Towards Double Digit Farm Growth

The idea of incentivizing and building rural infrastructure to fight backwardness

The NDA government’s renewed emphasis on agriculture is a well thought out strategy to finally eradicate poverty and make rural poor an integral part of India’s growth story.  Rather, such spending has proved to be of temporary relief without really changing the ground reality.  It is experience that has prompted the government to initiate schemes meant to build durable rural infrastructure to motivate people adopt agriculture as a viable alternative career option.

This is an interesting departure from the past. The government’s plan is to transform the most backward districts in the country as models of India transforming. In this, the Gujarat experiment in Kutch is proving useful. The focus this time is on the 100 most backward districts in the country of which majority are in three states, Bihar, UP and Madhya Pradesh. These three states together account for seventy of the most backward districts in the whole country. More striking is that not a single most developed district in the country falls in these states. Some believe nothing can be done in the case of backward districts. But they can be made number one, said the Prime Minister Shri Narendra Modi, recently. He was commenting on backwardness and total absence of development in certain regions in the country.

The issue of regional disparity has foxed planners for long. Previous governments have initiated many schemes specially designed for the most backward districts. Perhaps they failed because the focus was more on poverty alleviation and temporary job creation. They did not create rural infrastructure. Nor could they make agriculture profitable in the absence of roads, irrigation and connectivity.

As Chief Minister, before he became Prime Minister, Shri Modi has rebuilt the earthquake ravaged, hopelessly parched Rann of Kutch into a land of promise. Shri Narendra Modi has an unbeaten record of ushering in an era of double digit agricultural growth trajectory in Gujarat between 2003 and 2014, when the national average was languishing at less than two per cent. Shri Modi has also vowed to make the incomes of the Indian farmers double in the next four years. Taking cue from this agrarian success story, in Gujarat, a state which was never considered an agrarian state, because of the vast Saurashtra region which used to witness massive migration, cattle and people every year because of draught, many other states like MP, Chhattisgarh and now Maharashtra have adopted the techniques which were pioneered in Gujarat. This agrarian growth strategy was built on better irrigation, modern farming tools, easy availability of cheaper farm loans, 24-hour electricity and tech savvy marketing of farm produce. In each of these initiatives there is a large volume of innovative planning and hands on implementation. The NDA Government at Centre has been trying to replicate his experience in the entire country.

Soil testing to find the health condition of agricultural land is a major step in the direction of agrarian revolution. Neem coated urea is another. Building check dams, water conservation through ponds and other water conservation methods, raising the ground water level, reducing water wastage by promoting drip irrigation, changing crop pattern studying the soil fertility, water availability and market condition are other ingredients of this approach. Then reaching technology through electrification, computerization of Panchayats, building smoother roads through Pradhan Mantri Grameen Sarak Yojna which will also help marketing and internet connectivity which has been promised to reach every village are the things that will ensure development at the grass roots level.

Never before have so many poor people become bank account holders in India. Under the Jan Dhan Yojna about 30 crore new bank account has been opened. This financial inclusion is at the centre of a dynamic agrarian economy. The government in the financial year has saved Rs 50,000 crore through direct cash transfer scheme. This with free cooking gas connection to 50 million BPL families is changing lives of millions of families. The rural job guarantee scheme has been reworked with highest ever annual allocation and ensuring the availability of farm labour. These will also limit the flight of labour to cities leaving their traditional farm labour.

How can agriculture become profitable? How can the farmer income double by the turn of this decade? Will it ensure the end of rural indebtedness and farmer suicides? Yes, all this is possible if the Prime Minister is able to replicate at the national what he achieved in Gujarat. Shri Modi has put the common man at the pivot of his economic narrative. He has placed great faith in the Indian farmer and brought agriculture to the centre stage of his growth engine.  The new schemes, allocation for agrarian transformation tell this fascinating story. Rs 1.87 lakh crore is the next year allocation for agriculture and allied areas. The thrust areas in this are, MNREGA, availability of easy farm loans and better irrigation. The fund for irrigation corpus and dairy processing increased substantially. Crop insurance under Fasal Bima Yojna, along with agricultural credit yojna has Rs 10 lakh crore which is whopping compared to past records. More credit will incentivize farm investment and propel food processing industrialization. This will ensure durability and better returns for farmers. This could also boost job opportunity in rural India.

Rabi crop sowing has seen an eight per cent rise this season. Reports say the kharif crop this season is going to be a record 297 million tone because of better rain fall.  The building of better panchayat roads, 2000 kms of coastal connectivity roads and 130,000 panchayats getting high speed broadband under BharatNet will certainly improve marketing and remunerative pricing of farm products making agriculture as a profitable career option. Agriculture production is bound to leapfrog as a consequence of all these measures and the goal of food for all and complete eradication of poverty from the face of India in the near future will become a reality once these policy driven, targeted measures are executed.

NATIONAL HEALTH MISSION

 The National Health Mission is India’s flagship health sector programme to revitalize rural and urban health sectors by providing flexible finances to State Governments. The National Health Mission comprises of 4 components namely the National Rural Health Mission, the National Urban Health Mission, Tertiary Care Programmes and Human Resources for Health and Medical Education.

The National Health Mission represents India’s endeavor to expand the focus of health services beyond Reproductive and Child Health, so as to address the double burden of Communicable and Non-Communicable diseases as also improve the infrastructure facilities at District and Sub-District Levels. The National Health Mission has synergized learning from the National Rural Health Mission for better implementation of the National Urban Health Mission. The National Health Mission has an allocation of Rs. 26,690 crores for 2017-18 and is one of the largest centrally sponsored schemes of the Government of India.

The National Health Mission (NHM) brought together at National level the two Departments of Health and Family Welfare. The integration resulted in significant synergy in programme implementation and enhancement in Health Sector allocations for revitalizing India’s rural health systems. A similar integration was witnessed at State levels too. Further the NHM brought in revolutionary changes in devolution of central finances to State Health Societies outside the purview of the State Finance Departments. The second major change was the integration of the disease control programmes into the NHM framework.

The NHM brought in considerable innovations into the implementation of Health Sector Programmes in India. These included flexible financing, monitoring of Institutions against Indian Public Health Standards, Capacity Building at the State, District and Panchayat Samiti levels by induction of management specialists into the Programme Management Units and simplified HR management practices for timely recruitment through the State Institutes of Health and Family Welfare. Another significant innovation is the establishment of the National Health Systems Resource Center (NHSRC) to help design and formulate various initiatives. State Health Systems Resource Centers have also been established in some States.

The Ministry of Health and Family Welfare approves Programme Implementation Plans of the State Health Societies on an annual basis with specific resource allocations under the major heads of RCH Flexi Pool, the NRHM Flexi Pool, the Flexi Pool for Communicable Diseases and the Flexi Pool for Non Communicable Diseases as also for Infrastructure strengthening. There are significant resource allocations for training programmes and capacity building. The State Health Societies have considerable autonomy to re-appropriate resources within the major heads and devolution to District Hospitals, Community Health Centers and Primary Health Centers.

