Thoughts on India’s Skill Development Sector

Yesterday I attended, ‘Future of skill development in India’,a fascinating panel discussion at the VCCircle Education Investment Summit 2013, New Delhi. The interesting part of the session was when the moderator of the panel, Praveen Chakravarty, indicated how we have been talking about the future of skills development for far too long (VCCircle had a similar panel discussion at their 2011 edition of the same event).

Many factors are attributed to the sluggish growth of skill development sector in India. But this is not an India-centric phenomenon. Industry experts and policy academicians have been forewarning the world governments for long about an impending skills mismatch epidemic. There are two reasons which are of primary concern. Firstly, the demographic dividend is becoming unfavorable and secondly, there is an employability deficit in terms of what the education institutions provide in the curriculum and what the industry actually requires. The former is prevalent in developed nations while the latter is prevalent in developing nations.

A McKinsey report released last year projected that global labor force strength will be 3.5 billion by 2030. The report states that India could face a surplus of low-skilled workers in the tune of 27 million and deficit in the medium-skilled workers to the tune of 13 million. This implies that more people could be trapped in subsistence agriculture or in urban poverty as we move into the mid-term review of our 12th Five year plan. India’s workforce today stands at nearly 472.9 million. India and has nearly 340 million adults without work-relevant skills and in need of training. Between 2010 and 2030, India would have 27% of the world’s share of tertiary educated labor force.

The story is that we are going to have a deficit of medium skilled labor and surplus of low skilled labor. A developing country like India needs both the export-oriented manufacturing sector and consumption-driven domestic market for a balanced economic growth. Both of them though are related. Domestic markets become resilient with increased consumer expenditure which in turn increases with rise in real wages. Real wages will increase, among other factors, with greater labor mobility towards high-value sectors. For India, that would mean a massive movement from agricultural to industrial jobs. But the manufacturing sector which is usually the largest consumer of medium-skilled workers saw an employment growth of only 4.4% between 2004-05 and 2011-2012. This is just one-fourth that of services sector and  one-sixth that of construction sector during the same period. According to the 12th Plan document, employment in manufacturing fell by five million between 2005-06 and 2009-10, after adding about 12 million jobs between 2000-01 and 2004-05. The McKinsey report adds that the trend in manufacturing has to be reversed, as 183 million job seekers are expected to join the workforce through the next 15 years.

What does this mean for the skill development sector in India? The National Policy on Skill Development is an attempt to increase labor mobility from low-skill to medium-skill segment. There are two probable scenarios that arise now. One is that job growth is greater or keeps pace with labor skill-upgradation and other where it does not. No significant issues are foreseen in the former scenario but if it is the latter then the critical question is, what are the alternative employment opportunities for the upgraded labor? The emigration of low-skill labor from India to Middle-East and high-skill labor to USA and other developed countries is already prevalent. But what will have to be facilitated in the future is the emigration of medium-skill labor from India to the global market. This will require in return two issues to be resolved. Are the standards of training and certification in Skill Development in India comparable to that of the global standards, hence facilitating labor mobility without cost of additional certification or assessment? And are the immigration regulations of the different countries liberal enough to facilitate easy labor mobility? If our certification standards aren’t global then the cost of certification per capita would significantly increase, the magnitude of increase remains to be calculated. This would in turn mean that the government’s reimbursement of INR 10,000 per student in vocational training may need to be revised. The status quo today is that, we have achieved globalization in capital and goods but globalization in labor is strongly resisted by local political economy and vested interests. For Indians to be able to push for liberal immigration rules in other countries especially those that will need medium skill labor such as the developed nations, a pro-active foreign policy is essential. All of this points to the simple fact that skill development in India is a cross-departmental issue that needs concurrent engagement in multiple dimensions. But unfortunately the policy debate today is predominantly unidirectional and linear. This will require us to go back to the drawing-board. While the need is imminent, the interests lie more with the business community to push the political establishment to approach the issue with greater concern.

 


 

Immeasurability: 25 % reservation under Section 12 of RTE

The Section 12 of RTE provides 25% reservation to children from weaker sections of the society in private schools. The professed dual purpose of this regulation was to increase the institutional capacity to absorb more out-of-school children (provide access to education) and to create a socially inclusive society by facilitating the mixing of kids from all sections of society within the classroom. For the first purpose there is a lot of support and opposition. Given the proliferation of literature, both academic and non-academic, in the public discourse on the first purpose I will turn to the second purpose, facilitating social inclusion.

From the moment advocates of Section 12 of RTE started using the buzzword of ‘social inclusion’ in their justification for imposing the norm on private sector schools, there has been a sufficient volume of commentary on the possibility of achieving social inclusion within the school’s ecosystem through the reservation. A multitude of explanations has been provided by either camp. But what visibly is lacking in the discussion is a reflection on what social inclusion even means and how are we going to measure it? The various central administrations of the country have been known for enacting legislations without a clear understanding of their operating dynamics. Lack of such knowledge makes it improbable to make a credible impact assessment of such policies and to plan their phasing away in due time. The same is the problem with Section 12. From a positive action point of view, the advocates make a claim of social inclusion by its enforcement. What they essentially claim is that physical inclusion of children from various sections of society into the classroom will ensure their social integration. To be fair, the advocates provide a toolkit of supplementary measures such as teaching aides and other forms of physical inputs to bridge the gap. But the larger narrative is the provision and facilitation of physical factors to achieve social inclusion for which there is no credible supporting scientific evidence.

Academic research in education has shown that school leadership plays a vital role in ensuring quality education. While to a certain extent this can be captured by good processes, people in the leadership contribute greatly to keep the downstream workforce motivated enough to deliver through various incentives and disincentives. With respect to RTE, this observation becomes all the more pertinent because all sections of the legislation are enforced and doesn’t provide an opportunity for voluntary participation of the private schools. No public policy can succeed unless the structural change facilitated by the policy is preceded or at least accompanied by a social change. If all that were required to change the social psyche was a legislation, the positive discrimination through legislation shown to SC/ST should have weeded out their exclusion from mainstream society completely. Social inclusion within the school ecosystem too needs to be understood with a similar dosage of healthy skepticism. Unless the facilitating agents namely the school administration, teachers and other staff in the school have an innate drive to foster social inclusion, they do not have any other form of tangible incentives (or disincentives) to do so. On the other hand, if we had been able to quantify social inclusion and assess its impact within a school then we could have put in place incentives and disincentives to achieve the same. The greatest fallacy of a policy maker is to make policies that cannot be evaluated for its impact. The menace posed by the ‘immeasurables’ has struck Indian policy space more than a few times if not much more. And despite that we have repeatedly ended up making norms like that of Section 12 which in return makes it almost impossible to put a sunset clause on them.

