent. But even the remaining 30% would constitute 450 million people left behind in villages. A significant market and a sizable vote bank.

The government has been diligent in rolling out new schemes to pull rural dwellers out of poverty. Financial inclusion via the Jan Dhan Yojna; economic and social security via subsidized insurance policies and the focus on public health and publicly financed housing are all positive moves. But most of these initiatives are still at the process reform stage. Tangible results – more disposable money in the hands of the poor – is still some time off. It is unclear, for example how many of the 200 million bank accounts opened under JAM are operational on a substantive manner. Enlarging the direct benefits transfer will make financial inclusion real. But last mile implementation is a slow process.

Unleash a reforms Tsunami to lift “rural boats” as well

rural-boat

Rural India : Seemingly placid but very uncertain.

Glimmers of hope persist. The Arvind Subramanian Report on price support for Pulses is a signal that government is shifting attention from urban centric reform areas, where progress is ongoing, to the neglected but high potential value addition sectors – agriculture, rural development and water. Agriculture needs to be brought out of the shadows where it has been consigned since the Green Revolution in the 1970s.

Visibility in rural and local governance is the first step

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Baiga women at a meeting – listening passively to top down wisdom.

If the government is to lead, it first has to increase its presence in rural areas by decentralizing personnel, functions and finance to the sub-district level. Currently, on average, only one third of state government jobs are in local governments. The majority are centralized in the state capital and its deconcentrated offices, like the District Offices of various departments. This inter-se allocation of personnel needs to be reversed and officers reallocated closer to the people. This implies starting a conversation with state governments.

Mr. Piyush Goyal, the effervescent minister for power, coal and renewable energy recently successfully concluded just such a conversation around restructuring DISCOM debt. This model of cooperative federalism can be replicated for personnel reallocation – targeted central funds for measurable actions.

A second conversation also needs to be started for levying Income Tax on agriculture. The tortuous but eventually successful negotiations around GST provide the replicable model for this thorny issue. States may be happy to let the central government impose the tax and share the proceeds- for them a windfall gain with no political downside..

rural-rich

End untargeted agriculture subsidies or tax agricultural income.

Use NITI Aayog strategically

As in everything else, leadership counts. The Prime Minister should consider shifting the attention of his “A” policy team – NITI Ayog – to agriculture, irrigation, rural development and social protection. Currently it seems flooded with all manner of residual work. It could usefully focus on delivering tangible, measurable outcomes from its two key task forces on agriculture and poverty alleviation set up way back in March 2015.

Recommending which PSUs to sell; planning new tourist islands and ensuring 50 gold medals in the next Olympics, can be done elsewhere just as well. Surely creating jobs in rural areas and putting more income in the hands of the poor rank higher in the priority list. There is not enough bandwidth to run all races simultaneously.

team-india

Adapted from the authors article in Asian Age, September 28, 2016 http://www.asianage.com/columnists/rural-jobs-growth-key-lasting-reforms-308

Book Review

 

parag-khanna

Connectography: Mapping the Global Network Revolution, Parag Khanna, Weidenfeld and Nicolson, 2016

In the 1980s, Disney World, Florida offered a gripping, virtual journey as viewed by a blood corpuscle as it rushes through the arteries, veins, into and out of organs in the human body. Parag Khanna’s fourth and latest book –Connectography: Mapping the Global Network Revolution – does much the same for the world of physical and digital infrastructure -roads, railway tracks, power lines, communication cables, oceans, rivers, canals and electrons joining suppliers to customers, uniting families physically and virtually, whilst creating ever widening value enhancing networks around mega cities.

In this world, national borders are little more than irritants; national sovereignty a barrier to be overcome; national passports a poor substitute for global identity options and the ownership of land valueless, unless it is part of global supply chains.

Global citizen

parag-khanna-2

Parag is a self-confessed global citizen. He was born in India, grew up in the United Arab Emirates, studied in the US, works in Singapore but feels at home anywhere – chatting with Chinese workers in Tibet, Turkish Gastarbeiters in Germany or breakfasting with the President of Mongolia in Ulan Bator. There are around 300 million others like him. This book describes the way the world could be from the view point of global citizens. A world without borders or intrusive governments; self-regulating businesses kept customer friendly by competition; open markets allowing capital and goods to move freely, perpetually in search of optimizing costs and maximizing value.

Open economy

The virtues of the “open economy, networked” universe are generally accepted today, even if most peoples’ view on markets is similar to their opinion of democracy – not the best option but better than anything else available.