The priority focus of NHM is Reproductive and Child Health services.   The successful implementation of Janani Suraksha Yojana (JSY) and Accredited Social Health Activist (ASHA) programmes had a significant impact in behavioral changes and brought pregnant women in large numbers to public health institutions. The NRHM flexi pool resources were utilized to create adequate infrastructure at public health institutions to cope with the heavy rush of maternity cases. Ambulance services were introduced for transportation of maternity cases to public health institutions and for emergency care. The success story of the 108 ambulance services has been well documented across many States.

The increase in institutional deliveries in High Focus States of NHM had a significant impact on Maternal Mortality Ratio (MMR) and Under Five Mortality Rate (U5MR). On the Millennium Development Goals (MDGs) 4 and 5, the country made substantial progress. In the case of MDG 6, the country was able to meet the target and reverse the prevalence of Tuberculosis, Malaria and HIV. NHM has also performed well by adopting a continuum of care or life cycle approach as demonstrated by improvements in key health indicators.

The Ministry of Health and Family Welfare added two new programmes to its basket of activities under the National Health Mission. The first is Mission Indradhanush, which has demonstrated good progress in improving immunization coverage by over 5% in the just one year. The second is the Kayakalp initiative launched in 2016 under the NHM to inculcate the practice of hygiene, sanitation, effective waste management and infection control in public health facilities. The competition for awards introduced under Kayakalp has been well received by all the States and significant improvements in sanitation standards are being witnessed.

The NHM created a peoples’ movement for health care. India has deployed nearly 10 lac Accredited Social Health Care (ASHA) workers representing transformational change agents. The ASHA workers act as mobilizers for institutional deliveries, focus on integrated management of neonatal and childhood illness and advise on home based neo-natal care. The NHM has also empowered people through Village Health and Sanitation Committees to formulate village health plans and exercise supervisory oversight of ASHA workers. At the Primary Health Centre (PHC) and Community Health Centre (CHC) level Rogi Kalyan Samitis have been activated to establish systems of oversight over the public health facilities for creating a patient friendly institution. Besides rural areas, the urban slums are now receiving attention with the launch of the National Urban Health Mission.

The National Health Mission represents India’s flagship health sector programme making the Health For All vision a reality. In its innate success lies the future of a healthy India

Marching towards Cashless India

Marching towards Cashless India

Bharat QR Code , BHIM and many more Apps for digital payment

Well before the November 9 demonetisation of high denomination notes, banks in sync with the Reserve Bank of India had been working on development of different technology- based solutions for electronic transfer of money. There were already systems available in the banks through which one could transfer funds from one bank or branch to the other, in a matter of a few hours.

That itself was a good facility replacing quite fast the age-old money transfer through cheques which had to be, first received by the beneficiary, then deposited in the branch, sent for clearing before the funds get transferred in the designated account. It is not that the cheques have gone altogether; but their usage is dropping rapidly.

All these measures were underway even before November 9, but the sense of urgency was a missing link. Besides, different payment networks did not seem to be in perfect coordination while electronic payments for the sale of merchandise and services were restricted to credit or debit cards used either through lap tops or the limited point of sale (POS) machines available with the traders or the service providers. There was no sense of urgency, because there was no tearing necessity.  

But the withdrawal of Rs 500 and Rs 1000 notes, accounting for 85 per cent of the currency value in circulation brought in a sheer necessity for an effective and urgent alternative to cash.

The fact that Prime Minister Mr Narendra Modi made a commitment about making Indian society less cash dependent in his drive to clean up the economy from the scourge of black money and corruption, put the entire regulatory, operational and policy- making machinery into top gear with the result that within four months, not one but several e-payment options have been developed, tested and launched. They can all be used through the low cost smart phones. The best thing about these Apps is that they are targeted largely at the excluded strata and would be catalytic in the world’s biggest financial inclusion programme.

After the launch of BHIM – App, the latest is Bharat QR Code which works on the model of Paytm wherein the customer scans the QR code of the merchandise and then transfers the money from his/her wallet.  The only difference with Bharat QR Code is that just as BHIM, the customers at the merchandise point does not have to create and then draw money from the wallet. The funds are directly transferred from the customer’s account and transferred instantly to that of the merchant or service provider. Unlike credit or debit cards used at the points of sales, there are no charges involved. There is an ease of using App with no cost. As far as the integrity and safety of the system is concerned, the RBI is giving assurance about it.

“Our systems are not only comparable to any system anywhere in the world, our systems also do set standards and good practices for the world to follow. We remain vigilant for ensuring safety and soundness of the payment systems and are committed to customer safety and convenience," according to Mr. R Gandhi, Deputy Governor of the RBI.

What makes the Bharat QR Code unique in the world is low cost, interoperability and an excellent collaborative approach by the payment networks like MasterCard, Visa, National Payment Corporation of India and American Express, which are otherwise fierce competitors.  “India is setting yet another standard in the payment arena for others to adopt,” Mr Gandhi said with a sense of pride at the launch of the new App in Mumbai, on February 20, 2017.

There is a lot more that the RBI is embarking upon for making India a less-cash society. Under the Vision-2018, it is working on a multi-pronged strategy for an effective regulation, robust infrastructure, supervision and customer centric payment architecture that meets the strict requirements of cyber security.  

The government had constituted a Committee under the Chairmanship of Mr. Ratan Watal, Principal Adviser, NITI Ayog, to suggest measures for encouraging digital payments.  Having examined the regulatory and legislative framework, the Watal Committee recommended that the Payment and Settlement Systems Act 2007 be amended for a better regulatory governance, competition and innovation, consumer protection, open access, data protection and security, and penalties for offences. Accepting these recommendations, the legislative changes have been brought in the Finance Bill of 2017.  

On its part, the NPCI which has been giving big cash awards for use of digital transactions, has so far disbursed over Rs 153 crore to nearly 10 lakh consumers and merchants through Lucky Grahak Yojana and Digi Dhan Vyapar Yojana.  These schemes are meant to make digital payments a mass movement. The response through the incentives has been pretty good with Maharashtra, Tamil Nadu, Uttar Pradesh, Andhra Pradesh and Delhi emerging as trend-setters. There has been a good response to the initiative from all sections and age groups. The only challenge would be to ensure that the same enthusiasm is retained after the economy is fully remonetised in the next few weeks. The digital drive must reach its logical end.

Quest to widen direct tax net

Quest to widen direct tax net
There is need to drastically reduce the income tax exemption slab; say, down to Rs1 lakh from the current minimum threshold of Rs2.5 lakh

Is there a wide gap between India’s political democracy and fiscal democracy? This year’s Economic Survey has a telling graph, a picture that speaks a thousand words. It shows that in Norway, for every 100 voters, there are 100 taxpayers. In India for every 100 voters, we have seven taxpayers. It is as if the voters form the government, and the taxpayers help fund it. Of course, these numbers are only for people who pay income taxes. The burden of indirect taxes is upon all of us. But is this fair?

Indirect taxes are regressive, don’t depend on the income or paying capacity of the payer, and ultimately hurt the poor disproportionately. The goods and services tax (GST) is an indirect tax, and its rates and average burden are expected to be even higher than what prevails now. Indirect taxes in the form of excise taxes have risen by almost 50% for two consecutive years. Tax on petrol itself is up by 150% since July 2014. It is time we confront the curse of the silently escalating indirect taxes in India.

