Is Congress really secular and BJP really communal?

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Elections are around the corner and the political climate is really heating up in India. The current Congress led government has been a disappointment on many fronts including the economic one. People seem to be desperate to have a leader that seems decisive and unfaltering. Unfortunately none in the Congress seem to be fitting the bill. I think this vacuum was sensed well by BJP in portraying Narendra Modi as a prime ministerial candidate. For this the political strategists from BJP have to be lauded. As expected media is all over Modi’s credentials as a leader and has trudged up his role in the Godhra riots as a major factor in discrediting him. And I think it has only helped the BJP to stoke anti Muslim sentiments furthering its agenda of divisive politics. As a person who supported the saffron coalition once upon a time, I always wondered how much truth is it to the story of Hindu-muslim animosity. The more I read and thought, the more it was obvious that it was more of a political ploy than reality.  I think many people actually see that, which might include even the senior leaders of BJP. So why go by such divisive agenda?

One reason is the politics of Congress. Congress’s political strategy has always involved wooing the swing voters who came in various forms. At times they were migrant communities or slum dwellers in cities like Bombay and yet at other times they were communities with lack of access to affirmative action or any kind of government support. All these groups lacked any political influence and hence made very good candidates for political machinations or sometimes plain simple exchange of votes for economic benefits. Unfortunately, Muslim community in various states forms the biggest of such swing voter communities that does not have access to any kind of affirmative action in spite of its socio-economic backwardness. So is Congress really secular- I think not! It is just playing the election game and has done so successfully for many years.

Now given that Congress caters to Muslims for political reasons, highlighting it becomes a really obvious and easiest political platform for an opposing party to contest elections on. That is where BJP’s politics comes into picture. Except briefly, in the post emergency period, Congress never had a real opposition till BJP shot to prominence after Lalkrishna Advani’s rathayatra in 1992. So whether we like it or not, polarization on communal lines seems to be the only way we could produce a viable opposition to Congress in the post independence period. This is as much of a reflection on Congress’s minority pandering politics as much it is on BJP’s divisive communal strategies. In reality, both of them are basically two sides of the same coin- they both engage in vote bank politics, rather than fighting on substantive election platforms.

The communal politics that both Congress and BJP excel in is also an acute reflection on the inability of the Indian polity to produce an alternative election platform that addressed the socioeconomic inequities. Unfortunately, in there also lies the failure of the Indian Left. Assuming that they truly understand and follow the Marxian philosophy, they should have brought the emptiness of Congress’s secular politics to people’s notice. But instead, in deciding to side with Congress to thwart BJP’s growth, the Left has done a big disservice by not allowing genuine societal reform to be an election platform. The philosophical void in the post cold war world has only added to its ineffectiveness. Even though there is lot to be desired of economic systems in delivering prosperity to common man, there does seem to be an overwhelming evidence in support of markets as an effective way of organizing economic activity.  But as a party that stands against capitalism, the Left is not able to provide an alternative election platform that delivered both on economic and social justice.

So that leaves us saddled with the communal parties of India. As a stop-gap arrangement I do hope that at least they are not be able to form a government on their own. Coalitions seems to be the Indian way of providing checks and balances in a political climate devoid of any vision for social and economic progress. However, that cannot really be a long term solution to the problem. We do need substantive political platforms and not just ones based on communal lines. For example, we need political parties debating the best way of achieving socio-economic justice for all or ways to improve the laggard and in some cases nonexistent public education system or whether the current public distribution system is the best way to ensure food security, or how do we ensure equal access to credit or to consistent electric supply or just simply to effective governance. These are the problems that are plaguing the Indian economy and society and holding the progress back or keeping it in the hands of few. Who is going to float a election platform based on these issues? I guess we will have to wait and see!

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Unemployment, Poverty Decline, and Inflation.

