Indian Economy - News & Updates - Archive

[Flintlock]

Economic Terrorism’ threatens India's economy
Font size: Decrease font Enlarge font
Raja Murthy 28 August, 2008 08:16:00
"Economic terrorism" threatens India with a staggering US$51 billion worth of counterfeit currency circulating in the country, according to India's Intelligence Bureau. The government, though, has expressed no serious hurry to tackle this menace, even as police say fake currency notes are also funding terrorist groups in India. The Reserve Bank of India (RBI), the regulator, estimates a lower figure of counterfeit money than $51 billion, but given a flurry of publicized recent police arrests across the country of suspects nabbed with huge amounts of fake currency, estimates could be on the higher rather than the lower side.

.......

Panda has reasons for anxiety. Over 25% of currency in public hands could be counterfeit, given RBI statistics that $140.95 billion worth of currency notes are in circulation as of August 15, 2008. Worryingly, police seizures of fake notes sensationally included a branch of the country's leading banker, the State Bank of India. An August 8 seizure of over $369,000 worth of fake notes from the State Bank of India branch in Domariaganj, a small town in the north Indian state of Uttar Pradesh, led to arrests of a bank cashier, Sudhakar Tripathi, alleged to be involved in mixing fake notes in the bank's currency chests. Tripathi was caught only after he began conspicuously splurging the money with which he allegedly had been bribed by counterfeiters.

MorungExpress.com > Latest breaking news on Nagaland,India & world - ?Economic Terrorism? threatens India's economy

 

[Nafees]

Indian economy's biggest challenge ​

Source: By Kaushik Basu
Professor of economics, Cornell University . BBC NEWS | South Asia | Indian economy's biggest challenge

Seldom are parliamentary proceedings in India as exciting as they were last month when the Congress-led government survived a no-confidence motion against it, after its Communist allies pulled out support and a motley group of smaller parties stepped in.

The nation watched the parliamentary debate and the vote with an attention that is usually reserved for cricket matches.

At the heart of the controversy was the '123 Agreement' between India and the US, which requires India to open up its civilian nuclear facilities for international inspection and, in return, the US and other members of the Nuclear Suppliers Group (NSG) to lift the blockade that was placed on India in 1974, following India's testing of a nuclear device.

The blockade prevents India from importing uranium and other 'dual-use' materials and machines that can be used for the production of nuclear weapons, even if India wishes to use them for peaceful purpose.

Desirable agreement

This meant that India could not expand the production of nuclear energy.

From India's point of view this agreement seems eminently desirable.

Some argue that nuclear energy is not economically viable. But this misses the point that the 123 Agreement does not force India to produce nuclear energy. It simply grants India the right to do so.

It is, therefore, not surprising, that the Indian parliament finally signalled its approval of the agreement by defeating the no-confidence motion.

There are a few more steps to be taken by the international community before the agreement takes force. If and when that happens, it will figure as one of the most major breakthroughs of this government.


It will be a de-facto recognition of India as a nuclear power but that is not what I am referring to (and it is not clear that that is a reason for celebration).

To me what is more important is that the agreement can have a huge impact on the economy.

Expectations have been raised in many quarters that, without the restraining effects of the Communists, the Congress-led government will now usher in important economic reforms.

Domestic lobby

I do not think that one should expect much to happen on this front.

Maybe some small banking and insurance reforms will go through but not much else can be expected in the short run.

For one, it is foolish to think that all restraints to reform were coming from the left.

There is still a large lobby of domestic firms that is against foreign corporations coming into India. And this force is not about to vanish.

Second, with elections round the corner the government is unlikely to attempt any major reform just now.

The main boost will come from the fact of India having the option to produce nuclear energy and also from the signal-value of the lifting of the blockade to the world of India being a recognised global player.

If the price of oil climbs very high and our effort to produce solar energy continues to be frustrated, nuclear energy can jump to a major source of power.

Once the big worry shadowing India's growth curve, namely, the possibility of power shortages, is somewhat allayed, the nation could see a sharp rise in foreign and domestic investment in the form of start-ups and industrial expansion, and be able to concentrate on other important reforms.


