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Almost every trade expert I speak to has been talking about the great opportunity that the continued US-China trade war offers to India to expand its trade with the US. Its true that global manufacturers reeling under the tariffs imposed by the US govt have begun looking to South and Southeast Asia to shift their manufacturing operations. High tariffs are hurting their business and they are now looking out of China. This could clearly be an opportunity for India to step in and fill the supply gap. But can it do so?
China has for years exported a wide range of products to the world_from machinery to electric products, and this bouquet of exports is starkly different from the range of products India exports, predominantly jewellery, pharma products, metals and textiles, among others. To replace China overnight in exporting such manufactured goods is very clearly a tough ask for India. What India could do is find gaps in the supply chain in product categories it already exports in. The real gain, though, lies in India’s ability to draw in manufacturers who may be on a mass exodus plan out of China. Here again, India pales in comparison to China when it comes to business-friendly policies. It’s hardly a secret that a number of global companies foraying into the Indian market have complained of delay in land acquisition, procuring business licenses, and other govt permissions for operational ease and a number of them have gone to the extent of wrapping up their operations.
India, thus, at this stage needs bold government policies that truly ease the process of doing business in India. A Mint edit notes that for global firms to move to India from China would need “a very substantial improvement in the basic factors that drive FDI. These include competitive labor costs, a tax and regulatory environment hospitable to business and easy and hassle-free access to all of the factors of production—land, labor, capital and other inputs such as raw material and intermediate inputs.”
Despite the clamour of economists and trade policy enthusiasts, India’s chances at filling the supply gaps in the global supply chains are difficult, if not impossible.
It’s the loveliest Twitter thread I discovered in Tyler Cowen’s recent blog post. Melissa Kearney, Economics Professor at the University of Maryland, argues that 6 year Econ PhDs are terrible, especially for female students. Tyler goes a step further and says Econ PhDs should be abolished. Instead, he suggests three years of graduate economics education and off to job market straight away! I agree when he says economics needs lifelong learning, and feel kind of nice when he reminds us that Smith, Keynes, and Hayek did not study for an Econ Ph.D.
What do you think?
You know I am into non-fiction, writing and reading. A consistent trend in non-fiction writing has been the emergence of academics as non-fiction writers and as more and more do so, we can clearly see how some of them are gifted writers.
I laid my hands on two super books of narrative non-fiction this year – Matthew Desmond’s Evicted and Alpa Shah’s Nightmarch. While Desmond’s book tracks eight homeless families in America, Shah embarks on a ten-day journey with some of India’s most dreaded Maoists. Both are great works of narrative non-fiction. The writing is deep and informed, coming as it does from years of research by the academics who wrote these books. But what’s really interesting is that both the books use immersive storytelling to craft stories and both writers have spent years observing the people they write about. This is a masterful, credible and empathetic body of work. This is what has made narrative non-fiction literature very interesting. The book I am working on falls in the genre, so I asked Alpa Shah about dabbling in the genre as an academic. The interview will soon be out on my blog, so keep reading. I also reviewed Shah’s book for Newslaundry.
I also loved Anand Giridhardas’s Winners Take All and James Crabtree’s The Billionaire Raj. Crabtree’s book is a book about the rising inequality in India, the story told through the lives of the super-rich in India and their unwieldy influence on Indian institutions. Read Ajit Ranade’s review here.
I greatly enjoyed reading Winners Take All – the book has a catty, acerbic tone and it’s, therefore, a delightful read. Giridhardas’s book turns its gaze on people immersed in social innovation and philanthropy efforts, social impact consulting and impact investing. Anand argues that “business elites are taking over the work of changing the world,” and that “many believe they are changing the world when they may instead—or also—be protecting a system that is at the root of the problems they wish to solve.” In this book, the contradictions of those who work for social change from positions of privilege and wealth are exposed as the author probes into their shortcomings and their limitations.
Anand’s book drew my attention because I too have spent five years working for some of the startups in India and has had a close view of the ecosystem. The author raises thought-provoking questions in the book – are the capitalists who have been working hard to solve the world’s problems, part of the problem y perpetuating the evils? Are they looking enough within their own business practices, privilege, and access to power? Giridharadas writes that “a system that perpetuates vast differences in privilege and then tasks the privileged with improving the system” will always fail. And while I love the book, here is a very interesting criticism of the book, though, as catty as Anand’s book itself. Do read for fun.