That cannot be done unless we increase direct tax collection, and widen the net to cover more direct tax payers. Why are we so reluctant to take this initiative?

The recent data released on direct taxes pertaining to three years ago, shows taxes foregone on capital gains to be of the order of Rs54,000 crore. A senior official of the Central Board of Direct Taxes is on record as having said that tax loss due to abuse of capital gains tax exemption could be to the tune of Rs80,000 crore this fiscal year. This year’s budget was kind to the real estate sector, making capital gains on sale of real-estate-tax exempt after just two years, instead of three. In most developed economies, capital gains on sale of assets is taxed at 15%. If we want to keep these gains tax exempt, let’s at least have a uniform holding requirement of three years, across all asset classes.

Our generosity extends not just to capital gains, but to income tax payers as well. The minimum threshold below which no income tax is paid is Rs2.5 lakh. This is 250% of India’s per capita gross domestic product (GDP). That makes India one of the most generous exemptors in the world, as shown by Praveen Chakravarty in a recent piece, “Decoding India’s Low Tax Base Conundrum”, in Bloomberg Quint. In most countries, income tax becomes payable when your income is about one-half or one-fourth of the average income in your country. Indeed, in Russia, you pay income tax from the very first rouble that you earn. With such a generous exemption, is it any wonder that only 3% of Indians pay income tax?

This tax-paying class is so vociferous and politically active that the exemption slabs keep creeping up every year. What we probably need is a drastic reduction in the exemption slab; say, down to Rs1 lakh. Of course, the applicable rate in the lower slab should remain low.

Income tax payers have two pet peeves. One is that they say, why are you letting agriculture income go tax-free? Second, they say, when everyone is paying such steep taxes in the form of value-added taxes (VAT), excise and service taxes, why do you want to hike income taxes? Both these are misguided.

First, only 14% of national income is from the agriculture and allied sectors. Almost 95% of the farmers who own land have barely 2-hectare holdings. Even with very high productivity, they can make only a modest income, which if all taxed, will add possibly 1% of gross domestic product (GDP) to tax collections. This won’t even move the needle. Besides, this would need a constitutional amendment. What’s needed, instead, is to catch the crooks who go scot-free misrepresenting their income as coming from agriculture.

The second peeve is like mixing up cause and effect. We have high incidence of indirect taxes because we do so poorly on direct taxes. The former would reduce automatically, if direct tax collection improved substantially. So, arguing that we should simply abolish income taxes altogether, because we collect so little of it, is an absurd proposition which hides our basic failure. The root cause is our inability to shake off the tightening shackle of indirect taxes. Incidentally, indirect taxes also tend to be inefficient, as compared to direct taxes. Until VAT and GST came along, we had cascading taxes, tax on tax, adding to inefficiency. Even the current GST excludes real estate, electricity and petro-products, thus diminishing the offset of credit for tax paid on inputs, and thus retaining inefficiency. Direct taxes in contrast have no such drawback.

One silver lining is in the outcome of demonetisation. Next year, the Union budget expects national (nominal) income to go up by 12% but personal income-tax collection will rise by 25%. Indeed, in the first three quarters of this year, personal tax collection is up 34%. For the past two years, direct taxes have risen by 17% in each year, even though rates have stayed unchanged. That shows a healthy widening of the tax net. Post demonetisation and the surge in bank deposits, about 1.8 million people have received “Hello” letters from tax authorities because of suspiciously high deposits. Most of them will hopefully join the income-tax payers’ club.

India’s ratio of direct to indirect taxes is 1:2, which is exactly the opposite of most advanced economies. We need to urgently correct this skew, for the sake of efficiency, fairness and reducing inequality. Paying direct income tax from your pocket is to be seen as your membership fee for this robustly functioning democracy. That’s the way of reducing the wide gap between our political and fiscal democracy.

sandalwood plantations in India

At $1,500 each, these aromatic trees are very precious parasites
The aromatic trees are maturing just as prices soar amid a production shortfall from the biggest producer India and rising demand from China
Currently there are about 6,000 acres of sandalwood plantations in India, and the area planted is increasing by more than 2,000 acres a year.
In a climatic sweet spot running across the far northern Australian outback, 15 years of patience may be about to pay off for two of the world’s biggest growers of plantation sandalwood trees.

The parasitic trees—prized for their aromatic wood and essential oil that’s used in perfumes, cosmetics and medicines—are approaching maturity, more than a decade after they were planted.

The trees are maturing just as prices soar amid a production shortfall from the biggest producer India and rising demand from China. A kilogram of Indian sandalwood oil now sells for about $3,000, or about five times as much as silver, and prices are rising by at least 20 to 25% a year, according to the South India Sandalwood Products Dealers & Exporters Association. That makes the mature trees on the Australian plantations run by TFS Corp. and KKR & Co.—backed Santanol Group worth about $1,500 apiece.

“You have a fundamental supply demand imbalance,” TFS chief executive officer Frank Wilson said in an interview from Perth. “We are a price maker.”

Global demand for sandalwood is set to gain five-fold to 20,000 tonnes of wood a year in the decade to 2025, according to TFS, the largest plantation operator in Australia. China will account for half of the increase, where it’s used in traditional medicines, handicrafts and fragrances. That comes as M. M. Gupta, the honorary secretary of South India Sandalwood Products Dealers & Exporters Association, says supply of legally sourced sandalwood from India is limited partly because of government restrictions on production and exports.

“The business can be very big,” Remi Clero, the CEO of Santanol, said by phone from Paris. Santanol currently sells the oil for just under $3,000 a kilogram, which Clero said “corresponds to a long-term price.”

India has historically been the dominant supplier but sales from government auctions plunged in recent years due to over exploitation and smuggling, according to papers presented at a Food and Agriculture Organization conference in 2011.

Centuries-old restrictions that made all sandalwood government property in India also severely discouraged private growers, Gupta said in an e-mail response to questions.

Santanol’s plantation at Kununurra, on the border of Western Australia and the Northern Territory some 3,000 kilometers (1,900 miles) from WA’s capital, Perth, will be among the sources filling the gap, Clero said.

Sales of sandalwood sourced illegally from natural forests in India are estimated to dwarf official production, which was mostly state-controlled until the middle of last decade. Supply from India remains variable and fell to just 250 tons of wood a year in 2016 from almost 4,000 tons a year in 1970 and more than 1,300 tons in 2002, according to government data. That variability increases the attractiveness of plantation supply.

“When you create a fragrance, a formula, you need to be able to give to your customers a consistent product,” Santanol’s Clero said. “They need to be able to do deals with companies like ours for 10 years or more of guaranteed supply.”

India isn’t standing still, however. The government of Karnataka, one of the largest growers of sandalwood in India, is backing cultivation in a bid to rebuild supply. Some 470 farmers have so far joined up to the plan covering an area of more than 2,000 acres of land, according to the website of Karnataka Soap and Detergents Ltd, the state-backed company that oversees the program. That may pressure future prices of both sandalwood oil and timber. A fifteen-year-old tree produces about 500 milliliters of oil, according to Clero.

