I haven't read the finer print of the Companies Bill. But what I have so far gathered from news analysis in various newspapers, the Companies Bill calls for companies having a net worth of Rs 500-crore or more, or a turnover of Rs 1,000-crore or more, or a net profit of Rs 5-crore or more to have a Corporate Social Responsibility (CSR) spending of at least 2 per cent of their average net profits of the past three years. In an interview with The Times of India (Aug 12, 2013) the Corporate Affairs Minister Sachin Pilot calls it a "positive, forward-looking, reform-oriented, and investor-friendly legislation."
A day later, news agency PTI said that given the criteria that has been spelled out in the Companies Bill, only 1 per cent of the active companies need to follow CSR spending norms. Further, what is peculiar to India's new law is that the 2 per cent spending on CSR is not mandatory but reporting about it is mandatory. "Now the essence of the bill is self-reporting and self-disclosure. At no point it is my objective to create an inspector Raj where the government is the sole authority and we decide what is right and what is wrong. That's the company's money. They have full freedom to choose how they want to spend that money," Sachin Pilot said in an interview (Companies have full freedom in spending CSR money: Sachin Pilot TOI Aug 12, 2013. bit.ly/15sm70Z ).
Well, Sachin Pilot has reasons to have unlimited faith in the Corporates. After all, he is the Corporate Affairs Minister. But left to the Corporates, India would have been gobbled up by now. The widening economic inequality across the globe is a clear-cut pointer to the extent of greed that prevails among the rich and beautiful. Sachin Pilot therefore seems to be living in a make-believe world. He is no exception. It happens to all those youngsters whose foray into politics is just because they happen to be the sons/daughters of known politicians.
While the issue of tax-benefits for CSR spending is still to be resolved, already many suggestions have started pouring in. Says another news report (CSR spends to get Cos varying tax benefits, TOI, Aug 13, 2013): "For instance, writing a cheque towards the PMs National Relief Fund would entitle the donor company to a deduction, from taxable profits, of the entire donation amount. On the other hand, if a company has constructed a school building in a village, no tax benefit may be available -- at least not without a drawn out litigation."
Some studies point to Rs 12,000-crore (or $2 billion) of corporate money flowing into the social sector. For a sector reeling under terrible resource-crunch with less money available across the globe for social, voluntary and charitable activities, and with the Indian Government tightening the FCRA rules to stifle NGO activity, the clamour for CSR funding will increase in the days to come. In my understanding, CSR funding will change the direction of social activities, driving more towards activities that actually end up benefiting the Corporate sector. In the absence of clearly defined guidelines, CSR money will come in handy to lay out a strong foundation for the Corporates to encash on eventually.
Let me illustrate. Schedule VII of the Companies Bill (as per a news report) prescribes wide-ranging activities that could be part of a company's CSR policy, such as eradicating hunger and poverty, promotion of education, women empowerment, reducing child mortality and improving maternal health, environmental sustainability, employment enhancing vocational skills or contributions to central or state government set-up funds, including the PMs Relief Fund. These activities look perfectly suitable for CSR activities. But when it comes to actual operations, it is the way the programme is structured/designed that is going to matter. Company's underlying commercial interests will always remain the primary focus.
Take the case of of hunger and poverty. Let us assume Mahyco/Monsanto, the agribusiness technology giants in India, launch a CSR project on improving agricultural practices to fight hunger and malnutrition. Without doubt, it is going to focus on bringing in genetically-modified seeds, chemical fertilisers/pesticides and thereby encourage an industry-driven farming model of agriculture. It will be in the name of eradicating hunger. Since more money will be available for this kind of initiatives, I can see NGOs making a beeline before the company. At no stage will Mahyco/Monsanto promote ecological farming or ask farmers to go in Low External Input Sustainable Agriculture (LEISA) practices. Take another example. The much hyped e-Chaupal initiative of ITC was aimed at laying the foundations for terminal markets for corporate agriculture. Of course, there are some honourable exceptions. But the number of such companies is very limited.
My suggestion therefore would be to have a clause in the CSR rules that ensures no company can make CSR spending in a domain of its own commercial interests. There has to be a strict regulatory regime established (no IAS please, and no ex-Corporate honcho) that oversees the working of the CSR projects to ensure that companies follow the norms that the regulatory body spells out for sustainable development. If you leave it free for all, as Sachin Pilot is suggesting, a majority of the companies will go on rampage, and we will actually end up creating conditions, knowingly and unknowingly, for the emergence of another Company Raj. Corporate funding has to be therefore very strictly regulated and monitored.