A social change enforced by policy most often fails in achieving its goals and the possibility of still creating a positive social changes from these policies lie in the ability to create supporting institutions with the near-optimal incentives and disincentives. Creating such institutions and incentive framework requires measurability and close observation of the policy’s impact which is absent either within the policy itself or the larger public discourse. It is high time that measurability of social inclusion becomes part of the larger discussion on its implementation issues.

 

http://www.un.org/esa/socdev/publications/measuring-social-inclusion.pdf

 

A response to the Salon article: 11 questions to see if libertarians are hypocrites

Recently, I had the opportunity to read an article on Salon magazine. It put forward 11 interesting questions to identify the hypocrites in libertarians but more subtly demeaning libertarianism as a whole. I have provided my response below to each of those questions asked not just as a libertarian but as normal person who found glaring gaps in the author’s reasoning. Given below are the questions and responses but I will suggest the reader to read the aforementioned article first for the context. Apologize for the length of this piece.

 

Are unions, political parties, elections, and social movements like Occupy examples of “spontaneous order”—and if not, why not?

The author seems to understand that spontaneous order is the phenomenon of any reality that arises when no one is bound by any form of value system. But the spontaneous order propagated by libertarians is the reality that results out of every single human being conducting all of their affairs without use of force but through mutual consent and cooperation. Once you understand this fundamental difference in how spontaneous order is understood by the libertarians and the author, a lot of the questions asked below are answered easily.

Firstly, political parties and elections, both are elements that support a political system. In world history, every form of political system has one common characteristic, few holding power over the many, this includes democracy too. This forces some people to indulge in actions which is against their self-interest, for the sake of people they may not even know. Non-compliance with such democratic decisions results in incarceration and other forms of punishment under the threat of violence. So, yes a political system in itself which tries to regulate anything more than protection of life and property and contract enforcement is against libertarian philosophy. So, by today’s status quo, political parties and elections are not a resultant of spontaneous order because they force the will of the majority over the rest.

Secondly, social movements cannot be generalized to be a result of spontaneous order or not. There are certain social movements which are aimed at liberating the individual from social oppression such as the Renaissance in the medieval times while there are others which condemn humanity to the ethics of a barbarian such as Sati (now a crime) and Caste system in India. Any social movement that stands by the principal of non-violence and doesn’t restrict an individual to conduct his/her own affairs without inflicting conscious damage to the life or property of others is acceptable. Occupy movements were peaceful protests against corporates who used the political system to their advantage at the cost of their investors and depositors. This was a breach of trust and am sure would have violated some or many parts of the contract between various firms and individuals. In fact, it was the government itself that by virtue of its fractional reserve system that enabled these banks to super-leverage their deposits to many hundredfold. So, to conclude, not all social movements are a resultant of spontaneous order since some of them wouldn’t be valid under the libertarian understanding of the phrase ‘spontaneous order’.

Is a libertarian willing to admit that production is the result of many forces, each of which should be recognized and rewarded?

A libertarian will accept this statement to the letter any day. But the conflict of ideas arises while we try to identify these producers. In the production of any good, be it a physical product like cars, planes, computers or an abstract product like academic research, financial products etc. In each case there are two kinds of agents, the producers and the enablers. Our primary mistake is to consider the enablers also as producers. Producers are those who directly take the input, process it and produce the output. These could be the firms, self-employed entrepreneurs, university personnel etc. The identification of this group and rewarding of its members is always straightforward and controversial only in the distribution of profits. But the identification of enablers is not easy because they hail from multiple levels in terms of the magnitude of impact they have on these producers by virtue of the relationship between them. Some examples, are judiciary who enforce contracts, family who provide moral support, friends who provide informal advice in both professional and personal issues, traffic cop who helps me to reach office sooner by preventing traffic jam etc. The difficulty arises when one wants to recognize and reward not just the producers but the enablers as well. Alas, the identification of enablers is a subjective exercise and not just libertarians but even people who believe in other ideas do not have consensus. Given that, yes libertarians agree to the question posed provided the clear distinction made between producers and enablers.

Is our libertarian willing to acknowledge that workers who bargain for their services, individually and collectively, are also employing market forces?

Yes. But only as long as they only bargain for enforcement of their contract with the employees. The unions of today have gone beyond asking for contract enforcement to sporadic and vicious agitations affecting the productivity of the firm. Bargaining is a process of discussion under mutual respect. Shutting down a factory and stopping anyone from operating it, not letting the organization hire new people when the agitating personnel have their employment terminated in accordance with the contract, destruction of the firm’s property etc. are not considered as bargaining and these are the activities indulged in by unions across the globe and these are the reasons for which unions are denounced. Cloaking destructive and anti-social activities under the non-malicious term of ‘bargaining’ is wrong in itself. As long as bargaining is done based on the terms of contract and conducted through non-coercive means, it is employing market forces and hence acknowledgeable by libertarians.

Is our libertarian willing to admit that a “free market” needs regulation?

A free market can exist under only one condition. Protection of private property. Only this needs regulation. When market transactions are based on mutual consent and non-coercive means, this regulation arises on its own and hence becoming a form of self-regulation. But such a perfect scenario is not possible and hence we need some other form of regulation. The disagreement arises in deciding who should be regulating? Should it be the government? Or civil society? This is where the actual difference of opinion lies and since the question asked above is a different one, I will conclude by saying that I as a libertarian am willing to admit that a free market needs regulation provided we agree upon the definition and preconditions of a free market, regulation of what and by whom.

 Does our libertarian believe in democracy? If yes, explain what’s wrong with governments that regulate.

Not all libertarians believe in democracy because as explained in Q.1, it imposes the will of the majority over that of the minority. Those few who believe, do so because as of today it is the best of the worst, all the other major forms of political system had thrived on more oppressive principles. And also in the hope that with enough people starting to believe in a freer society, democracy itself might be the non-violent means of revolution in creating a freer society. And given the different strata within the libertarian philosophy itself, most who believe in democracy are those who believe in a limited government, a government that provides only the essential services to people such as judiciary, security and access to infrastructures such as medical facilities. The more conservative forms of libertarianism denounce the system of democracy itself where some have to suffer at the cost of others for no cause of their doing. The main issue lies not with the government that regulate but what the government regulates. More the government regulation curtails social and economic freedom beyond the essential protection of life and property, weaker the libertarian support for the same.

Does our libertarian use wealth that wouldn’t exist without government in order to preach against the role of government?

