Wednesday, April 29, 2015

Untie the Farmer !

Untie the farmer
Written by Ashutosh Varshney

The debate on the land acquisition bill and the tragic suicide of a farmer in Delhi compel us to reflect on a theme of enduring significance: the role of agriculture and farmers in development. What has the historical experience all over the world been?  How is India’s agrarian narrative different — or identical? What can India learn from international experience?

Many years ago, I wrote a book, Democracy, Development and the Countryside: Urban-Rural Struggles in India. A great deal has changed since then. India has experienced its highest economic growth rate since Independence and an urban acceleration has set in. During 2001-11, for the first time since 1947, the absolute increase in the urban population was greater than the absolute increase in the rural population. Still, two-thirds of the nation continues to live in the countryside. It is impossible to conceptualise the nation’s welfare without rural wellbeing. How should rural welfare be imagined at this stage of Indian development? What policies would be critical?

We should first note that agriculture declines as economic development takes place. Allover Europe and North America, agriculture produces less than 5 per cent of the nation’s GDP. Asia has not escaped this law of development either. In 1990, agriculture accounted for 27 per cent of GDP in China, 19 per cent in Indonesia and 15 per cent in Malaysia. By 2009-10, these shares were down to 11 per cent in China, 13 per cent in Indonesia, 7 per cent in Malaysia. In India, 31 per cent of the nation’s GDP came from agriculture in 1990, declining to 14 per cent by 2011-12.

Whereas annual growth rates of 7-8 per cent in industry are common, agriculture rarely grows at more than 4-5 per cent annually in the medium to long run in developing countries. Over time, this means a steadily declining share of agriculture in GDP. The locus of economic activity shifts towards cities, industries and services. This, of course, does not mean that agriculture can be neglected. Agriculture remains the producer of food, not industry. Moreover, to populate the workforce in industry and services, labour also comes primarily from the countryside. As Nobel laureate W. Arthur Lewis argued, stagnant agriculture can neither produce enough food nor release enough workers, whereas dynamic agriculture can do both. That is why a nation can’t normally durably prosper if agriculture does not do well. Large food imports are not a reliable option.

However, since agriculture cannot generate enough opportunities for rural citizens, it is better to link the countryside to industry and urban services. Cities do have their share of problems: indeed, governance challenges in Indian cities are formidable. But despite such problems, Bangalore and Mysore will grow faster than Karnataka villages, Delhi and Meerut more rapidly than the Uttar Pradesh countryside.

No society has been able to help farmers by keeping them tethered to land. To leave farmers on land and not give them skills for urban and industrial lives is equal to trapping them in misery. Nor do younger rural folk wish to remain in farming.

This leads to two questions. How is politics connected to rural welfare? And how do we make agriculture dynamic in such a way that farmers produce enough as well as get more productively linked to the urban economy?

The first question is easier to answer. India’s democracy has a rural thrust. More voters still live in villages and, of late, villagers have also tended to vote more than the urban folk. As a result, even though India’s urbanisation has gathered speed, its governments are still by and large made or unmade in the countryside. Cities may dominate the economic landscape, but villages are the primary locus of political power. Political parties hurt themselves if they neglect villages.

The second question is more complicated. Rahul Gandhi recently argued in Parliament that the previous government had raised the minimum support prices (MSP) for farmers at a significantly higher rate than the current government, and that is why agriculture did better under the UPA government but is currently suffering. As is well known, the MSP is the guaranteed price at which the government buys foodgrains and some other commodities from farmers.

Gandhi’s argument was right for an earlier era, but is flawed for the present times. Price incentives are certainly a way to help farmers, but agricultural policy always needs a balance between price and non-price measures. The more a government provides price incentives to farmers, the less it has for investments in upgrading the technological base of agriculture (irrigation, agricultural research, electricity), for infrastructure connecting villages to cities (roads, transport) and for rural health and education (which would prepare rural citizens for opportunities in industry and services).