CSR spending however should not be seen as an open license to exploit the natural resources. It is not a license to loot, and then demonstrate social responsibility by opening a school or a hospital somewhere. It is for this aspect that the setting up of a National Investment Board is a bad precedence. It must be scrapped as soon as possible. Corporates too have to be made socially and environmentally responsible in their basic business operations. CSR is not a route for social repentance for the sins the companies normally indulge in.
Believe it or not, Mukesh Ambani and an average guard (including those posted outside his Mumbai home) fall in the top 5 per cent of the country !
My maid servant asked me the other day: “Sahib ji, TV news tells me those earning more than Rs 1000 a month are not poor. How can this be true? Although I am earning Rs 5000 every month working at your home, I mop up your floor and wash your dishes. If I was rich why should I be doing jhhadu-pochha? Kuchch karona Sahib ji. Aap bolo na…”
Mohan used to be a helper in my office. He now works as a guard in the Delhi University. “Sir ji, I earn Rs 6000 every month. I have a wife and two children. I live in a one-room shanty accommodation in Kamla Nagar. I know how I am struggling to run my family. My wife suffers from asthama, and my younger son has a heart problem. If I didn’t have the BPL card, I couldn’t have got them a hospital treatment. They would have died by now. And look, this government tells me that I am not poor…”
While I was grappling with words to assuage their anger at a faulty poverty line being enacted every now and then, here comes another shocker. The National Sample Survey Organisation’s (NSSO) latest set of consumption expenditure data for 2011-12 tells us that if you live in a village and spend more than Rs 2,886 per month you are among the top 5 per cent of the country. For the urban areas, the cut-off limit is Rs 6,383 per month. That makes me as well as you, the reader, in the same category as Mukesh Ambani, Ratan Tata and Narayana Murthy. Time to celebrate, isn’t it?
However, both my housemaid and my helper have narrowly missed being in the top 5 per cent bracket of the country. But they surely can derive some console and of course a lot of happiness to know that they rub shoulders with the top 10 per cent of the country. According to NSSO, those spending Rs 2,296 in rural and Rs 4,610 in the urban areas fall in the top 10 per cent. And that makes me wonder, if a guard outside an office or a swanky home is amongst the top 10 per cent of India, then imagine the fate of the remaining 90 per cent of the population? In simple words, does it not mean that over 110-crore people out of a population of 125-crore in India are simply destitute? Does it not mean that the poverty line that has been worked out time and again is completely fallacious and meaningless?
If a spending of Rs 96.2 in the rural areas and Rs 212.77 in the cities is what it takes to form the top 5 per cent of the country, then there is something glaringly missing in India’s growth story. The promise and excitement of being the second fastest growing major economy is simply an illusion of prosperity wherein a handful of people/families have amassed huge wealth. The average growth in income that India has witnessed means nothing considering the gigantic income inequality that prevails.
The NSSO’s consumption expenditure data only shows how wide the income gap is. With every passing year, we know the prevailing inequality is further widening. At this rate, probably India would put the US to shame where 400 individuals have amassed economic wealth equal to that of half the American population. In India, economic growth seems to be all about the ultra high net-worth individuals (HNIs) whose number has risen to 100,900 in 2012-13, and is expected to swell to 300,000 in another five years. Ultra high net-worth individuals are those who have amassed Rs 25-crore or more in past 10 years.
The more the accumulation of economic wealth with a handful of families, the more is the projection of rising average incomes and growing prosperity.
Past NSSO data shows that the percentage of population below the poverty line has come down from 37 per cent in 2004-05 to 21.9 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. And if my housemaid and helper have crossed the Rubicon of poverty to rub shoulders with the rich and mighty, it is time for a grand celebration. But before that, let's have a reality check.
Remember the TV serial: "Mungeri Lal ke haseen sapne"
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/
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.
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/
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.
Why Bhagwati & Co Are Wrong On Reforms.
Some years back, just before the WTO Ministerial Conference was held at Hong Kong in 2005, economist Jagdish Bhagwati commented in the Far Eastern Economic Review (and quoted by the Economist, 23 March 2005): “Agricultural subsidies are certainly undesirable. But the claim that removing them will help the poorest countries is dangerous nonsense and a pernicious fallacy.”
I thought this was outrageous. How could Bhagwati make an economic prescription that would keep the poor countries perpetually standing with a begging bowl? Doesn’t he know that importing food is like importing unemployment, destroying livelihoods? Cheap and heavily subsidised food makes agriculture in developing countries uneconomical, forcing migration to cities.
It was almost at the same time that I did an exhaustive study on the first 10 years of the wto Agreement on Agriculture, which was also circulated widely at the Hong Kong WTO Ministerial Conference. The conclusion was crystal clear. The rich industrialised countries had managed to protect their monumental agricultural subsidies. As a result, of the 149-odd developing countries clubbed in the category of Third World, 105 had become food importing.