Hilliby Elegy by JD Vance and Shanta Gokhale’s One Foot On The Ground: A Life Told Through The Body are stunning memoirs. While Vance’s book presents a detailed and moving account of the American struggle (a New Yorker review is here), critic, translator and author Gokhale recounts her unusual life lived through the body. I wouldn’t say much because excellent reviews on both are available online. For Vance, this one is my favorite and this one for Gokhale.
I would end this list of my favorite reads this year with Leta Hong Fincher’s Betraying Big Brother and Karoline Kan’s Under Red Skies, both eminent reads on contemporary China. Fincher’s book turns its focus on a section of college-educated Chinese women in China’s major cities who have come together to lead a feminist revolution working to put up a challenge to patriarchy, sexual harassment, gender discrimination, and sexism, facilitated by social media. In 2012, these women took to the streets in China to engage in performance art and shared videos of their activities online. This provoked widespread discussion and debate and the Chinese govt had to act to restrain them. Fincher’s book recounts this in her gripping book, which is based interviews with these young women, including the group that came to be known as the Feminist Five.
Kan’s Under Red Skies is a beautiful, evocative memoir on growing up in China as a millennial. Kan, born in 1989, the year of the massacre, writes a coming-of-age story blending family history and China’s cultural landscape as a background that not just highlights the generational differences and the urban-rural divide in China but also delves deep into the psyche of a millennial who grew up in China in the midst of the state-mandated one-child norm and cyber-surveillance. If you are interested in China, these are the two essential reads for you.
So that’s it – I have deliberately kept the list short, forcing myself to pick just a few. Not all books I have mentioned have been released this year but I list these because I read them this year. This is not an exhaustive or comprehensive list – it only reflects my interest and appreciation of books I have truly enjoyed reading so far this year. Hope you find the list useful. Happy reading.
First, the madness over Huawei (I blogged about this here) and now, the accusation of currency manipulation – US President Donald J Trump has let the world know that the US-China trade war is far from over. But what exactly has happened with Yuan to warrant Trump’s accusation?
The Yuan fell to its 11-year low against the US dollar last week. It happened because China’s central bank set a lower than usual reference rate for its currency Yuan, and when Yuan hit a low, it didn’t intervene. Trump immediately lashed out, calling China a “currency manipulator”.
China’s Shady Past
This label (of currency manipulation) has come back to haunt China after more than two decades when in 1994, it had earned the tag and rightly so. Currency manipulation is essentially an artificially lowering of the value of a country’s currency against the US dollar, usually done to boost exports. Artifical lowering refers to the weakening of currency by policy measures rather than market forces. With weaker currency, goods and services being exported from a country become cheaper in international markets, raising the volume of exports. Such behavior is unwelcome as gains derived from artificially lowered currencies tend to provide an unfair competitive advantage to countries with weakened currencies, in global trade. China’s export-led economy today is a manufacturing hub, but not without concerns being raised over its currency manipulation in the 1990s. China is known to tightly control its exchange rate and in the last two decades, its always been around 7 yuan per dollar.
US Tariffs and Yuan
In the ongoing US-China trade war, negotiations over tariffs haven’t been going well. Last week, just before the fall of Yuan, US-China failed to arrive at a settlement on tariffs. Instead, US announced more tariffs on 300 billion dollars worth of Chinese goods. China retaliated saying it wouldn’t purchase US agricultural products. This development was succeeded by the fall in Yuan, which China said was driven by market forces. However, for a country known for its tight control over the exchange rate, this was unusual. When the Yuan was falling, China’s central bank, like several times earlier, didn’t intervene.
Here is an excellent piece on currency manipulation that I strongly recommend.
Back to the Q: Is China Manipulating Yuan?
Experts say it depends on whether China runs a huge trade surplus today and as facts stand, China hasn’t been burying foreign exchange neither does it have a large current account deficit as it used to have in the 1990s-2000s. Even US Treasury investigations have concluded for many years now that China doesn’t qualify to be a currency manipulator.
Experts have termed US’ current labeling of China merely symbolic as the tag of currency manipulator may not have huge and direct implications for either of the two parties involved. However, it’s the intent and purpose of the Trump administration in this matter that appears terrifying. Besides countless reports on China over its intellectual property and other trade practices, Trump government hs its fangs out for China with tariffs and more tariffs. This has huge implications for the global economy (I have already discussed this in an earlier post). Economists at Morgan Stanley have predicted that if the US-China trade war continues for another four to six months, the global economy will plunge into a recession in nine months.