The UPA’s agricultural policy was excessively price-led, both for outputs (crops) and inputs (water, electricity, fertiliser). Wheat and rice were bought from farmers in large quantities at high prices, even though the country did not have enough warehouse capacity for storage, leading to a considerable proportion of the procured wheat and rice rotting. Public investment in agriculture rose inadequately. During 2012-13, more than 85 per cent of investment in agriculture was private. It is well known that most of what lifts the technological base of agriculture and connects it productively to urban opportunities requires public investment — in irrigation, research, seeds, power, transport, schools, skills, etc.

Price incentives were absolutely necessary to raise farm production at the time of the Green Revolution in the 1960s, when India’s food production dropped abysmally. Indiadoes not have a national crisis in food production today, as the high public stocks show. But it has agrarian distress, for agricultural productivity is low and skills for the exploitation of non-agrarian opportunities have not been created. That can only come through a better balancing of price and non-price interventions.

Unless agricultural strategy today is married to a 21st century vision of expansion of opportunities, which requires linking, in a more integrated way, the village to the city and agriculture to industry and services, we will only enhance the misfortune and misery of India’s rural citizens.

The writer is Sol Goldman Professor of International Studies and the Social Sciences at Brown University, where he also directs the India Initiative at the Watson Institute. He is a contributing editor for ‘The Indian Express’.

Terror laws compared

Terror laws compared
Gujarat Governor O P Kohli last week sent the Gujarat Control of Terrorism and Organised Crime (GCTOC) Bill, 2015 for the President’s assent. A Bill with almost similar provisions was earlier blocked by Presidents APJ Abdul Kalam and Pratibha Patil, and Governor Kamla Beniwal, mainly due to provisions for interception.
Comparison of GCTOC — which aims to curb terrorism and organised crime — with two similar acts — Unlawful Activities (Prevention) Act (UAPA) and Maharashtra Control of Organised Crime Act (MCOCA) — that are already in force.

Definition of Terrorist Act
GCTOC: An act “committed with the intention to disturb law and order or public order or threaten the unity, integrity and security of the State or to strike terror in the minds of the people or any section of the people by doing an act using bombs, dynamite or any other explosive substance or inflammable material or firearms or other lethal weapons or poison or noxious gases or other chemicals or any other substance (whether biological or otherwise) hazardous in nature in such a manner so as to cause or likely to cause death or injury to any public functionary or any person or loss due to damage or destruction of property or disruption of any supplies or services essential to the life of the community or detains any person and threatens to kill or injure such person in order to compel the State Government to do or abstain from doing any act.”
Also covers economic offences like ponzi schemes, multi-level marketing schemes and organised betting; extortion, land-grabbing, contract killing, cyber crimes having severe consequences, largescale gambling, human trafficking.

MCOCA: Is used in terror-related offences, but does not expressly define a ‘terrorist act’. Defines “organised crime” as continuing unlawful activity by an individual, singly or jointly, either as a member of an organised crime syndicate or on behalf of one, by use of violence or threat of violence or intimidation or other unlawful means, with the objective of gaining pecuniary benefits, or undue economic or other advantage for himself or any other person promoting insurgency.

UAPA: Similar to GCTOC.

Interception of communication

GCTOC: Evidence collected through interception of wire, electronic or oral communication admissible in court. Requires accused to be furnished with copy of order authorising interception at least 10 days before trial. But the trial judge may waive this “if he comes to the conclusion that it was not possible to furnish the… information ten days before the trial…”

MCOCA: Same provision, but permission process more stringent.

UAPA: Same as GCTOC.

Presumption of guilt

GCTOC: Court to draw adverse inference if arms or explosives recovered from the accused or fingerprints of the accused found at the site of the incident, unless proven otherwise.
MCOCA: Similar to GCTOC.
UAPA: Similar to GCTOC.

Confessions to the police
GCTOC: Admissible as evidence.
MCOCA: Admissible as evidence.
UAPA: No such thing.

Provisions for bail

GCTOC: Only after public prosecutor is given an opportunity to oppose the bail application.

MCOCA: Similar to GCTOC

UAPA: Only after public prosecutor has been heard. Special proviso that foreigners being tried for criminal acts under this Act will not be entitled to bail unless court is satisfied that there are grounds to believe accused is not guilty.

