Surjit Bhalla's flawed economics stands exposed. If you still want to read him, do it at your own peril.

I admire mainline economists. They have the ability to pick up the facts that suits their analysis. More often than not I find their analysis, when sometimes I try to read such articles, is not only motivated by their ideological thinking, but also statistically backed. And since many in this country are in awe of mainline economist especially those who do the rounds of almost every TV channel, they either don't understand the flawed analysis or are afraid to stand up.

Well-known economists Jagdish Bhagwati is one of them. Sometimes back he had made a comment in The Economist, which had prompted me to write a rejoinder. My response, which is still available on the IndiaTogether news portal (Hold economists responsible too. IndiaTogether April 4, 2005 http://indiatogether.org/subsidies-op-ed), was widely appreciated and circulated. I know the stature Jagdish Bhagwati holds but it is important to puncture their incorrect hypothesis.

Over the years, this neoliberal breed of economists has only got bolder. They now come out with outlandish statements often bordering stupidity, illogical comments and theories which have little or no relevance to the existing realities. In fact, most of what the mainline Indian economists have been parroting has already been discarded by the western economists. And that makes me wonder whether India's mainline economist care to read what is being written now to keep themselves abreast or are simply basking in the glory of the TV glamour.

Take the following articles by some western economists which runs counter to what is being repeatedly said in India. But you will see such analysis will never be incorporated in the public discourse. Nor will the TV anchors make corrections when economists/analysts parrot the same old line. The reason: Journalists don't read.

1) Dani Rodrik has bust the myth that the wealthy and the Corporates do not need the governments. Let the markets operate freely and their wealth will grow. This is rubbish. In this well argued article (A class of its own. http://bit.ly/VXjoQr), Dani says: 'The reality is that the stability and openness of the markets that produce their wealth have never depended more on government action'.

2) There is hardly a day when you don't find the economists and business writers drawing attention to the virtues of FDI in retail. They moan the failure of the government not to invite Big Retail into India. They invariably go on repeating the same faulty statistics to justify Big Retail's entry into India. I sometimes wonder why don't these economists even scan the international newspapers to know how the Big Retail is faring in the US/EU. Here is what The Guardian wrote the other day (The death of the American mall. June 19, 2014. http://bit.ly/UPFiF1). If Bid Retail is failing in the US why are we keen to bring a failed economic model to India?

3) Developing countries are poor because they export raw material. They should add value-added products. This is the general understanding. But read Ricardo Hausmann of the Harvard University (The Real raw Material of Wealth. July 26, 2014. http://bit.ly/UxgYXO) and you are jolted from your sleep. But you will never see Indian mainline economists discussing such analysis. Nor will the policy makers try to understand and understand the argument. They don't have to, because they go on parroting what has been taught to them. "Some ideas are worse than wrong,' he says. How true.

4) For decades, Indian economists have blindly followed the garden path shown by World Bank/IMF. Whether they accept or not, almost every major policy decision in the past 10 years was dictated by the World Bank. A leaked report of the World Bank now puts at rest how damaging and environmentally destructive its policies have been (Leaked World Bank policies 'environmentally disastrous.' July 25, 2014. The Guardian http://bit.ly/1omTcK2).

5) At a time when WTO is facing a standoff, Indian economists are shouting at the top of their voice to force India to withdraw its objections on ignoring the food security concerns. Trade is being linked to more growth. Adair Turner of the UK's Financial Policy Committee of the House of Lords refutes this common refrain. He says: more trade does not lead to more growth. (The trade delusion. July 18, 2014. http://bit.ly/1pAJdNJ).

These are just a few examples.

This brings me to economist Surjit Bhalla's article in the Indian Express (A 'principled' Congress stance at the WTO? July 29, 2014 bit.ly/1oE83zQ ). This article exposes his flawed economic thinking. The article in fact borders on absurdity. In his article he presents a chart where he is comparing the international prices of rice and wheat with what the procurement prices Indian farmers are paid. Accordingly, for 2012-14 his chart shows Indian farmers were paid a high price exceeding global prices by 64.4% in rice and 62.9% for wheat. He doesn't even know that wheat and rice production is heavily subsidised in US/EU, and also comes with export subsidies. I tweeted to him, and he responded by saying that international prices are worked out uniformly. I then tweeted him back saying: 'If you don't know, read first. Don't go on defending your wrong analysis.' I attached one of my blog posts that tells you how EU utilises cereal subsidies to dump it in developing/LDC countries. http://devinder-sharma.blogspot.in/2010/03/eu-utilises-domestic-cereal-subsidies.html. 