One such second-generation reform that ought to get priority is the control of corruption and bureaucracy.

For ordinary Indians, one of the most distressing features of the Indian economy is corruption.

Rightly so. Corruption is morally degrading, eats into the fabric of society and hurts economic development. A government that can credibly promise to deliver on this will gain instant support.

This is where the present government can leverage its recent victory in parliament and make a difference to the nation.

The Indian Prime Minister, Manmohan Singh, is one of those rare politicians, whose power comes largely from his honesty and decency. He is in a position to spearhead a move to curb corruption.

This will not be easy since large vested interests have developed in the present system and there will be resistance.

There are some sectors, such as housing and real estate, where corruption is so endemic that a law to book all corrupt persons will cause an intolerable disruption of business.

The design of corruption control is a subject on which a large literature has developed.

The plan has to combine moral commitment with intelligent design.

If this government can start on such a program now and deliver on it over the next five years, this will go down in independent India's history as a change as significant as the reforms of the early nineties and maybe more.

 

[Neo]

India sees record rice buys, export hopes brighten ​

Thursday, August 28, 2008

NEW DELHI: India will buy record quantities of rice from its farmers after a good harvest, a top government official said, raising hopes it will join the ranks of top global producers easing export curbs.

India will review its ban on non-basmati exports in November, and the possible return of what was the world’s second-biggest rice exporter last year will add further pressure to prices that have slid around a third from their May record high.

Alok Sinha, chief of the Food Corp of India, told Reuters the state-run firm had already bought more than the targeted 27million tonnes, easing concerns of some trade and government officials that procurement would fall short of the mark. “After procuring record quantities of wheat, we are going to repeat the feat in rice by procuring 28 million tonnesí surpassing 27.5 million tonnes procured two years ago,” Sinhasaid.

India joined other major producers earlier this year in banning exports on fears of dwindling supplies and rising prices, sending benchmark Thai prices THWHB-up three-fold to a record peak of $1,080 a tonne in March.

But Egypt has said it will end its ban next month, Pakistan, the world’s fifth-largest exporter, has scrapped a minimum export price, and Vietnam lifted its ban in mid-June. Traders say India’s recent decision to allow exports of seeds of rice and corn as well and hopes of record purchases may spur the government to allow some exports.

Farm Minister Sharad Pawar has said the government would review the ban on non-basmati rice exports after October, when the new crop is harvested. Sinha, the custodian of the country’s grain stocks, said wheat at warehouses stood at 23.5 million tonnes, up from 13.5million tonnes a year ago.

Rice stocks were at 7.9 million tonnes, down 2 million tonnes on year. Higher food stocks in India, the world’s second-biggest grower of rice and wheat, ease concerns of a shortage in world markets and keep global grain prices in check, analysts say. While rice export curbs pushed Thai prices up, a number of wheat import tenders floated by India in 2006 and 2007 led to a spurt in prices on the Chicago Board of Trade.

 

[Contrarian]

You all have forgotten to mention that InfoSys just bought a UK based software solutions and consultancy firm. Its the biggest buy by an Indian Software major till now. It is the biggest buy and one of the biggest news...

Sheesh!

 

[dr.umer]

'Only Nepal is worse than India in terms of poverty'​

New Delhi, Aug 28: A day after the World Bank said that over 45 crore Indians live below 1.25 dollar a day, another multilateral agency ADB came up with a new indicator which said India ranks below even Bangladesh, Pakistan and Sri Lanka in terms of poverty among Asian countries.

Almost 54.8 per cent of the Indians were spending less than USD 1.35 a day in 2005, said that the ADB while releasing Key Indicators 2008, which provides a new methodology for measuring poverty.

According to World Bank's latest definition of poverty, persons spending less than USD 1.25 dollar a day are poor. Earlier, poverty line was fixed at USD 1 dollar a day.

ADB study also pointed out that the only Asian country which suffered from higher incidence of poverty than India was Nepal where more than 55 per cent people were living below the poverty line.