Tuesday, April 28, 2015

Challenge of Agrarian Distress

Challenge of Agrarian Distress

Everything else can wait but agriculture cannot, said Jawaharlal Nehru. This should have been the talisman for India’s progress. Yet, successive governments have failed to accord agriculture the priority it deserves. The tragic suicide of a farmer during an Aam Aadmi Party rally in New Delhi has brought to the fore the agrarian crisis facing India. 

Official records reveal that more than 2.96 lakh farmers have ended their lives over the last two decades. This year has been particularly bad because of damage to the rabi crop caused by rain and hailstorms. Extensive damage to cash crops and horticulture has brought even some prosperous farmers to the brink of ruin. 

Despite the adverse impact of climate change, non-remunerative prices, lack of adequate irrigation facilities, absence of assured income and paucity of crop insurance, Indian farmers have brought the country up to the ranks of the top global producers of rice, wheat, vegetables, fruits and milk. Some 85 per cent of India’s farmers are small and marginal, and 65 per cent of farming is rain-fed. 

But high input costs, low returns, the consequent inability to repay farm loans, and general neglect have made agriculture unviable for the small and marginal farmer. Government spending here has dwindled over the years to 14.7 per cent, and the private sector has demurred, citing lack of rural infrastructure and modernisation.

For all its assertions, the Narendra Modi government has yet to come up with a clear strategy on this front. Barely a few months in power, it came up with some controversial amendments to the 2013 Land Acquisition Act, doing away with the provisions for obtaining consent from landowners and for social impact assessment ahead of acquisition. 

The government’s insistence that the changes would facilitate ease of business and speed up its development agenda has not convinced the Opposition parties. Its handling of the impact of unseasonal rain on farmers, slippages in keeping its promise to raise the support price for major crops, and tardy payments to sugarcane growers have given rise to a perception that the government is not farmer-friendly. 

A majority of farmers are in the clutches of private moneylenders who double up as sellers of seeds, fertilizers and other inputs. A failed crop pushes growers into deeper debt, from which it is not easy to escape. The forecast of a deficient southwest monsoon for the second year in a row adds to the worries. 

In such a situation, the Central government must display political will and come up with urgent measures that will bring the promised “achche din” to farmers. Leaving the task to the States won’t help.

Monday, April 27, 2015

The India, that is Bharat

The India, that is Bharat
A Supreme Court bench headed by CJI H L Dattu on Friday sought responses of the Centre and state governments on a PIL by social activist Niranjan Bhatwal seeking a declaration that the official name of this country is Bharat, not India. What does the Constitution say? And the government?

What does the Constitution call this country?
Article 1(1) says, “India, that is Bharat, shall be a Union of States.” This is the only provision in the Constitution on how this country be called for official and unofficial purposes.

How did the Constitution come to have this provision?
On September 18, 1949, the Constituent Assembly deliberated upon the ‘namakaran’ or naming ceremony for the newborn nation. Various suggestions were made: Bharat, Hindustan, Hind, Bharatbhumi, Bharatvarsh. In the end, the Assembly resolved as follows: “Article 1. Name and territory of the Union. 1.1. India, that is Bharat, shall be a Union of States.”  

Was there any dissent against the passage of Article 1.1?
Yes. Before the Constitution was officially adopted on November 26, 1949, some members of the Constituent Assembly objected to the punctuation marks. H V Kamath moved an amendment saying Article 1.1 should read: “Bharat or, in the English language, India, shall be a Union of States.” There were other objections on phraseology, but Article 1.1 ultimately got through in its original form.

What is the basis of moving the PIL in the Supreme Court?
Advocate Ajay G Majithia argued that Article 1.1 must be interpreted keeping in view the Constituent Assembly’s intention, which wanted to name the country ‘Bharat’. According to the PIL, had the makers of our constitution wanted to continue with ‘India’, they would have had no reason to insert ‘Bharat’. ‘India’ was used just for reference, in order to repeal the Government of India Act, 1935, and the Indian Independence Act, 1947, says the petition. It also cites Sanskrit literature and scriptures to argue that this country has been known as ‘Bharat’ since for time immemorial.
So what has the petition sought?
It wants the Supreme Court to declare that this country will be called ‘Bharat’, not ‘India’, for all official and unofficial purposes of the central and state governments, andall other entities like NGOs, corporates etc.