Negotiations between China and the US, irrespective of the name-calling and labeling, seems to be the only way out. It appears that the US and China both would still like to negotiate a deal, given that plans are already underway for a Chinese trade delegation to visit the US next month. Only more trade talks will stop this trade war from getting out of hand.
Two insightful reads on the subject that I so want to recommend:
Machine Learning (ML) is commonly seen as the scientific study of algorithms and statistical models used by computers to perform specific tasks. Considered a subset of artificial intelligence, ML could have game-changing implications for people of the world struggling with language barriers. As we know, Chinese, Spanish and English are the most spoken languages of the world. What ML can potentially do is to help people translate native languages into other different languages they may need to speak in with the help of artificial intelligence, and when this happens, this could seamlessly unite the world in more ways than one. Just sample Google Translate and you’ll know what I am talking about.
How does this help global trade? If economists are to be believed, language barriers have hurt trade substantially, and precisely why, with ML demolishing the language barriers, world trade could change. According to the “gravity model”, a common language between trading partners could raise trade by almost 50 percent. If trading nations, involving millions of people and corporations, begin dealing in a common language (thanks to ML), imagine the gains from the trade! This could mean people being able to work in countries where they couldn’t earlier as they didn’t know the native language, or communicate easily for work, leisure or fun.
With machine translation becoming more efficient and widely used, speakers of languages other than English, Chinese or Spanish will compete with them and the global market will be full of such people wanting a share of the employment pie. Job markets will no longer discriminate on grounds of language. Machine learning may just be paving the path to the possibilities of great human cooperation by bringing down the language barriers.
Yet, ML’s direct benefits for trade remain a matter of discussion for many scholars. They argue that the progress in ML may be limited to indirect communication and as far as trade ties involving direct communication are concerned, factors such as a preference for local products, trust between trading partners and familiarity with business may undermine the role of a common language. Then, there are linguistic, religious, and legal influences that could play a significant role.
Apologies for being away for almost a week. I have missed you, hope you have too.
I had no realization of what significant events my brief interlude from blogging would bring. But while I have been away, Jammu and Kashmir as a state of India don’t exist the way it used to. It’s now a Union Territory with a Legislature. The state was also bifurcated to create an independent UT of Ladakh with no legislature. This also meant article 370 of the Indian Consitution, which conferred special status to the state of J&K, was modified. Before this, this special status allowed J&K to have its own constitution, its own flag and its own laws independent of the same in the union of India. Now, people from all over India can buy land in Kashmir, set up businesses and invest; Indian government’s welfare schemes, rules, and regulations will now be applicable in the state.
Before the bill to this effect was passed in Parliament, Indian Army troops moved into J&K, clamped down on the Internet and detained local politicians and separatists. There have been apprehensions of violence and unrest over the development. As we speak, this continues with an eerie silence from the international community with the exception of Pakistan and China. What’s evident is that most countries in the world seem to be viewing this exercise by the Indian government as an internal matter of India, recognizing its sovereignty in dealing with its internal affairs. Pakistan, however, thinks otherwise and has already reached out to the UN and a host of other countries to offer their support in condemning India.
A Contested Past
Unlike the differing viewpoints on Kashmir, there are thankfully no conflicting opinions on how J&K acceded to India. I particularly liked this academic EPW piece on the history of the troubled state. The main points in the piece can be summarised as below:
- At the time of independence of India, Hari Singh, the then king of J&K was ambiguous about acceding to India or Pakistan. He brokered a deal with the British govt to stay independent. This state was not to be, as an attack by Pakistani pastuns compelled Hari Singh to reach out to India for help. India, in turn, sought J&K accession to India.
- At the time of accession, India adopted the policy that in case of dispute over J&K’s status, the matter should be settled in accordance with the wishes of people. However, India also considered the accession a purely temporary and provisional arrangement, as stated in the Government of India’s White Paper on J&K in 1948.
- J&K was conferred the special status via Article 370; you could read all about the provision in detail here. Briefly, this article limited the Union government’s legislative power over Kashmir to just three subjects- foreign affairs, defense, and communications. This in effect ensured J&K’s autonomy.