Among the other neighbouring countries, 42.9 per cent were poor in Bangladesh, 24.9 per cent in Pakistan and 5.9 per cent in Sri Lanka.

ADB study added that 62.19 crore people were poor in India in 2005, while according to World Bank's estimates the number of poor was 45.6 crore, which were more than poor living in sub-Sahara Africa.

Pointing out that sustained economic growth is imperative for poverty reduction, ADB said, "policies that can also make growth more inclusive (should) remain the gold standard that policy makers should pursue." According to the ADB report, pro-poor distribution policy can reduce poverty from 54.8 per cent to 20.4 per cent by 2020, while the pro-rich policies would bring down the poverty to 29.6 per cent.

 

[dr.umer]

India growth at 3-½ yr low but rates to stay tight​

Reuters UK
By Surojit Gupta

NEW DELHI, Aug 29 (Reuters) - India's economy grew at its slowest annual rate in 3-½ years in the June quarter, losing momentum as services slowed markedly, but high inflation meant the central bank was unlikely to relax its monetary stance soon.

Annual growth for India's April-June fiscal first quarter was 7.9 percent <INGDPQ=ECI>, data showed on Friday, lower than the median forecast in a Reuters poll of 8.1 percent and 8.8 percent in the March quarter.

Analysts said growth remained robust, but higher interest rates and oil and commodity prices were taking their toll and expansion for the fiscal year was likely to be about 7.5 percent, from rates of 9 percent or more in the previous three years.

"In the face of good growth and loose fiscal policy, I don't expect any relaxation in the central bank's tight policy stance even though inflation has moderated slightly," said Indranil Pan, chief economist at Kotak Mahindra Bank.

India, whose economy is less export-oriented that many of its Asian neighbours, is keen to see expansion of 8-10 percent to reduce poverty and create jobs.

China saw economic growth slowing in the first half but still in double digits, while Singapore and Hong Kong, Asia's most open economies, reported quarterly contractions in April-June.

Finance Minister Palaniappan Chidambaram said India was seeing a high degree of savings and investment which made him confident it would achieve its growth target.

This year also growth will be close to 8 percent, and close to 8 percent growth is not something to be scoffed at," he told reporters in Mumbai.

SERVICE GROWTH SLOWS

India's markets took the data calmly. The 10-year bond yield <IN082418G=CC> stood at 8.67 percent, after briefly dipping 1 basis point. The rupee <INR=IN> was a shade lower on the day at 43.78/79 per dollar while stocks were up 3 percent, helped by some moderation in inflation and gains in Asia.

Inflation in India has raced above 12 percent to its highest in the 13 years the current series has been available, largely due to surging oil and food prices, although data on Thursday showed the annual rise had moderated slightly in mid August.

The central bank raised interest rates three times in June and July, lifting its key lending rate to a seven-year high of 9.0 percent to dampen persistent demand pressures and discourage knock-on price increases from a hike in state-set fuel prices.

Economists said a loan waiver to farmers from the government and a steep hike in government employees' salaries this year would provide a boost to output.

"Consumption spending is going to get a boost from an expansionary fiscal policy in the second half of the year," said Gaurav Kapur, economist at ABN AMRO.

Manufacturing grew an annual 5.6 percent in the June quarter, slightly slower than 5.8 percent in the March quarter, while agriculture expanded 3.0 percent, a touch faster than previously.

Economists noted services, which form more than 50 percent of economic output, had braked faster than other sectors, slowing to 10.0 percent growth from 11.2 percent in the previous quarter, which they said was the weakest in three years, as global financial market turmoil took its toll on local markets.

"The prolonged slowdown in manufacturing does now finally look to be spreading to services, with financial services growth showing the biggest decline from 10.5 percent to 9.3 percent," said Robert Prior-Wandesforde at HSBC.

 

[nitesh]

Editorial: Over-estimating poverty?

