China's ingenious way to increase GDP. Construct buildings, and demolish them even before they are completed.

This 5-star hotel in Nancang city in China was blasted in 2010. This 13-year-old hotel left behind 40,000 tons of construction waste. 

Sometimes back, senior journalist M J Akbar had in one of his columns given us an excellent peep into the way economic growth is being perceived. He quoted the Russian Finance Minister, who in the wake of declining GDP in Russia, asked fellow Russians to at least start drinking more of Vodka, which in turn will increase the country's GDP !

At a time when India's GDP has slumped to a little over 5 per cent, we are told that we are not alone. China too has a lower GDP growth of about 7 per cent. Well, I don't want to go into the reasons for the slowdown in economic growth, but I remember in his bestseller Confessions of an Economic HitMan, author John Perkins had stated that one of the best ways to increase GDP is to destroy a city and then rebuild it.

I didn't realise that China had been literally following it. Perhaps that's the reason why China had a stupendously high GDP growth for several years.

At a time when Chinese GDP was in the range of 8 plus year after year, Tyler Durden came out with an amazing explanation for the continuously high GDP: "Ever wonder how China can endlessly generate goal-sleeked GDP of precisely 8.00001% year after year? Or how it can constantly find use for the massive and ever-larger surplus of warehoused commodities? Simple - never stop building. Which, apparently means blowing up empty building before they are even finished and rebuilding them. Rinse. Repeat." 

In the article "China: Proudly Demolishing Buildings Before Completed In Pursuit of The Glorious Housing Bubble Perpetual Engine (here is the link: http://bit.ly/90EY1N) the author has provided us a snap shot of the Chinese methodology to increase GDP. The BBC later reported (July 13, 2012) that construction had dominated China's economy, accounting for 25 per cent of all economic activity and 15 per cent of all jobs. "Over the past decade, China is said to have built the equivalent of Rome every two months. As a result, ghost cities, as they are known, have sprung up across the country...Beijing alone is said to have nearly four million apartments standing empty"

What is therefore obvious is that GDP figures hide more than what it reveals. Unfortunately, planners, economists and senior journalists have often flaunted GDP figures as if it is the touchstone to development. #

Additional viewing: Here is the link to one of my talks (in Hindi) on what is this GDP. 
http://www.youtube.com/watch?v=j5y5FvejSgU&list=TLrlkxG2iD24g

The algebra of poverty. Juggling statistics, India now claims reduction in poverty

There is excitement in the air. I mean in the air waves. For the past two days I have been hearing the TV anchors and the Congress spokespersons repeatedly emphasizing on the latest miracle that they claim has been achieved. Poverty has come down by 15 per cent between 2004-05 and 2011-12.

For a country which loves miracles, this is certainly big.

National Sample Survey Organisation (NSSO) data shows that the percentage of population below the poverty line has come down from 37 per cent in 2004-05 to 22 per cent in 2011-12. Planning Commission has last year (in Mar 2012) announced that poverty percentage has come down by 7.3 per cent, which means from 37.2 per cent in 2004-05 to 29.8 per cent in 2009-2010. And now finally, the data for the eight years the UPA has remained in power shows a magical decline in poverty by 15 per cent.

Interestingly, the reduction in poverty is being flaunted at a time when the Planning Commission is still not sure about the new poverty line. Writing in the Hindustan Times, Chetan Chauhan says: "The politics of poverty is at play with the Planning Commission claiming that the number of poor came down from 29.8i per cent in 2004-05 to 21.9 per cent in 2011-12, but failed to specify the poverty line (No of poor dips, but who is poor remains unclear. Hindustan Times, July 19, 2013. http://bit.ly/15TFG6J)".

Isn't it therefore interesting as well as curious to know how did the Planning Commission arrive at this magical figure when it has junked its earlier methodology of computing poverty at Rs 32 for the urban and Rs 28 for the rural areas. There was a big uproar in the country when the Supreme Court had questioned a very low poverty line. But as the news report said: "The commission’s deputy chairperson Montek Singh on Thursday avoided queries on the new estimates. The poverty number would come down whatever methodology is employed,” he said. If this is the way poverty is calculated I am sure you will agree that we need to revisit the entire methodology and the claims being made on the reduction of poverty.

This reminds me of another interesting fact that I had shared at a number of platforms. Soon after the economic reforms were unleashed in 1991, the then deputy chairman of Planning Commission Pranab Mukherjee (who is now the President of India) had brought down poverty from 37 per cent to 19 per cent in one go. I don't know why the present deputy Chairman of Planning Commission Montek Singh Ahluwalia has not tried to surpass his predecessor. Statistical jugglery could have helped him to reduce poverty not only by 15 per cent, but a more drastic 50 per cent. By doing that, he would have done the UN Millennium Development Goals (MDGs) a big service and at the same time justified the need to continue economic reforms.