- Further, to strengthen this arrangement, certain riders were put in place: the central government couldn’t make any changes in the article without issuing a presidential order, with approval of the state legislature, and only after the changes were incorporated in the state constitution.
Why The Scrapping of 370 Was Welcomed:
- Home Minister Amit Shah, in his speech in Lok Sabha, said article 370 had for years separated J&K from India, with the provision misused by separatists and sympathizers of separatists in the state. Shah’s argument was in line with the BJP’s historic stand on article 370, which has also been on their poll manifesto for years.
- Another argument highlighted the lack of development in the state because of the special status of J&K. Shah said because of the article, many of the central government’s schemes and benefits didn’t reach the people of Kashmir.Manish Sabharwal wrote in The Indian Express:
Historians warn against “presentism” and Kashmir’s history is too long and complex to belong to any party, community, individual or religion. But it would be foolish to deny that Kashmir’s last few maharajas were distracted and disinterested in development. Monarchies or hereditary leadership are ineffective because they think of citizens or voters as a necessary evil that must be tolerated, possibly patronised, but certainly ignored. Naya Kashmir — a memorandum that Sheikh Abdullah submitted to Maharaja Hari Singh in 1944 — outlined a plan to convert J&K from an absolute monarchy to a constitutional democracy, called for universal franchise, freedom of expression and press, ability of women to work in all trades and professions, and a detailed economic plan. Much of what he sought is enshrined in our Constitution but his vision of social justice, economic progress and poverty reduction — which he couldn’t achieve in his lifetime — is highly relevant for Kashmir today….
India and J&K are tremendously and permanently intertwined. When one does well, the other does well. And when we both do well, we are unstoppable.
- An overwhelming number of Kashmiri pundits rejoiced the scrapping of 370, arguing that with the provision gone, they would return to their homes in J&K from where they had to flee at the peak of separatist violence in the state.
- Article 370 was acted as a shield for terrorists in J&K, who brainwashed Kashmiri youth against India and took undue advantage of their economic situation arising out of the poor development in the state.
Why The Scrapping of 370 Was Condemned:
- Scrapping of 370 hits at the autonomy of J&K, many argued.
- With the special status gone, outsiders can buy and in J&K. Many viewed this as a vicious attempt to engineer a demographic transition in the Muslim-dominate d state.
- The move attacked the “Idea of India” and diluted Kashimiriyat. Economist Haseeb Drabu, in this piece for Mint, argued:
For the people of J&K, the biggest benefit of the state having greater legislative latitude under Article 370 has been the radical restructuring of agrarian relations. It was the first state in India, much before the communist government in Kerala, to carry out non-compensatory land reforms.
… These land reforms along with a massive debt write-off undertaken over 20 years, from 1951 to 1973, transformed the lives of rural masses and underlie J&K’s better-than national average human development indicators.
Aided and approved by vast swathes of the media, the Opposition, the administration and the Indian people, the Kashmir deception is the most impressive feat yet achieved in the slow, gradual process of dimming the lights of India’s democracy.
India has been set on course towards the darkness for some time. Successive Congress governments deliberately allowed India’s democracy to be clouded by the continuation and deployment of laws – old and new – meant to be used by a ruler against the ruled.
We did not complain enough when thousands suffered the wrongful use of vaguely worded laws: against terrorism, criminal defamation, information-technology misuse and sedition, the last of which has been freely used over the years against sloganeering students, villagers protesting power plants and cartoonists.
I can not help but talk about the continued media clampdown in J&K. It’s been a week and news from the state has been a trickle, not a storm, as one would expect. The manner in which the move was hurried through, raises these legitimate concerns:
1. Future of media freedom in India – because even as we speak, reports suggest that people in and outside of Kashmir can’t still reach their families, and journalists aren’t moving freely in the state to be able to send regular reports.
2. State of democracy in India – because, firstly, the state assembly had no role to play in this move, and the parliament didn’t discuss a sensitive provision such as this enough before the bill was rushed to voting.
3. Position of courts on the government move – National Conference party has already challenged the government move in Supreme Court, but legal experts say this may not be a cakewalk. Here is The Print report that explored instances in the past when Indian courts have ruled on Article 370.
