Tag: livemint

What Lies Ahead for India?

Towards the end of his column, Niranjan highlights three key areas for India to work on in the years to come:

  1. Jobs, and those preferably in manufacturing.
    There is no sugarcoating this: we need to do much better in this regard, and if anything, we have been doing marginally worse in the last decade or so.
  2. Irregular and inefficient access to energy.
    We’ve tried to solve this problem the way teenagers clean their rooms. And the results have been exactly as bad as in the case of those teenagers. Niranjan offers hope by speaking about the transition to green energy, and I wish I could share his optimism.
  3. Political economy: will India resemble East Asia or Latin America?
    I put on my Straussian hat to think about the points Niranjan is making here, and I would encourage you to do the same.

Each of these points is spot on, to which I would add the following:

  1. More expenditure on the capital side.
    We need to build. More roads, more airports, more dams, more electricity projects, more ports, more housing units, more everything. One of my favorite factoids in the recent past has been about China pouring more concrete between 2012-2016 than the USA did in the entire 20th century. India needs to join this conversation, and real quick. But that is a hard political economy problem.
  2. Preserve and improve the quality of our institutions.
    Easier said than done, but the quality of our executive, our legislature, our judiciary, our monetary policy authority, our media, our regulators and our public policy institutions needs to not regress and become better over time. There is an unfortunate tendency to have a discussion about this very quickly turn into finger-pointing and yelling, but the sad truth is that these institutions are nowhere near as good as they need to be, and are arguably getting worse. Institutions matter!
  3. Better education, better health:
    Not more schools and colleges, not more degrees. But better know-how, a better trained work-force and a focus on improving the quality of education at all levels rather than the quantity of institutes and organizations.
    India’s healthcare system is a mess, and we don’t yet realize how bad it is. But twenty years down the line, there is waiting for us a ticking time bomb: a rapidly ageing population of India’s size, going up against our healthcare system as it currently exists is something that should fill all of us with dread.

Each of these are truly hard problems, with no easy solutions. But hey, nobody ever claimed that this was going to be a walk in the park. If you are a student of economics in India today, you have your work cut out for you, and time is of the essence.

My thanks to Niranjan Rajadhakshya for writing this excellent column, and I hope his column and these blogposts spark many conversations, debates and projects in the days to come.

Onwards!

Land, Labor and Capital

A very long extract to begin with today, because it just is that important:

The first tentative economic reforms began after Indira Gandhi came back to power in 1980. Political scientist Atul Kohli has written of how she made her peace with Indian business houses. The licence raj was eased. Taxes were reduced. VP Singh presented a reformist budget in 1985, when Rajiv Gandhi was prime minister. Manmohan Singh helmed the seventh five-year plan. It focussed on technology, productivity and efficiency. The Reserve Bank of India allowed the rupee to gradually depreciate in a bid to promote exports.
The growth spurt in the 1980s was supported by a large increase in fiscal deficits as well as international borrowing. It was unsustainable. The road to the 1991 crisis lay ahead. The macroeconomic crisis—in the midst of political and social instability —was a turning point. The duo of PV Narasimha Rao and Manmohan Singh abolished industrial licensing, slashed import tariffs, opened up the financial sector, attracted foreign capital, fixed public finances and made the rupee convertible on the current account. In his landmark budget speech in July 1991, Manmohan Singh cogently argued that the balance of payments crisis was a symptom of a deeper malaise: macroeconomic imbalances, low productivity of public sector investments, loopholes in the tax system, indiscriminate protection that had weakened the incentive to export, lack of domestic competition, a weak financial system that was not allocating capital efficiently, lack of access to the latest technology, and much more. The great achievement of 1991 was not each reform in isolation, but the rollout of a comprehensive reform programme where different parts complemented each other.
The development state was replaced by the regulatory state. The government was no longer the main vehicle of investments. That job was handed over to the private sector, while new regulators were set up or empowered to ensure markets functioned well in a wide range of areas.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

The entire column is excellent – that’s why we’ve spent four days (and counting) on it. But it is awe-inspiring to see how concisely and yet how thoroughly Niranjan has spoken about the 1991 reforms in three short paragraphs. Shruti Rajagopalan and her excellent colleagues at the Mercatus Center have an entire website dedicated to the events of 1991 and what came after, and I would strongly encourage you to spend a lot of time on it.

If you are younger than thirty years today and are reading this, you need to understand why you are able to read this today. You need to understand how the Indian economy changed enough for me to be able to write this blog in addition to all of what I do to earn my daily bread, and you also need to understand how your own income (or that of your family’s) went up enough to be able to afford the device that you are using right now to read this. To say nothing of the job/business that paid for this device- both the device and the job likely wouldn’t have been available prior to 1991.

I hope to write more about how the 1991 reforms changed lives on the ground for those of us who were around in the 1990’s and the early 2000’s. In all my classes, I tell my students that they have a secret superpower that they should make full use of. This secret superpower is called TMKK. It stands for Toh Main Kya Karoon? In English, that means ‘so what should I do?’, although a more accurate translation would be ‘so why should I care?’.

Consider this sentence once again: “The duo of PV Narasimha Rao and Manmohan Singh abolished industrial licensing, slashed import tariffs, opened up the financial sector, attracted foreign capital, fixed public finances and made the rupee convertible on the current account.”