Editorial: Over-estimating poverty?
Business Standard / New Delhi August 29, 2008, 4:35 IST

The World Bank recently published the results of a research project on global poverty. India, which has the largest absolute number of poor people however defined, is obviously a major focus of the project. The main innovation in the research methodology is the development of a new poverty benchmark, based on Purchasing Power Parity (PPP) exchange rates and domestic prices for 2005. The previous benchmark was based on 1993 numbers, which were clearly inadequate for capturing the dramatic changes in the Indian economy and, for that matter, emerging economies in general over the last decade.

From the Indian perspective, while the broad trends are indisputable, several questions arise from the numerical estimates of poverty. With the new poverty benchmark of $1.25 per capita per day, which translates into Rs 21.6 per day in urban areas and Rs 14.3 per day in rural areas at the 2005 prices, 42 per cent of Indians were estimated to be below the poverty line in 2005. This was substantially down from 60 per cent in 1981, but will still come as a shock to people, who are used to thinking of poverty incidence being in the low 20 per cent range. Very significantly, both from the perspective of the methodology for the study and the design of poverty alleviation programmes in India, the proportion of people who had less than a dollar a day, a popular benchmark, was estimated to be 24 per cent in 2005, down from 42 per cent in 1981, which brings it quite close to the official Indian estimates of poverty. This means that 18 per cent of Indians, about 200 million people, earn and spend between $1 and $1.25 a day. These are people who would not be considered poor by the system and therefore do not have access to various entitlements but have a standard of living not very different from the “official” poor. Two hundred million people falling through the cracks in this manner is, politically speaking, a ticking time-bomb.

This is where some concerns about the numbers are appropriate. In an article in this newspaper last week, Surjit Bhalla criticised the new PPP numbers and the benchmarks based on them as being completely inconsistent with other indicators of growth and development. His analysis suggests that, with the new numbers, emerging Asia as a region looks far worse off than with the old numbers. Virtually everybody who is doing business in emerging Asia today would dispute that fact; for most products and services, the last decade has unquestionably been a boom phase. The notion that a large number of first-time consumers for various goods and services can generate exponential rates of growth in demand for long periods of time has been validated for several products in all the countries in the region. Specifically in the Indian context, the recent record of penetration of products such as two-wheelers and mobile phones, not to mention a number of fast-moving consumer goods, challenges the estimate that there is such a large number of people on the fringes of the official poverty line. No one should dispute the fact that poverty in India is way too high and the quality of life of even the near-poor is unacceptable. However, the danger in over-estimating the problem is that it might evoke the wrong policy response, focusing on the immediate rather than the important.

 

[nitesh]

India clinches Asean FTA

The formal pact will be signed this December at the India-Asean summit at Bangkok, which is expected to be attended by Prime Minister Manmohan Singh.

The breakthrough comes after six years of negotiations for the trade pact, which is expected to add $12 billion by 2010 to trade between the participating nations.

A SNEAK-PEEK AT THE INDO-ASEAN FTA
* Reduces tariffs to zero in over 4,000 goods out of 5,000 that are traded. To be done in a phased manner over six years
* Partial reduction in import tariffs on highly sensitive farm goods. Tea, coffee &#8212; 45&#37;, pepper &#8212; 50%, crude palm oil &#8212; 37.5%, refined palm oil &#8212; 45%
* Sensitive list of goods with partial duty cuts &#8212; 606 items, (Agricultural &#8212; 16, Textile &#8212; 304, Machinery & auto &#8212; 60, chemicals & plastic &#8212; 226)
* Negative list with no duty cuts &#8212; 489 items. (Agricultural &#8212; 302, Textile &#8212; 81, Machinery & auto &#8212; 52, chemicals & plastic &#8212; 32, Others &#8212; 22)
* Operational from Jan 1, 2009, Deal to be signed in December, 2008 at Bangkok
TRADE SNAPSHOT
* Bilateral Trade (Apr-Feb 07-08) &#8212; $34.38 billion which is 9.59% of India&#8217;s global trade
* Exports &#8212; $14.02 billion, Imports &#8212; $20.36 billion

The deal comes at a time when the Doha round of world trade talks are stalled.

The India-Asean FTA also comes at a time when China has already signed a similar pact with the economic bloc, as a result of which bilateral trade between them soared to over $171 billion last year.