The author takes the example of Internet to support his claim with respect to the question posed above. The author knowingly or unknowingly has forgotten to mention that all government activities or projects are ‘public-funded’. The government took the tax payers money and delivered a product. I do not see why anyone should have any obligation to the contribution of the government beyond the time of delivery of the product to the public. Moreover, the government, in this case DARPA, did not develop internet for well-being or betterment of the civil society, it was done to hold the edge in war. Every single scientific discovery or invention done by the military of a nation especially the USA does not see the light of the day for years from their moment of discovery or invention. The government withholds patenting of such progress at the cost of human development. Imagine the development the world could have achieved if the internet technology were made available to the public from the very beginning. What about the opportunity cost to the nation and the rest of humanity by such actions by the government? Would millions of people have died in Japan if not the similarly public-funded government’s Los Alamos project on nuclear bombs? Who is to say such technologies wouldn’t have arrived if not for the government? The proliferation of modern progress has happened outside the government and is taken for granted, while sporadic government contribution to progress are hailed as black swans. Did Google happen because of government? Did Apple happen because of government? Did Space X happen because of government? These are larger questions which needs to be answered by the non-libertarian camp to have a meaningful debate on public funded government research or public-funded-public-research with government as conduit via agencies such as National Science Foundation etc.

Does our libertarian reject any and all government protection for his intellectual property?

Many of the libertarians are against the concept of IPR and the rest who believe see it as a form of private property which would be protected anyway under a limited government which many libertarians support. So the answer to this question is both yes and no.

Does our libertarian recognize that democracy is a form of marketplace?

Democracy is not a form of market place for reasons explained previously unless the author believes that it is acceptable to use coercion in market transactions.

Does our libertarian recognize that large corporations are a threat to our freedoms?

Yes, but only because such corporations have grown so large because of legislative support from government which enabled them to gain edge over other competitors or by increasing the entry barrier for new entrants. So, the accusation of large corporation starts from the government itself and the libertarians are very well against corporations that grow big with the help of government regulations. There is no large corporation that has not benefited from government regulations in dominating the market.

Does he think that Rand was off the mark on this one, or does he agree that historical figures like King and Gandhi were “parasites”?

Rand was not off the mark because King and Gandhi lived and did what they did to uphold their principles. If the author had read the works of Ayn Rand, he would have found characters that sacrificed material comforts and wealth to uphold their principles. Rand simply says that any action of a man is driven by self-interest, an interest that could be based on tangible or intangible ends. Hence, any claim of living for others is a misconception at best and deception at worst. Both King and Gandhi fought for the freedom of the individual which is the core philosophy of Rand, so I do not see any ambiguity. If Rand had called them parasites, then it is she who is at mistake and not her philosophy.

 If you believe in the free market, why weren’t you willing to accept as final the judgment against libertarianism rendered decades ago in the free and unfettered marketplace of ideas?

There is no final judgment in the marketplace for ideas since one can never know when the circumstances will lead to a renewed interest for that idea. There was a time when libertarianism was very dormant and now because of excessive government regulation, people looking for a solution have re-discovered it. By the author’s logic, Copernicus should have conceded defeat to Helios-centric model of solar system, Communists should have conceded defeat after Soviet’s fall and Mao’s Great Leap Forward. Besides, it is extremely ignorant to call the market place of ideas as free and unfettered given the extent of state sponsored education that almost never showed the nation state’s founding philosophy in bad light. History, the repository of ideas has almost always been directed by the State to promote nationalism at the cost of truth. The author need only read USA public school history textbook account of economic history of various depressions and recessions, wars, diplomatic and non-diplomatic interventions etc. to realize the truth. 

New Line of Inquiry: FDI in India

The common people pray for rain, healthy children and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace”

-          George RR Martin, A Game of Thrones

 

Alas, so is the narrative of Foreign Direct Investment in India to the point that Nietzsche would have been appalled to find that both the master and their subjects act by the slave-morality of weighing actions based on good and bad intentions rather than the master-morality of good and bad consequences. Ever since foreign investment was opened up in 1991 through the liberalization policies and more so after replacing FERA with FEMA in 1998, FDI controversies in India have achieved global fame for the volatile position of various agents and political maneuvering often required to get them off the House floors. The usual doohickey involves opposition from left parties, from interest groups which will face competition from the new foreign entrants and welfare economists who have their own ammunition of theory and data to weave the required narrative. In all this ruckus the public stands as a mute spectator drawn into the vortex of political mind games not knowing whom to trust. Given that fear of colonialism still lies imbibed in the social psyche, especially more so in the ideological psyche of the left wing, a reflexive negativity towards foreign entrants into protected sectors is to be expected. And if one is to hope for India’s rise into the ranks of global superpowers, we need to remember that the path is wrought with menacing foes and dubious allies. The victor shall be the brazen and the audacious, not the ones who seek the warmth in their own cocoon. It is hence inevitable that India and Indians have to encounter, excel and exceed international competition. FDI and overall trade liberalization are inevitable phases we have to pass through en route to global superiority through sustainable development.

The left wing damns FDI in the name of public interest which they seem to represent as portrayed by the excerpt below from Polit Buro Communique of the Communist Party of India (Marxist) dated Dec 6-7, 2012,

The decision of the UPA government to allow foreign supermarket chains in the multi-brand retail trade has met with widespread opposition from all sections of the people throughout the country. In Parliament, after refusing to accept a debate and vote on the issue, the government had to finally accede to the demand. The debate in both Houses of Parliament revealed that an overwhelming number of political parties representing a clear majority of the MPs are not in favor of allowing FDI in retail trade. This reflects the views of the majority of the people of the country.

 

The typical oppugning of FDI would then begin from blaming the ruling government of bequeathing the nation to foreign powers, to destruction of livelihood through the increased competition. What is resoundingly clear is the fact that information asymmetry has put Indian public behind the veil of ignorance with respect to most governance issues let alone foreign affairs. While even ardent researchers find it herculean to mine data out of government sources, how can the casual Indian trying hard to keep up with the pace of life, form well-informed opinions of such issues let alone express it in public fora and hence let that be represented at the Houses by the respected Members of Parliament?

Over the years FDI has been gradually opened up in almost all sectors to various degrees with other sectorial restrictions save a few that includes agriculture, tobacco and related products, atomic energy etc. While every new change in FDI policy elicits a pre-determined set of responses from various political actors influenced only by the relative vote-bank significance of the people in the concerned sector, the consequences of a prior policy action is not adequately scrutinized to assess its merits, de-merits of unintended consequences. The opposition to FDI is based squarely on Murphy’s Law that, ‘Anything that can go wrong, will go wrong’. But the reality is far from that and it is essential to even understand the dynamics of error to abstain from similar mistakes in the future. Famed sociologist Dr. Robert K. Merton identified five possible causes of unanticipated consequences: ignorance, error, immediate interest, basic values and self-defeating prophecy. It needs to be remembered that the above leads to unanticipated consequences and not unpleasant ones.

The unanticipated consequences of FDI or the ‘spill-over effects’ are still sparsely researched in India. Neither official government data nor academic literature provide a comprehensive analysis of how opening up sectors to FDI has rippled through the economy on the whole. Much research is done with respect to locational determinants of FDI, effect of various factors on FDI inflow, spill-overs (positive and negative) of FDI over intra-industry and inter-industry domains in the host country economy, growth vs. FDI dynamics in the host country economy etc.  Answering the above questions are paramount to optimizing the FDI policy in India especially when we are on fast-track to globalization and any impediment to our pace will be debilitating to the whole economy. Some of the factors that would help us better understand the dynamics or spill-over effects of FDI are: Productivity (Labor and Capital), Factor costs (in PPP), output, growth in employment, profits to value-added ratio, technological improvements in production process, average real wages(in PPP), wage differentials, exports base diversification etc.