Especially as a young student, you should absolutely be asking TMKK. How did the life of the average Indian change because industrial licensing was abolished? So what if import tariffs were abolished? What could I buy and consume that I could not earlier? How did opening up the financial sector help ordinary folks who were around in the 1990’s? What changes in the lives of ordinary citizens when India finds herself able to attract foreign capital?

You get the drift. I suspect most folks nod along when they hear us economists rhapsodize about 1991, without really getting what was in it for them. But they need to know. One, to better understand why exactly 1991 was so important, and second, to realize how fragile our economic freedom is, and to do our utmost to preserve it in the years/decades to come.

In their book, Tryst with Destiny, Bhagwati and Panagariya speak about how far India has come since 1991. And it really has come a long way! But they also speak about the need to have sustained and accelerated growth from here on in (the book was published about a decade ago). And they say that this needs two kinds of further reform.

Track I reforms are all about accelerating and sustaining growth, while making it even more inclusive, while Track II reforms are about making redistribution even more broad-based and effective. And they make the point that while 1991 was a great start to Track I reforms, there is a long, long way to go:

If truth be told, India is far from done on Track I reforms for two broad reasons. First, the potential for growth remains grossly underexploited. The economy remains subject to vast inefficiencies. Removing these inefficiencies not only offers the opportunity to arrest the recent decline in growth but to push the economy to a double-digit growth trajectory. Second, the poverty reduction that directly results from growth, in terms of enhanced wages and employment opportunities per percentage point of growth, can be increased: we can get a larger bang for the buck.

Panagariya, Arvind; Bhagwati, Jagdish. India’s Tryst With Destiny . HarperCollins Publishers India. Kindle Edition.

Every single economics student is taught, sooner or later, about the three factors of production: land, labor and capital. The link I have added here mentions a fourth, but let’s keep things simple for now. And I find it instructive to think about what Bhagwati and Panagariya choose to talk about in Part II of their book. This section of their book is about accelerating, widening and deepening what they refer to as Track I reforms, and the these are the first three sub-sections:

  1. Labor laws
  2. Land Acquisition
  3. Infrastructure

That is to say, even now, a full 75 years after India’s Independence, it isn’t as easy as it should be to utilize land, labor and capital to the fullest extent possible. You may agree or disagree with their solutions to these problems, but I would argue that the diagnosis is spot on.

The Indian economy is freer today than it was in 1990, and that is really and truly awesome. But it isn’t free enough, and much more work remains to be done.

Quite what this work is, and how to best go about it, is the journey that we need to undertake on the long road to breaking free.

And if this challenge excites you, well, like it or not, you are a student of the Indian economy – welcome to our tribe!

One Step Forward, Five Steps Back

Alternate history is a genre is underrated. I should say at the outset that I haven’t read as much as I would have liked to in this genre, but have thoroughly enjoyed what little I have read (or seen, in terms of movies).

Why begin with this? Because Niranjan raises, as he puts it, a tantalizing question:

The short period when Lal Bahadur Shastri was prime minister offered hope of change. Shastri wanted more investment in agriculture to control rising food inflation. He saw that physical controls were creating artificial shortages and black markets; he preferred financial controls. And the failures of the public sector convinced him that the private sector should have a bigger role in the economy. One of the tantalizing questions in Indian economic history is whether India would have embraced liberal economic reforms 25 years before 1991, if Shastri’s tenure had not been cut short by his premature death.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

But if there is somebody reading this whose interests lie at the intersection of writing fiction and studying economics, boy do I have a project for your consideration. What if agriculture had become more productive and efficient back in 1965? What if we had moved away from the License Raj, rather than embracing it wholeheartedly? What if – the most ‘if only’ question of them all – 1991 had instead been 1965?

Please, somebody, write this book.

But alas, we went in a whole other direction. It all began promisingly enough, but things soon went awry:

Indira Gandhi began with a relatively liberal economic agenda, including devaluing the rupee as well as easing trade restrictions in response to balance of payments pressures. However, in response to the international geopolitical situation as well as domestic political calculations, she swung to the Left after 1969. The economy was choked with stringent licensing, credit rationing, import controls, as well as draconian laws such as the Monopolies and Restrictive Trade Practices Act and the Foreign Exchange Regulation Act. A series of exogenous shocks between 1965 and 1980 — wars, droughts and oil prices — further battered the economy.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

I would strongly encourage young readers and folks new to economic theory to go over the presentation linked to in this blogpost. Why do I recommend this presentation? Because it is one thing for Niranjan to say that Indira Gandhi ‘swung to the Left after 1969’ because of domestic political calculations, and it is quite another to model why this was inevitable. Economics, remember, is the study of how to get the most out of life, and Indira Gandhi chose to get the most votes. This presentation explains why.

Economics is also the study of opportunity costs, and this presentation explains to us the cost of her choices. India fell behind when compared to some of her Asian peers in this period, and any student of Indian economics must almost heave a wistful sigh when studying this era of India’s economic history.

But the other reason I ask you to go over that presentation is because it helps you understand decisions made by all political leaders in all electoral democracies everywhere in the world. And as students of economics, it helps to understand how politicians respond to their incentives. This helps you become a better analyst of both economics and politics, and therefore of public policy.