“Australia will capture share of the Indian sandalwood market for another 10 years,” Gupta said. “Cultivators should have the free hand in cutting and sale/export, since they have to conserve and protect sandalwood for over 15 years. There will be no theft and illegal smuggling since the farmers can help themselves in protecting the property as they are doing for other crops.”

Currently there are about 6,000 acres of sandalwood plantations in India, and the area planted is increasing by more than 2,000 acres a year, Gupta said.

Still demand from new sectors, dwindling Indian output and the difficulty of replicating the maturing Australian plantation trees, has TFS confident in the future.

TFS plans to increase output 30-fold to 10,000 tons of timber a year from its 30,000 acres of plantations located in a strip of land running through the northern parts of Western Australian, the Northern Territory and Queensland. “It is very beautiful, rugged, high rainfall, very fertile area,” Wilson said. “It’s an oasis in the desert.”

The company manages about 5.4 million trees maturing at different stages and completed its first commercial harvest in 2014, according to its website. The trees, which need a host plant to help them get water and other nutrients from the soil making them semi-parasitic, are harvested whole. TFS uses almost the entire tree, selling oil—that it refines at its Mount Romance distillation plant—as well as wood chips, wood powder and resins.

Santanol manages about 2,200 hectares of sandalwood in Kununurra. It first harvested trees in 2014 and is selling “tons” of oil a year, said Clero who declined to give more detail.

The biggest growth in demand will come from pharmaceuticals and TFS is in the process of developing dermatological products to treat conditions including acne and psoriasis.

“There’s not a business in the world where good economics don’t attract competition and we’ll be the same,” Wilson said. “But there are many barriers to entry because it takes a long time to grow, it’s a difficult crop to grow and there’s a narrow band of geography where it can grow.”

Wilson, a former lawyer and also TFS’s largest shareholder, said revenue will grow more than tenfold to $1.5 billion by 2025.

TFS, founded in 1997, sold shares to the public in 2004 at 20 Australian cents each. They have risen about seven-fold since then. Its customers include Estee Lauder Cos, which uses sandalwood oil as a base note in its Pleasures brand perfume.

“We need a lot more customers to absorb the supply but they are not very hard to find,” Wilson said.

Decoding the direction of monetary policy

Decoding the direction of monetary policy
The committee is now aiming to reach a position where it is able to maintain inflation close to 4%

Reserve Bank of India governor Urjit Patel, in an interview to Network 18, once again explained the rationale behind the change in policy stance of the monetary policy committee (MPC). On 8 February, the rate-setting committee changed the policy stance from accommodative to neutral in order to give itself more flexibility. The change surprised the market and many analysts interpreted this as an end to rate-cut possibilities in the current cycle. Consequently, bond yields shot up as the market was expecting the MPC to cut policy rates by 25 basis points (one basis point is 0.01 percentage point).

The policy statement clearly explained the reasons for changing the stance; this was also reiterated by Patel in the interview. For instance, lower headline inflation in recent months has been largely driven by a fall in food prices—which may rebound as the supply of cash improves in the economy. It is possible that food prices, particularly those of vegetables, fell because of a cash crunch in the aftermath of the government’s currency-swap initiative. Core inflation continues to remain sticky at about 5%. Global commodity prices have firmed up in recent months and the volatility in the foreign exchange market can also put upside pressure on inflation. The central bank expects inflation to remain in the range of 4-4.5% in the first half and 4.5-5% in the second half of the next financial year.

While the policy stance of the committee surprised many analysts, the sharp reaction of the market is equally surprising—it was, in any case, expecting a long pause after a 25-basis point cut. It is also likely that since the lending rates have come down significantly because of the currency swap, a rate cut at this stage would not have made much difference.

In terms of policy direction, there are at least two important points worth noting. First, a change in stance from accommodative to neutral does not necessarily mean that rates cannot be reduced from the present level. If inflation continues to undershoot the target, the committee may decide to cut rates at a later date. Differently put, it is difficult to argue that policy rates can only go up from the present levels. Second, the committee is now aiming to reach a position where it is able to maintain inflation close to 4%, which should be seen as a big positive for the economy.

After the rates were reduced in October, some market participants were of the view that perhaps the committee would be comfortable with inflation readings closer to the upper end of the given band. But that is not the case. The minutes of the December meeting, for instance, showed that in Patel’s view, “securing 4% (inflation target)—the central point of the notified target range—remains the primary objective”. If the committee is able to maintain inflation at about 4% on a durable basis, it will enhance macroeconomic stability in a big way and boost growth prospects. It will also open up space for a significant cut in policy rates. As Patel, in the above-mentioned interview, also explained: “The best way that a central bank can support growth on a durable basis is to ensure that the inflation is low, stable…. Very few countries grow at a high rate, if inflation is high and volatile. I think, in a way, we are doing our bit to support a higher growth rate but on a durable basis.”

Along with implications for economic stability and growth, it is also important for the rate-setting committee to maintain inflation closer to the target as it will cement its credibility. This will also help in dealing with short-run supply shocks. A recent working paper put out by the International Monetary Fund, Inflation-Forecast Targeting For India: An Outline Of The Analytical Framework, noted in this context: “As the FIT (flexible-inflation-targeting) regime gains credibility, and wins the public confidence in its ability to ensure price stability even in an economy subject to price level shocks, inflation expectations would remain aligned to the medium-term target, which in itself would ensure that the effects of supply shocks on inflation remain transitory.”

Therefore, the change in policy stance by the MPC should be seen from the broader perspective of its objective. To be sure, maintaining inflation close to the 4% level may not be easy for the committee due to the underlying complications of the economy. But keeping inflation close to the 4% target will not only help growth in the medium to long run, but will also build a strong track record for the committee which will have a bearing on its actions in the future.

Will low and stable inflation boost growth prospects?

Russia overtook Saudi Arabia as the world’s largest crude producer

Russia overtook Saudi Arabia as the world’s largest crude producer in December, when both countries started restricting supplies ahead of agreed cuts with other global producers to curb the worst glut in decades.

1. Russia – 10.9 million oil barrels / day – which make for 13.28% of the world’s oil production
2. Saudi Arabia – 9.9 million oil barrels / day – which are 12.65% of the total number of oil barrels produced in the world per day
3 United States – 8.45 million oil barrels / day – which are 9.97% of the world’s daily oil production.
4. Iran – 4.23 million oil barrels / day – 4.77% of the total daily oil production
5. China – 4.073 million oil barrels / day – 4.56%

Russia pumped 10.49 million barrels a day in December, down 29,000 barrels a day from November, while Saudi Arabia’s output declined to 10.46 million barrels a day from 10.72 million barrels a day in November, according to data published Monday on the website of the Joint Organisations Data Initiative in Riyadh. That was the first time Russia beat Saudi Arabia since March.

Saudi Arabia and fellow producers from the Organization of Petroleum Exporting Countries decided at the end of November to restrict supplies by 1.2 million barrels a day for six months starting Jan. 1, with Saudi Arabia instrumental in the plan. Non-member producers, including Russia, pledged additional curbs. Brent crude prices have climbed about 20 percent since the end of November.