Nearly 70 percent of all developing countries are now net food importing. The two major gainers were the two giants on either side of the Atlantic — the United States and the European Union. This was the outcome of the policies perpetuated first through Structural Adjustment Programme and carried through more aggressively under the wto. All aimed at further dividing the world into food factories of the rich industrialised countries; and the other hungry half, always prostrating with a begging bowl in hand. What Bhagwati perceived as “dangerous nonsense” was, and still remains, the biggest threat to mankind.
At stake is not only food security of the importing countries, but also national sovereignty. That is why India’s first Prime Minister Jawaharlal Nehru, while addressing the nation on 15 August 1955, had said: “It is very humiliating for any country to import food. So everything else can wait, but not agriculture.”
Food is the biggest weapon, and those who control food will control the global politics, as well as the economy. That is why the US and the EU have refused to open up their own borders to agricultural imports from the developing countries, but lose no opportunity to arm-twist and force the developing countries to fall in line by providing more market access.
The US has even questioned India’s Food Security Bill, and is threatening to take India to the dispute panel. In turn it wants India to ratify the agreement on trade facilitation, which will ensure developing countries to lay appropriate infrastructure and bring in policy changes that help trading consignments of multinational companies to get a quick entry — nothing more than that.
That is why I have always called WTO the Wrong Trade Organisation.
Take the case of cotton subsidies. Before the Cancun wto Ministerial Conference in 2003, presidents of four western African countries wrote a signed article in the New York Times saying how US cotton subsidies killed their farmers. In 2004-05, the US provided its 20,000 cotton farmers with $4.7 billion in subsidies to produce a crop of $3.9 billion. Such massive subsidisation insulated US cotton farmers from the volatilities of the global markets, resulting in a drastic fall in international prices — as a result of which cotton farmers in western Africa and India were priced out.
Brazil later took the US to the dispute panel on cotton subsidies. The US lost, and to ensure that Brazil didn’t impose countervailing duties, started providing Brazilian farmers with $147 million in subsidies. This is the only case I know where a major economic power is actually bribing another nation. If US can protect its farmers, why can’t India do the same? Why are we ashamed to acknowledge that India can’t sacrifice millions of its farmers at the altar of trade and development?
No one is against trade. But trade has to happen on equal terms and has to be judicious. If it is not, I expect the distinguished economists to stand up and be counted. But it never happened. Both Bhagwati and Arvind Panagariya actually supported the flawed trading regime.
Soon after Independence, public investment in industry, agriculture, infrastructure, defence and administration left little revenues for education and health. So unless you followed the growth-friendly Track-I policies as the writers suggest, there wouldn’t have been a rapid expansion in incomes and revenues.
Recall the time when Lal Bahadur Shastri was the prime minister. That was also the period when India was a major recipient of food aid under the US government’s overseas food assistance programme. India was living under what is called a ‘ship-to-mouth’ existence. Food used to come directly from the foodcarrying ships into the hungry mouths. At that time, an American journalist had asked the prime minister as to what he thought of the war in Vietnam. Shastri replied: “It is an act of aggression”. This small sentence had annoyed the then US President Lyndon Johnson who ordered food aid to be stopped under what is called ‘stop-go’ policy.
Shastri had asked the nation to fast for a day to ensure that food goes to those who need it most. Subsequently, the Green Revolution that followed was the result of a combination of right kind of policies, technology and approaches. The rest is history. Had India followed Bhagwati’s prescription instead, we would have continued living in misery.
But 45 years after the Green Revolution was ushered in by Indira Gandhi, Finance Minister P Chidambaram is doing exactly that by asking for State agencies to withdraw from grain procurement. The food ministry is toying with the idea of capping grain procurement and letting the Food Corporation of India (FCI) use the grain stocks in future trading. Instead, FDI in multi-brand retail and commodity trading is being pushed as a panacea for all the ills plaguing Indian agriculture.
If this is true, then why is that farmers in the US and the EU have to be given massive doles of direct income support year after year? The US -EU have big box retail giants like Walmart, Tesco, Sainsbury and Metro operating for several decades now. If the big retail (and also commodity trading) had helped in price realisation for farmers, then how come the OECD (Organisation for Economic Cooperation and Development) countries end up providing close to $370 billion every year for farm support?
Now let us turn to the Track-II reforms that Bhagwati and Panagariya propose for India. Let us first begin with America, where they are based. We all know that the American dream has collapsed. What happened? Wasn’t US the Mecca of economic liberalisation? Just a few days back, an Associated Press report (28 July) in its opening paragraph said: “Four out of five US adults struggle with joblessness, near-poverty or reliance on welfare schemes for at least part of their lives, a sign of deteriorating economic security and an elusive American dream.”