In the spirit of the above, a preferable line of enquiry for all agents whose stand spans the entire spectrum of the FDI issue would be to ask the bigger questions first before getting gobbled up in a speculative tirade.

  1. What is the contribution of previous FDI policy actions on the economy?
  2. How to quantify the spill-over effects of FDI into the larger economy?
  3. What is the differential on cases where FDI hasn’t brought expected level of investment or growth in a sector? E.g.: Food processing industry
  4. What are the institutional bottlenecks impeding flow of FDI into sectors already open to it? E.g.: labor laws, land acquisition, environmental laws etc.
  5. What has been the labor migration pattern in sectors with significant FDI inflows? E.g.: pharmaceuticals, IT, real estate etc.

The above mentioned questions are just a sample of questions along whose answers a constructive discourse on FDI could be conducted. No research has ever shown that FDI in all cases will lead to growth and positive spill-overs nor has there been a unanimous position that FDI in a sector that has failed under one set of conditions cannot succeed under another. For example, there is a strong correlation between FDI in extractive industries such ore mining and corruption in countries where the sector is highly regulated by government and transparency is only wishful such as the African nations whereas in countries with efficient government procurement mechanisms and transparent governance such correlations aren’t found such as Australia, USA etc. Hence it is high time that we adopted a more objective line of enquiry to the whole FDI issue which other than helping us get back on the growth track could also set a precedent for further public policy discussions of which the country is going to witness more as the people become more informed and demand not just performance but also responsibility and accountability from the governing class.

 

 

Public good vs. Public-good in India

The Road to hell is paved with good intentions they say. I had not been aware of the relevance of the cliché till I witnessed certain ideological conflicts I had the opportunity of witnessing in the recent days. A week ago, I participated in a public policy program for young Indians. The participants were all well-educated and are actively involved in shaping the country’s future in a significant way. They are a cohort of such students, who have been handpicked for a public cause with appreciable merit am sure. Yet, it is hard to reconcile certain fundamental misconceptions these kids held with respect to the nature and role of government, market dynamics and private property.

Most of them have a very different understanding of what constitutes a public good. While traditional economics defines it as that good which is both non-excludable and non-rivalrous, their understanding was that it meant those goods which are provided for good of the public/society. A good that is non-excludable and non-rivalrous may be procured and utilized in a manner without reckoning participation from government. But that which is done for public good by default goes along the slippery slope of ‘greater good’. Provision of such a greater good inherently requires sacrifice or coercion upon a minority by virtue of any attribute required of the situation. And the only entity having the legitimate power to coerce an individual or a group of individuals to transact against their own self-interest is the State or ‘the government’.

One of the usual reasons why public good might warrant government participation is because it is a potential case for market failure. Since one cannot stop anyone from using that good, it means that utilizing the good cannot be charged. This might be a disincentive to private player as profit-maximization becomes improbable. And hence community regulation or in its absence government regulation is chosen to mitigate the negative effects of inappropriate utilization of such goods. One has to remember that it doesn’t mean market solutions are not impossible but just improbable in certain situations. But when we talk about public-good, it is an indication of the fact that majority in a certain situation find that the good is of great utility to the public interest and hence has to be provided at free-of-cost or subsidized rate to the consumers (citizens) even if it comes at the cost of sacrificing the legitimate interests of individuals other than the majority. Education is one such usually acclaimed public-good.

The point of contention is that, inability to distinguish between the two could mislead one into taking wrong sides on issues of public policy. The spirits of humanity can often dampen that of development when it is the latter that feeds the stomach not by giving a fish but by teaching how to fish. The usual rhetoric of development vs. equity has somehow taken a twisted turn in the minds of apologetic urban elite. It is true that the urban elite massively benefit from the government subsidies meant for the poor. As anyone in India would know, universal subsidies are less of a political humbug than targeted subsidies or endowments of the kind. This I presume consciously or unconsciously makes the urban elite guilty of being well-off in comparison to the poorest of the poor. This inevitably leads to the social psychosis of demanding responsibility of every other well-off person to help the needy in the name of social responsibility, morality, equity, sustainable growth etc. The list of pseudo-names is only as long as the number of groups in the bandwagon. And when politicians seek vote banks, the needy exchange public-goods for votes and most urban elite stand aside from the transaction with a smile that suits an Indian father marrying off his daughter and feeling the burden of responsibility lift off his shoulder.

Is this element of charity misplaced? Are we supposed to live in a society that pays no heed to wants of those who have been unfortunate by fate to have been born into dire poverty? The answer is a resounding NO. Man is a social animal. We have demarcated which part of our lives are subjected to cultural norms and which stay out, based on our cultural ethos. But we have failed in demarcating such a Laxman rekha for the government. I do not know if that is because the system of a nation-state is not yet rationalized by the Indian body of philosophy and cultural values. And if that is the case, the traditional Indian values of communal responsibility when sought to be achieved through the State apparatus becomes a relationship which has to be examined beyond the conventional welfare economics. An analysis of history of economic thought and statecraft in Indian culture becomes imperative to understand the public psyche behind either calling for more government participation towards creating a better society or the apathetic stand on the narrative of ‘greater good’ taking over the nation. Private charity, family ties, community welfare initiatives played a major part of inculcating and nurturing a healthy spirit of humanity in ancient India. In later part of history, caste system plagued the spirit. But greater damage was done under the Islamic rule, where differentiation among Muslims and non-Muslims became stark with respect to charity by royalty and other concessions given to community charity. Under the British’s Divide and Rule policy, this was legitimized in the name of safeguarding the interests of the ‘minority’. After independence, the progressive leadership of India sought to take the same means with a different intention of creating equity, to address the socio-economic disparities in India. These measures so taken towards creating equity where justified in the name of being a negative externality for the country and one which cannot be addressed adequately by the market forces. As democracy took its course, special interest groups of various nature have sought to make the roster of ‘public-good’ under the camouflage of ‘public good’ longer.

It is said that the secret to India’s welfare state is the ignorance of the middle class. Whatever humanity one may attribute to the provision of public-goods, has to be funded by someone. Given that the government doesn’t have a source of income but that from taxes and debt, all these programs are funded by the tax money of those who contribute to the economic production, directly or indirectly. Out of the various groups that do so, it is the middle class and the rich that majorly fall under the legitimate tax base. But given the size of the tax base, raise in taxes doesn’t hurt most as the cost is distributed over the growing middle class numbers. Combining the trust/belief in State as a vehicle of morality and justice without due regard to the self-interest motivated actions of the agents involved and the lack of credible opposition to utilizing an ever increasing amount of tax money for politicizing ‘greater good’ has left the urban elite in a mush of mangled morality and misconceived ethics. It is high time we realize the need to mark the boundaries for government participation into creating equity and appreciate the distinction between public good and public-good, not just to redeem our own intellectual integrity but the future of the nation too.

