energy times vol 2

7/29/2019 energy times vol 2

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Mythili Bhusnurmath

Consulting EditorEconomic Times


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Welcome to India! Namaste!


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Political dynamics

A union of 28 states & 7 UTs

Government democratically elected at

state and centre on basis of universal adult

franchise

Present union government a coalition of 3

main allies & a no. of smaller parties

Previous NDA government had 24 allies


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Social dynamics

Population 1.21 billion (2011 census)

Multi-cultural, multi-religious, multi-

lingual, multi-ethnic..

Hindus 80.5%, Muslims 13.4% others

Christians, Sikhs, Parsis, Buddhists

2 official languages: English & Hindi No national language; 22 scheduled

languages & > 100 non-scheduled

languages


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Status of Women

Wide disparities in status

Literacy rate (2004) : women 47.8% men 73.4 %

High MMR; sex ratio adverse & declining 914:

1000 in 2011 census (927 in 2001)Surfeit of laws to

protect women India a

signatory to The

Covenant onElimination of

Discrimination Against

Women, CEDAW


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A country of contrasts

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More billionaires than

Japan & China

40% of population below

poverty line of $1.25 a day

Woman president,

Woman head of rulingpolitical party, 2 women

chief ministers

Women most disadvantaged

section of society, decliningsex ratio, female infanticide

Indra Nooyi, Pepsi CEO

is an Indian, a woman

heads second largest

bank

Young girls are killed by

their own parents and family

members for daring to

choose their own husbands


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So how many Indias are there?

Has just been elected a

non-permanent member

of UN Sec Council

80% of women without

access to toilets, falling

sex ratio

Has capability of

launching commercial

Satellite ..plans to put

man on the moon

Not able to provide

basic infrastructure

electricity, water ,

health, educationWins 2nd-highest

medals at

Commonwealth games

Has highest no. of

malnourished children in

commonwealth7


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Contrasts never seem to end

Ambani builds 26 storey house in Mumbai,

but millions homeless

More people have cell phones than toilets

Produces some of thebest and brightest

doctors/engineers but

unable to provide 100%

primary education


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Highs and lows:

Living cheek by jowl


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But theres place for everyone!


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Economics vs Politics

Great Theory says each one acting in his/her own interest

maximizes welfare for all

Textbook economics talks of theinvisible hand of the market, of

demand & supply equilibrium

Not from the benevolence of thebutcher, the brewer or the baker that

we expect our dinner but from their

regard to their interest Adam Smith


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Presumes perfect knowledge, also invisiblehand of market is present and is unfettered

Assumes there is no need for interference

from government

True?Not quite.

For markets to function you need perfectknowledge, also we need the very visiblehand of the state to supplement the market crisis in Europe is an outstanding example


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Thus there is no question of free

markets existing in a vacuum minus the

state anywhere in the world

Economics without politics is likereligion without sin it does not exist

So what happens when economic

dictates collide with political interests ina country like India?


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Economics without Politics is a neat world

But it is a world that does not exist

In the real world, invisible hand of marketmust be backed by visible hand of government

to enforce property rights, contracts, promote

competition, redistribute income, protect

sovereign interests


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State vs Market

Issue really is how much market, how

much state

Pendulum has swung from one extremeto another

Whether in US, Europe or INDIA

The difference is the debate in India pre-dates the crisis


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A peep into therealIndia


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State vs market not new in India

Why has the state vs market debate

been part of Indias socio-political

firmament even before the crisis?

Reason is simple we are home to a

third or more of the worlds poor

We are also a democracy whichmeans you cannot ignore the poor


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What does that mean?

Very simply: a Tiananmen Square is un-

thinkable

Sadly, so is a Three Gorges Dam

Means unlike in China the government

cannot ignore the voices of the poor

Means growth alone will not suffice

Means equity distribution of the fruits of

growth is as important else growth will not

be sustained


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In search of the Goldilocks answer

For almost 4 decades after independence

we had too much state

Result? We grew at the Hindu rate of 3-4% Beginning late 1980s we began to shift to a

market-oriented economy

Growth trajectory changed: between 2003-4 to 2008-09 India grew at close to 9%


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India at the time of independence


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India: phase 1 : 1950- 90

1947: independence fairly industrialized,

poor

Key strategy accelerate growth rate to

reduce poverty focus was on job creationbut not content with the trickle-down

strategy so went in for pull-up strategy, a

conscious policy to see that growth wasmore equitable hence central planning,

growth rate of 3-4% Hindu rate of growth


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India: Phase II reforms of 1991

Position at start of 1990s

Still desperately poor, inefficient industry,

licence-control raj

Trigger for reform: huge current a/c

imbalance

Forex reserves down to < $ 1 billioni.e., less than for 2 weeks imports


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1991 - Economic Reforms

Political situation : Minority governmentled by Narasimha Rao

Government went ahead with path-breaking reforms 360 degree turn

not only survived the immediate crisis,

but also completed its term

However, once immediate crisis was over,

reforms slowed down


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Economics vs Politics : India

Thus most reforms took place in the first

two years of Rao government,

Is this a contradiction ? Not in India!