The 1970s were a lost decade, with low growth and high inflation. However, there were two significant structural breakthroughs. First, the Green Revolution that began in the late 1960s helped India make a big dent in the food constraint. Second, the domestic savings constraint eased, perhaps helped by the spread of bank branches after nationalization. There were also the first signs of introspection on the nature of Indian economic policy in several official committee reports, though actual policy reforms were not yet on the horizon. The underrated budget speech by H M Patel in 1978, as finance minister of the short-lived Janata party government led by Morarji Desai, deserves more attention.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

To me, what is most interesting in this paragraph is what Niranjan doesn’t say in it. In my personal opinion, this decade is worth studying not for its datasets or its metrics, but for the weakening of India’s institutions. The Solow Model is a great way to think about the growth trajectories of nations, and what students often miss out in the Solow Model are the underlying assumptions. Well defined property rights, a strong and independent judiciary, free and well-functioning markets, and a legislature that doesn’t indulge in over-reach are crucial for reasonably rapid long-term growth, and I would argue that all of these were missing either in parts or wholly for much of the 1970’s.

Niranjan hints at part of this in the paragraph that precedes the one I have extracted above, but there is much more going on in that unfortunate decade. If you wish to learn more about this decade and the impact that it has had on our growth trajectory, come to the economic data and its analysis last. Begin with biographies of the more important public personalities of those times, read about landmark judgments passed in and around that decade, and speak to journalists and political scientists who were around back then, or have studied that era well. Once you get a sense of the politics and the culture (political, social) of that decade, then start upon the economic analysis. That would be good advice in general, I suppose, but it is particularly applicable to the 1970’s. Oh, and watch the movies that were being made back then!

There is far too much going on in this decade for us to speak meaningfully about it in a single blogpost, and I hope to come back and write/speak about this topic later. But for the moment, I wish to leave you with my own sense of utter regret and wistfulness regarding the 1970’s. There was some progress, of course, but there was, in my opinion, much that was wrong, and too little that was right.

Growth always matters, but it really and truly mattered back then, and we failed to optimize for it.

One Step Forward, Two Steps Back

Niranjan speaks about three things in his essay as regards the first two decades or so of India’s independent history:

  1. What did we seek to achieve? A more accurate framing of the question, arguably: what should we have sought to achieve, and how should we have gone about it?
  2. How did we do in terms of conventional macroeconomic metrics?
  3. What did the dissenters of the time have to say?

Let’s deal with each of these questions in turn.

  1. What did we seek to achieve?

The Indian economy had to create opportunities for people to move from farms to factories/offices, from villages to cities, from household enterprises to formal enterprises. Each shift would enable labour to move from low productivity to high productivity activities, thus boosting incomes.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

The reason I said that a more accurate question would have been “what should we have sought to achieve” is because it is not clear to me if economists, politicians and policymakers of that time would have agreed with Niranjan’s goals in the excerpt above.

As Niranjan himself mentions in his essay, MK Gandhi wouldn’t have agreed with this vision, preferring a version of India in which each village was a republic unto itself, and as self-sufficient as possible. But Gandhi’s wasn’t the only dissenting voice – we simply didn’t know then what was the most appropriate path to development, and lots of different folks had lots of different ideas. By the way, a good way to begin your exploration of what ideas were being discussed around and before Independence is by reading Towards Development Economics, a collection of essays edited by J. Krishnamurthy. Another excellent, and more recent source is Planning Democracy, by Nikhil Menon. There is a ton of material on this issue, of course, so please treat these recommendations as random starting points, and read as much about this period of India’s history as possible.

We sought to raise incomes as rapidly as possible, it is true, but there were many different opinions about how this should be done. Some of the ideas that we adopted then have been discarded over time, and not just by India. Others were eventually jettisoned, but this didn’t happen rapidly enough, in my opinion.

What were these ideas?

The elements of the classic Nehruvian growth strategy are well known: A focus on public sector investment rather than private sector investment, on capital and intermediate goods rather than consumer goods, and on the domestic market rather than foreign trade. There was more than just economics in play. The focus on building capacity in steel, machine tools and mining was an attempt to maintain strategic autonomy in the Cold War era—similar to why countries, including India, are today trying to build domestic capacity in semiconductors, electric batteries and telecom equipment, for example.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

Remember, economics at its heart isn’t as complicated as us economists make it out to be. “What are you optimizing for?”, for example, is a surprisingly powerful question, and reading the paragraph above reinforces my own answer to the question “what was India optimizing for back then?”.

India was optimizing for self-reliance in a socialist setting, and given these constraints, tried to raise incomes as rapidly as possible. India was not optimizing for growth, no matter the underlying ideology, and no matter the opportunity costs. India was prioritizing self-reliance and a socialist mindset, and so long as we didn’t deviate from this path, we tried to achieve as rapid a growth path as was possible.

We now know, given what took place in certain parts of Asia, that this was the wrong thing to optimize for. But that was the zeitgeist of those times, and this, unfortunately, was the path we adopted.

I have said it before, and I will say it again: “What are you optimizing for?” is an underrated question.

2. How did we do in terms of conventional macroeconomic metrics?

Economists have used statistical techniques to pinpoint 1950 as the first big structural break in India’s economic trajectory, with 1980 being the other. The economy accelerated after many decades of stagnant output. Economic growth averaged 4.2% a year between 1950 and 1965. Industrial output grew annually at 7.1%. The fact that industry grew faster than the rest of the economy meant that India began to reverse the deindustrialization that had begun in the last years of Mughal rule. Equally importantly, economist S Sivasubramonian showed in his monumental work on Indian economic growth in the 20th century that total factor productivity grew at 1.8% a year in the 15 years to 1965.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

Economic growth of 4.2% a year would imply a doubling every eighteen years or so. And while that is certainly nothing to sneeze at, another of my favorite questions to ask in economics seems appropriate right now: “relative to what?”