What has been the stand of the government been?
The Home Ministry has responded to a few RTI applications in the past wherein applicants had sought to know the official name of this country. In one response, the Ministry had said “no information on the subject”. In another, it had reproduced Article 1.1.

Monsoon concerns

Monsoon concerns

In contrast to last year, the initial outlook for the southwest monsoon looks hardly promising. According to the first-stage forecast issued on April 22 by the India Meteorological Department, the southwest monsoon seasonal rainfall is likely to be 93 per cent of the long-period average with a margin of error of 5 per cent. 

For the June-September season, both the deficient (less than 90 per cent of long-period average, or LPA) and below-normal (between 90 and 96 per cent of the long-period average) categories have a nearly equal probability of 33 and 35 per cent respectively. 

The forecast probability of both deficient and below-normal categories is double the climatological probability, which is based on how the monsoon fared in previous years. While the chances of excess rainfall occurring are non-existent, initial indications are that the monsoon this year will be subnormal or deficient. 

However, the initial forecast made in April cannot be the basis for arriving at any firm conclusions; at best, it may serve as a pointer. For instance, as seen last year the El Niño conditions over the Pacific did not develop into a phenomenon that was strong enough to retard the southwest monsoon over the country and fizzled out swiftly. 

Of late, El Niño characteristics seem to change quickly. Hence, a true picture will emerge only by the end of May or in early June. The June forecasts will also be more comprehensive in terms of monthly rainfall over the country and seasonal rainfall over the four regions.

The El Niño conditions currently prevailing over the Pacific Ocean are stronger compared with last year. These have been particularly notable in the central Pacific Ocean. An increase of 0.5° C in the sea surface temperature has been recorded in the Pacific region, and in all likelihood the warming will increase and mature during the monsoon period. 

These have already been factored in to arrive at 93 per cent of the LPA with a margin of error of 5 per cent. A strong El Niño can play an important role, but it is just one of the factors that could affect rainfall. As witnessed in 1997, a positive Indian Ocean Dipole (IOD) has the potential to largely offset the adverse influence of even a strong El Niño and ensure above-average rains across India. 

Though slightly negative IOD conditions are now indicated, these can be largely ignored. Unlike in the case of El Niño, the IOD prediction is far from good; the Indian Ocean processes and how they develop are not quite well understood. 

Hence, the initial indications are that the IOD may neither support the impact of El Niño nor neutralise it. As in the case of El Niño, a better picture of the IOD will emerge only from the next round of the forecast.

Thursday, April 23, 2015

Revamping public procurement

Revamping public procurement


A properly designed and implemented procurement law is long overdue. It can improve financial management, and bring large financial and governance benefits

Finance Minister Arun Jaitley’s 2015-16 budget speech signalled the government’s commitment to formally legalise India’s public procurement system as a part of its continuing reforms in public financial management. Following this, the Ministry of Finance is seeking suggestions to refine the Public Procurement Bill of 2012, introduced by the previous government.
The jurisdiction of the Bill covers any Ministry or Department and any public sector undertaking of the Union government, or any company in which the government has a stake of more than 50 per cent. The procurement processes of the States and the local governments are thus not covered by the Bill.
It is in this context that we focus on three aspects relating to the Bill: its potential benefits, selected design features, and implementation challenges.

 There are many benefits of a well-designed and well-implemented public procurement policy. These include fiscal savings from annual procurement expenditure; generating much needed fiscal space; and enhanced flexibility to channel government expenditure into growth-enhancing areas. It could also help in a shift towards rule-based institutional procurement.

However, the poor quality of data on procurement expenditure and its major components means that we don’t have a good estimate of potential savings from a better process. The problem needs to be addressed. Our crude estimate of potential savings generated by the revised Bill ranges between 0.6 per cent and 1.2 per cent of GDP, depending on the extent of efficiency achieved

This could assist in addressing the revenue deficit of 2.9 per cent of GDP projected for 2014-15 by the budget.
The savings would be greater if the States, whose expenditure equals that of the Union government, and all the public enterprises, also initiated similar procurement reforms. This task could be entrusted to NITI Aayog.