The U.S. was the third-largest producer, at 8.8 million barrels a day in December compared with 8.9 million barrels a day in November, according to JODI. Iraq came in fourth at 4.5 million barrels a day, followed by China at 3.98 million barrels a day, the data show.

Saudi Arabia’s crude exports declined to 8 million barrels a day in December, from 8.26 million barrels a day, the biggest outflow for any month since May 2003, according to JODI data.

Weak official response to the pollution of Bengaluru’s wetlands threatens public health

Weak official response to the pollution of Bengaluru’s wetlands threatens public health

The extraordinary sight of a lake in Bengaluru on fire, with a massive plume of smoke that could be seen from afar, is a warning sign that urban environments are crashing under the weight of official indifference. If wetlands are the kidneys of the cities, as scientists like to describe them, Karnataka’s capital city has entered a phase of chronic failure. No longer the city of lakes and famed gardens, it has lost an estimated 79% of water bodies and 80% of its tree cover from the baseline year of 1973. Successive governments in the State have ignored the rampant encroachment of lake beds and catchment areas for commercial exploitation, and the pollution caused by sewage, industrial effluents and garbage, which contributed to the blaze on Bellandur lake. The neglect is deliberate, since some of the finest urban ecologists in the city have been warning that government inaction is turning Bengaluru into an unliveable mess. It is time the State government took note of the several expert recommendations that have been made, including those of the Centre for Ecological Sciences of the Indian Institute of Science. The priority, clearly, is to end pollution outfalls into the water bodies, which will help revive them to an acceptable state of health. Identifying all surviving wetlands and demarcating them using digital and physical mapping will help communities monitor encroachments, while removal of land-grabbers and restoration of interconnecting channels is crucial to avoid future flooding events.

Loss of natural wetlands is an ongoing catastrophe in India. A decade ago, when the Salim Ali Centre for Ornithology and Natural History released a conservation atlas for all States using space applications, it reported the tragic fact that 38% of wetlands had already been lost nationally; and shockingly, in some districts only 12% survived. The Centre has since issued rules for conservation and management, and chosen 115 water bodies in 24 States for protection support, but this is obviously too little. Moreover, research studies show that the concentration of heavy metals in such sites is leading to bioaccumulation, thus entering the plants and animals that ultimately form part of people’s food. It should worry not just Bengaluru’s residents, for instance, that soil scientists have found higher levels of cadmium in green vegetables grown using water from Bellandur. More broadly, the collapse of environmental management because of multiple, disjointed agencies achieving little collectively and legal protections remaining unimplemented pose a serious threat to public health. Every city needs a single lake protection authority. India’s worsening air quality is now well documented, and most of its wetlands are severely polluted. Citizens must assert themselves to stop this perilous course.

The historically low solar tariffs at Rewa

Solar energy has become the cheapest it has ever been in India, thanks to historically low tariffs achieved in the reverse auction bid for three units in the Rewa plant in Madhya Pradesh earlier this month. But what does this mean for the solar industry in India?

What exactly happened?

The two-day reverse auction bid for three 250 MW blocks in the Rewa solar plant in Madhya yielded a tariff of Rs 2.97 for each of the blocks and a levelised tariff of Rs 3.3 over the course of the 25-year power purchase agreement. The winners of each of the bids were Mahindra Renewables, ACME, and Solenberg Power. The Rewa plant is a joint venture of Solar Energy Corporation of India and Madhya Pradesh Urja Vikas Nigam (MPUVN).
A reverse auction in such a scenario is basically a situation where companies bid for a unit by offering the lowest tariffs at which they will sell the energy generated from the unit. The lowest tariff wins the bid.

How were such low rates achieved?

Companies bidding for the Rewa units were able to commit to such low tariffs because of various factors, some to do with the industry, and others to do with the specific bid.
The industry-related factors include the fact that solar energy producers in India have been able to greatly reduce their costs due to the import of cheap photovoltaic panels from China. In addition, in keeping with the government’s renewable energy push, especially its commitment to achieve 100 GW of solar energy by 2022, it has expedited the land acquisition process and has reduced excise duties on various components required to set up a solar plant.

Specific to the Rewa bid, the Madhya Pradesh government implemented a few favourable and unique structures in the project power purchase agreements. For example, it included a state government guarantee for the contracted capacity by the utility as well as a compensation for deemed generation in case of non-availability of grid. These factors allowed the bidders to commit to lower tariffs than they would otherwise have been able to.

What does this mean?

While this does mean that solar energy will be cheaper, several industry experts have warned that, at such low tariffs, margins are also very slim. This could mean that even a slight increase in input prices—such as pricier imports from China—could push many of these projects into unprofitability.

 

Scientists claim discovery of drowned Pacific Ocean continent Zealandia

The 4.5-million square km land mass is 94% under water and only its highest points — New Zealand and New Caledonia — are visible.

A continent two-thirds the size of Australia has been found beneath the south-west Pacific Ocean, scientists reported in the journal of the Geological Society of America.
Known as Zealandia, the land mass of 4.5 million square kilometres (1.74 million square miles) is 94 per cent under water and only its highest points — New Zealand and New Caledonia — poke above the surface.
“It’s rather frustrating for us geologists with the oceans being there,” said Nick Mortimer, a geologist at GNS Science in Dunedin, New Zealand. “If we could pull the plug on the oceans, it would be clear to everyone we have mountain chains and a big high-standing continent above the ocean crust.”
Mr. Mortimer was the lead author of the paper titled Zealandia: Earth's hidden continent which says the new discoveries prove what had long been suspected.
Suspected since the 1920s
“Since about the 1920s, from time to time in geology papers, people used the word ‘continental’ to describe various parts of New Zealand and the Catham Islands and New Caledonia,” Mr. Mortimer said. “The difference now is that we feel we’ve gathered enough information to change ‘continental’ to the noun, ‘continent.’”
Mr. Mortimer said geologists early in the previous century had found granite from sub-Antarctic islands near New Zealand and metamorphic rocks on New Caledonia that were indicative of continental geology. If the recent discovery is accepted by the scientific community, cartographers will probably have to add an eighth continent to future maps and atlases.
“The paper we’ve written unashamedly sticks to empirical observations and descriptions,” Mr. Mortimer said. “The litmus test will really be if ‘Zealandia’ appears in maps and atlases in five or 10 years’ time.”

Split 80 million years ago?

Zealandia is believed to have broken away from Australia about 80 million years ago and sank beneath the sea as part of the break up of the super-continent known as Gondwanaland.

Project Loon can now predict weather systems

Researchers at Google have moved a step closer to rolling out a network of huge balloons to provide Internet connectivity to billions of people around the world, particularly those in difficult-to-reach rural areas.
The Project Loon team, part of the company’s X research lab, said it can now use machine learning to predict weather systems.
The advance means Google has much more control over where its balloons reach, making it possible to focus on a specific region, rather than circumnavigating the globe.
“We can now run an experiment and try to give service in a particular place in the world with ten, twenty or thirty balloons,” rather than the hundreds needed previously, the company said.
“Real users” will be able to make use of the system in the “coming months”, however, the company did not specify where the initial roll-out would take place.
The company has experimented with beaming down connectivity from a network of huge, tennis-court sized balloons rather than undertaking huge construction projects to replicate connectivity networks in the developed world.
The balloons float in the stratosphere around 18 kilometres high. By raising or lowering altitude, the balloons can be caught in different weather streams, changing direction.

