The Poverty Game. World Bank, Asian Development Bank and India's Planning Commission comes out with three magical figures.

Does it really matter if these children earn an equivalent of $ 1.51 or $ 1.25 or less than that per day? 

Picture Ankesh Kothari (from web)

The magicians are out on the stage. The challenge before them is to compute poverty. performing the vanishing trick, and that too without any compassion, they perform the statistical jugglery. Leading the pack is the World Bank. In its latest poverty vanishing trick the World Bank revisits its Purchasing Power Parity (PPP) index, and in one stroke it reduces India’s poverty from over 402 million in 2005 to a very impressive 98 million in 2010.

On the other hand, the Asian Development Bank has revised its poverty line to $ 1.51 per person (from the existing $1.25), and India's poverty in 2010 rises to 584 million or 47.7 per cent of the population. The gap between 584 million and 98 million is so huge that one is forced to dismiss both the estimates as unreal.

Here comes the third magician. An expert committee under Prof C Rangarajan, a former economic advisor to the Prime Minister, submitted its report to India's Planning Commission in July this year. By revising the poverty line to Rs 32 in rural areas and Rs 47 in urban areas, Rangarajan committee actually added another 93.7 million thereby raising the number of total poor to 363 million or 29.5 per cent of the population. 

So now we have three estimates: 98 million, 363 million and 584 million.

Isn’t this shocking? While not many Indians will believe that Rangarajan committee’s estimates are anywhere near the reality, and in fact is a gross underestimation of the extent of poverty in India, the World Bank’s latest estimates only shows that poverty does not require Millennium Development Goals (MDGs) targets to be achieved or any real effort to combat poverty and squalor. All it needs is a few economists who can play around with statistics. These economists can perform the vanishing trick much better than the Indian rope trick.

According to the World Bank’s latest estimates, global poverty has come down overnight from 1.2 billion to 571 million.

The earlier poverty line figure in India was Rs 27 for rural areas and Rs 33 for urban areas as computed by the Tendulkar committee a year back. This had raised a storm over the faulty and impractical estimates necessitating the setting up of yet another committee under C Rangarajan. And if the recommendations of the Rangarajan committee are to be believed, it tells us that there is something dubiously wrong with the way India is trying to deliberately keep poverty low. In all fairness, the new poverty line is nothing but a starvation line. It only tells us how many people need emergency food aid.

World Bank’s projections are still worse. In order to justify economic liberalization, it has been trying to fiddle around with social indicators as well as the poverty line to establish that the market mantrais working. World Bank’s chief economist Kaushik Basu defends the exercise by saying: “In case a dollar in Ghana can buy three times what it can but in the United States, then a person who earns 1,000 dollar each month in Ghana is said to earn 3,000 in terms of PPP-adjusted dollars”. But the reality is that even in the United States, despite being a privatized economy, hunger has shattered 25 years record. A record 49 million people, one in seven, depend upon food coupons to meet their daily food needs. One in four lives in poverty in America.

The World Bank is wrong. In case of India, with or without the new PPP index of the World Bank, I would like to know what can a poor with a daily income of Rs 47 in urban areas buy three times more than what he can buy in America with the same money. It therefore tells us that economists are no different from the famed Indian magicians. They too can perform the vanishing magic trick with alacrity. 

Global empirical evidence is now emerging challenging the World Bank's deliberate underestimation of poverty. Recent studies (ECLAC 2002, 2011) have conclusively shown that in Latin America for instance actual poverty rates are twice than what the World Bank had projected. More recently, on April 11, 2014, a study by the University of Bristol published in the Journal of Sociology concludes that the World Bank is painting a 'rosy' picture by keeping poverty too low due to its narrow definition. Dr Christopher Deeming of the Bristol University's School of Geographical Sciences is quoted as saying: "Our findings suggest that the current international poverty line of a dollar a day seriously underestimates global poverty."

In India too, the entire effort of policy planners as well as the numerous expert committees constituted over time to estimate poverty have simply tried to brush the realities under the carpet. While Rangarajan Committee tabulates a new poverty line, way back in 2007, Arjun Sengupta committee report had estimated that 77 per cent of the population or 834 million people were unable to spend more than Rs 20 a day. But more recently, the consumer expenditure data presented by the National Sample Survey Organisation (NSSO) 2011-12 paints before us the grim realities.