A few thoughts on FDI’s morale

Foreign Direct Investment is just like any other investment towards a business but in this case by a company or entity not belonging to India. When we use the terms ‘hurt’ or ‘bad’ what is it that we are actually talking against?

A foreign investor puts money into local industry. As simple as that. Just like any other local investor would do. And he does it for the same reason as why any Indian buys stocks or invests in mutual funds or puts savings in banks; economic profit maximization. Why is this wrong?

Economy benefits from FDI. Look at UNCTAD’s statistics and it shows that it is the developing nations that have vastly benefited from FDI by sparkling growth in local productivity. This enhances the welfare of consumers by making the products cheaper, makes producers better by more gains on a unit of product sold and the economy on whole by redistributing labor from less efficient sectors to where they are required. This loss of jobs is what we villify. But this is inevitable in any economy that wants to grow, with or without FDI. The concept of ‘creative destruction’ as explained by the great economist John Schumpeter explains this much better than anyone else.

People suffer from more government and not more business. The key to any suppression of population is not because the owner of your business is a foreigner but because that foreigner pays the government officials to stay in business who in return blesses him with license to run the business. Indians flourished in olden days because of free trade across the world. Arabs owned businesses in India, married Indian women and became part of the culture. We ran businesses in foreign lands as far as Indonesia as free traders.

The problem is not lack of law but rule of law. At every possible step we have increased the number of laws in the name of public interest. But the society hasn’t become safer. If FDI is harmful, look at the age of Indian License Raj or pure central planning in Nehru’s era, was India at the height of prosperity? The problem is not that we require more and more check points against possible threats. A much reduced version of our criminal justice if enforced properly will cover all possible crimes against person or property in India. A politicians condemns through one law and collaborates through another with the same perpetrator.

Foreign Investment is not equal to Foreign Invasion. We have to start trusting our own courage and ability to defend our freedom and liberty. We cannot remain in the perpetual dread that foreigners will take over India again. We have a nation-state, an army to defend the country’s territory, judiciary and security to protect the country’s people and conviction in heart to protect our culture and values. Could any Indian in early 80s imagined the telecommunication revolution that has brought India together. Almost every single comfort we use in the urban life is a result of foreign investment in one way or the other.

India has strong regulatory frameworks.  India has strong autonomous regulatory bodies that are very well capable of handling malpractice by any firm let alone foreign firms and bring them to justice unless otherwise there is powerful political intervention. SEBI, RBI and now Competition Commission of India are there to safeguard property just as how we have a justice system to safeguard our life.

Free trade should be the norm and not the exception. Business is a human activity. It is the source of human welfare and prosperity. We did not stop A.O.Hume from founding Indian National Congress, we did not stop Mahalanobis from founding central planning. Now why should we stop foreign based business out of an archaic fear? Facts are overwhelming showing that free trade with rule of law in the land ensures prosperity for all citizens, mainly the poorest. let us not throw away the chance of poor to rise above poverty by virtue of our so called unfounded fear which confuses us between crony capitalism and free trade.

Jobs will be lost. but that’s the rule of the game.  As productivity and efficiency increases, lesser people will be required to do the job and hence jobs will be lost. We did not protest the loss of jobs to horse carts when auto-rickshaws came. We did not protest loss of jobs to phone booth operators when mobile phones came. We did not protest the loss of jobs to witch doctors when western medicine came. Why now?

Free trade is an expression of human freedom to pursue their happiness by trading the best you have for the best you want. Humans are not perfect and so their actions. There will be grievances. But those are exceptions and to be treated as such.

Indian farmers will be affected. They will lose their jobs but they will adapt just as humanity always has. They will become the engineers, industrialists, journalists, artists of the future. Do not deprive the long term growth of a society because of short sighted fear.

Youth guide to effecting change in India

Indian youth are powerful and righteous. Their sense of justice erupts like a raging volcano and cools back like one. They protest for a cause and long for a change at the first event of a gruesome incident such as the recent Delhi gang rape even though such rapes have become common place in India along with many other crimes.

 
India witnesses civil servants being road rolled and shot at point blank range for doing their duty. Justice is delayed. Victim loses hope and accused lose the fear, double blow to the idea of justice. Yet, we blame the lazy judiciary but not call for judicial reforms. We blame police for negligence and anti-public behavior and not call for police reforms. We blame the government and private equally for illegal land encroachments and land grabbing but stay silent on repealing the abrogation of fundamental right to property. Anything and everything that needs to be done for institutional change are forgotten and severity of the crime becomes the gauge for public outrage and not the persisting trend of the crime itself.

 
So what are we going to do? Are we going to take the streets every time a crime happens? That is perhaps the most inefficient way of deterring future crimes if at all. Besides think guys, even the politicians know that you can’t stay on the streets forever and without the continuous media attention even the organizers of such protests cannot sustain it. And even your parents will raising the brows as your studies and etc starts to get affected. In short, you can’t continue such protests forever. Hence, the politicians will keep making promises giving the parliamentary process for change as an excuse and you will go back to your slumber till the next villain strikes. It is surprising that such a simple fact has been repeatedly overlooked. And besides we are not going to have an Arab revolution of any kind as more than enough people are content with their lives and don’t find it worth the time to fight for a change. As long as the middle class is wholly affected no change in India is possible. Even if you manage to continue the protests and if the police resort to lathi charge or tear gas or anything of the sort, you can lodge complaint and processing that complaint is going to take ages and you will have better things to do than follow up on that complaint. This is not a cynical picture but a practical one.
Hence, the baseline is:
STOP THE STREET PROTESTS
What else should we do?
Policy and Institutional change!!!
How can we do that?

Often we have been led to believe that roadside protests and persistent anti-government marches can effect policy changes. Nothing could be farther from truth. Policy or institutional change simply means to change the rules by which government and its officials work. As any economist will know and say, people respond to incentives, i.e. people always act in their self-interest. This is a universal law with no exceptions including the moral giants such as Mahatma Gandhi. For some such an interest is served by monetary artifacts while for others it is self satisfaction or clean conscience or others of the kind. And unless we accept and understand this first principle, we will always keep hoping for a saint like figure to come along and lead the change, just the way Anna Hazare was perceived. Unless we understand that our vote is the currency for good governance, we will continue to neglect it or misuse it for temporary incentives such as freebies etc.
Votes are like currency. That is OK  But where do we use it and how do we use it and how to ensure that we get quality product in return? We need to know what changes in policy are required, for that both the public and the media should start to open the pages of the Indian constitution. Discussions on Indian laws, constitutional articles should become commonplace. People should start talking about what the politicians do in government and what kind of rules makes their actions legitimate. We should start questioning the very rules and regulations that govern our daily life. Delete the laws that bind us unnecessarily, reform the laws to make them lean and mean instead of the grumpy mammoth it is now. Let children understand the social sciences at school and vomit the answers in exams.