In any case, poverty reduction is a miracle considering that inflation as measured through consumer price index (CPI) had remained in the vicinity of 10 per cent for several years now, and at a time when the UPA-II has launched a massive right-based Food Security programme to reach 67 per cent of the population. If only 22 per cent of the population is poor I see no reason why the government should be providing legal food entitlements to 67 per cent of the population.

India's poverty line is amongst the most stringent in the world. Planning Commission can certainly bring down poverty whenever it wishes by simply lowering the poverty line slab. This is what I had said earlier in one of my articles: The Algebra of Poverty (Hindu Business Line, Jan 2, 2002. http://bit.ly/1992e6w). You thought we have learnt something from the past? Well, you can see it for yourself.

Will the WTO torpedo India's massive cheap food programme?

By bringing in an Ordinance on the food security bill, the UPA-II has certainly bypassed the need for a cumbersome and noisy parliamentary debate. But there still hangs a bigger hurdle that needs to be crossed to make the dream programme a reality. With the United States hardening its position on the G-33 proposal to exempt public stock holding programmes and is unwilling to extend the subsidy limit for addressing the nutrition needs of the hungry and malnourished, the National Food Security bill could run into serious problems.

President  Pranab Mukherjee signed into law the National Food Security bill on July 5, 2013, two days after the Union Cabinet decided to issue on Ordinance. 

While Commerce Minister Anand Sharma has gone on record saying there can be no compromise on feeding the poor and hungry, the US WTO Ambassador Michael Punke has launched a blistering attack on the developing countries proposal, singling out India as “creating a massive new loophole for potentially unlimited trade-distorting subsidies.” Calling it as a step backward, he said “The new loophole, moreover, will be available only to a few emerging economies with the cash to use it. Other developing countries will accrue no benefit – and in fact will pay for the consequences.”

The controversial proposal moved by G-33 countries, which is a group of countries including China, India, Indonesia, Pakistan and others that came together to protect food security, livelihoods and rural development in the Doha Development Agenda, seeks amendments in the revised Doha draft modalities for agriculture. Knowing that procurement of wheat and rice under the National Food Security bill will rise manifold, India is wanting that the enhanced subsidy outgo for food procurement from small farmers as not being seen as a trade-distorting subsidy support. These subsidies, required to meet the food security needs of the hungry population, should be outside the maximum limit of ‘Aggregate Measurement of Support’ (AMS) that each country has to adhere to. The food the developing countries buy at a minimum support price from ‘low-income, resource poor farmers’ should not be computed in the AMS limit. At the same time, India wants the ‘de-minimis’ requirement for public stock holding – which at present stands at 10 per cent of the total production of wheat and rice that can be procured for meeting the nutritional needs of the food insecure population – be also suitably amended.

Despite Anand Sharma’s behind the scene discussions with the outgoing WTO Chief Pascal Lamy and the Director General-designate Roberto Carvalho de Azevedo of Brazil, the US continues to harden its stand. It has warned that if India’s new proposal on the table are not rejected “it will hurtle the WTO talks to irrelevance”.

Interestingly, India’s proposals are closely linked with the developed country’s proposal for an agreement on trade facilitation. Trade facilitation actually means setting up the required infrastructure at the ports, and making available appropriate transport and communication facilities that would make it easier for the trade and business to operate. In other words, the developed countries are actually pushing the developing countries to invest on facilitating the trade interests of its corporations and agribusiness giants. This agreement, which has some 600 contentious clauses or what is called as brackets in WTO language, will have serious implications for the domestic agriculture sector in developing countries. Unfortunately, Anand Sharma is willing to go by the trade facilitation agreement without even assessing the negative fallout it will have by acerbating the prevailing agrarian crisis and food security requirements.

Nevertheless, it is important to understand why the G-33 proposal that calls for appropriate measures to ensure food and nutritional security for the poor and needy, is so important. First, let us be very clear that the AMScalculations were done keeping the prevailing prices in 1986-88. Since then, and especially after the 2007 global food crisis, the farm commodity prices have seen a quantum jump. The 1986-88 reference prices, which was a period when prices were very low, no longer holds true and have lost all its relevance. Secondly, the trade distorting subsidies that the US/EU has been providing all these years have not been done away with. In fact, the developed countries have expressed jubilation over the fact that the massive agricultural subsidies that OECD provides for agriculture, with 80 per cent going to big corporations and rich farmers, are not on the negotiating table at the forthcoming Bali Ministerial in December 2013. 