Several measures may be suggested to improve the design features. In its present form, the Bill’s objective is too complex, which dilutes accountability. Hence, a simpler set of objectives, as is also a global practice, would be desirable. This would also assist in improving the accountability of procuring agencies, and facilitate the task of internal and external auditing agencies.
Second, the Bill’s definition of the ‘procurement process’ implies that post-tendering steps such as contract management, payment, monitoring and so on, after the award of a contract, are excluded from the ‘procurement process’. The definition should be broadened to include the post-tendering procedures.

Third, given judicial delays and the lack of economic literacy often displayed by the judiciary, non-judicial procurement redress committees would be preferable. This needs to be better specified in the Bill to prevent undue discretion by procurement agencies and redress committees.
Fourth, the international practice is to designate a nodal agency for procurement. Hence, we need to clarify whether the proposed Central Purchasing Organisation (CPO) will be such an agency. When a framework for the nodal agency is established, it will need to be reconciled with the decentralised procurement process, which has also been suggested by the two recent committees to the Indian Railways.

Fifth, the Bill is not applicable to procurements for less than Rs. 5 million, emergency procurements made for disaster management, and procurements for the purpose of national security. While excluding the latter two government activities is routine, the basis for discretion for procurements below Rs. 5 million, which is a significant amount, is not defined. The corresponding procedures for such procurements should also be specified.

Sixth, the Bill also permits the procuring entity to limit competition in order to achieve other objectives, as well as exempt certain procurements from any of the provisions in the legislation such as the transparency requirements in “public interest”. However, in case of limited competition, certain other requirements such as reporting requirements, advance contract award notice, risk management techniques should be introduced to ensure that transparency is achieved.
Once a revised Bill is passed by Parliament, the following implementation challenges will need to be addressed.

First, data management capabilities and standardisation must be enhanced. Both bidders and procuring agencies have significant data and information needs to ensure transparency in public procurements. Hence, the new procurement regime needs to be accompanied by streamlined data and information systems for various aspects of public tenders that are put out and the standardisation of information provided in the submitted bids against the tenders.

Second, the 2012 Bill contains more than 20 references to ‘rules’. However, the general principles on which the rules will be based require clarity. Once defined in the Bill, the rules must be coherent and credible, while permitting flexibility.

Third, there is an implementation challenge concerning the skill sets of the officials, who will be at the interface of public procurement. Public procurement should be regarded as a task requiring professional skills. Capacity building in this direction should be undertaken urgently to ensure appropriate skill sets and that an understanding of business practices and logic is inculcated in the officials and in the organisations seeking procurement contracts.
Designing and implementing a strong procurement policy is a long overdue step towards better public financial management, and it has large potential fiscal and governance benefits. Its early passage, therefore, should be a high priority.

(Mukul G. Asher is Professorial Fellow, Lee Kuan Yew School of Public Policy, National University of Singapore, and Councilor, Takshashila Institution, Bengaluru. Tarun Sharma is an Urban Policy Professional in New Delhi and Shahana Sheikh is a Research Associate at the Centre for Policy Research, New Delhi.)

The anti-labour mindset

The anti-labour mindset

Written by Bibek Debroy

Employment and unemployment figures still come from the 68th round of the NSS (National Sample Survey), that is, 2011-12. The NSS has different ways of defining and measuring employment and workforce — usual status, current daily status and current weekly status. It doesn’t matter which is used. Two conclusions are obvious. First, especially among women, work participation rates are low — for instance, World Bank data show an Indian female work participation rate of 27, compared to 64 in China; and, second, not only does low growth mean low employment generation, but even when growth picks up, jobs don’t seem to be created. For instance, one can compare the employment elasticity of growth between 1999-2000 and 2004-05 with a decline in that elasticity thereafter. While growth is necessary to create jobs, growth alone will presumably not solve the problem.

Why is the employment elasticity of growth low, subject to the qualification that this also depends on the composition of growth? A standard answer has been labour laws, especially in the organised sector. Both expressions, “labour laws” and the “unorganised sector”, should be used with caution. There are 50-plus Union-level statutes that directly have something to do with labour. There are also many state-level rules.