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India is quite notorious when it comes to availability of timely and quality data and when it comes to unemployment more so. Till recently, the NSSO conducted the employment-unemployment survey only every five years. The reasons might be many- lack of funding, tailoring the survey dates to five year plans, using it as a report card on government in office, etc. But given that unemployment is an important macroeconomic indicator, you would want it to be available at a much higher frequency. Thankfully, the government seems to have woken up to this reality. Thanks to the Labor Bureau from Ministry of Labor and Employment, we now have an annual survey on employment and unemployment starting from the year 2009-10! You can access the reports here.

Given this late start, we have two rounds of this survey till now. How does the picture look like? In the following table, I have collected data from two rounds for unemployment rate based on the usual status. Note that Unemployment Rate (UR) is defined as the number of persons unemployed per 1000 persons in the labour force (employed & unemployed). The usual principal status approach means asking the question about employment situation in the past 365 days. Accordingly, the major time spent by a person (183 days or more) is used to determine whether the person is in the labour force or out of labour force. A person found unemployed under this approach reflects the chronic unemployment (Labor Bureau 2010).

unempInd

Overall in past two years, unemployment declined from 9.4% to 3.8% and most of this decline seems to be coming from decline in rural unemployment; rural unemployment declined by 66% as against 33% decline in urban unemployment with the total decline in unemployment being 60%. This decline in total unemployment because of a relatively higher decline in rural unemployment may be behind the recent decline in poverty. In a recent article, Kotwal and Sen argue that this poverty decline might be because of the success of Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA) and Pradhan Mantri Gram Sadak Yojana (PMGSY). This is not only because of improved employment opportunities from the scheme but also that the offered wage under the schemes pushed the rural wage up ensuring improved terms of trade for agriculture. So the decline in poverty story seems to be going hand in hand with the phenomenal decline in rural unemployment. 

It might be tempting to put the blame for higher inflation on increased government spending under the above mentioned schemes, but the causality does not seem to be that clear. The increase in the rural wage and the beneficial effects of better rural roads may have opposite effects on inflation. We will have to wait for more research on these links as data becomes available.

References:

Labour Bureau (2010), Report on Employment- Unemployment Surveys 2009-2010, Ministry of Labour and Employment, Government of India.

Labour Bureau (2012), Report on Employment- Unemployment Surveys 2011-2012, Ministry of Labour and Employment, Government of India.

Marriage Squeeze, Dowry, and Female Infanticide

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Dowry continues to plague a country like India, more so today than before. Looks like the rising dowries and female infanticide feed into each other. For example in one of her papers, Anja Sautmann of Brown University tests the proposition that if women marry younger than men, increased population growth leads to a surplus of women in the marriage market possibly leading to dowry inflation.

There are other features that need to be added to the male female age gap at marriage in order to have such inflation. If we start with a situation of more males than females, population growth and add the practice of females marrying younger than males, then it leads to the problem of ‘marriage squeeze’. It literally means that there are few older men available to marry for women every cohort leading to increase in the dowry. This in turn leads to raising ‘a girl child’ deemed to be costlier than raising a male creating incentives for infanticide. You can find Anja’s interesting analysis of marriage squeeze in India here.

Worse economic conditions in rural parts only add to the problems created by marriage squeeze and dowry inflation.  In a post on my other blog, I describe some research that shows how negative rainfall shocks could lead to a lower probability of a girl child surviving  This happens because of lack of credit and insurance arrangements to tide over negative production and consumption shocks. So in the spirit of dismal science, a female child faces higher mortality risk because the poor rural household is trying to smooth consumption in the absence of any kind of insurance. Though it sounds cynical, it has interesting policy implications- specifically that providing some kind of consumption smoothing mechanism to rural landless households might lead to a better male-female ratio.

Natural economic and social forces might take its course and correct the social imbalances arising out of such socio-economic conditions. More women might prefer to stay unmarried and better economic prospects will only make easier. Rational brides and grooms might soon realize that age gap has to be reduced in order to increase the probability of getting married. But this all might take a lot of time and given the increasingly young population of India, the situation might only get worse if interventions are not deliberate to speed up the necessary process of change.

In the wonderland of Indian managers!