That is, what is the benchmark for deciding whether 4.3% is good enough or otherwise? Niranjan give us a potential candidate when he speaks about India’s first structural break in the year 1950. 4.3%, we understand, was certainly higher than the period preceding 1950, otherwise there wouldn’t be a statistical break to speak of. But two other benchmarks are possible.

  1. How did we grow relative to some of the other Asian economies of that time?
  2. What would have been the maximal rate of sustainable growth that other macroeconomic models would have afforded us?

The answer to the first question isn’t encouraging. And what we, as students of economics should take away from this is the fact that while India did well in the first two decades after her independence, she could (and should) have done better.

The answer to the second question is pure macroeconomic modeling, and can occupy the minds of the best and brightest economists for their entire careers. But long story short, the answer to this question is very much a function of ideology, assumptions and type of model developed. And for this reason, I would prefer to benchmark India’s performance against what came before 1950, or against her peers (howsoever defined), rather than the output of a model.

Bottomline: we did well, but could have done much better.

3. What did the dissenters of the time have to say?

One of the joys of being a social scientist is that there isn’t one definitive answer that everybody can agree upon. The is a deep richness in terms of complexity to human society. There is an inherent subjectivity that we bring to how we see the world in terms of what it looks like and why. And this guarantees that there will be different opinions about how to go about achieving whatever the aim.

There were two other powerful critiques of the Nehruvian development strategy. The Mumbai economists CN Vakil and PR Brahmananda argued that India should invest more in agriculture and the production of consumer goods — or what they called wage goods.
The famous dissent of economist BR Shenoy provided four red flags. First, the heavy dependence on deficit financing to build industrial capacity would lead to balance of payments pressures. Second, the focus on capital goods rather than wage goods for mass consumption would be inflationary, as people employed in new industries would get money incomes but nothing to spend them on. Third, high taxation to finance the plans would weigh on citizens. Fourth, increasing government control of the economy would eventually harm Indian democracy.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

Both arguments have turned out to be prescient. In fact, you could argue that the first of these arguments is really a subset of the second. But any student of the Indian economy should be familiar with the works of BR Shenoy, in my opinion one of India’ most underrated economists. If you can spare the time and have the inclination, read his dissenting note in full.

My point here is not just to explain how, in my opinion, we took some wrong decisions. We certainly did, but we would do well to remember that there were a lot of different opinions back then about how to help developing economies grow rapidly. It is easy, with the benefit of hindsight to look back and say this should have been done instead of that. But it is always easy to bet on the winning horse after the race is done!

My point instead is to make you, the reader, aware of some of the nuances of the excerpts that I have quoted here, and to leave you with a thought. How do we know what is best for India’s growth trajectory today? Whatever your own particular answer, how sure are you that it is indisputably the correct one? Might folks who disagree with you have an inconvenient iota of truth hiding in their arguments?

Argue more with folks who disagree with you, for these is no better way to learn!

The Long Reads on The Long Road To Breaking Free

Last week marked the 75th anniversary of our Independence. A lot of reflective essays were written to mark this special occasion, and some of them made for excellent reading.

But as a student of economics, I haven’t found anything better than a fantastic essay written by Niranjan Rajadhakshya in the Livemint. It makes for excellent reading, and there is enough material in there to keep students busy for years, let alone a semester. And I simply cannot do justice to the entire article in one blogpost.

So what we’re going to do is that we’re going to spend this entire week going through this article at our own leisure. I’ll give a broad overview today, and we’ll explore some of the finer nuances in the other four blogposts to come this week.

Let’s begin with the title itself. I don’t know if the choice of headline was intentional, and it is usually the case that the headline is not chosen by the author of the piece. But that being said, surely this is a nod to an excellent book written by Vijay Joshi? I, at any rate, interpret it as such, and strongly encourage you to read the book if you haven’t done so already.

Most essays would have begun with a nod, at the very least, to Pandit Nehru’s speech on Independence Day. It remains an excellent speech, and worth a re-read (or re-listen, if you so prefer). But Niranjan begins his essay with a quote from Sardar Patel instead, underlining the need for an economic regeneration in India’s case.

What might this entail? Niranjan highlights four major problems:

  1. Stagnation of economic output
  2. A chronically underfunded state
  3. A dire food situation
  4. A narrow industrial base centered around a few large cities

For each of these things to improve, Niranjan says, we needed a structural change in the way the Indian economy functions.

  1. People needed to move from farms to factories
  2. Almost consequentially (my interpretation, not Niranjan’s statement), we needed more urbanization
  3. And finally, we needed to move from household enterprises to formal enterprises

Why are these changes necessary in order to bring about a structural change in the Indian economy, and why is a structural change deemed necessary? These are excellent questions to ask if you are a student of economics. And the answer to these questions is a great way to begin your journey into the world of development economics.