Take a look at the $ 35.5 billion subsidies that US has paid to its wheat farmers between 1995-2012. (http://farm.ewg.org/progdetail.php?fips=00000&progcode=wheat). Surjit Bhalla's analysis therefore falls flat on the flawed data that he has produced in justification.  

If you see the enclosed chart, international prices are taken as an average over three years of the FOB price, which in other words is the landing price. There is no mechanism that separates domestic and export subsidies before the FOB is calculated or determined by the trade. Subsidies paid to wheat growers (including the export subsidies) actually enable North America and Europe to dump wheat in the international markets. The price comparison with the procurement prices paid to wheat farmers therefore is completely wrong. In any case, the best comparison should be with the FOB prices that India offers when it exports wheat. The impression that Surjit Bhalla is mischievously trying to convey is that Indian farmers are the highest paid in the world. If what he says is true then shouldn't we would have seen US farmers asking for the price that Indian farmers get? Shouldn't we see an exodus of American farmers keen to migrate to India?   

Economists like Surjit Bhalla have been churning out such biased and incorrect analysis to manufacture consent. As I said earlier, these kind of economists first draw their conclusion and then look for data which can support their flawed hypothesis. Well, if you still want to read them you do it at your own peril.   

For an aspirational India, Elections 2014 outcome throws up great expectations.

  

Elections 2014 has thrown up lot of expectations for the masses. We need a cheerful India. 

-- AFP photo 

The day the election results were pouring in (May 16, 2014) I happened to be on a TV channel at the prime time. In the midst of all the euphoria over the rising stock markets and the cheering proponents of the market reforms, I was asked whether the landslide verdict in favour of Narendra Modi-led National Democratic Alliance (NDA) would really usher in the "acche din" (good days).

My answer was in the affirmative. But with a small clarification. "Acche din is not only for the stock markets, not only for the top 1% of the population, but more so for the huge mass that is somehow able to eek out a living, somehow managing two square meals a day." I narrated a small story to drive home the point. Just before coming to the studios I walked into a vegetable market in Noida. I asked the price of some vegetables. I told the vendor to reduce the price of lady finger that I intended to buy. His response was: "Ok Sir, today you can pay what you want. After all, Narendra Modi has been elected as the Prime Minister. Ab Acche din aane wale hain..."

So when I heard the Prime Minister-designate today say while addressing the newly elected NDA members: Ours will be a government that thinks, works and lives for the poor. This will be a government dedicated to the villages, youth and women of India," my hope was reinforced. Reading economists Jagdish Bhagwati/Arvind Panagariya as well as some other writers in the English-language newspapers for the past few days one gathered the impression as if the new government would be only for the top 1 per cent of the population. Sadly, I find that a section of the mainline media was only batting for the rich and powerful. As if the rest of India did not matter.

This reminds of what Mahatma Gandhi had famously said in his Talisman.

It is so depressing to read and hear every day that the first step the Prime Minister has to take is to reduce the fiscal deficit, and when they say fiscal deficit the TV anchors, mainline economists and the panelists blame the subsidies for the poor to be primarily responsible. I heard many panelists say that the new government should withdraw LPG subsidy by reducing the number of subsidised cylinders that each family gets in a year. We are told LPG subsidy comes to Rs 48,000-crore and this is a wasteful expenditure. I was asked the other day this question. My answer was that there is no need to reduce the number of subsidised cylinders for every household. Why not instead reduce the monumental subsidy that is being churned out to people who do not need it, and here I mean the corporates. For 2014-15, the government has given a subsidy of Rs 5.73 lakh crore by way of tax concessions. Isn't this a wasteful expenditure? Why no economist/journalist talks about it?

We are also told that the amount being spent on LPG subsidy -- Rs 48,000 crore -- is good enough to remove poverty for one year. If this is true, then let me tell you that the total subsidy/tax concessions doled out to Indian Inc since 2004-05 is Rs 31-lakh crores. If this amount was spent on fighting poverty, India could have easily wiped out poverty for the next 62 years. If you can remove poverty for 62 years, you actually remove it for all times to come. I don't know why there is a raging contempt for the poor and marginalised. You probably know the reason better than me.   

I don't want to make any more suggestions on what needs to be done in the coming months. I would rather wait and watch. After all, any Prime Minister with such a clear mandate would like to leave his name permanently embedded in gold letters. It is Narendra Modi's opportunity to pull the country out of the morass, and catapult it to a stage of development where everyone (and I repeat everyone) emerges out of the blue; where everyone finds democracy coming to their doorsteps not to seek votes but to hold their hand. Let India carve a new pathway to development, which is both environmentally sustainable and equitable.

Let's all join hand, wherever we are, towards a new India where no one goes to sleep empty stomach, and where the development process does not leave behind a bleeding ecosystem. 