A field experiment reveals that improvement in managerial practices improved productivity and also paved way for expansion. The question as to why these firms did not adapt such practices prior to being part of the experiment has some obvious answers. Family control of firms, lack of competition because of higher tariffs and lack of external financing, etc.

You can find the article here: http://qje.oxfordjournals.org/content/128/1/1.full

Habit Persistence, Undernourishment and Gains from Trade

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While I was studying in New Delhi, I used to pine for food from my homestate (may be even hometown or just homefood!). That is what migrants usually do and you find great markets in some pockets of bigger cities which cater to migrants preferences for certain kinds of food. This explains why there is a China Town, a Little India or a Little Italy in almost all bigger cities in North America. Hell, there is even little Madras in an area called Rasta Peth in Pune! New Delhi’s Delhi Hat has food stalls from all over India, but I am pretty sure most of the visitors flock to their state’s food stall. Does such kind of food preference have any economic implications at large? The answer is yes according to David Atkin from Yale.

In an innovative paper, he shows that habit persistence in food preferences among people from different regions in India imply much lower gains from trade than otherwise, should we decide to allow a freer movement of commodities between states. It also might illustrate how our somewhat fixed preferences for certain kinds of food may hold us back from getting the necessary nutrition for a healthy life!

Update: research on Indian economy

Have not blogged for a while as the semester got busy and the teaching honeymoon (2 courses) was over. Nonetheless here are a few of the papers that have been piling up on my desk to read and blog!

1. Barriers to Household Risk Management: Evidence from India

Why do many households remain exposed to large exogenous sources of nonsystematic income risk? We use a series of randomized field experiments in rural India to test the importance of price and nonprice factors in the adoption of an innovative rainfall insurance product. Demand is significantly price sensitive, but widespread take-up would not be achieved even if the product offered a payout ratio comparable to US insurance contracts. We present evidence suggesting that lack of trust, liquidity constraints, and limited salience are significant nonprice frictions that constrain demand. We suggest possible contract design improvements to mitigate these frictions. (JEL D14, D81, O12, O13, O16, O18, Q12)

2. Loan Regulation and Child Labor in India

We study the impact of loan regulation in rural India on child labor with an overlapping-generations model of formal and informal lending, human capital accumulation, adverse selection, and differentiated risk types. Specifically, we build a model economy that replicates the current outcome with a loan rate cap and no lender discrimination by risk using a survey of rural lenders. Households borrow primarily from informal moneylenders and use child labor. Removing the rate cap and allowing lender discrimination markedly increases capital use, eliminates child labor, and improves welfare of all household types.

3. Misallocation and Manufacturing TFP in China and India

Resource misallocation can lower aggregate total factor productivity (TFP). We use microdata on manufacturing establishments to quantify the potential extent of misallocation in China and India versus the United States. We measure sizable gaps in marginal products of labor and capital across plants within narrowly defined industries in China and India compared with the United States. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the United States, we calculate manufacturing TFP gains of 30%-50% in China and 40%-60% in India.

Inflation in India

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The RBI governor Dr. Subbarao surprised the Finance Minister P. Chidambaram today by reducing the cash reserve ratio (CRR) instead of the expected repo rate. Is this some sign of RBI acting independently? Is reduction in CRR is enough to ease liquidity and yet not contribute to inflation? How does the work anyways? Do changes in CRR matter at all? While all these are interesting questions and I plan to delve into them over time, I thought this following graph should be interesting.

Politicians, Bureaucrats, and Governance

In the case where politicians have a very limited power to hire or fire a bureaucrat, is it possible that quality of politicians also affects the quality of governance? One would imagine that the answer to this question is no. But, politicians do seem to have some degree of influence on the bureaucracy through the process of reassignment and transfers even though they play a very little part in their hiring process itself. So it does seem likely that politicians shape the incentives for bureaucrats’ career advancement and hence the quality of bureaucracy is a response to these incentives. Iyer and Mani (2012) provide some  theoretical and empirical support for this proposition.