On the other hand, in an analysis presented by Jacques Berthelot of France, the angry outburst of the US Ambassador to WTO appears completely unjustified. Accordingly, the average food aid that in 2010 that India gave to its 475 million people (65 million families below poverty line plus 10 million above poverty line) to meet their food security needs was to the tune of 58 kg/per person. Comparatively, the US provides 385kg/person to its 65 million people, who received food aid under several programmes like the food coupons, child nutrition programme etc.

Moreover, the procurement of wheat and rice from resource poor farmers by India does not mean the grains are being dumped in the international market thereby distorting trade. In reality, Jacques Berthelot has computed that the low global prices of wheat and rice in 1986-88 – the reference period – were because of massive dumping by both US/EU. Given that 53.2 per cent of the global exports of wheat came from US/EU, the role dumping played in depressing the global prices becomes quite obvious. The reference period of 1986-88 against which the administered prices of 2012-13 are being evaluated therefore becomes meaningless and absurd.

But still, at the WTO negotiations, it is the might of the developed countries that have so far controlled the directions and the outcome of the negotiations. If the US/EU continues to oppose the proposal floated by India through the G-33 countries, India will find it difficult to implement the National Food Security bill. And let us not forget, India has no provisions of introducing an Ordinance this time to bypass the WTO. #

Source: भारतीय खाद्य सुरक्षा कानून में अंतरराष्ट्रीय अड़ंगे, BBC Hindi. July 6, 2013. http://bbc.in/1aLEB4H

Middle class hypocrisy -- pay happily for luxuries, and shout only when vegetable prices go up.

Whenever vegetable prices go up, the middle class is up in arms. But how come they don't mind spending anything for buying flats, gold/silver, car, and other luxuries -- ft.com picture

At the outset let me first acknowledge that I don't see any valid reason for the stupendous rise in vegetable prices that we are witnessing for the past few days. As i have always maintained that the kind of price rise that we have seen in the past several years, which incidentally is the only time when we feel and talk of inflation, has nothing to do with supply demand constraints. Its simply linked to hoarding and profiteering. I have more than once stated publicly that unless the Government gets tough on the retail trade, it is difficult to bring control over runaway inflation that inches one and all.

Having said that, what I find it intriguing is that it is only when the vegetable/fruit prices start showing an upward trend that the media wakes up. It is only then that I find the middle class complaining. Suddenly the ladies who appear on the TV start telling us how difficult it has now become to manage their household in the monthly budget. This makes me ask: Is fruit/vegetable prices the only thing that decides the household budget? Why do the same people remain conspicuously quiet when the price of gold, for instance, jumps from Rs 12000/10 grams to Rs 30,000 and above. Does it not affect their household budgets? What about those who have to get their children married? Don't they feel the pinch of the quantum jump in the price of gold/silver?

It is roti, kapda and makaan that every one looks forward to. Over the past few years, the price of residential flats in every nook and corner of the country has literally gone through the roof. Planning Commission had once blamed the real estate for the 400 per cent increase in reality prices. If you are an average middle class person, I bet it is not possible for you to even think of owning a house or a flat in any city. Thinking of buying land, then you must be really rich. News reports tell us that a cent of land in Mumbai is now more expensive than Tokyo or New York. is that not the kind of inflation that affects the middle class? Then how come every one is quiet.

Instead of screaming at the top of their voice, I find the newspapers and the electronic media actually celebrating the massive rise in land and housing prices by bringing out weekly supplements. Just because any hike in real estate prices brings additional revenue for the newspapers and TV channels, is it fair to remain quiet and not draw the attention of the Government? But just because we remain a silent spectator to the spiralling prices, media benefits. In fact, this makes me wonder. If the vegetable hawkers (or through their associations) were to start advertising in newspapers probably you will never watch any TV programmes on inflation if and when the prices shoot up.

Not only gold and silver, the prices of almost everything that concerns us has been on an upswing. Whether it is your child's education, or your daughters college fees. Whether it is your train ticket or the air fare. Airlines have recently added on to your costs by unbundled prices like seat preference for instance. Taxi fares have been going up. It is more expensive to travel from my house to the airport or railway train station than to take a Volvo air-conditioned bus from Chandigarh to New Delhi. Petrol and diesel prices have been routinely increasing, even privatisation of electricity delivery has made power bills soar for an average family. And so on...