Today, a joint statement issued after a meeting of trade ministers from India and key Asean members said the agreement will facilitate the creation of an open market for 1.7 billion people with a combined gross domestic product of $2.4 trillion.

During the course of the FTA talks, several issues had emerged as stumbling blocks, which included composition of the negative list (trade items that are outside the purview of duty cuts mandated by the pact) and tariff cuts on five highly sensitive farm products (see chart).

In fact, India had to compromise on several of these issues and accede to demands of nations like Vietnam, Indonesia and Malaysia. The sticking points included reducing the number of items in the negative list, reducing tariffs on highly sensitive farm products as well as Rules of Origin, norms that ensure that products from non-Asean countries like China are not routed to India at zero duty under the FTA.

Once the deal is operational &#8212; which is likely from January 2009 &#8212; the signatories to the pact will begin cutting import tariffs in a phased manner.

Normal goods will see import duties reduced to zero over six years, items in the sensitive list, will see partial tariff reductions over a longer period of time (see chart).

Talks for the India-Asean FTA began during the National Democratic Alliance government, with both sides initialling a framework agreement in late 2003. It is a measure of the importance that the current United Progressive Alliance (UPA) government has placed on expanding India&#8217;s role in trade with the Asean nations that the pact has been finalised.

The UPA had internal concerns over reducing tariffs on five highly sensitive farm products &#8212; tea, coffee, pepper crude, refine palm oil. In fact, UPA chairperson Sonia Gandhi and minister of state for commerce Jairam Ramesh had last year written to Prime Minister Singh expressing concern over the possible adverse impact of such a move.

 

[nitesh]

India's economy grows at 7.9% in Q1

India's Gross Domestic Product (GDP) growth for the April-June 2008 period
has slowed down to 7.9 per cent, as against 9.2 per cent over the
corresponding quarter of the previous year. The GDP has been showing an
average growth of over 8 per cent over the last four years.

The economic activities which registered significant growth in Q1 of 2008-09
over Q1 of 2007-08 are, 'manufacturing' at 5.6 per cent, 'construction' at
11.4 percent, 'trade, hotels, transport and communication' at 11.2 per cent,
'financing, insurance, real estate and business services' at 9.3 per cent,
and 'community, social and personal services' at 8.4 per cent.

The growth rates in 'agriculture, forestry & fishing', 'mining & quarrying' and
'electricity, gas & water supply' are estimated at 3.0 per cent, 4.8 per
cent and 2.6 per cent, respectively during this period.

The production of crops rice, wheat, coarse cereals and pulses during the
Rabi season (which ended in June, 2008) of 2007-08 recorded growth rates of
3.3 per cent, 3.4 per cent, 8.6 per cent, and (-) 7.9 per cent, respectively
over the production in the corresponding season of previous agriculture
year. Among the commercial crops, the production of oilseeds declined by
12.6 per cent during the rabi season of 2007-08, while the production of
cotton and sugarcane recorded growth rates of 14.0 per cent and (-) 4.2 per
cent, respectively during the agriculture year 2007-08.

The GDP data, released by the Central Statistical Organisation (CSO),
Ministry of Statistics and Programme Implementation here today said that
among the services sectors, the key indicators of railways, namely, the net
tonne kilometers and passenger kilometers have shown growth rates of 9.3 per
cent and 7.0 per cent, respectively during Q1 of 2008-09.

In the transport and communication sectors, the production of commercial vehicles
, cargo handled at major ports, cargo handled by the civil aviation, passengers
handled by the civil aviation and the total stock of telephone connections
(including WLL and cellular) registered growth rates of 9.1 per cent, 8.8
per cent, 8.3 per cent, 4.4 per cent and 44.8 per cent, respectively during
Q1 of 2008-09 over Q1 of 2007-08. The other key indicators, namely,
aggregate bank deposits, and bank credits have shown growth rates of 21.1
per cent, and 25.8 per cent, respectively during Q1 of 2008-09 over Q1 of
2007-08.