4. Role and future of political parties in J&K
5. Will this bring about peace or conflict in the region?
6. Implications for India’s federal structure – Louise Tillin wrote in The Hindu:
This is not the first time that a Central government has used its powers to bifurcate a State in the absence of local consensus. This was also seen with the creation of Telangana in 2014. As in the case of Telangana, the creation of the Union Territory of Ladakh does respond to a long-run demand in this region with a substantial Buddhist population. However, the decision to transform the remainder of J&K State into a Union Territory, at the same time as annulling Article 370, is a departure with profound and as yet unknown consequences in Kashmir, and wider implications for Indian federalism.
There are undeniably worrying aspects to the latest development in J&K. While there are no clear answers to this now, it’s important to say that the manner in which the government went ahead with scrapping of article 370, it should not keep us in any illusion about the state of the democratic process in India. We could only hope that good sense prevails and there is no repeat.
A landmark legislation, with a potential to change India’s polity and politics (for good or for bad), has been passed in a matter of a few days. Triple Talaq, purported as the legislation that will ensure gender equality and justice for Muslim women, is now a law and any Muslim man divorcing his wife verbally by saying Talaaq Talaq Talaaq will face criminal charges and a jail sentence. Its critics see a bigger BJP agenda behind this, while many find this regressive. Here is a list of countries where Triple Talaaq is banned.
In a tragic development, CCD founder VG Siddhartha decided to end his life in Netravati river in Mangaluru. He was reported to have been under enormous stress, as indicated in a letter media reports claimed, was penned by him. While this is utterly heartbreaking to see an entrepreneur and a successful one at that with an influential network (he was the son-in-law of former Kartanara Chief Minister SM Krishna) commit suicide, it’s also a grim reminder of the bad times Indian economy is going through. With bad loans mounting, banks have sapped entrepreneurs for funds, the tax regime has become too excruciating, and the government isn’t doing much to spur demand as was evident from the lackluster budget this year. Several conspiracy theories on Siddhartha’s murder are now doing the rounds; read them here, here, here and here.
In another development in the Unnao rape case which I had blogged about a couple of days ago, Unnao rape accused Kuldeep Singh Sengar has been expelled from the BJP and the SC has asked the CBI is the rape victim and her lawyer can be airlifted to Delhi.
I couldn’t resist my curiosity to find out more about TikTok, the social media app that’s bringing the mass following for scores of people from India’s hinterland. Watching all those TikTok people for a couple of days, I am left with an overpowering sense of fatigue. I know I qualify to be judgemental, elitist and parochial purely because I am saying that I am tired of TikTok. But if this is the new form of a culture shaped by an app that makes you while away your time creating nothing but millions of crassly funny videos, I say, God save us.
It’s not a question of moral trepidation, though: In an economy where jobs have been shrinking and an education system that doesn’t focus on skills but mere degrees, I couldn’t blame these teenagers out to have some fun on TikTok. Perhaps, they don’t have anything better to do. Many users are from small towns of India with luxury to bunk colleges where nothing much happens except irregular classes and absentee teachers. However, must these people still not show some enterprise and find out ways to find meaning in their lives instead of acting like small children obsessed with dumb toys?
TikTok, after all, is no YouTube. There is no window of originality here – you aren’t a hero here because you are a great singer or a dancer or actor. But even popular artists today are on TikTok – from singers to actors to dancers. TikTok has amassed great audiences and everyone seems to want a pie of this. Its appeal lies in the ease with which it allows users to film and edit musical videos or to lip-sync to popular film dialogues which can be picked from its database of songs, visual effects, or sound bites. Everyone else with originality is here because they want the audience, but the popularity of second-rate content creators far exceeds the original folks here. This is what TikTok does – a user may be from any place on earth but if one can appeal to the taste of audiences on TikTok, that’s what matters. And I am all for little known talent to splash all over us, but there is a problem of quality with popular taste and TikTok exhibits it only too well.
Some of the videos are so tasteless, yet shockingly popular, that it makes you wonder if we are hurtling towards an apocalypse where it would no longer matter if any good art exists as long as it has a million views.
TIkTok world is a strange world – strange and sometimes pretty faces keep staring at the screen lip-syncing to a song or some humor and millions watch it and want more. It’s all aimless because it’s not going anywhere. These 15-second videos are hurting eyes, attention spans, our idea of time and our sense of propriety. In any other universe, this would be abnormal. But what TikTok has done is create its own alternate universe where no one has to face the real world anymore. The real world where stalking girls isn’t funny and sexist jokes can’t pass as internet-breaking humor! Of course, there is hardly any political correctness in TikTok stars, most of them teenagers, which is even more worrying given these folks will eventually someday walk into the real world far different from the virtual reality they create and inhabit. The sheer scale of TikTok is terrifying: it is not just the most popular social app on the planet but also a fast-growing one, promising to distort reality as it exists.