Peace Clause in WTO negotiations will only sacrifice millions of hungry Indians for an unjust trading regime. Let the WTO die a peaceful death instead.

WTO Chief Roberto Azevedo (right) with the Indian Commerce Minister Anand Sharma in New Delhi on Oct 7, 2013

Knowing that India's defiance of the WTO rules on food stocking can derail the outcome of the forthcoming WTO Ministerial to be held at Bali in the first week of December, the visiting WTO Chief  Roberto Azevedo asked India to consider 'Peace Clause' as an option to protect subsidies under the proposed National Food Security Act. "Food Security is a squarable circle. The line between price support and food security is very flimsy and not easily drawn. It is going to be a complex task," he said in New Delhi on Oct 7.

Now it is the next sentence that is more worrisome: "What we have agreed in Geneva is we are going to be working on a Peace Clause .. which allows negotiators to find a more permanent solution for the long term. He was addressing the Confederation of Indian Industry (CII). The Indian Express (Oct 8, 2013) says: Negotiations for a deal at the Bali meet are struck over the tenure of an interim resolution on the demand by G-33 developing countries on food security. While the G-33 is demanding the tenure of the peace clause to be 10 years, developed countries such as US are ready to accept only a 2-3 year period. (See this report: WTO Chief seeks support for Bali ministerial meet. http://www.indianexpress.com/news/wto-chief-seeks-support-for-bali-ministerial-meet/1179692/).

The Peace Clause provided exemption for those countries who used export subsidies for agriculture beyond the permissible limit. These countries could not be challenged before the dispute panel during the 'Peace Clause' period. It expired in 2003.

The compromise that India is therefore willing to exercise to ensure that the Bali negotiations proceeds ahead without any hiccup will now bring millions of hungry on the chopping block. It also threatens the livelihood security of millions of small farmers who receive an assured minimum support price for their crop produce. Already, as per WTO calculations, growers in India are getting 24 per cent more minimum support price for paddy crop since the base period of 1986-88. As per the de-minimis criteria, Article 6.4 (b) of the Agreement on Agriculture provides for total support not to exceed 10 per cent of the total value of production for most developing members (except for China, where it is 8.5 per cent as part of its accession commitments).

There was a proposal to increase this to 15 per cent (In Rev 1 of the draft modalities as mentioned in TN/AG/W/4/Rev.1) but somehow this got removed in the next revision of the draft modalities. Indian negotiators are saying that an increase in de-minimis criteria from 10 to 15 per cent could be the possible solution. But India is under tremendous pressure from US/EU to either do away with the commitments of ensuring food security to 67 per cent of the population or agree to a Peace Clause that allows the issue to be deferred by another 2-3 years. By that time, US would have managed to push through an agreement on trade facilitation that primarily benefits its own industry.

The best solution would be to change the reference year from 1986-88 to somewhere more closer, especially after 2007 when the world witnessed a global food crisis that resulted in food riots in 37 countries. Considering that between 1986-88 and 2013, the price of rice and wheat have increased by more than 300 per cent, and prices of inputs like fertilisers has risen by 480 per cent in the same period (World Bank commodity price data), the base period of 1986088 certainly has become outdated. Now this is where India needs to exert pressure rather than accepting the Peace Clause as a solution simply because it gives the ruling UPA Government an easy walkover before the 2014 elections.

Deferring the contentious issue is not a solution. India must stand up and resist developed countries pressure. After all, it is India's responsibility to feed its hungry population as well as the ensure livelihood security for its 600 million farmers. Even if Bali Ministerial fails, India cannot compromise the fate of 2/3rd of its population. The hungry in India cannot be traded at the altar of development.

Meanwhile, agricultural subsidies in the developed countries have risen from $ 350 billion in 1996 to $ 406 billion in 2011 (Read Martin Khor at http://www.globalissues.org/news/2013/10/01/17558). No body is talking of reducing these monumental agricultural subsidies in the Western world. In fact, developed country farm subsidies are not even listed to be a topic of discussion in the negotiations at the Bali Ministerial.

India therefore need not worry about the future of WTO. Even economist Jagdish Bhagwati who has been a staunch supporter of a flawed trading regime, has finally acknowledged that "multilateral trading system is dead." He was speaking at New York on Sept 27. "The Doha Lite deal being attempted in Bali, is like a decaf and light coffee and we are trying to save the Doha Round, which is similar to the steps taken to save the Cancun Round on climate change issues."

Why should India therefore be making an effort to revive the dead horse by sacrificing its millions of hungry, including farmers and fishermen? Why can't it make instead an effort to find a better burial ground for what I have always called as the Wrong Trade Organisation??