Subsequent governments: Politics has

gained upper hand; pace of reforms has

slowed down though direction unchanged


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The Wonder years

2003-04 2008-09 were

the wonder years for

Indian economy

Suddenly India was theflavour of the season,

globally

BRICS report: Dreaming

with the BRICS: visions

of overtaking China

Rainbow coloured vision:

India Shining?


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India: Phase III : Crisis and beyond

What is the position today?

After strong growth in the 5 year periodtill 2008-09 and slight slowdown aftergrowth has slowed to a markedly lower6.5% (2011-12)

Set to slow down even further last

quarter of 2011-12 ( Jan- March 2012GDP growth down to 5.3%, the lowest inpast 32 quarters)


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Low hanging fruit has been plucked

We need to get on with more difficult reforms

But when economies pass through difficult

times, the state vs market debate always tilts

in favour of the state Hollandes win inFrance, Greek elections

India is no different. Except our state is more

venal issues of corruption, collapse of

governance & most important, grinding poverty

are unique to India


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Tough Reforms needed

Labour Restrictive labour laws eg

Industrial Disputes Act

Judicial Reform

Infrastructure development physical

& social

Raising the ceiling on foreigninvestment


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Does government have the political will

Yes ? No?

Yes, if you consider our track recordwe

act only when we have our back against

the wall

Yes, because you cant fool all the people

all the time, even if they are poor &

illiterate

No, because the present government has

lost moral authority


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Yet, my bet is on India. Why?

Strengths and Opportunities

Demographic dividend

Large domestic market

Services Outsourcing/IT

Democracy plus and

minus


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India: Threats

Changing structure of economy at odds withpopulation distribution agricultures share in

GDP 19% but pop dependant on it 60%,

Geo-political situation in region/terrorism/domestic unrest communal, political

Collapse ofgovernance /

corruption but

civil society

finds its voice


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Growth not inclusive,

women left behind


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Infrastructure bottleneck

Physical

infrastructure is

receiving attention,

not so social

infrastructure viz

health and education

Expenditure on

education about 3% ofGDP as against target

of 6% - Right to

education a

fundamental right


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India

vsChina

Is Chinas faster rate of growth due to its political

system ie is India paying the price for its

democracy?

Contrast Three Gorges Dam, China& Sardar Sarovar, Gujarat; Beijing Olympics &

Commonwealth Games

Metro line held up by 1 man who went to court


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India vs China - Unendingdebate

Three Gorges Dam

1 million people dislocated, consumed 19

counties, 153 towns and 4,500 villages

18,000 mega watts of power, irrigated

thousands of acres

Sardar Sarovar

0.2 m people, 200 villages partlyaffected, 1,500 mw of power

irrigate hundreds of acres, provide

drinking water


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India vs China

No famines in democracies Amartya Sen

Case of SARS epidemic impossible to even

think of such a thing in India

Coastal areas and interiors disparity in

China. In India governments get voted out

Beijing Olympics/Tibet? Indian problems outin the open role of civil society


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Recent political eco tussles in

India

Land Acquisition for industry

Tussle over Lokpal Bill to tackle

corruption Silver lining? Civil Society is

finding its voice; forcing

government to change stanceeg anti-corruption legislation


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Noisy democracy or chaotic democracy?

Lok Sabha/ lower house of Parliament:

Total Seats 545, 27 parties

Party Position

UPA (United Progressive Alliance) 262 (Congress206)

NDA (National Democratic Allliance) 157 (BJP 116)

Non- Congress, Non-BJP 72


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Democracy & Eco Progress?

Is the price too high?

Economic reality?

Political freedom?

Face off with civil societyon corruption

What is the trade off?


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So is everything hunky-dory?

Not at all !

But as long as democracy is firmly entrenched andcivil society plays its role, India will be able to

overcome the huge odds it faces today.


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Two views on India: Negative

(When the British leave) India willfall back quite rapidly through the

centuries into the barbarism andprivations of the Middle Ages

is a geographical term. It isno more a united nation than the

Equator. Winston Churchill


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The other view:

If there is one place on the face ofearth where all the dreams of livingmen have found a home from theearliest days when man began thedream of existence, it is India. RomainRolland

So far as I am able to judge, nothinghas been left undone, either by man or

nature, to make India the mostextraordinary country that the sunvisits on his rounds. Nothing seems tohave been forgotten, nothingoverlooked. Mark Twain


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So which is the real India? And why

is there hope?


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Because

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Democracy

Free Press Civil Society

Demographic

dividend


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Thank You Danke

Merci

Gracias

Grazie

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