There is an upside to investing so much energy and time into learning and sharing the needs and details of institutional or policy change. When the marginal voter(in economic terms) or the one additional voter starts demanding specific policy changes, politicians have no other way but to respond to this new trend. Their incentives change given that the new vote bank cannot be influenced with old lies and myths. Deceptions will not work. The parties will start competing in providing more efficient policy changes as the voter becomes aware and demands specific changes. But this is a slow process and demands the patience as required of building any sustainable change.
Even if we succeed in identifying the necessary institutional changes and in making it known to the world, the true success lies in those who want the change, to start voting. If the average voting percentage is around 60-70%, one can imagine the kind of leverage the remaining 30% will hold if they know what changes are required in governance. It goes without saying that urban population and rural youth form a predominant section of that 30%.

Once we know what are the changes required then start advertising them. Increase such content on web; organize informal societies and groups to create awareness. You can even have peaceful march displaying all these changes in banners!! Media definitely has to change its thinking. They need to move from sensational to sensible news. Use their reach to public, by bringing out the right content, those that creates awareness and not anguish. News that triggers reason and not rage. Only when there is a concerted effort from all sections of society, we can avoid information asymmetry and hence hope for a sustainable change.
It is mobilizing this section of society to understand the significance and synergy between institutional change and electoral politics that is need of the day. The destiny of the nation lies in how we direct the sails of institutions as the wind of time blows. It is aptly said that, we are captains of our fate and we are master of our soul.

Intelligent Indian Diaspora: A case for Indo-US Free-trade-agreement

Give me your tired, your poor, your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tossed, to me: I lift my lamp beside the golden door

 

What Emma Lazarus said above has entrenched itself not just on the pedestal of the Statue of Liberty but in the lives of every single immigrant to have crossed those shores from lands far away. But of course more than the tired and the wretched, it was those yearning to breathe free who emigrated from India to the United States of America.

 

Vivek Wadhwa, an academic, entrepreneur and scholar has conducted numerous studies on immigrants in America and their entrepreneurial contributions. While the underlying theme of his studies were how America is losing entrepreneurs due to immigrant exodus, he implies that countries like India and China whose populace form the larger share of both the entrepreneurial activity in the US and of the exodus to back home, benefit from this phenomena by converting ‘Brain drain’ to ‘Brain Circulation’. Leaving the Chinese aside, the underlying assumption in the claim is that Indian state will be able to fully capitalize on the returning talent to the country, converting them into social gains which we couldn’t rap when these same people migrated to US for studies or career.  But this presumption is grossly misplaced. India ranks 123rd in the world in the economic freedom index[1] according to the Heritage Foundation, a Washington DC based think-tank. We lack good governance to an extent that frustrates those living here let alone those returning back from developed countries such as the US. Our labour laws are archaic, property rights are feeble and red tape is rampant. In short, the environment is not conducive to the point where returning Indians can utilize their potential to the maximum in entrepreneurial activities.

To be fair, the economic liberalization of the country has indeed been moving forward, even if by miniscule measures. Despite the exigent Indian political narrative with respect to foreign direct investments, economic situation of the nation has indeed made it an imperative to sustain the growth and avoid any possibility of a stagflation. Specific Indians states have indeed cultivated a reputation for governance favouring the development of entrepreneurship. Especially, Bengaluru in Karnataka and National Capital Region encompassing Delhi, Gurgaon, Noida and others have also witnessed growth of start ups amidst them. It is little perplexing that most of those returning to India from America with the intent to set up businesses are drawn more by the cheap labour costs than the local market, given that India is largely a consumer driven economy rather than investor driven.

The immigration exodus mentioned before shouldn’t lead to the conclusion that the Asian and especially Indian entrepreneurship in USA has dampened. On the contrary, according to a recent study by Kauffman Foundation[2] , based on a sample survey, about 33.2 per cent of the co-founders of engineering and technology companies incorporated in the US during the last six years were Indians. This is an increase of about seven percentage points from what a similar study that examined immigrant-founded companies between 1995 and 2005 found.

In the current scenario Indian government has a lot of stake in pushing for a two point agenda with respect to the topic of discussion. Firstly, the immigration and naturalization rules that are being tightened in the US especially for H1-B visas needs to be relaxed. As of now US allows a fixed number of naturalizations for India, this number has to be pushed north.  With the releasing of studies by Wadhwa et al, there is a potential opportunity to change the narrative of the immigrants in USA, especially the Indians. The re-election of President Obama has created mixed feelings in the Indian stands. While he continues to appreciate the contribution of immigrants and contribution of Indians and India towards USA’s global agenda, he nevertheless cannot ignore the local animosity towards jobs being taken away from natives through the twin-devils of immigration and outsourcing. Being only the second President to have been re-elected with the economy in such a perilous condition should give him the confidence to push for controversial yet beneficial reforms against popular sentiments. The question then is what India stands to gain from pushing for more Indian entrepreneurship in USA than promoting the Brain Circulation back to India? This is where the second point of the agenda comes into light. India’s second strategy should be to push for a Free Trade Agreement with USA. In a 2004 paper[3], the authors explored the various reasons from both offensive and defensive positions towards why India will benefit from a FTA with US than other multi-lateral or WTO driven market liberalizations. The paper focused on the IT sector but it has been 8 years since and the status quo has changed. With the rise of robotic-driven software services as offered by IPsoft Inc. and Blue Prism Ltd., the traditional Indian outsourcing firms are in peril of losing their USP: inexpensive labour. A greater danger is the lack of growth in labour-intensive manufacturing sector. This in turn has created a lack of alternate opportunity for labour released from agriculture if the sector were to be liberalized and hence leading to the continued protectionism. So what will FTA with USA do for India? Here I shall mention only that which is relevant leaving the rest to existing literature. Removing the high tariffs on the technology imports will facilitate technology transfer at a much cheaper price to Indians. The consequences of such a transfer are manifold. But mainly for India it will be renaissance of industrialization and boost to the labour intensive manufacturing sectors. The high cost of capital investment usually deters new entrants into the field but with the reduced import costs, we can see the rise of a new age of technology entrepreneurs. It will also boost the American business and hence adding new jobs to an economy that badly needs it. India is a consumer driver economy unlike China; this should stand in great advantage for India amidst the fear of shift in labour supply from US to India. Secondly, it will lead to greater labour welfare according to the factor-price-equalization. Given that USA and India have a Ricardian comparative advantage in technology and labour, we can expect the price of technology to fall and labour to rise in India. It is in the interest of India to show that the overall gain to the USA is positive. Thirdly, if studies by Wadhwa et al indeed show a potential trend for immigrant exodus to India, then opening up trade and establishing technology partnerships with American firms founded/co-founded by Indians will be of great long term gain to us. Since a rising number of these entrepreneurs wish to come back to India due to family ties and other personal reasons[4], there is a strong motivation to establish an entrepreneurial enterprise in India in view of future migration. Facilitating this process will help to establish a greater rapport with the Indian entrepreneurial community with India. Finally, these technology transfers have a huge potential to solve many of the prevailing social issues. As a concluding example, one can look at the problem of food wastage in India which is reported to be at the level of around 30% due to lack of proper cold storage distribution networks. But maintaining such cold storage chains come at a high cost in India due to the lack of power supply and hence reliance on diesel generators and other alternatives. The fuel cost for generators shoots up the market price of the farm produce thereby making it cheaper to let the food go to waste. But if one were to leverage new technologies such as Bloom Box by Bloom Energy Inc., there is a great opportunity to drastically bring down the operating costs in the long run for these chains and hence save the farm produce from destruction and wastage.