By using machine-learning algorithms, Google thinks it has found a way to predict weather with enough accuracy to make it possible to hover balloons over a relatively small area for a long period of time.

The firm was last year able to keep a cluster of balloons over Peru for three months.

Upsetting a very fine balance

Three recent instances invite disturbing questions about the transformation of the Supreme Court

Sixty-seven years ago, the framers of our Constitution made a simple — yet radical — choice. They decided to trust the Indian people. The Indian Constitution, with its guarantee of universal adult suffrage, transformed colonial subjects into free and independent citizens, who were to use their own reason in governing themselves.

Our Constitution’s framers also made another important choice. Having fought so long against a repressive government, they were aware of how easily power is used to crush free thought, open discussion, and civil rights. While they trusted the Indian people, they did not trust their rulers. And so, in the Constitution, they guaranteed to all citizens fundamental rights, including the fundamental right to the freedom of speech and expression, subject only to specified restrictions.

Two layers of safeguards

The framers were careful about the language they used: restrictions upon a fundamental right could be imposed only by law. Only an elected legislature, after careful deliberation, could decide to restrict some speech in the interests of an overwhelmingly important public goal. This could then be challenged before independent courts. Thus, the Constitution protected citizens’ rights through two layers of safeguards: the legislature had to make a law, and then the courts could be called upon to test its constitutionality.
In the years after Independence, the framers’ delicate balancing act — between State and citizen, between rights and public goals, between legislatures and courts — has sometimes come under immense strain, but has survived more or less intact. In recent months, however, that balance is once again under stress. Only this time, it is not because of an overbearing Executive or a pliant Parliament. It is because of the Supreme Court. In the course of its history, the Supreme Court has performed its role as the guardian of our fundamental rights with a debatable degree of success: upholding the law of sedition while striking down Section 66A of the Information Technology Act, upholding the law of obscenity while gradually liberalising it over the years, and so on. However, what is happening now is more serious: of late, the Court has begun to redefine its own role under the Constitution, transforming itself from the guardian of civil rights to a great, overarching moral and political censor. This is a role that the framers never envisaged. Given that there is nobody to guard the guardians, it is a role that vests great power — without any accompanying responsibility — in the Court. And it is a role that runs contrary to the very spirit of our Constitution, and specifically to its structuring principle of autonomous, thinking citizens.

Three instances

Three recent instances have accelerated this nascent trend. Recently, the High Court of Bombay found that certain scenes in the film Jolly LLB 2 “defame” the legal profession. Despite the fact that the film had been cleared by the Censor Board, the Court set up an entirely fresh committee to “review” the film, and ordered four “cuts” to be made. The producers moved the Supreme Court, arguing that while the High Court could, admittedly, review the decision of the Censor Board, it could not create an entirely new censoring mechanism. However, the Supreme Court refused to intervene or to hear the producers on the merits of their case until the High Court had passed its final orders. When the Bombay High Court finally mandated cuts, the producers — understandably — saw little point in going back to the Supreme Court. Facing huge commercial losses (the film was set to release in four days), they managed to bargain and reduce the number of cuts. The film was released. The precedent that it set, however, is disturbing.
While the Supreme Court saw nothing wrong with the Bombay High Court’s invention of a parallel censorship mechanism, it saw everything wrong with the fact that cinema halls were not playing the national anthem before every film. Acting upon a “public interest litigation”, and without any basis in existing law, in November 2016, the Court passed an “interim order” compelling all cinema halls to play the anthem. For a moment, forget about whether this is a good or a bad thing. Instead, consider the following: is it legal? It is constitutional? Is this kind of compelled performance of patriotism something India’s Supreme Court can impose upon India’s free and independent citizens? Somewhere, drowned underneath the drumbeats of patriotism, these crucial questions are going unanswered.
And lastly, only last week, the Supreme Court passed yet more interim orders, in a case involving sex-determination tests. Ostensibly, the Court was acting under the authority of the Pre-Conception and Pre-Natal Diagnostic Techniques Act of 1994, which prohibits advertisements regarding pre-natal sex determination.
However, fuelled by a sense of moral outrage, the Court had been passing a series of “interim orders” (eventually likely to become final) that were progressively increasing censorship; in the latest order, it directed search engines such as Google to constitute in-house committees to “block” access to such websites, and (in continuation of previous orders) to do so by blocking search “keywords”. In one stroke, the Supreme Court vested vast censorship powers in unaccountable private committees, something that Internet scholars and activists all over the world have repeatedly warned against. More worryingly, however, the Court’s orders amount to making entire swathes of the Internet off-limits for everyone, no matter what the purpose: research, investigation, or even simple curiosity. Or, to put it even more simply: because advertising for sex determination is illegal in India, the Court will make any attempt to look it up on the Internet also illegal. That is how totalitarian societies react to the Internet. It is not how the Supreme Court of India is expected to react.
The implications of these orders are frightening. Today, the Court wants Google to block access to search results involving the word “gender selection”. What will it be tomorrow? “Secession”? “Terrorism”? Or just about anything that the courts, in their wisdom, feel that Indian citizens cannot be trusted to read about?

Now, Supreme Censor?

There are a few unifying features about these three cases. All of them were brought to the Court as “public interest litigation”. There is a tragic irony here: public interest litigation began as a movement to democratise access to courts. It discarded traditional rules of evidence, and vested vast powers in courts to “do justice”. In 2017, the very dilution of rules and the existence of vast powers have become weapons in the hands of courts to cut down rights. More importantly, however, in all these cases, the Court’s censorial actions bear a tenuous connection — if any — to “law”. In the Jolly LLB 2 and National Anthem cases, the courts do not even attempt to demonstrate that what they are doing is within the legal framework. In the Sex Determination case, vague references are made to the IT Act, but that law simply does not contemplate judicial orders that make the Internet off limits. In short, the Court’s actions have upended the careful balance that the framers sought to achieve in the Constitution: instead of our elected representatives making laws, which the Court then tests for constitutionality, the Court has now begun to make its own laws limiting, restricting, and suffocating speech. And this is only the tip of the iceberg: the Supreme Court is currently hearing petitions seeking to ban pornography, order a keyword-block for rape videos, and ban racy pictures on condom packets. The Court’s jurisprudence also has an impact downwards: last year, the Madras High Court ordered that the teaching of the Tamil epic Thirukkural be made compulsory in all schools — again, in the absence of any law whatsoever.

In 2017, the Supreme Court has reduced us to passive subjects instead of active, thinking citizens. The Supreme Court tells us what we can watch and what we can’t watch. The Supreme Court tells us what we can search on the Internet, and what we can’t search. The Supreme Court tells us that we must be patriotic, and how, where, and when, we must be patriotic.