But very simply put, here are the answers:

  1. Farms alone would not be able to generate the kind of surpluses necessary to raise the incomes of Indians, and certainly not as fast as was required.
  2. Try plotting per capita incomes for nations versus their rates of urbanization.
  3. Reflect on each of the figures in this paper (read the whole thing if you can, but please do look at all the figures)

Reflect on two paragraphs, which I will excerpt here without additional comment:

The famous dissent of economist BR Shenoy provided four red flags. First, the heavy dependence on deficit financing to build industrial capacity would lead to balance of payments pressures. Second, the focus on capital goods rather than wage goods for mass consumption would be inflationary, as people employed in new industries would get money incomes but nothing to spend them on. Third, high taxation to finance the plans would weigh on citizens. Fourth, increasing government control of the economy would eventually harm Indian democracy.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

In his landmark budget speech in July 1991, Manmohan Singh cogently argued that the balance of payments crisis was a symptom of a deeper malaise: macroeconomic imbalances, low productivity of public sector investments, loopholes in the tax system, indiscriminate protection that had weakened the incentive to export, lack of domestic competition, a weak financial system that was not allocating capital efficiently, lack of access to the latest technology, and much more. The great achievement of 1991 was not each reform in isolation, but the rollout of a comprehensive reform programme where different parts complemented each other.

https://www.livemint.com/politics/news/the-long-road-to-breaking-free-11660502122505.html

Was it any surprise that the 1970’s were a lost decade? Was it any surprise that Amitabh Bachchan was an angry young man in the 1970’s? What if the budget of 1991 instead happened to be the budget of 1978 instead (or even earlier, now that we’re dreaming)?

To say nothing of the future! Niranjan ends his essay with four challenges that await us in the future:

  1. India needs to develop more, and develop more equitably at the same time? Is that possible, especially while remaining a political democracy?
  2. Jobs! Niranjan speaks of our inability to create quality jobs for the millions who are now leaving agriculture, but the problem is even more urgent, because not enough people are able to leave agriculture in the first place!
  3. What of energy? How are we looking to anticipate the problems that will inevitably crop up, and start thinking about how to deal with them?
  4. And Niranjan ends on what I interpret to be a quasi-pessimistic note by asking where we will find ourselves in 1947. The reason I find it to be a quasi-pessimistic ending is because if the answer to this question isn’t clear by now, that ought to worry all of us. It certainly worries me.

We’ll take a look at the first two decades, roughly speaking, of India post independence tomorrow, using this excellent column as a reference. See you tomorrow!

India’s Demographics and the Total Fertility Rate

For many, many years, this was my slide on India’s TFR in lectures I used to give on India’s demographics:

Wikipedia (Old data)

What is TFR? Here’s Wikipedia:

“The total fertility rate (TFR) of a population is the average number of children that would be born to a woman over her lifetime if:

  1. she were to experience the exact current age-specific fertility rates (ASFRs) through her lifetime
  2. she were to live from birth until the end of her reproductive life.”

Hans Rosling had a better, more intuitive term: babies per women. Here’s an excellent chart from Gapminder, although ever so slightly outdated:

Click here to see the original chart, and please press on the play button to see this change over time

Here’s the excellent Our World In Data page about the topic, and here’s a lovely visualization of how the TFR has changed for the world and for India over time (please make sure to “play” the animation):

(I hope this renders on your screens the way it is supposed to. If not, my apologies, and please click here instead)

But now we have news: India’s TFR has now slipped below the replacement rate. Here’s Vivek Kaul in Livemint explaining what this means:

The recently released National Family Health Survey (NFHS-5) of 2019-2021 shows why. As per the survey, India’s total fertility rate now stands at 2. It was 3.2 at the turn of the century and 2.2 in 2015-2016, when the last such survey was done. This means that, on average, 100 women had 320 children during their child-bearing years (aged 15-49). It fell to 220 and now stands at 200.
Hence, India’s fertility rate is already lower than the replacement level of 2.1. If, on average, 100 women have 210 children during their childbearing years and this continues over the decades, the population of a country eventually stabilizes. The additional fraction of 0.1 essentially accounts for females who die before reaching child-bearing age.

https://www.livemint.com/opinion/columns/the-women-who-went-missing-in-our-demographic-dividend-11652200177580.html

And here’s the breakup by state, updated for the latest results:

By iashris.com – https://indiainpixels.xyz, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=112844699

Of course, as with all averages, so also with this one: you can weave many different stories based on how you slice the data. You can slice it by urban/rural divides, you can slice it by states, you can slice it by level of education, you can slice it by religion – and each of these throws up a different point of view and a different story.

But there are three important things (to me) that are worth noting:

  1. The TFR for India has not just come down over time, but has slipped below the global TFR in recent years.
  2. This doesn’t (yet) mean that India’s population will start to come down right away, and that for a variety of reasons. As Vivek Kaul puts it:
    “So, what does this mean? Will the Indian population start stabilizing immediately? The answer is no. This is primarily because the number of women who will keep entering child-bearing age will grow for a while, simply because of higher fertility rates in the past. Also, with access to better medical facilities, people will live longer. Hence, India’s population will start stabilizing in around three decades.”
  3. The next three to four decades is a period of “never again” high growth opportunity for India, because never again (in all probability) will we ever have a young, growing population.

Demography is a subject you need to be more familiar with, and if you haven’t already, please begin with Our World in Data’s page on the topic, and especially spend time over the section titled “What explains the change in the number of children women have?”

Why Is Reading the News Online Such a Pain?

Livemint, Hindu Business Line, Business Standard, Times of India, The New York Times, The Hindu, The Washington Post, The Economist, Bloomberg Quint and Noah Smith’s Substack.

These are, as of now, my sources of news online that I pay for.