To start with, there are tools to distort, conflate or deflate you physically; then there are tools to always beautify your world no matter where you are dancing before your camera in dingy surroundings or next to a nullah. And there are always Bollywood songs to sing, no matter whether you understand music or not.
This is not the real world but is TikTok better than the grim facts of life? Maybe not, as its users have complained of abuse and harassment on the platform with the app management doing nothing at all. But when TikTok meets the real world, it can get fatal. A boy died while making a video for TikTok, a man killed his wife for being active on the app, and another woman committed suicide after her husband reprimanded her for being on TikTok; TikTok stardom sometimes leads to grim murders, and we don’t like these at all.
Narendra Modi, the prime minister of India, is not just a product of the world’s largest democracy; he is also a product of incredible marketing. The crux of this marketing hinges on a personality cult, carefully woven around a frequent and unabashed show of masculinity created through the means of propaganda. We are aware of the campaigns where our prime minister has been heavily glorified. But the latest in the exercise seems to have a global stamp of admiration.
British adventurer Bear Grylls has announced his show on Discovery where he seems to be on an adventure trip with prime minister Modi. This is the second instance since 2015 of an elected world leader appearing on Man vs Wild, the television show. The first leader to join Grylls for Man Vs. Wild was former American President Barack Obama.
The only question I have in mind here is: Did Discovery request prime minister Modi for this show, or the prime minister’s PR machinery approached Discovery? I won’t be surprised by anything today.
Once the show is aired, what kind of an image is the prime minister looking to build, besides the persona of an environmentalist PM who loves nature and cares about animals? I am not sure. I am not sure where we are going, from the image of a tough leader to being a symbol of masculinity. To the extent that there is indeed a “personality cult” to Modi’s politics with a potential to shape both domestic and foreign policy of India., exaggeration of his personal authority seems complete with this show.
Two reports in the last couple of days underline the impact of movements and decisions in global trade. This NYT report focusses on the impact on the $25 billion garbage industry in India. The crash in the industry is the result of China’s surprise cut in garbage imports last year. China buys most of the world’s garbage, and US sells the most. In plain demand and supply logic, China’s action cut the demand for trash globally even as trash supply kept overflowing from the US. This has had a severe impact on India’s garbage industry, which is now dealing with low prices and weak demand. This would also have an impact on the environment, as much of the garbage contains plastic which if not disposed of, will be toxic.
From the report:
The type of trash evolved as more Indians could afford more stuff. Water bottles appeared, along with shopping bags, clothes, cardboard and motorcycle helmets. The latest tech, first piles of cassette tapes, then CDs and DVDs started showing up. And cellphones, smartphones and all their accessories.
As the mountain grew it became more exhausting to reach the peak, where the new stuff was dumped. The 10-minute trek grew to 20 minutes. During the hot, dry summers, when temperatures top 110 degrees, pickers lugged liters of water to stay hydrated. Methane fires sprouted up across the mountain, lighting up the night.
China’s shift in policy, and the drop in prices, had a sharp effect on the slum. Workers are now struggling to avoid plummeting deep below the poverty line.
Another IANS report published by Mint said Punjab’s bicycle industry is struggling as cheaper Chinese imports flood the Indian market. It’s estimated that 200 bicycle factories have closed, unable to battle cheaper Chinese.
An excerpt from the report says:
At the heart of bicycle manufacturers’ grouse is how China has gatecrashed the Indian market through the South Asian Free Trade Area (SAFTA) pact, which came into effect in 2006. The agreement paved the way for the eight member countries to reduce customs duties of all goods traded among them to zero by 2016. China isn’t a party to the pact but is still reaping its benefits.
The debate over India’s GDP numbers (economists are still locking horns over the truth and objectivity in these figures) was back into currency with this Arvind Subramanian piece published in June this year. He said that India may have overstated its GDP figures by 2.5 percentage points every year since 2011. Another insightful piece said the figures may have been overstated by 1-1.5 percentage points. This is significant, and while there may be a difference in figures quoted, inaccurate reporting of GDP is now an elephant in the room, too big to ignore.