To the framers of our Constitution, who fought for political independence from colonial rule on the Enlightenment principle of “have courage to use your reason”, and who trusted the Indian people to make that most important of all decisions — the decision to choose their own rulers — we can only say that the transformation of the Supreme Court into the Supreme Censor would have come as an unpleasant shock

The economics of immigration reform

The question of how the country should approach immigration remains one that is often discussed and never resolved

My grandmother disembarked at Ellis Island in 1922, just as the doors to the US closed on Soviet immigrants. Clearly, my family is relieved that policy did not change before she got her visa, but does that mean all of her dozens of descendants support continued immigration? Of course not: We can’t even agree on a proper brisket-making technique. As a nation, we have been discussing the benefits and disadvantages of bringing new blood in for centuries, and the issue has yet to be settled.

This week the IGM Economic Experts Panel showed us that even the world’s leading economists can’t agree on this issue, judging by the mixed poll results for two questions about low-skilled immigrants.
The first question considered whether the average US citizen would be better off if a larger number of low-skilled foreign workers were legally allowed to enter the US each year. Slightly more than half of the experts agreed with this statement. “This would drive down the cost of a variety of services,” said Aaron Edlin of Berkeley. Still, 28% were uncertain.
One reason for the high number of uncertain responses seems to be semantics: “‘Average US citizen’, what does that mean?” asked Barry Eichengreen of the University of California at Berkeley. Others simply did not have an answer, citing a lack of information.
“I am sure that I am uncertain,” said Caroline Hoxby of Stanford. “A certain answer would require a knowledge of EQM effects on which we’ve only a partial grasp.”
Several panellists noted that there were both pros and cons to admitting more low-skilled foreign workers. Joseph Altonji of Yale pointed out that “real income of the average American would rise, but social strains and inequality would also increase”. Oliver Hart of Harvard commented that average citizens would be better off, but welfare payments to unemployed immigrants would be a countervailing effect.
As for the second question, half of the panel agreed that low-skilled American workers would be substantially worse off if a larger number of low-skilled foreign workers were legally allowed to enter the US each year. “A higher number of workers of the same type seeking jobs would lower their average wages or employment rate,” said Darrell Duffie of Stanford. His faculty mate, Kenneth Judd, concurred. “It is hard to see how (low-skilled American workers) would benefit, and they would lose from the competition in the labour market,” said Judd.
As in the previous question, nearly a third of the respondents were uncertain, and again some of the indecision came down to semantics: several experts questioned the meaning of the word “substantial”. Others questioned the available evidence, including Robert Shimer of the University of Chicago: “Evidence that immigration pushes down low-skill wages is mixed.”
The question of how the country should approach immigration remains one that is often discussed and never resolved. Still, it is comforting to know that even some of the best minds out there can’t agree on something the rest of us are arguing over at the dinner table.

Women in an unorthodox democracy

Voting percentage for women have increased in ongoing assembly polls but their participation as candidates and the possibilities of their victory are shamefully low

Ever heard of Najima Bibi? If you haven’t, let me do an introduction for you. She is trying to script history in a little-known part of India. The consequences could be dangerous for her as the extremists have threatened her.

Najima Bibi’s difficulties began when she made up her mind to participate in the assembly polls in Manipur. If she had joined hands with a so-called ‘established’ party, things wouldn’t have been so tough. But she chose the People’s Resurgence And Justice Alliance, founded by her equally strident comrade, Irom Sharmila. Irom is living proof of the perversities of Indian society. You may be aware of how she went on a hunger strike for 16 years, demanding the repeal of the Armed Forces Special Powers Act (AFSPA). She spent those golden years, when young women fall in love, get married and start a family, fighting the establishment. Till the time she was on hunger strike, her family and the people she consider ‘her own’ kept praising her. It helped boost their prestige. People said Irom came from ‘this’ family and stayed in ‘that’ neighbourhood. In the process, they became victims of the ‘VIP syndrome.’
But their attitude changed when she fell in love with an outsider and decided to take her battle to a new paradigm. Subsequently, Irom decided to break her fast and join politics. This was the juncture when her family and her closest supporters turned against her. As her illusions were shattered, in this poignant moment, she must have realized that the people for whom she gave away everything she possessed, only wanted to deify her as the goddess of sacrifice. They never intended to stand by her.
Irom and Najima’s struggle is also extraordinary because they’ve both decided to follow their own beliefs. Which money-bag businessman would finance their endeavours? In the absence of funds, they are campaigning for elections on bicycles. Will their voices go unheard? Whether they win or lose, the example that they have set with their dignified struggle will keep inspiring young people for a long time.
If we look at the 2017 assembly elections closely, we will discover that Indian politics may boast of a few names, decisions and events, but it disregards the needs of close to half our population. Statistics from the 2017 assembly elections in Uttar Pradesh and Uttarakhand reveal that the voting percentage for women might have increased but their participation as candidates and the possibilities of their victory are shamefully low. According to data collected by www.indiaspend.com, the number of women candidates went up in 2012 but 85% of them lost their deposit. In reserved seats, this number was relatively less disappointing, but it was still abysmal because just 79.8% women could hold on to their deposit. Just 7.1% women won from reserved seats and in non-reserved seats, just 4.7% women emerged victorious.
Will the assembly elections in 2017 play a part in increasing the representation of women in Indian politics? I am not very optimistic.
Just pick up the list of candidates and you will realize what I am saying. Most of the ‘winnable’ women candidates come from political families. They are being fielded so that another seat comes into the family fold. Over three-and-a-half decades of political reporting I have always felt that many women who are made to file nominations from certain constituencies cannot even retain their deposits. Their name is used to split the votes going to political opponents of their family members. If women from political families are considered ‘winnable’, how does one perceive women who are forced to be scapegoats of other’s ambitions, owing to their humble background?
In many villages of Uttar Pradesh, where women are village panchayat chiefs, their husbands introduce themselves as ‘pradhan pati’ (husband of the panchayat chief). These are men who could not contest on their own owing to women’s reservation, but fielded their wives instead. They still want to confine women to the four walls of their homes. Can there be a bigger betrayal of democracy than this?
This is the situation in Uttar Pradesh that prided itself as a role model for women’s emancipation many decades ago.
The country’s first woman chief minister was Sucheta Kriplani in UP. She presided over the largest state in the country from 1963 to 1967. She was married to Acharya J.B. Kriplani. Kriplani was an opponent of the Congress and his wife was the chief minister from the same party. What can be a better example of democracy within a family? The same state also gave us Indira Gandhi, the only woman prime minister of the country so far. This is the state from where Congress national president Sonia Gandhi has been elected to Parliament. Mayawati, one of the leading contenders in these assembly elections, has many records to her name. Not only was she the first Dalit chief minister, she has also set a record by becoming chief minister four times.
For how long will the first democracy in the history of the world to bestow equal voting rights upon women keep preening about its glorious past? We have to get into the habit of setting new records

The growing importance of trade for India

Trade enriches countries because it extends the scope for efficient division of labour

It is now time to dump a tired old assumption about India—that it has an economy closed to trade both within its territory as well as with the rest of the world. The reality is refreshingly different.