They develop a framework to empirically examine how politicians with electoral pressures control bureaucrats with career concerns and in turn how it affects the bureaucrats’ career investments. They find that the a change in the identity of the head of the state does increase the probability of bureaucratic reassignment. In a world where you cannot fire people, you just move them to a different state!

Given this increased probability, officers with higher initial ability do experience less frequent transfers and variability of importance of their posts. However, there is not much difference in the likelihood of being assigned to an important post between a high initial ability bureaucrat and the ones that is just loyal. This implies that skill investment is not the only route for career success and hence this affects the quality of bureaucracy in equilibrium. Analysis based on a unique data set on the career histories of 2800 officers in the Indian Administrative Service (IAS) support these theoretical implications. A good example of forward looking behavior on the part of a self interested economic agent!

Lakshmi Iyer and Anand Mani, Traveling Agents: Political Change and Bureaucratic Turnover in India, The Review of Economics and Statistics, August 2012, 94(3): 723-739.

Economics of Gated Communities: Private Solutions to Government Failures

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The race is between China and India and the whole world is watching. Well, at least the Western world is definitely watching. The frequency at which articles on India’s progress or lack thereof  are published in the western press is a sure indicator of this. Whatever the perspective, every one seems to be lamenting on how shoddy infrastructure is going to hold back India compared to China. The concern is definitely not misplaced. Up until a decade ago, India did not have a single expressway. Power failures have always been ubiquitous and rampant corruption only makes maters worse. There is no ‘public education’ system as such and wherever there are any signs of it’s existence, it is plagued by scarce resources and teacher absenteeism. So what do Indian people think of this overall state of affairs? There is indeed a tendency to make do. After all life goes on even if you did not have electricity the whole day yesterday. And I believe this is what the politicians count on- that people will either say OK and move on or they will find private solutions to government failures.

People will invest in generators and battery operated fail safe systems to address power failures. They will work hard to put their children through private schools or pay extra for private tutoring. They will dig their own bore wells and make their own access roads so that they are not stranded without water or a dirt road that proves to be a nightmare to navigate during monsoons. All across India, there are emerging scores of new housing complexes with complete amenities of their own so that at least a part of people’s lives is shielded from rampant government failures.

Such gated communities are not only preferred by common people but also by corporates. Take the example of Dhirubhai Ambani Technology Park. It is a complete functioning economy of its own. Pothole free roads, 24 hour electricity and telecommunications, and a clean environment to work. The moment you enter the facility you are transported to a different world! These gated communities remind me of John Galt’s hideout from the Atlas Shrugged! Even though we know much more about the intricacies and nuances of political and social systems than Ayn Rand, there seem to be too many such John Galt getaways that people prefer to flee to.

There is a lot of unhappiness about the state of governance and that might be one of the reasons that we have fractured government at all levels. Parties which either boast of dynastic heritage or of parochial and communal politics are finding increasingly difficult to win a majority to form government by themselves. They have to negotiate their way with smaller parties and independent candidates in exchange for promises to help them do good on their election promises. However, at times such coalition politics takes it own toll when getting one’s act together to push through important reforms becomes impossible. Hence, the political solution to government failure actually looks like a stalemate.

How does this bode for India’s future? Unfortunately, not so well! Having people invest their hard earned money in providing and purchasing goods for which there is a clear rationale for public provision is totally inefficient. This money could have been used for productive and efficient investments instead. So even if individually people seem to be better off, emergence of private solutions for government failures does not reflect well on long run growth of India. Efficient production and provision of public goods is not sufficient for economic growth but is definitely a necessary condition. People still have to work hard to improve their standards but then they are at least not held back because of lack of electricity, roads and good education!

Political Connections and Sugar Mills in India

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A very interesting analysis by Sandeep Sukhtantkar of how politicians benefit from control of firms. It uses the example of sugar mills in Maharashtra, India as a case in point. The article sheds light on how corporate connections of politicians help raise funds for elections and how the exchange between sugarcane farmers and politicians helps sustain pilferage.

You can find the paper here: http://www.aeaweb.org/articles.php?doi=10.1257/app.4.3.43