Accordingly, if you are spending more than Rs 2,886 per month in the rural areas and Rs 6,383 in the urban areas you are part of the top 5 per cent of the country’s population. In other words, those spending more than Rs 6383 in urban areas are in the same category as Mukesh Ambani, Ratan Tata, Nandan Nilekani et al. For the rest 95 per cent, roughly 118-crore people, life in any case remains tough. With or without the growth trajectory, their life hasn’t changed. In fact, with the aggressive pitching by the corporate-controlled media, the growing social divide is getting completely ignored. Poor have simply disappeared from the economic radar screen.  

Another estimate exposes the glaring inequalities. The economic wealth of 56 people is equal to the economic wealth of 600 million people. No wonder when we take averages like the rising average income, it hides the rapidly growing inequalities. The mainline economic thinking is that the 600 million would benefit from a trickle-down impact. Now with the number of absolute poor being reduced with a magic stroke, the World Bank will succeed in painting a rosy picture by brushing the poor under the carpet in one single sweep hides the truth. With the passage of time, these unchallenged statistics will be repeatedly used and get accepted over time.

Unless the World Bank makes an immediate correction, all projections of removing 'extreme poverty' by 2030 would be as farcical as the new poverty estimates are. But I doubt if there would be an international uproar forcing the World Bank to redraw the poverty line. At this rate, in the next five years when the World Bank will revise its PPP index, poverty in India on paper will disappear. The poor in India will one day suddenly wake up to find themselves bracketed with those living in opulence. That’s the power of statistical jugglery. #

Painting a rosy picture, Deccan Herald, Sept 9, 2014.
http://www.deccanherald.com/content/429821/painting-rosy-picture.html

गरीबी पर आंकड़ों का खेल Dainik Jagran, Sept 6, 2014
http://www.jagran.com/editorial/apnibaat-figures-on-poverty-11609424.html

The onion story. It was all planned. Didn't I say that earlier?

A few days back, I had written about the urgent need to tame the wholesale/retail trade in onions. This was of course not liked by those who swear in the name of market reforms. They believe that markets have the inherent ability to correct itself, and that the onion price rise was because of poor storage, wastage and of course the weather going wrong.

The Times of India today (Aug 25, 2013) has a detailed report, entitled Traders make Rs 150-crore in 4 days with hoarded onions (click on the link: bit.ly/17d5ZmZ ). It's investigation shows that traders had mopped up onions from farmers in June/July and even earlier for a price not exceeding Rs 1,500/quintals (or Rs 15/Kg) and had stored it at different places. This created an artificial scarcity.

Between Aug 9 and Aug 19, and more sharply in just four days in between, the demand peaked and the traders made a huge killing. Wholesale prices shot up to Rs 4,300/quintal on Aug 12 and then to Rs 4,500/quintal on Aug 13. That is how the entire carnage was planned and executed.

Further, the report quotes the deputy registrar of the Nasik APMC  (Agriculture Produce Marketing Committee), which is the epicenter of onion production in the country. Accordingly, even now "farmers have around 2.5 lakh tonnes, of which 1.35 lakh tonnes are in the 66 villages under Lasalgaon APMC. This shows supply crunch was artificial." 

Reading all this, and looking at the accompanying illustrations, I am sure your blood would boil. You would definitely want the Govt to crackdown on the trade. But look at what the Chairman of the Commission for Costs and Prices (CACP) Dr Ashok Gulati is suggesting. In an article in the Indian Express a few days back: Know your onions (Aug 22, 2013, http://m.indianexpress.com/news/know-your-onions/1158278/), he doesn't propose any strict action against the erring trade. He thinks corruption by the private trade is justified since it is also happening elsewhere. So he is lobbying for setting up processing industry and an efficient value chain (which means more cold stores etc). He is not alone. Read any market ideologue, and you will find him/her quiet when it comes to a crackdown on corrupt practices. I don't understand why all pro-market reformists are supportive of corrupt and dirty marketing practices. There may be some honourable exceptions, but most fall in this category. Remember Kaushik Basu, he went to extent of suggesting legalising giving bribes as the answer.

This makes me wonder why do we nab petty thieves and criminals. If bigger fish can be allowed to get away in the name of market reforms, why not the smaller culprits? #

To know more: Watch this NDTV India discussion on the politics of onions.
http://khabar.ndtv.com/video/show/news-point/286927

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. 

Kaushik Basu's useless suggestions to prop up the Indian economy.

I was dismayed to read the lead article in The Times of India today (TOI, June 16, 2012). The article: Let's not overreact by India's chief economic advisor Kaushik Basu (available here: http://bit.ly/KzAhKA) in reality makes a fervent appeal to allow FDI in retail. To bolster the sagging economy, he has only two suggestions: 1) to open up for FDI in retail, and 2) to cut bureaucratic red tape. And both are useless suggestions.