GDP is an important economic tool. It measures the production of all goods and services bought and sold in an economy each year, by this very fact, has been of utmost importance to economists trying to measure economic growth. But of late, there have been concerns that GDP my not be a perfect tool to measure growth. Jacinda Ardern, New Zealand PM took it a step further when she said her government is going to look at fresh ways to measure happiness and wellbeing of the people of her country.
So, what are we going to do when we fix our GDP numbers back home? May be, join the global efforts on finding means to measure happiness, because number-driven GDP is already being punched for being an ineffective tool.
Courtney Goldsmith, in this piece, argues why GDP as a measure of economic growth may not be effective:
In an independent review of the UK’s economic statistics published in 2016, Sir Charles Bean wrote that GDP is often viewed as a “summary statistic” for the health of the economy. This means it is frequently conflated with wealth or welfare, though it only measures income. “Importantly, GDP… does not reflect economic inequality or sustainability (environmental, financial or [otherwise]),” Bean wrote. What’s more, GDP is not the precise and flawless figure that many believe it to be – it is merely an estimate. “This uncertainty surrounding official measures of GDP is inadequately recognised in public discourse, with commentators frequently attributing spurious precision to the estimates,” Bean continued.
Sarah Arnold, Senior Economist at the New Economics Foundation (NEF), told World Finance that GDP as a measure of economic activity is simply a means to an end: “It has become so synonymous with national success that the rationale for pursuing economic growth in the first place seems to have been long forgotten.”
Putting the flaws highlighted by Bean and Arnold aside, GDP is still an inaccurate measure of prosperity, as it fails to convey much of the value created in the modern world. GDP was developed during the manufacturing age and, as David Pilling, Africa Editor of the Financial Times, wrote in his book The Growth Delusion: Wealth, Poverty and the Wellbeing of Nations: “[GDP] is not bad at accounting for production of bricks, steel bars and bicycles.” Where it struggles, though, is with the service economy, a segment that accounts for a growing proportion of high-income countries’ economies. “[Try GDP] out on haircuts, psychoanalysis sessions or music downloads and it becomes distinctly fuzzy,” Pilling wrote.
GDP’s preference for tangible goods also means it is insufficient at capturing the value of technology.
Of course, the number-focussed measure of GDP may not be equipped to assess job quality, wellbeing, carbon emissions, inequality, and physical health, key indicators of happiness and wellbeing that development economists have been focussing on.
Goldsmith, in her piece, further argues:
For GDP, which does not distinguish between good and bad production, bigger is always better. …Wars and natural disasters, too, can be a boon to GDP as a result of the associated increase in spending. Comprehensive wealth, on the other hand, accounts for all of a country’s assets, including: produced capital, such as factories and machinery; natural capital, like forests and fossil fuels; human capital, including the value of future earnings for the labour force; and net foreign assets.
GDP’s neglect of natural capital in particular has received more attention in recent years. Natural assets, such as forests, fisheries and the atmosphere, are often regarded as self-sustaining, fixed assets. In actual fact, all of these resources can be – and are being – depleted by humans. Since the 1990s, economists have looked into the possibility of putting a price tag on natural resources to ensure their value is taken seriously. Ecological economist Robert Costanza published a paper entitled ‘The Value of the World’s Ecosystem Services and Natural Capital in Nature’ in 1997 that valued the whole of the natural world at $33trn. While Costanza’s research was highly controversial, the idea of accounting for natural depletion within the landscape of economic growth is becoming more common.
This McKinsey report says:
GDP as a unit of measure has not kept pace with the changing nature of economic activity. Designed to measure the physical production of goods in the market economy, GDP is not well suited to accounting for private- and public-sector services with no output that can be measured easily by counting the number of units produced. Nor does GDP lend itself to assessing improvements in the quality and diversity of goods and services or to estimating the depletion of resources or the degradation of the environment associated with production. Transformative change in technology is not easy to measure using GDP because so much of the benefit accrues to consumers.
World Bank too has touched upon the subject with its own concept of “comprehensive wealth“, covering in its sweep all produced capital such as factories and roads; natural capital like forests and water; human capital, which leads to earnings; and net foreign assets, to project a fuller picture of economic wellbeing and growth. Experts today are also working out ways to measure intangible qualities of happiness and knowledge but we have a long way to go.