The new Economic Survey written by the team of finance ministry economists headed by Arvind Subramanian has used a unique data set of invoices from the goods and services tax network to estimate the level of trade between states (tangentially, we welcome the innovative use of Big Data in the Economic Survey. Railway passenger data has also been used to estimate internal migration patterns. The Indian government needs to embrace such use of Big Data).

The estimates in the Economic Survey show that interstate trade flows, which include the movement of goods between firms and within firms, are around 54% of gross domestic product (GDP). The usual assumption in economic geography, that large countries with substantial domestic markets have robust internal trade, can explain why interstate trade is so active in India, and is perhaps an antidote to the usual belief that the outdated barriers to trade across states reduce the movement of goods and services across borders.

What is unclear is how much of this internal trade is natural and how much a result of a perverse indirect tax system.

It is much the same story with international trade. The old shibboleths need to be discarded. India once suffered under a system of autarky. Much has changed since then. The ratio of trade to GDP has shot up after the economic reforms of 1991 but especially in the first decade of the current century.

Few seem to notice that India has since 2011 traded more with the rest of the world than China does. The trade intensity of both these economies has come down sharply since world trade started contracting a few years ago, but India continues to maintain its lead over China on this front.

What are the implications of these two facts? Trade enriches countries because it extends the scope for efficient division of labour. It thus raises productivity. And trade barriers are an invitation to poverty. So the new evidence that India actually has a robust trading culture should be welcomed.

The task of the Narendra Modi government is to push ahead with more openness on both fronts. The Prime Minister said in November that he wants India to become the most open economy in the world. The data in the Economic Survey shows that we are no laggards—but the challenge now is to keep dismantling barriers to internal and external trade.

The global task is an important one given the rise of protectionist sentiment in many developed countries. Free trade has helped hundreds of millions of Indians and Chinese emerge from the shackles of poverty. There is immense strategic value for India to combine with countries such as China and Japan to keep the flag of free trade flying in the age of Donald Trump. India should not see international trade as a zero-sum game.

The case for even more internal trade is also a solid one. The makers of our Constitution were perhaps still worried about the risks of separatism in the aftermath of Partition when they put in clauses such as Article 302 that gave Parliament the power to impose restrictions on trade between states, even though there could not be discriminatory policies that were specifically targeted at any one state.

Companies have been forced to build suboptimal supply chains because of a fragmented internal market. The agricultural produce market committee laws restrict the ability of farmers to sell across state borders. Such restrictions are past their due date, and the new goods and services tax will hopefully iron out some of these problems.

India is now a middle-income country that has seen the benefits of trade over the past 25 years. Internal economic integration as well as fewer barriers to international trade should be key policy concerns in the years ahead.

India needs to reclaim its place as one of the great trading cultures of the world. A lot has already been done since 1991. The task now needs to be completed.

What should the government do to open up the Indian economy to benefit more from trade?

Mapping the crime-politics nexus in India

As elections get under way in Uttar Pradesh, there is apparently reason to cheer already. The Association for Democratic Reforms has reported a drop in the number of candidates with criminal records or cases filed against them. As against 2012, when 32% of candidates had criminal cases against them, this time around the figure is 20%—168 out of 836 aspirants to political office.

Of these, 143 have serious criminal cases: murder and attempt to murder, rape and kidnapping. The Bharatiya Janata Party, which is apparently leading a national crusade against corruption, tops the tally.
Not far behind is the Bahujan Samaj Party, whose leader is supposedly running on her prior record of ensuring law and order but who has no problem inducting a notorious figure like Mukhtar Ansari into the party. The Samajwadi Party and Congress have an equally illustrious record on this count.
The spectacle of such figures strutting about in the world’s largest democracy is a matter for periodic despair and hand-wringing. Yet there have been few attempts at explaining this flagrant nexus between politics and crime in India. Milan Vaishnav’s new book, When Crime Pays: Money And Muscle In Indian Politics, fills this void with admirable rigour, clarity and elegance. Drawing on an extraordinary database of affidavits of almost all candidates that contested elections between 2003 and 2009 as well as field research, Vaishnav argues that there is something akin to a marketplace for criminals in Indian politics.

On the supply side, there is a growing willingness of political parties to field candidates with criminal records. The costs of elections have burgeoned in recent years. Parties are on the lookout not only for self-financing candidates but those who can also fill the parties’ coffers to help other candidates. But why do criminals want to contest elections in the first place?

Vaishnav suggests that this should be seen as a form of vertical integration. Previously, criminals and thugs did the bidding of parties in order to secure political protection. Over the years, especially as elections got more competitive from 1967 onwards, they have worked out that it was better for them to contest directly and ensure the requisite political cover.

Then again, why do people elect criminals to office? In analysing this demand side, Vaishnav demolishes claims about the ignorance of voters. On the contrary, he argues, people vote for candidates with criminal reputations precisely because of this reputation.
A combination of factors is at work. For one thing, the weakness of the Indian state in upholding the rule of law and in delivering public services compels constituents to turn to local tough-men for ameliorating their problems. For another, where divisions of caste, ethnicity or religion are strong, criminal politicians acquire greater salience owing to the dynamics of voter identification.

It is important to ask when criminalization of politics takes off and why. Vaishnav points to the 1967 election as the point of inflection. This seems plausible, though his reasoning is less persuasive. Drawing on the work of Samuel Huntington, he argues that by the late 1960s there was a combination of institutional decay, primarily within the Congress party, and a spurt in popular participation and consequent demands on the state. It was in this context that criminals came to acquire salience in politics.

There are at least three problems with this explanation. First, the framework of institutional decay and socio-economic change is too broad and vague to be usefully operationalized. An earlier generation of political scientists invoked it to explain everything from the declining fortunes of the Congress in the late 1960s to the imposition of the Emergency.

Second, all these arguments turn on an idealized picture of the Congress party in the period between 1950 and 1965. The notion that the Congress was a well-oiled, internally democratic, decentralized and responsive political machine is a mirage—created by the white heat of Indira Gandhi’s abrasive politics. And it is an image that cannot survive closer historical treatment.

Finally, there is a problem in identifying the role of criminals in the early period only by looking at instances of electoral or other form of overt violence. The best exercise of any power, including muscle-power, may actually occur when it is latent and not overtly observable.

Such embedded muscle-power was arguably central to the Congress’ preponderance in Indian politics for the first 15 years—especially through traditional forms of caste dominance in rural India. The political economy of power in such local networks is critical to understanding what went on before the mid-1960s.

Vaishnav’s analysis of the background to the rise of Y.S. Rajasekhara Reddy, former chief minister of Andhra Pradesh, shows that he is not unmindful of this dynamic. But it needs more attention.

The book is spot on, however, in identifying Indira Gandhi’s 1969 ban on corporate donations to parties as a critical turning point. This enabled her at once to block funding to opposition parties and to tighten her own grip on the Congress. By the time Rajiv Gandhi amended the Companies Act again in 1985 to legalize corporate funding, the damage had already been done. Giving and receiving in “black” had become far more convenient to all concerned.

Tackling this problem is fundamental to addressing the crime-politics nexus as well as corruption, more broadly speaking. And Vaishnav’s book is the best map we have in navigating this tricky terrain.