First, let us look at one of his flawed arguments. He praises Indian policy makers for providing the enabling environment for FDI outflow. He says: "India has in recent times become a fairly large exporter of investment. Historically, we placed severe restrictions on the outflow of FDI. Up to the early 1990s, overseas investment by companies was restricted to a paltry $2 million in a block of three years. This made global investment by Indians unviable. In two important policy moves, in 1995 and 2002, this was liberalised. And Indian entrepreneurs have been quick to seize the opportunity. In terms of value of net overseas purchases, Indian companies now rank fifth in the world, after USA, Canada, Japan and China." 

On the one hand, policy makers, economists and business journalists are blaming the prevailing 'policy paralysis' for the flight of capital from India, here is Kaushik Basu appreciating the move that allows India Inc to invest abroad. In fact, as I said earlier in one of my blogs, the Reserve Bank of India has allowed India Inc to take out as much as 200 per cent of their economic worth for investing overseas. More sops/concessions are to be thrown in. This is happening at a time when most TV anchors rue over the declining foreign investments. I don't understand the economic justification for luring FDI and FII investment by providing national treatment to foreign companies, while at the same time allowing Indian money to be invested abroad.

It clearly shows that India Inc has no preference for India. When the Indian economy is in doldrums, I would expect the Indian companies, slush with liquidity, to invest in India. Whatever the neoliberal economists might say, nationalism has to be imbibed in economic thinking. The tragedy is that whether it is Greece or Spain or India, the rich industrialists have no interest in saving their own country from a virtual collapse. The reason is simple. They know for sure that the bailout money too would be to their advantage. Any disaster is a business opportunity for them. Corporates are always looking for an economic disaster, with many of them responsible for the economic crisis (2008-09 has amply shown how the economic meltdown was triggered).

Having said that, I had expected Kaushik Basu to come out with some plausible suggestions as to how to ensure food for 320 million people who go to bed hungry, and at the same time ensure drastic reduction in the levels of malnutrition. Economic reforms unleashed in 1991 haven't been able to make any dent on poverty and hunger (poverty too has grown) despite the claims of the Planning Commission. What is the use of the economic reforms if the population of hungry and malnourished continues to grow? Can any economist justify this?

Regarding FDI in retail, I would like to draw the attention of Kaushik Basu to two of my presentations. Let him answer my analysis: Allowing Retail FDI in India: Lies, lies and damn lies ( here is the link: http://devinder-sharma.blogspot.in/2011/11/allowing-retail-fdi-in-india-lies-lies.html), and if possible also view this video: http://www.youtube.com/watch?v=SPElhVyOJM8&feature=youtu.be There are several others who have challenged the claims made by Kaushik Basu and others, but perhaps India's chief economic advisor's commitment is towards bailing out the American economy.

Talking about bureaucratic red tape, I am amused to see him quoting the US defence secretary Leon Panetta. It is the US which has ensured that the WTO Agreement on Agriculture is so designed that it does not open up the US domestic sector to imports. After arm-twisting the developing countries to accept the final draft, it now wants more market access. It is the US which has refused to cut down on huge agricultural subsidies. In fact, after losing the WTO dispute on cotton subsidies to Brazil, it has provided US $ 147 million of subsidies to Brazilian farmers. This is a bribe paid to by US to Brazil so as to ensure that Brazil does not take countervailing steps. More than worrying about bureaucratic red tape, if Kaushik Basu had raised the issue of level-playing field in WTO Agreement on Agriculture, Indian economy would have easily looked up. Studies show that if US was to remove its Green Box subsidies, its agriculture would drop by 41 per cent or so thereby enabling developing countries to export food and food products to America. India would be a gainer.

Depreciating Rupee: Fault lies with our own policies.

Indian rupee is at a historic low. Every day the downslide of the rupee makes for headline news. Coming at a time when the Euro has crashed to a nearly two-year low against the dollar, and when the exit of Greece from the Eurozone looks imminent, the continuous sinking of the rupee has baffled me. I can understand when I read that rupee is sliding against the US dollar, but how come the rupee is also sliding against the sinking Euro?

Providing some justification, Chief Economic Advisor Kaushik Basu points out that currencies of several emerging economies -- South Africa, Brazil and Mexico -- are also on the downslide. This only shows how true my concerns have been over the faulty economic pathway being followed by the BRIC countries. Like the erstwhile Asian Tigers, who blindly aped the World Bank/IMF prescription, BRIC too is repeating the same mistakes. I wouldn't be surprised if sooner than later BRIC economies too collapse.