There are interesting cues here, in this Econlife piece published today, which questions if money could indeed buy happiness, by comparing GDP, social support, life expectancy et al of the top 10 happiest countries (according to the UN Happiness Report) in the world.
I think happiness couldn’t ever be measured except in smiles and those trying to chase happiness are the unhappiest lot. Think of this at a national level and tell me: is it possible to make everyone happy? I like it when they say, happiness is a state of mind. Of course, this is because this happiness question weighs heavy on my soul so escapist statements best resolve the moral dilemma. However, honestly, GDP and happiness do not always go together, that’s very much true.
Often, I shut myself down when I hear of heinous crime against a woman. Like when Nirbhaya was raped. And now when his girl in Unnao has been raped and seeking justice. But her story is almost like the dirty, scary Bollywood movie you watched and hated: Girl is raped and in no particular coincidence, her family members are wiped out. Oh, I actually have a movie in mind: Damini. Sometimes, life can be stranger than fiction.
Last heard, Unnao girl’s father and two aunts were killed in road accidents, and the victim’s lawyer and the victim herself survived a fatal accident (and it’s anybody’s guess if it was a murder attempt to silence her) – both are badly injured. Police were quoted as saying that even though the victim has police protection, one of the constables deputed for her security were present at the time of the accident. I don’t want to say more because this should say enough. The accused happens to be someone in power, a BJP MLA.
I would rather discuss what this could do to rape victims across India. It’s no secret that reporting and protesting rape has been a difficult effort for women in India. Our rape laws have come a long way today but they once had deeply sexist provisions such as the “two-finger test”. One look at the history of rape judgements in the past would give a sense of how deeply patriarchy has entrenched itself even in ways justice has been delivered. It’s not surprising then that talking about rape too is like breaking open a wound that doesn’t heal. The approach towards dealing with rape survivors (I reported on this for Mint ) may have changed, but our political and social system ensures that fighting for justice remains a battle fraught with dangers.
United States–India trade ties have been in news for all the wrong reasons, of late. There may be optimism that it’s just a mini conflict that can be resolved easily, but the road ahead is nothing short of thorny. It’s a crisis that can snowball into a big rift if not managed properly. The institutional arrangements that currently exist between US and India are unable to manage this conflict, as is clear from the continued tone of President Trump’s tweets and statements on India. What makes worse is the protectionist nature of the governments in both countries.
Let’s look at what both sides have built in trade over the years which will be all exposed to risks if the trade ties continue to be volatile:
- Bilateral trade in goods and services grew at an average annual rate of 7.59 percent between 2008 and 2018. This was double the value from $68.4 billion to $142.1 billion.
- US was India’s second-largest trading partner in goods in 2018, and the single largest export destination with $54.5 billion worth of goods shipped to the US in 2017.
- India was the ninth-largest trading partner of the United States in 2018 with US exports to India accounting for 2 percent of overall US exports in 2018, valued at an estimated $33.1 billion, up 87.3 percent from 2008.
- US service exports to India were an estimated $25.8 billion in 2018, up 157 percent from 2008.
- US arms exports to India touched $15 billion in the past decade.
- Exports to India supported an estimated one hundred and ninety-seven thousand US jobs in 2015.
- Bilateral FDI more than doubled from $24.3 billion in 2009 to $54.3 billion in 2017.
These numbers are enough to understand how important the US-India trade ties are. But as things stand, the disagreements are chronic and deep. While Indian government’s efforts to engage in trade talks with the US have increased since 2018, the scope for existing Trade Policy Forum and the Indian Ministry for Commerce and Industry for talks between both countries remains limited. It doesn’t help that for bilateral talks, neither of the two countries has figured out an institutional mechanism to engage with each other beyond the Free Trade Agreements (but the recent conflict over FTAs negates even the possibility of any more FTAs in the near future). AT the WTO, they have sparred constantly with no concrete results.
A report released this month by the Atlantic Council’s South Asia Center recommends that both US and Indian governments take steps to manage short-term disagreements and establish a more constructive relationship in the medium and long runs. This would clearly mean reviewing the existing institutional frameworks for reform, brainstorm on creating avenues for market opening agreements and draw a roadmap for the FTAs. It’s indeed a difficult ropewalk but much-needed. Read the detailed report here.