We are living in a world that doesn’t reward narrow perspectives based in protectionist agenda. A free trade agreement with US in the light of Indian technological entrepreneurship over there finally coupled with the immigration trends as verified by Wadhwa et al provides a strong case for renewed discussions on forging a free trade agreement between Indian and USA. The exigency of the situation can be simply put as, ‘sooner the better’.


[2] America’s New Immigrant Entrepreneurs: Then and Now, Kauffman Foundation

 

[4] The grass is indeed greener in India and China for returnee entrepreneurs: America’s new immigrant entrepreneurs: Part VI, Wadhwa et al. 

Asian trans-nationalism: Made in USA

Indians migrating to US is not a new phenomenon. Especially after the naturalization rights restored by the Luce-Celler Act of 1946[1], Indian population in US have always been on the rising tide save the two decades from 1920-1940 when the naturalization numbers came down to 554 from the previous decade’s high of 3478[2]. The current population stands at approximately 1.857 million Indians[3].

The US Immigration statistics sometimes reflect socio-politico situation of the native country such as the number of Indian asylum seekers in the year 2002, year of Gujarat riots, which was 1059[4] and has saw nearly 74% in the very next year to 274 and has stayed below that ever since.  The prediction could be justified on the basis that Gujarati population in the US as of 2010 stands at 287,367 and that Gujarati is the only regional Indian language featuring in the census that year[5]. But the rising question is to what extent does the Indian Diaspora in US influence the socio-political situations back home? Apart from the economic derivates which formed the primary influence of the community on the state of affairs back home, a growing apprehension is about the Diasporas’ ability to redefine what nationalism means in the Indian subcontinent.

George Santayana said, “Our nationality is like our relations to women, too implicated in our moral nature to be changed honourably and too accidental to be worth changing.”[6] Conventional wisdom says he is probably right but empirical evidence may indicate a trend to the contrary. As Gellner says, Nationalism is essentially a political principle which says that the political and national units have to be congruent.  He further explains by adding that nationalism is a theory of political legitimacy, which requires that ethnic boundaries should not cut across political ones. Among the two it is the concept of ‘ethnic boundary’ that forms the foundation of this discussion. Within any geographical or political unit, one can differentiate between different ethnicities based on the cultural variation irrespective of how subtle they are. Within India, the narrative of North Indians, South Indians and North-East Indians are well acknowledged. As we move further these intra-Indo ethnicities fuses to form a common ‘Indian’ identity and hence goes on. This is the scenario currently playing out in the Indian emigrants in the US and has the potential to influence the sub-continents regional politics.

The rise of trans-nationalism in the US has long been observed in the context of domestic issues but not for its larger implications beyond the host country of the immigrants. The ethnic roots of nationalism also help us explain trans-nationalism which is nothing but extended nationalism. Ethnic variations like any other physical variations lose their incumbent relativism when confronted with larger variations. Taking the case of USA, the differences between South Asian identities become negligible when seen in relation to the western culture. There exists a plethora of avenues and enterprises where these intra-Asian differences are transcended to serve larger political or economic objectives.  Some of these organizations as indicated by an article[7] go on to serve the professional and personal prospects of the pan-Asian community. The conflict of interests has brought together various Asian communities to secure their interests in the American stage.  The nature of pan-Asian collaboration did not take a political turn till the Asian lobbying in the United States became significant. Even Indian government in the height of the civil nuclear deal dilemma in 2009 spent a near to $ 2.2 million on lobbying through well known lobbying groups such as Barbour Griffith & Rogers (BGR)[8]. The advent of USINPAC (US-India Political Action Group) and India Caucus has redefined the Indian lobbying in US. These groups have growing influence over the American politics as noted by even Pakistani media[9]. Asian trans-nationalization and increasing Indian lobby in US might influence Indian geo-politics in the sub-continent in a subtle way.

In his paper, ‘Working for India or against Islam? Islamophobia in Indian American Lobbies’, author Ingrid Therwath analyses a certain discontinuity in the Indian American lobbying groups[10]. The difference arises from personal and generational conflicts. It’s the latter that has special significance in this context. Indian associations run by the second-generation Indian immigrants such as Indian American Leadership Initiative, Indian American Centre for  Political Awareness etc are especially critical of groups run by first generation Indian immigrants such as USINPAC for its outdated perspective on international diplomacy. They increasingly endorse the necessity of South –Asian identity in tackling various domestic and international issues. They are a generation who have divorced themselves away from the ‘Yankee Hindutva’ paradigm[11]. These Indians are starting to play an increasingly significant role in influencing ideas both sides of the globe with increasing Indo-US nexus.

A civilization evolves based on the dominant ideas of the ethos. This claim has stood the test of time over and over again. The evolution of nationalist sentiment is also attributable to the influencing ideas of the age and is sourced by influential figures of the society. A recent study[12] has indicated that an increasing number of second generation Indians in America are returning to India from US due to the economic slowdown in US and the growth potential of India. But what they bring back with them is more than just skills or talents, they bring ideas too. It is not the first time that ideas from across the Atlantic have inspired Indian arena. In June 1916, an Indian living in California wrote a letter to The New York Times emphasizing how profoundly Indians in the United States had been influenced by the political values of their adoptive country.

“Residence in the U.S. has not made [Indians]…who returned home ‘imbued with revolutionary ideas’ but it has made them republicans.” He added, “The whole country has been stirred by their vision of a United States of India.”

While the last time, the ideas helped to define Indian nationalism, this second wave of migration of ideas will redefine Indian nationalism. As these students, professionals, entrepreneurs, academics and think-tanks return home, they bring with them a different perspective of nationalism, that of Asian or at least South-Asian trans-nationalism with them. As people and governments get vexed by animosity and seek areas of cooperation, these individuals positioned in influential quarters of the society will serve to mould the perceptions and popular opinion consciously or unconsciously. Whether it is potent enough to overcome the entrenched nationalist sentiment is doubtful. As Benedict Anderson explains through the idea of ‘long-distance nationalism’, the trans-nationalization may not be enough to make nationalism obsolete but this turn of events is definitely something to watch out for.