Is "inclusive growth" a meaningless phrase? World Bank thinks so. Is "food buffer" a useless policy? Well, who else but the World Bank can think so

A man is known by the company he keeps. Similarly, an institution is known by the people it employs. I have never understood why does the World Bank continue to employ stupid economists. If you appoint economists who are simply going by the textbooks, and have rarely spent some time in the villages or interacting with the poor and marginalised, you will continue to produce faulty recommendations. Since the World Bank does not only make recommendations but turns them into conditionality's that the country receiving the finances must adhere to, it ends up doing more damage than can be envisaged.

I thought the ex-chief economist Nicholas Stern was the last of the breed. Travelling through India sometimes back, he had said: "I agree it is a sin to provide the kind of subsidies the US provides to its farmers .. but developing countries must remove their trade barriers regardless of what is happening in the developed countries." Look at the brazenness with which he approved the wrong being perpetuated by the rich countries. Just because he was on the payroll of the World Bank (in which US holds the majority share), he defended the great injustice in the name of economics. When one country (or a group of countries) bullies its way through, how can it be termed as market economics?

Interestingly, Nicholas Stern has now co-edited a book with NK Singh: "The New Bihar"

Kaushik Basu is the new chief economist for the World Bank. He was earlier the chief economic adviser to India's Prime Minister Manmohan Singh. He is on leave from the Cornell University where he is the C.Marks Professor of International Studies and a Professor of Economics. Influenced probably more by the column he used to write for India Today magazine, Manmohan Singh invited him to be his chief adviser. Well, the crisis that the Indian economy is faced with certainly has surely something to do with the advise the chief economic adviser must be rendering to the government.

One of the radical suggestions he made in his individual capacity was to legalise bribe giving (Kaushik Basu says make bribe giving legal. WSJ http://blogs.wsj.com/indiarealtime/2011/03/30/kaushik-basu-says-make-bribe-giving-legal/). I think this speaks volumes of the kind of thinking the economist has. Some called it a radical thought, but I always thought nothing could have been more stupid. And coming from an economist from the Cornell University, I wonder why do we continue to rate these university so high?

While he was advising the Indian Prime Minister he always talked of 'inclusive growth'. In fact, Prime Minister Manmohan Singh has time and again stressed on the need to make economic reforms more inclusive. The Indian media continues to chant the mantra of 'inclusive growth'. Now that he has moved on to the World Bank, he probably realised the futility of using 'inclusive growth' as the hallmark of development. On July 31st, he tweeted: Sustainable growth, inclusive growth, and growth have all had their time in the sun. I propose we make way now for "intelligent growth."

Look at this statement. Does it not mean that the World Bank (or the mainline economists who work for it, or who espouse the cause) do not know what actually works for development? He says that the time is up for inclusive growth or sustainable growth. So he is now looking for another catchy phrase. The best that he can think of it is: "intelligent growth". If the only objective is to delude the educated class with yet another phrase, I suggest the World bank employ a better copy writer. And that brings me to another question. Why does the World Bank need the services of economists when the job can be better done by a copy writer?

If there is no such thing as sustainable growth and inclusive growth, isn't it time to have an urgent re-look at the entire economic growth model? The International Panel on Climate Change has been telling us for several years now that the world has reached a tripping point, and since the growth paradigm is not sustainable, does it not require a complete overhaul? Bringing a new phrase of "intelligent growth" will not address the monumental crisis of survival that the Earth finds itself in.

He has come out with another gem. His tweet today says: "For a nation to have a minimum food buffer stock requirement for all times is useless policy. An inviolable buffer is as good as no buffer." He is obviously referring to India's huge buffer stocks. In the light of the proposed Food Security Act, Kaushik Basu has now made public his displeasure. Reading what his fellow colleagues from the Columbia University -- Jagdish Bhagwati and Arvind Panagariya -- have been relentlessly harping, I am not the least surprised. Such stupid and dangerous statements can only come from mainline economists who are pushing for commercial interests of the multinationals. 

India's food buffer is one of the best policy initiatives that have come up in the recent past. If India has survived the spate of famines it used to face before the British left the shores, food buffer has played an important role. If India has never experienced the kind of food inflation that many countries across the globe have witnessed (Brazil was faced with 440 per cent food inflation in early 1980s) it is because of the food buffer that was created. If India escaped the 2007 Global Food Crisis that resulted in food riots in 37 countries across the globe, it is because of the food buffer. If India has escaped the likes of Arab Spring and also the disintegration and collapse that Soviet Union suffered, it is primarily because of the comforts of food security ensured through a sizable and operative food buffer. 

To suggest the dismantling or dissolution of the food buffer can be the outcome of an unintelligent and insane mind. World Bank is full of them.