There are other newsletters that I subscribe to and pay for (The Browser is an excellent example), and I read stuff published in other newspapers too, but I’m restricting myself to only the current news sources that I pay for. I would like to subscribe to the Financial Times and to Stratechery too, but my budget line begins to cough firmly and insistently at this point, more’s the pity.

But here’s the thing: reading news online sucks.

Some are worse than others, and I’m very much looking at you, Business Standard. Their app is a joke, and the number of times one has to sign in while reading the paper on a browser isn’t funny. Some are, relatively speaking, better. The NYT website and app are both pretty good, as is the Economist. But still, it isn’t friction free, and there really should be a way to get the user experience to be better than it is right now.

And more than better, a more urgent word is uniform. Here’s a simple use case: let’s say I want to read articles on the current lockdown in Shanghai. I have to go to each website, and either run a search, or navigate to the appropriate section. But on each website, the search button will be located in a slightly different place, with a slightly different user experience. Each website while have their own navigation system. Each website will have different ways to filter search results.

Some will allow you to copy excerpts, some won’t. Some will allow clips and force an appendage at the end (“Read More At XYZ” – I’m looking at you, ToI). But by the time I finish visiting the third website to read about the topic I wanted to – current lockdowns in Shanghai – I’m pretty much done out of sheer exasperation.

It shouldn’t be this hard!

Workarounds kind of exist. For example, I can add the RSS feeds to Feedly, or any other feed reader of your choice. If you’re not familiar with Feedly, or RSS readers in general, here is an old post about it. But the reason I say kind of is because most (if not all) newspapers will not provide the full article in the RSS feed. You have to click through to read the full thing.

Not much use, is it?

Which, to be clear, is entirely understandable. User tracking, ads, and all the rest of it, I get it. But it does mean that Feedly isn’t a great way to keep track of all these articles in one place.

What I would really like is an app/service that aggregates all news sources in full in one place, and allows me to sign in to premium news sources via that app/service.

Does such a service exist? Or are there workflows that solve this problem?

Please, do let me know!

The Vajpayee Moment in Telecom, IO and Porter’s Five Forces

Vijay Kelkar and Niranjan Rajadhakshya had on op-ed out in Livemint recently on the mess in the telecom sector, and their suggestions for (at least partially) resolving it:

It has been about a year since the Supreme Court instructed telecom companies to share not just their core telecom revenues with the government, but also to take into account promotional offers to consumers, income from the sale of assets, bad debts that were written off, and dealer commissions. The apex court has allowed the affected telecom companies to make a small upfront payment and then pay their excess AGR dues to the government in ten annual instalments, from fiscal year 2021-22 to 2030-31, in an attempt to ease their immediate burden, which has raised concerns about the financial stability of Bharti Airtel and Vodafone Idea. Analysts estimate that the extra annual payments by all telecom firms could be around ₹22,000 crore a year.

https://www.livemint.com/opinion/online-views/a-new-vajpayee-moment-for-the-troubled-indian-telecom-sector-11631123688457.html

Their suggestions for the resolution of this problem involve the issuance of zero-coupon bonds by the telecom companies, along with an option for the government to acquire a 10% equity stake. As always, please read the whole thing.

Now, this may work, this may not work. The more I try to read about this issue, the more pessimistic I get about a workable solution. But we’re not going to get into the issue of finding a “workable” solution today. We’re going to learn about how to think about this issue.

That is, what model/framework should we be using to assess a situation such as this? Kelkar and Rajadhakshya obviously have a model in mind, and they hint at it in this excerpt:

There are three broad policy concerns that need to be addressed in the context of the telecom sector: consumer welfare, competition and financial stability. Possible tariff hikes to generate extra revenues to meet AGR commitments will hurt consumer access. The inability to charge consumers more could mean that the three-player telecom market becomes a duopoly, through either a firm’s failure or acquisition. The banks that have lent to domestic telecom companies are also worried about their exposure in case AGR dues overwhelm the operating cash flows of these companies.

https://www.livemint.com/opinion/online-views/a-new-vajpayee-moment-for-the-troubled-indian-telecom-sector-11631123688457.html

So a solution is necessary, they say, because we need to have a stable telecom market that doesn’t hurt

a) the consumers,

b) the current players in this sector and

c) the financial sector that has exposure in terms of loans to the telecom sector

To this list I would add the following:

d) make sure the government doesn’t get a raw deal (and raw is a tricky, contentious and vague word to use here, but we’ll go with it for now)

e) make sure new entrants aren’t deterred from entering this space (if and when that will happen)

f) suppliers to the telecom sector shouldn’t be negatively impacted

In other words, any solution to the problem must be as fair as possible to all involved parties, shouldn’t change the status quo far too much in any direction, shouldn’t hinder the entry of new competition, and should give as fair a deal as possible to consumers.

Take a look at this diagram:

https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis#/media/File:Elements_of_Industry_Structure.svg (Credit: Denis Fadeev)

Students who are familiar with marketing theory are going to roll their eyes at this, but for the blissfully uninitiated, this is the famous Five Forces Analysis.