 


[1] http://en.wikipedia.org/wiki/Indian_American

[2] Table 2.PERSONS OBTAINING LEGAL PERMANENT RESIDENT STATUS BY REGION AND SELECTED COUNTRY OF LAST RESIDENCE:FISCAL YEARS 1820 TO 2011, Yearbook of immigration statistics:2011, Office of Immigration statistics.

[3] The foreign born from Asia: 2011 by Thomas Gryn and Christine Gambino

[4] Table 17. INDIVIDUALS GRANTED ASYLUM AFFIRMATIVELY BY REGION AND COUNTRY OF NATIONALITY: FISCAL YEARS 2002 TO 2011, Yearbook of immigration statistics:2011, Office of Immigration statistics

[5] http://articles.timesofindia.indiatimes.com/2010-09-03/india/28239171_1_gujarati-regional-language-census

[6]Pg 1,  Nations and Nationalism, Ernest Gellner

[7] http://college.monster.com/training/articles/2117-11-asian-american-professional-organizations-to-help-you-get-ahead

[8] http://www.ndtv.com/article/india/india-spent-over-1-5-mn-on-us-lobbying-in-2010-81107

[9] http://pakobserver.net/detailnews.asp?id=97876

[10] http://samaj.revues.org/262?&id=262

[11] Mathew, Biju; Prashad, Vijay (2000) ‘The Protean Form of Yankee Hindutva’,Ethnic and Racial Studies, 3 (3), pp. 516-534.

[12] http://www.gatewayhouse.in/publication/analysis-amp-background/backgrounders/love-and-money-second-generation-indian-americans-%E2%80%98return%E2%80%99-india

 

Vidharba Synergy: American solution for an Indian crisis

The US Presidential Elections is important to foreign spectators in many ways and one of those avenues is identification of new areas of cooperation and synergy. One such area in this year’s elections has turned out to be that of coal.

Obama’s administration in the last 4 years has brought down the dependency of the nation on coal primarily due to the flooding of the energy market with shale gas, facilitated by the technology of hydraulic fracking. The expected drop in demand of coal based power generation to around 22% and the expected retirement of around 59-77 GW of the same has triggered massive unrest in the battle ground states with significant coal mining communities such Oregon, Virginia etc. Due to the fall in domestic demand, American coal mining companies especially the stalwarts such Peabody Energy have turned their focus onto the Asian markets especially South Korea, China and India. It is important to note that coal is sold as metallurgical coke used for steel making and steam coal used for steam generation in thermal power plants. While Asia and India in specific already imports a significant amount of metallurgical coal from the US, the steam coal import is steadily growing.

India imported 994,731 short tonnes of metallurgical coal in the year 2011 from US against the 231,664 short tonnes of steam coal. But this trend is set to change as India’s demand for coal imports will shoot to 80 million tonnes in the fiscal year 2012-2013. While Indonesia remains the largest supplier for Indian coal imports, the recent Indonesian proposal to ban exports of low-grade thermal coal by 2014, will have an impact on the domestic power sector that is dependent on the Southeast Asian country to bridge the coal supply shortfall for power generation in India. The major coal consumers in India are also looking at a possible rise of $30 in the coal per tonne due to certain Indonesian legislations makes the US imports very significant and poised for growth. As America looks forward to increased coal exports to Asia especially India, it needs to heed certain local dynamics to facilitate its business. One such issue is that of Vidharba region in the state of Maharashtra in India.

Vidharba region in Maharashtra comprises of around 11 districts and 30% of area and approximately 21% of population of the state of Maharashtra. The region produces nearly 68% of the State’s power requirements which is mostly consumed by the western Maharashtra. But as of today the government has approved nearly 132 power plants in the region with a combined capacity of 86, 407 MW. The 132 plants will need around 1 lakh acre farm land and 3,600 mm3 water. With that much amount of water, over 5.5 lakh hectare land can be irrigated. The proposed power plants will burn 18 lakh tonne coal per day turning “Vidharba into an ash dump”. There have been more than 30,000 farmers who committed suicides in Maharashtra in the last decade, out of which more than 70% farmers belong to the 11 districts of Vidharba region. This is mainly because of the infertility of the land, lack of ample amount of water resources, lack of new technologies and due to the negligence of the state govt. towards the farmers needs.

The Government of India is in a precarious position with respect to Vidharba region. On one hand it needs to compensate the power deficit which recently left nearly 600 million people without power for 3 days in the northern India when all the major grids of the region failed. Given that coal based thermal power plants provide around 66% of the installed capacity of 207.85 GW, the protests in Vidharba are seriously hurting the industry and economic progress of the nation. One of the main reasons for locating the power plants in Vidharba is its vicinity to Orissa’s coal mines and ports that import coal from Indonesia.

It is in the above context that USA can leverage the situation to boost their coal exports to India. By developing ports in the coast of Maharashtra, they can provide great hedge to relocate the power plants to the western Maharashtra. The American companies help set up a desalination plant on the western coast thereby satisfying the requirement of nearly 3600 metric meter cube of water for the planned installations. Another significant advantage for the Indians to shift the thermal power stations to coastal areas in partnership with American firms is the decrease in logistics, procurement of higher quality coal than the Orissa supplied and finally the possibility to cut down on transmission and distribution losses which is estimated to be around 30-40% of the generated power.

The Americans need to export coal, Indians need to import coal, Vidharba farmers need their irrigation water to stop further suicides and government wants addition to installed power generation capacity. All the above objectives can be satisfied by active partnership between American coal exporters and Indian firms by developing ports on the western shore and installing a sufficiently capable desalination plant to source the water requirement of the thermal power plants. The additional advantage is that the heat from the thermal power in itself can be used to desalinate, thereby establishing a symbiotic mechanism to obtain both power and water. It is time that international firms looked beyond the grace of local governments for infrastructure and utilities and make way for new markets through innovative synergies.

 

References:

  1. http://www.downtoearth.org.in/node/887
  2. http://www.newstrackindia.com/newsdetails/2012/08/07/449–New-thermal-power-plants-to-escalate-Vidarbha-farm-crisis-.html
  3. http://infochangeindia.org/environment/features/vidarbha-dirty-technology-in-the-guise-of-development.html
  4. http://www.sourcewatch.org/index.php?title=U.S._coal_exports
  5. http://www.eia.gov/coal/
  6. http://www.business-standard.com/india/news/steam-coal-imports-to-zoom-amid-indigenous-supply-woes-/482639/
  7. http://www.business-standard.com/india/news/indonesia-thermal-coal-export-ban-proposal-worries-india/427289/
  8. http://articles.timesofindia.indiatimes.com/2012-06-05/nagpur/32054433_1_power-plants-vidarbha-sudhir-paliwal