At present, 46.2 million Americans — 15 per cent of the population — are living in poverty. Estimates show that by 2030, going by the prevailing rate of inequality, at least 85 per cent of the working population will experience economic disparity.
Hunger has broken all records. Since 2006, hunger or call it ‘food insecurity’, has risen by 30 percent. The US Department of Agriculture estimates 17.4 million families to be ‘food insecure’. One in every four children doesn’t know where the next meal is going to come from. A record number of post-graduates are now using food coupons for subsistence.
While Panagariya wants India to adopt cash transfers and education vouchers, a California-based organisation ‘Eat, Drink Politics’ has come out with startling revelations providing insight into how the hunger programme adds to the profits of some of the big corporations and banks.
Several corporations like Coca-Cola, General Mills, Walmart and banks like JP Morgan Chase have reaped windfalls from the food programme. Accordingly, Walmart received $33 million for nine supermarket centres in the State of Massachusetts, which is four times the money spent on farmer markets across the country under the same programme. JP Morgan Chase has a five-year contract worth $83 million in Florida alone.
Another argument is that revenues must be redistributed to the beneficiaries through cash, school vouchers and health insurance, allowing them to decide whether they want to buy food, education and health from private or public providers. Well, let’s take the case of US again as far as privatisation of health services is concerned. According to a report by the US-based Institute of Medicine (IOM), the US is the sickest country in the developed world. “This disadvantage has been getting worse for three decades, especially among women.”
In any case, the economic disparity is so glaring that the private wealth of 300 individuals across the world equals the wealth of three billion poor people. And this disparity is worsening with every passing year. If this is the situation, why do we need to import a flawed economic model?
Not only the US, Europe too faces hardship. At a time when millions of workers in Europe have taken to streets time again to protest against spending cuts that have aggravated recession and led to mass unemployment, how can any sensible person, least of all an economist or policymaker, defend this paradox — millions go jobless while private companies sit over massive cash reserves. Says a 2012 CNBC report: “Amid a lacklustre earning season that has featured many companies missing sales expectations, cash balances have swelled 14 percent and are on track towards $1.5 trillion for the Standard and Poor’s 500.” Apple alone sat on a cash reserve of $117 billion.
In Europe, Ernst & Young estimates that corporates hold over €2 trillion. US corporates alone hold more than $2 trillion in the UK. In India too, at a time when the current account deficit situation has become more pronounced, India Inc in 2012 was sitting comfortably over Rs 9.3 lakh crores or $166 billion, and is refusing to invest it within the country.
In India too, even between 2004-05 and 2008-09 when the economy grew at a record 8-9 percent, a Planning Commission report shows that 14 million people were driven out of agriculture, and another 5.3 million suffered job loss in the manufacturing sector. High growth, therefore, has not translated into increased employment.
Regarding the vanishing poverty trick, economist Utsa Patnaik has in her analysis ‘The dishonesty in counting the poor’ (The Hindu, 30 July) ripped apart the spurious claims. In fact, the tendency to hide poverty and hunger is not only confined to India. Economists all over the world are bending backwards to show how poverty is coming down in an era of market reforms.
The illusion of growth has not spelled happiness. Since 2004-05, India Inc has received nearly Rs 32,00,000 crore by way of tax exemptions. If such heavy subsidisation has not resulted in increased employment, pushed up industry and manufacturing output, or helped increase exports, isn’t it a waste of resources? Don’t these subsidies add to fiscal deficit? And yet, despite these subsidies, explicit as well as implicit, industrial growth remains sluggish.
The subsidisation of the industry does not end here. Privatisation of health and education through the public-private partnership (PPP) mode is essentially a subsidy. Acquiring land at throwaway prices for Special Economic Zones (SEZs), industrial estates, malls and real estate is a huge subsidy. Providing interest-free loans and tax holidays is also a subsidy. In fact, the industry thrives on subsidies. The difference being, these subsidies are called ‘incentives for growth’. But, strangely, it is always subsidies for the poor that come under the scanner.
Often I am asked if I am questioning economic liberalisation and whether I want the country to go back to the old days of the Hindu rate of growth. If I point to the glaring inequalities and injustices being pushed down the throat of developing countries, it does not mean that I am against trade.
The near collapse of the economic growth model after the 2008 economic meltdown should make us rethink. The economic pathway to happiness can be a combination of the good from the neoliberal era as well as the so-called socialist era. It is time to move ahead by redrawing the new economic pathway.
Source: Tehelka, Aug 10, 2013, Issue 32, Vol 10.
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?
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 AMS calculations 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
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