A standard definition of “organised” is the application of the Factories Act. But there aren’t two neat binary worlds of organised and unorganised. Some of those 50-plus labour laws also apply to the unorganised sector, and there are informal contracts within the organised sector. With that Factories Act definition, the Economic Survey tells us employment in the organised sector (in 2012) is 29.6 million, 12 million private and the rest public. There is an entirely valid argument that labour laws in the organised sector are rigid, thereby stimulating artificial capital intensity. By this statement, one usually means statutes on industrial relations — the Industrial Disputes Act (IDA), the Contract Labour Act and the Trade Unions Act — though it can also mean compliance costs associated with the so-called inspector raj, which is pertinent too for other statutes and occasionally applies to the unorganised sector.

Assuming labour and capital can be substituted, in relative price comparisons between labour and capital, this increases costs of labour, interpreted as more than narrow wage costs. What has happened to that cost of labour post-1991? I mean the absolute cost, not the relative one. Sure, there are occasional complaints about upward wage pressures, lack of skills and labour shortages (reflected in higher wages). But I suspect these are still sector-specific and region-specific complaints.
Still, compliance costs associated with labour laws should also have declined. Several states have simpler procedures now and the implementation  of labour laws is mostly a state subject. The Union government has introduced elements like self-certification and the unification of forms. Within the IDA, permissions are more readily available. When were labour laws tightened? If you are obsessed with the IDA, you will probably pick 1976 (when Chapter V-B was introduced), or 1982-84 (when the threshold of Chapter V-B was changed).

Nineteen seventy six or 1982-84 certainly introduced rigidities. and those rigidities need relaxing. But has that rigidity become worse post-1991? Not necessarily. A capital/ labour choice is based on relative costs of inputs, not just absolute costs of labour. With the old GDP series, high growth years were roughly between 2003-04 and 2007-09. One explanation for high growth is the reduced cost of capital, however defined — import duties, external commercial borrowings, domestic costs of debt and equity. Thus, the absolute cost of capital declined, reduced the relative cost of capital, pushed up the relative cost of labour and drove further capital intensity. However, there is a more interesting question. Do labour laws alone distort resource allocation?

Consider policies on capital. The budget papers have a revenue foregone statement. In 2014-15, aggregate tax exemptions, divided into various categories, amounted to Rs 4,86,452 crore. There are direct tax exemption components for the corporate sector and unincorporated enterprises. If you scrutinise these, you will find several for the use of capital. There are instances from indirect tax exemptions too. What else is stuff like accelerated depreciation? Can you think of a single incentive linked to the use of labour? Other than tax exemptions being undesirable on other counts, this too distorts choice across inputs.

I can also throw in incentives, not necessarily fiscal, on the use of land. Why should we be surprised at low employment elasticity? Take the definition of MSME (micro, small and medium enterprises). Whether manufacturing or services, this is completely based on investments, that is, capital. It has nothing to do with labour or employment. While the growth theory has evolved and often has human capital built into it, the popular discourse is often based on Harrod-Domar. If the investment rate is 32 per cent and the Icor (incremental capital/ output ratio) is 5, you will get a growth rate of 6.4 per cent and so on. How many times have you seen a discussion that says what the growth rate will be if the female work participation rate increases? Or alternatively, what it will be if mortality and morbidity indicators, or skill indicators, improve? I wonder if this occurs because the roots of the discourse originate in countries that possess a different set of relative factor endowments. It is a plausible proposition.

But my limited point is that, in discussing the low employment elasticity of growth, let us not look only at labour market policies. A factor input choice, to the extent inputs are substitutable, is a function of relative prices. Policies that distort costs on inputs and thereby distort resource allocation and input choices are undesirable. Just as they are undesirable for labour, they are undesirable for capital and land too. But oddly enough, the capital distortion argument is not articulated as much as the labour distortion one. If incentives are to be used, let us encourage the use of the input India is relatively better endowed with, not the one India is relatively scarce in.

(The writer is member, Niti Aayog. Views are personal.)