Parag hammers away at re-establishing these generic concepts with relentlessly energy via a high octane delivery, interspersed with a wealth of granular information to buttress his argument. It helps that the book is extensively researched. Its bibliography lists nearly 500 references and almost each page has a quotable quote. An added attraction is the 38 color plates which illustrate what connectography could look like. Maps or traditional cartography which represent geographical or political features, actually tell us very little about the world. These are of little use beyond being partial navigational aids. Consider that Singapore is a mere dot on the world map with just 0.1 percent of the world’s population. But if countries were mapped to scale on the size of their GDP, it would be twice the size of Bangladesh. Does Singapore’s land size or population determine its function in the world today or its economic heft?

Connectivity is key

The book is divided into five parts. Part one dwells on the truism that connectivity and not territory or resource endowments, are the arbiter of how nations grow. In a riposte to the reasons listed by Paul Collier of why nations fail, Parag argues, that countries can overcome the disadvantage of poor geophysical endowments. There is hope even for land locked nations, like Rwanda. Despite being resource poor, it is one of the fastest growing economies, in Africa, because it actively searches out opportunities for becoming part of global supply chains.

The withering Nation State

Part two posits controversially, that the nation state is an artificial construct whose longevity is explained by inertia rather than any irreplaceable value addition ascribable to it. This is especially true in nation states which spend much time and effort to reconcile mutually antagonistic and parochial domestic stakeholder identities. Far better then, to devolve power away to homogenous, smaller sub entities – tribes, communities, companies and cities which, in any case, are the basic framework for solidarity and common interest.

The recent splintered vote in Britain, with London, Scotland and Northern Ireland voting to remain in the European Union whilst the rest of the country voted to exit, seems to illustrate the inherent fragility of nation states in the face of sharp internal divisions based on self-interest. The nation state is similarly powerless against the loss of sovereignty to larger regional aggregations- earlier the United Nations, cold war alignments and now regional trading blocks. Better connectedness and communications fosters this trend towards aggregation, driven by Metcalfe’s law that the value of a network increases proportionately to the square of the number of interconnected users. Scale is everything.

Sub- national entities are stable

Part three asserts that a future world of connected sub-national entities aggregated into large regional entities, is a more stable and competitive arrangement than the present geopolitical architecture. Sovereign nations seem besieged by split mandates and dissidence at home whilst simultaneously assaulted by external threats. Competitive connectivity trumps national sovereignty. There is no incentive for destabilizing any actor because all are connected for mutual gain. In comparison, Orwellian instability is built into the DNA of competing nation states.

Snap shot of a connected future

Part four fleshes out the future as a landscape of connected megacities. Multinational businesses will be replicas of the Dutch 19th century colonial empire – a web of small enclaves – business hubs for a global supply chain. The nodes of growth would be the four thousand Special Export or Economic Zones, which dot the world today and are also the foundation of China’s extraordinary economic growth.

….and everything else

Part five is mixed fare – an overview of current issues in the digital economy; the genetic transformation resulting from human cross breeding inherent in the physical movement of more people across the globe than ever before- provocatively titled “a mongrel civilization”- and how to best deal with the competing needs of conserving nature and welfare enhancing growth.

For resilient readers only

This is not a book for the faint hearted. The style varies from the explanatory; the exhortatory to being chattily conversational. Some parts are too dense for a lazy afternoon’s read. Others, particularly where the author links his own experiences to more generic issues are lucid and revealing. Editing is unfortunately, lackluster. Rwanda is not a country which is natural resource rich as claimed on page 94; the lead paragraph on page 337 under the attractive title “The digital identity buffet” is an incomprehensible, single sentence of seventy-one words! Deng Xiaoping’s reforms kicked in during the 1980’s in China, not the 1970s as page 380 claims.

Read this book if you are interested in knowing more about the intersections between globalization, geopolitics, business, technology, urbanization and culture. If you are looking for deep knowledge in any one of these areas, you are likely to be disappointed. If you are looking for a new theory of development or growth, it isn’t here. What you do have is masses of information brought together anecdotally in a narrative format.

This is a tour de force of contemporary world trends with attractive, self-explanatory titles to each of the seventy-eight sub chapters. Each of these is self-contained so you don’t have to read the book sequentially. And don’t miss the quotable quotes. My favorite is “a smart rabbit keeps three holes to hide in” to explain why large numbers of Chinese citizens invest in the US or Canada as a safe haven option.

If you are looking for advice on very long term business investments, check out the heat map on plate 31. Be warned, India, China, Africa, Southern Europe, the US and South America may all be deserts by 2100 dried out by the ravages of climate change – unlivable but good for generating solar power. Think instead of investing in Canada, Greenland, Northern Europe, Russia and Western Antarctica, where the climate is expected to be salubrious and the resources plentiful for the depleted population which manages to emigrate there.

This book review by the author first appeared in Swarajyamag, August 2016 http://swarajyamag.com/

 

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