The Index of Industrial Production (IIP), the index of mining, manufacturing
and electricity, registered growth rates of 4.7 per cent, 5.6 per cent and
2.0 per cent, respectively during Q1 of 2008-09, as compared to the growth
rates of 2.7 per cent, 11.1 per cent and 8.3 per cent in these sectors
during Q1 of 2007-08. The key indicators of construction sector, namely,
cement and finished steel registered growth rates of 5.8 per cent and 4.5
per cent, respectively during Q1 of 2008-09, as against the growth rates of
7.2 per cent and 5.4 per cent, respectively in Q1 of 2007-08.

 

[nitesh]

India set to achieve $40 bn FDI in FY09 - Express India

India set to achieve $40 bn FDI in FY09

New Delhi, August 25: India is set to attract foreign direct investment of USD 40 billion in fiscal 2008-09 with overseas investors betting big on the manufacturing sector in world's second fastest growing economy.
The country received USD 20 billion foreign direct investment (FDI) between January and June in the calendar 2008 and USD 10 billion in the first quarter of the current fiscal.

"Going by this, achieving USD 40 billion in 2008-09 does not seem unrealistic," Secretary in the Department of Industrial Policy and Promotion Ajay Shankar said at a FICCI function in New Delhi. The target for the fiscal is set at USD 35 billion. The inflows in 2007-08 were USD 25 billion.

Shankar said, though seeing slight moderation in production growth, India has emerged among the preferred destinations for the overseas investors. Automobiles and construction equipment segments are attracting increased interest among investors.

The DIPP Secretary expressed hope that the growth outlook in the manufacturing sector would be "more positive" in the next few months.

"There was a slight moderation but the industry has undertaken cost-cutting and other productive measures," he said.

The Index for Industrial Production (IIP) growth had dropped to 5.4 per cent in June this fiscal from 8.9 per cent a year ago. For the April-June period as well, the IIP rose by 5.2 per cent against 10.3 per cent in the same period last year.

Within IIP, manufacturing expanded by 5.9 per cent in June against 9.7 per cent in the same month last year. For the first quarter, the segment grew by 5.6 per cent, compared to 11.1 per cent in the corresponding period in 2007-08.

Though the growth outlook for 2008-09 has been lowered to sub-eight per cent by different agencies, India remains among the fastest expanding economies.

 

[Flintlock]

USD is an inaccurate indicator of poverty. A dollar can buy more in India than in Pakistan or Bangladesh.

 

[su-47]

the US ofte makes estimation of poverty by the 'under $2 a day' method. but they have to realise that in many countries, $2 can buy a lot more than in the US.

From personal experience: My father earns here in Pula (currency of Botswana) around the same as what he used to earn in India in Rs. And Rs: Pula exchange rate is roughly 6.5:1. so basically our standard of living should be 6.5 times better right? but its not. i would say that we are maybe at best twice as better off than in india, since cost of living here is very high. 1 Pula does not buy in Botswana what Rs 6.50 would buy in India.

Basically, what i'm getting at is that when measuring poverty, it shouldnt be on the basis of a universal currency, but on the basis of local currency, and on the standard of living.

That being said, there are A LOT of poor people in India, some who cant even afford three square meals a day. but the extent of poverty is not as bad as World projections.

 

[Ravsta12]

Hey guys i just read this article and i found the end bit interesting at the best but it just sounds scary to be honest. i wanna know wat u think about that. it says "In that light, China’s task of improving its private sector seems easier to accomplish than India’s task of arresting institutional decline." Well know does this mean that china's communist government is a better bet than india's democracy??

Growth begets further growth, which is good news for both China and India. But this column argues that it is easier to create or improve a market than to build state capacity, which means that China, with its lagging private sector, is likely to fare better than India, which has deteriorating institutions.

Can China and India sustain their current growth rates? A traditional answer to this question is conditional: yes, provided they continue to implement policy reforms. But historical experience allows a less guarded answer. There are few examples of countries that have grown as strongly and for such long periods as India and China have – 6% and 10%, respectively, for nearly three decades – and then suffered a sharp slowdown or collapse. If history is a reliable guide, then barring major upheavals, economic growth looks likely to continue in both countries until some threshold level of prosperity is attained.