Porter’s Five Forces Framework is a method for analysing competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack thereof) of an industry in terms of its profitability.

https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis

Michael Porter’s Five Forces Framework can be traced back to the structure-conduct-performance paradigm, so in a sense, it really is an industrial organization framework:

In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the perfectly competitive model, complications such as transaction costs, limited information, and barriers to entry of new firms that may be associated with imperfect competition. It analyzes determinants of firm and market organization and behavior on a continuum between competition and monopoly, including from government actions.

https://en.wikipedia.org/wiki/Industrial_organization

The point is that if you are a student trying to think through this (or any other problem of a similar nature), you should have a model/framework in mind. “If I am going to recommend policy X”, you should be thinking to yourself, “how will that impact Jio? Airtel? Vi? How will that impact government revenues? What signals will I be sending to potential market entrants? Will consumers be better off, and if so, are we saying that they will be better off in the short run, or on a more sustainable basis?”

Now sure, the diagram doesn’t include government, but the Wikipedia article on the Five Forces does speak about it later, as does the excerpt above from the Wikipedia article on Industrial Organization. More importantly, this framework gives one the impression that we’re dealing with a static problem, with no considerations given for time.

I would urge you to think about time, always, as a student of economics. Whether it be the circular flow of income diagram, or the five forces diagram, remember that your actions will have repercussions on the industry in question not just today, but for some time to come.

So whether you’re the one coming up with a solution, or you’re the one evaluating somebody else’s solution, you should always be evaluating these solutions with some framework in your mind. And tweaking the Five Forces model to suit your requirements is a good place to start!

India, Bangladesh, GDP. Sigh.

When I explain GDP to folks unfamiliar with the concept, I often use the analogy of marks.

“Do you”, I intone in the most professorial voice I can muster, “remember how many marks you scored in your math exam when you were in the 4th grade?”

The point behind asking that question is to help the class realize that there were many other things going on in their life in the 4th grade. The measurement of how well you did on the specific questions you were asked in that test on that day do very little to show you how much math you actually learnt that year. Leave alone, of course, the question of how little the math test had to do with all of what you learnt while you were in the 4th grade.

A similar point was made about GDP recently, in the Business Standard:

Take GDP first. In India, we don’t measure the output of 65 per cent of the economy and make only well-informed guesses about the remaining 35 per cent.

https://www.business-standard.com/article/opinion/the-10-year-upa-nda-scorecard-120102400048_1.html

That’s exactly right, of course. You shouldn’t obsess over GDP numbers, much like you shouldn’t obsess over grades. But we do obsess over both!

And the analogy between marks and GDP works really well especially now, because when it comes to GDP, we now have a Sharmaji ka beta in the neighbourhood.

Hello, Bangladesh.

About two years ago, India’s Home Minister Amit Shah spoke of “infiltrators” who were hollowing out the country “like termites”. A Minister from Bangladesh retorted that Shah’s statement was “inappropriate”, “unwanted”, and “not based on information”. The IMF’s recent per capita GDP projections for South Asian countries show that the alleged ‘termite factory’ is shining — Bangladesh, which has been doing better than both India and Pakistan on social and human development indicators for several years now, is also beginning to march ahead on the economic front.

https://indianexpress.com/article/explained/an-expert-explains-how-bangladesh-has-reduced-gap-and-is-now-projected-to-go-past-india-6906206/

In much the same way that you shouldn’t compare marks obtained by students, you really shouldn’t compare GDP per capita between nations.

But (and you knew there was a but coming along, didn’t you), as I also say in my classes – what else you got, eh? It’s all well and good to say we shouldn’t, but it’s not like we have readymade alternatives. And if you take the GDP factory away from us economists, how do we fill our days?

TCA Srinavasa-Raghavan, in the same column cited above, has three answers:

Only three things: Food inflation, because it has a direct bearing on welfare; foreign exchange reserves, because they serve as a powerful signalling device to foreign investors and sellers of goods; and the revenue deficit. These are the only things the Centre has total control over. In determining all other indicators, the states play a big role.

https://www.business-standard.com/article/opinion/the-10-year-upa-nda-scorecard-120102400048_1.html

Read the whole article (which, I’m sorry, may well be behind a paywall). I don’t necessarily agree with all of it, about which more below, but the point that GDP is overrated as a useful barometer for the state of the economy is a point I agree with wholeheartedly.

TCA’s suggestions about what is to be used instead (food inflation, the revenue deficit and forex reserves) are worth considering, but there is a long list of alternatives that have been suggested. Here is just one example:

Provincial officials have long been suspected of overstating growth. Adding their figures together suggests that China’s economy was $364 billion bigger in 2009 than the total in the national accounts. Mr Li preferred to track Liaoning’s economy by looking at other indicators: the cargo volume on the province’s railways, electricity consumption and loans disbursed by banks.

https://www.economist.com/asia/2010/12/09/keqiang-ker-ching

Other folks may come up with other things to use as a proxy for measuring the state of the economy, but really, it is the old story of the six blind men and the elephant all over again. Whatever you use will give you only a limited picture. That’s just the nature of the beast.

Worse! Whatever you agree to measure instead of GDP immediately becomes susceptible to Goodhart’s Law:

In a paper published in 1997, Anthropologist Marilyn Strathern generalized Goodhart’s law beyond statistics and control to evaluation more broadly. The phrase commonly referred to as Goodhart’s law comes from Strathern’s paper, not from any of Goodhart’s writings:

When a measure becomes a target, it ceases to be a good measure.

https://en.wikipedia.org/wiki/Goodhart%27s_law

(Emphasis added)

So sure, you could ask that food inflation, revenue deficits and forex reserves be the target. But it’ll just be cobras or rat tails all over again.

So GDP, whether you like it or not, whether its measurement is favorable or not, is not going to go away anytime soon, whether in India or elsewhere.