Isn't this all part of inflation that pinches us? Isn't this also responsible for upsetting our household budgets? Then why is that we never complain about anything except vegetable prices? Why is that media never talks about this? Well, because in some way, we all believe that the rise in prices of everything else except for vegetables/food constitutes economic growth. Just because we have surplus cash it is alright to spend. The more the expensive gadgets/services, the better we feel. But when the ostensibly poor people start charging us more, we start screaming. Our budget only goes for a toss when the tomato prices go up to Rs 80/kg or Onion prices increase to Rs 60/kg. But when a 2-bedroom flat in the outskirt of Delhi costs anything upwards of Rs 1.5 crore, we rejoice. We don't even get tired telling anybody and everybody around us the price we have paid for that flat. How come we are ready to pay crores for a flat (which surely is a superfluous price) and only crib when vegetable prices shoot up?

Isn't this middle class hypocrisy?

Food Security bill: Why it is an opportunity lost

Several years ago I and Dr M S Swaminathan were speaking at a conference on hunger at Rome. Also speaking at one of the session was the Brazilian Minister for Zero Hunger Programme, the dream programme of ex-President LuizInácio Lula da Silva. After he had listened to us, he sat down with us to know of how India was battling hunger, specially the way India was managing its food self-sufficiency and the massive food procurement programme.

It was therefore so heartening to read a news report saying No hunger in Brazil by 2015. This only shows the ability of the Brazilian leadership to learn from others, and draw up a programme to fight hunger based on the central premise: supporting family farms – which currently provide 70 percent of the food eaten by Brazilians. The entire programme to fight hunger was designed on the basis of what the country required. 

Ever since Brazil launched the Zero Hunger programme in 2001, it has pulled out 30-40 million people from poverty. While Brazil promises to remove hunger by 2015, there is no such clarity and promise being doled out under the ambitious National Food Security bill in India. To me it seems that while Brazil's Zero Hunger was time-bound and aimed at making hunger history, India's food security bill is simply targeted at the 2014 elections, and is for posterity.

India's proposed food security bill therefore is a lost opportunity. Sonia Gandhi did provide a historic opportunity for the National Advisory Council (NAC) to come up with a proposal to fight hunger in such a meaningful way that makes hunger history. But the opportunity was squandered. I would have been keenly looking for a policy programme which could have spelled out how much hunger would go away in the next five years, in the next 10 years, in the next 15 years and so on. The proposed law could have been easily designed in a manner that aims to remove hunger once for all rather than keep the majority population dependent on food doles for all times to come. An economically viable and sustainable agriculture should have been at the centre of the food security programme. With nearly 2,500 farmers quitting agriculture every day, and nowhere to go, the scourge of hunger is only going to multiply.

The United Nations meanwhile has complimented 38 countries, including Brazil, for beating a UN deadline of 2015 to remove half their hunger. It was in the year 2000 when the UN established the Millennium Development Goals for countries, the first target being to reduce extreme poverty and hunger by half by the year 2015. These 38 countries are: Algeria, Angola, Armenia, Azerbaijan, Bangladesh, Benin, Brazil, Cambodia, Cameroon, Chile, Cuba, Djibouti, Dominican Republic, Fiji, Georgia, Ghana, Guyana, Honduras, Indonesia, Jordan, Kuwait, Kyrgyzstan, Malawi, Maldives, Nicaragua, Niger, Nigeria, Panama, Peru, St. Vincent and the Grenadines, Samoa, Sao Tome and Principe, Thailand, Togo, Turkmenistan, Uruguay, Venezuela and Vietnam.

While I agree that 91 per cent reduction in global hunger since 1991-92 has come from the efforts made by just two countries – China and Vietnam, it is significant that some other countries are fast racing to eradicate hunger. Even if these countries have relatively smaller populations (except Indonesia and Bangladesh) hunger is a scourge that blots development everywhere including tiny nations. A hungry nation can never be economically strong howsoever it may try to paint a rosy picture based on statistical jugglery.

The proposed National Food Security bill therefore was an excellent opportunity to plan a time-bound programme – that cuts into several related ministries. Besides agriculture, rural development, science& technology, the law should have also corrected many distortions coming through international trade, industry and land acquisitions.

Take the case of the dairy sector. It is generally believed that most farmers who have not committed suicide are the ones who are also keeping dairy animals. But under the proposed Indo-European Union Free Trade Agreement (FTA) that is about to be signed, India has agreed to drastically reduce the import duties on the import of milk and dairy products. This will bring in a flood of cheaper imports which the European Union is saddled with. These highly subsidised imports will hit not only the cooperative dairy sector but also render small farmers uneconomical.