But why does growth beget more growth? One mechanism is simply that growth signals the fact of profitable economic opportunities, which encourages investors to rush in, first in response to these opportunities but then in response to each other – this is growth as a confidence trick – creating a virtuous circle. If countries are relatively poor, if their markets are large, and if their policy framework is basically sensible – all of which are true of China and India – the chances of the growth-begetting-growth dynamic taking hold are high.

But in addition to the signalling effect, growth may itself cause changes which have in turn a growth-reinforcing effect – a kind of positive feedback loop. A good example is education. For long, development economists bemoaned the poor levels of educational attainment in India, directing their critique at the government’s failure to supply better education. But economic growth changed the education picture dramatically. It increased the returns to, and hence the demand for, education. And if government supply remained weak, consumers simply turned to the private sector to meet their demand for education. Improvements in educational attainment over the last 15 years are attributable in part to more rapid growth.

An important question then is whether India and China can take the positive feedback loop for granted, especially in relation to two key determinants of long-run growth: state capacity or effectiveness and the private sector’s entrepreneurial capacity. In other words, is it inevitable that over time growth will itself improve the quality of private entrepreneurship and public institutions? Consider each in turn.

Policy reforms have created the conditions for the private sectors in both countries to flourish. Yasheng Huang of MIT in his new book, Capitalism with Chinese Characteristics, argues that the Indian private sector, especially the indigenous part, is more efficient and entrepreneurial than its Chinese counterpart.

One crude measure of relative sophistication or entrepreneurial capability is how much direct investment (FDI) these countries are exporting, especially to the richer countries and especially in sophisticated sectors. Based on new data on mergers and acquisitions, Aaditya Mattoo of the World Bank and I calculated that India’s FDI exports to the OECD countries overall and even in the manufacturing sector were substantially greater than China’s (measured as a share of GDP). China is rightly considered the world’s manufacturing powerhouse and export juggernaut, and yet in the manufacturing sector, Indian entrepreneurial and managerial capital (in the form of FDI) has been more successful than China’s in taking control of and managing assets in the sophisticated markets of Europe and the US. So, while both private sectors have improved, India can claim today that it is ahead of China in fostering entrepreneurial capitalism.

Turn next to institutions. In the case of China, the focus of the world, and indeed the disappointment, has been the absence of the positive political feedback loop: growth and the attendant economic freedoms have not led to greater political development and openness. Implicitly, there has been less concern about the effect of growth on the state’s economic capacity. Over the last thirty years, the Chinese state has successfully created physical infrastructure and delivered essential services.

Contrast that with the Indian experience. While there are many exceptions, and at the considerable risk of over-generalising, the Indian state despite rapid economic growth has deteriorated over time. Whether it is providing basic law and order, or ensuring sanctity of contract, or delivering public services, the stench of decline is hard to ignore. For example, on a crude measure of government effectiveness on which I compiled data across time, India’s performance declined sharply: in the early 1960s, India was in the top fifth percentile of countries in the sample, slipping to the middle of the pack in recent years. The education example discussed earlier is an exception to the growth-institutions dynamic, made possible only because of private alternatives to state supply. For the core public sector functions, where such an alternative does not exist, the growth-institutions dynamic has been weak or non-existent.

So, growth in India has come with a more entrepreneurial private sector but accompanied by deteriorating state capacity. China has a vastly superior state capacity but an indigenous private sector that is still finding its feet. Which combination augurs better for the future?

There is a fundamental asymmetry between state and markets. It is easier to create markets than it is to create state capacity or to prevent its deterioration. Creating markets is a lot about letting go, establishing a reasonable policy framework, and allowing the natural hustling instinct to take over. In other words, hustling is the natural state. Building state capacity, on the other hand, is quite different. It involves overcoming collective action problems, mediating conflict, creating accountability mechanisms where outputs are multiple and fuzzy and links between inputs and outputs murky, and contending with the deep imprints of history. In Weber’s memorable words, building public institutions is like the “slow boring of hard boards”.