Consider the concluding paragraph from a column in the Livemint yesterday by R Jagannathan:

This does not make GDP calculations worthless, but the real focus should be on sectors. More than macroeconomics, sectoral understanding and microeconomics ought to be central to policy-making. Future GDP will best be estimated as a sum of its parts, and not as a whole extrapolated from numbers in the more visible parts of the economy.

https://www.livemint.com/opinion/online-views/the-fallacy-of-equating-growth-with-the-pursuit-of-higher-gdp-11603811210462.html

Yes, well, sure. Absolutely.

Now if only we could figure out the how.

Thinking Aloud About Uttar Pradesh

Until very recently, I used to teach a course called Contemporary India. The program in which I used to teach this course is suspended temporarily, for it was designed for American students who would spend a semester studying in India.

One of my favorite classes in that course was about India’s demographics. It was one of my favorite classes because I got to show three slides in it. These slides were nothing but screen-grabs from an excellent feature that the Economist magazine had published a while back. Note that the content requires Flash, and it therefore probably will not work in our modern browsers. But the slides I speak of are presented below.

The first of these shows each state in India mapped to the country that is closest to it in terms of economic output:

The second shows each state as mapped to the country that is closest to it in terms of economic output per capita:

And finally, we have the third chart: each state in India being represented as a country that is closest to it in terms of population:

Each chart is worth more than a few minutes of your time. Note how Maharashtra is like Singapore, Sri Lanka and Mexico respectively, for example, when you make comparisons in terms of economic output, economic output per capita and population respectively.

My favorite thing to point out, especially to my American students, used to be how all of Canada’s population could fit inside Kerala. India is truly a mind boggling country!

But, Uttar Pradesh. That is what we’re going to talk about today. This is a mind boggling country (not a typo. It really is a country. If it were a country, it would be the fifth most populous country in the world. Yes, really).

It has, as this article points out, about 10 percent of India’s districts. One out of every seven Lok Sabha MP’s comes from this state. One out of every six Indian is from the state of Uttar Pradesh. Yogi Adityanath is the chief minister of Uttar Pradesh, but he is responsible for the same number of people as Imran Khan or Jair Bolsonaro. It, to put it mildly, is a truly large state.

And the article that I linked to in the paragraph above makes a point that is worth thinking about: is it too big?

Shekhar Gupta recommends carving up the state into five separate states, and before you scoff at the idea, consider the facts once again: should one chief minister be responsible for the governance of the fifth most populous country in the world?

And the problem isn’t just about population, it is also about national level politics. Or rather, about a problem that nobody wants to think about with any level of urgency.

Here’s the problem: how many people should a Member of Parliament in the Lok Sabha represent? Ideally, it ought to be India’s population divided by the number of elected representatives in the Lok Sabha. But obviously, in a country of India’s size and complexity, that isn’t always possible.

Here’s Ajit Ranade from two years ago, writing in the Livemint:

We may desire “equality” of constituencies, but economic development and demographic patterns do not develop uniformly across the country. Some states have achieved zero population growth while others still have very high fertility rates. This pattern too has a north-south dimension. It is as if the economic centre of gravity is shifting south and the political centre of gravity is shifting north.

Here is what he means by that: in the year 1976, we passed a law that effectively froze the number of seats in India’s Lok Sabha, per state. That number was frozen on the basis of the 1971 census. And from 1976 until the year 2000, we decided to not do anything about it.

And then, in the year 2000, we made the problem worse. Here’s Ajit Ranade again:

In 2000, another amendment postponed the day of reckoning to 2026. Thus, only after 2026 will we consider changing the number of seats in Parliament. Till then, everything is frozen as per the 1971 census. Remember, in 1971, India’s population was 548 million, and by 2031, the first census after 2026, it may well be close to 1.4 billion. The great apprehension is that redrawing boundaries and distributing the existing 550 MPs might mean that the south will lose a lot of seats to the north. Even if more members are added to the Lok Sabha, that incremental gain will mostly go to the northern states.

https://www.livemint.com/Opinion/7unVzUcfBJxbHHaiRpenmK/India-should-begin-discussing-the-delimitation-question.html

It is not just the fact that Uttar Pradesh is too big from an administrative viewpoint, and that it contains too many people for it to be administered as one state in a country. It is not just the fact that it is far too important a state in the political calculus of India.

It is the fact that it is about to get a lot bigger, a lot more complex, and a whole lot more important in about five years from now. Why do I say that, you ask? Well, for all of the reasons above, but also for the chart below:

Here’s Shekhar Gupta, from the article I referred to earlier:

Twenty crore people, divided over 75 districts spread over 2,43,000 sq km, is too much to govern for one government, especially when run entirely by one individual, which is the norm in our states now. Similarly, 80 seats in the Lok Sabha is too much power for one state in a federal republic. It is more than Gujarat, Rajasthan and Karnataka put together. It is politically distortionary. Especially when UP’s politics is so internally divisive based on caste and religion that the incentive for improving social indicators is poor.

https://theprint.in/national-interest/uttar-pradesh-is-indias-broken-heartland-break-it-into-4-or-5-states/458552/

When you think about that excerpt, and think about the point Ajit Ranade makes in his article two years ago, you realize that we need to start talking – soon, and a lot – about what is to be done about Uttar Pradesh.

I would love to read more about this. If any of you reading this have reading material to share, I would be very grateful indeed. Thank you.