Nevertheless, Kaushik Basu told a private channel: "The current exchange rate problems that you are seeing .. the very sharp depreciation that is taking place .. i don't think it really has anything to do with our policy or policy mistakes being made over here, which is causing that." Of course, you don't expect the Chief Economic Advisor to admit that it is because of his faulty policies that the country is deep in economic crisis. So when the government suddenly gave a crude shock on May 24 -- raising the petrol prices by the steepest Rs 7.50 per litre increase in one go -- it became clear that all is not well. Congress spokespersons can justify the increase linking it to global prices, but the fact remains that crude oil prices are decreasing over the past few months. Even with the rupee depreciation, there is no reason why the consumers should be made to cough out extra for every litre of petrol.

Hindi daily Dainik Bhaskar has come out with an interesting front-page analysis. It says that the crude oil price in May 2011 was US $ 114 per barrel. The rupee-dollar exchange rate at that time was Rs 46, and therefore the import bill was Rs 5,244 per barrel. A year later, in May 2012, the crude oil price is $ 91.47/barrel, and even though the exchange rate is Rs 56, the import bill does not exceed Rs 5098/barrel. So why have the petrol prices been increased? I don't think any economist or a spokesperson for the government will like to respond to this. In simple terms, the rise in petrol prices is the austerity measure that Finance Minister Pranab Mukherjee talked about the other day.

Returning back to the issue of the rupee sliding with every passing day, I read an interesting article by senior economic journalist Paranjoy Guha Thakurta. Writing in the Deccan Chronicle (And the rupee wept on, May 22, 2012), Paranjoy tries to explain the complex reasons behind the rupee depreciation. "In fact, the principle reason why the value of the Indian currency has come down sharply in relation to the US dollar is the huge 56 per cent hike in the country's trade deficit (the difference between the value of imports and exports) in 2011-12 over the previous year."  Although there are other factors also impacting the rupee downslide, including foreign investors shying from putting money in stock exchange, but the widening trade deficit seems to be more reasonable of the causes.

He further goes on to write: "This is because of the fact that while imports have risen by nearly a third , the rate of growth of exports in 2011-12 has halved from the 41 per cent growth achieved in previous fiscal year (2010-11)."  I can understand that the rising import bill is primarily because of oil imports. As Paranjoy says: "Imports are not coming down because one-third of India's total imports currently comprises  crude oil and 80 per cent of the country's requirements of crude oil are imported." And since the markets for Indian exports has shrunk abroad, especially in the west, Indian exports are down.

Now, come to think of it. Although Kaushik Basu does not hold the UPA policies to be responsible for the widening trade deficit, I don't understand the reason why India has steadily and systematically opened up the trade barriers by reducing and phasing out import tariffs to encourage imports. Crude oil has to be imported because we don't produce enough, but why should we be importing edible oil for instance. India is the 2nd biggest importer of edible oil, expected to import 9 million tonnes this year. You will be surprised to know that in 2009-10, India had imported 9.24 million tonnes of edible oil valued at Rs 38,000-crores (source: Financial Express, http://www.financialexpress.com/news/vegetable-oil-imports-touch-new-high-at-9.2-million-tonne/712217/). In the past 5 years, edible oil imports have almost doubled.

The outgo of Rs 38,000-crore in terms of dollars (it would be much more in 2011-12) could have been easily avoided if the government had followed the right policies. Why I am saying this is because it was in 1993-94 India had turned almost self-sufficient in oilseed production following the launching of Oilseeds Technology Mission by Rajiv Gandhi. It was then that the Commerce Ministry started reducing import tariffs, and have actually brought the import duties to almost zero. The imports picked up in the process, and the oilseed farmers were forced to move to other crops in the wake of cheaper imports. It was therefore a double whammy. Farmers suffered, and imports (and import bill) grew manifold.

Similarly, I find that despite the 2009 global economic meltdown, India has not drawn any lessons. While all industrialised countries are pushing for export markets, India is merrily opening up its economy to unwanted imports. First under WTO, and now under the Free Trade Agreements (the two most recent and damaging bilateral trade treaties are the Indo-Asean and Indo-EU FTA still to be completed), that India is bowing to pressure to open up for imports. Well, if you are encouraging imports in areas where the country has enough production capacity don't blame the global economic crisis for the depreciation of the rupee. It is our own doing, and we must accept responsibility. It is high time India makes an immediate correction in its trade policies to ensure that it does not become a dumping ground.