In that light, China’s task of improving its private sector seems easier to accomplish than India’s task of arresting institutional decline. So, while China and India can probably both count on more years of high growth, the odds still favour China pulling off that feat than India. That, and not just the meagre medal tally, should be what India mulls over after the Beijing Olympics.

voxeu.org/index.php?q=node/1585

 

[Neo]

Still can’t resume work at India’s Nano plant: Tata ​

Sunday, August 31, 2008

MUMBAI: Conditions are still not favourable to resume work at a plant in eastern India which will make the Nano, billed as the world’s cheapest car, Tata Motors said in a statement on Saturday.

Tata Motors which is building the plant to launch the Rs100,000 ($2272) car, has faced violent protests and political opposition over the acquisition of farmland in Singur, an hour’s drive from the city of Kolkata, the capital of West Bengal.

“There has been no improvement in the ground situation so far, hence the conditions are still not conducive for resuming work today,” a Tata spokesman said in an e-mailed statement. “We continue to assess the situation closely.”

Last week, Tata Motors Chairman Ratan Tata said he was prepared to move the plant from Singur if violence continued, despite having invested $350 million in the project. Trouble began after the government took over 1,000 acres of farmland for the factory. The government offered compensation but some farmers rejected it, demanding that at least 400 acres of land be given back to them.

The protests reflect a larger standoff between industry in India and farmers unwilling to part with land in a country where two-thirds of the billion-plus population depend on agriculture. Mamata Banerjee, leader of the opposition Trinamool Congress, which is spearheading the protests, has threatened to organise state-wide demonstrations.

On Friday, thousands of Trinamool supporters blocked roads and shouted slogans against the government, bringing traffic to a halt in the heart of Kolkata. West Bengal Chief Minister Buddhadeb Bhattacharjee said he was ready for talks with farmers but could not return 400 acres of land, earmarked for ancillary units, because it would make the project unviable.Tata Motors has since been flooded with offers from other states for the Nano plant.

 

[Flintlock]

India may produce record rice this year
Press Trust Of India / New Delhi August 31, 2008, 3:46 IST

India’s rice production in this agriculture year may breach the record output of 96.43 million tonnes last year on the back of increased acreage even as floods in some producing areas have hit the kharif crop, a top government official said today.

“Rice production will surely touch record this year on the back of the areas sown and the overall crop condition as of now, even though floods in some producing regions have hit the crop,” Secretary in the Department of Agricultural Research, Mangala Rai said.

Speaking on the sidelines of a seminar here, he, however, said sufficient rain in September and vigil against pest attacks are key to any further addition to the bumper output.

He did not mention the quantum of increase in output, saying it is difficult at this stage.

Rai also said floods in Bihar and Punjab, however, will create a congenial condition for rabi crops. Planting in the next season should be focused upon covering the losses caused during the kharif season, he added.

Areas under rice and soyabean have risen by over seven per cent in this period.

However, areas under ten major crops, including maize, sugarcane, arhar and cotton, have declined by up to 24 per cent during the ongoing kharif season as on August 22.

Rai said maize production deficit in Bihar, caused by the floods, can also be bridged if farmers use single-cross hybrid (high quality) seeds in a big way, thereby raising the productivity level by about 50 per cent.

Moreover, the sowing areas under rabi maize in the state are also large, he added.

“The overall crop condition seems to be good even though some parts of the country have witnessed drought and some other regions faced flood-like situation,” Rai said.

This apart, availability of edible oils would not be hampered though the crops have been affected in some areas. “You are not going to have something (yield) which will be abruptly low or high,” he said.

The country produces around 7.5 million tonnes of edible oil per annum but depends heavily on imports to bridge the gap between supply and consumption. The domestic demand of edible oils stands at about 12.5 million tonnes.

Speaking at the seminar on farm animals, Secretary in the Department of Animal Husbandry Pradeep Kumar stressed community participation along with government initiative and investment for significant progress in livestock management.

Former Minister of State for Agriculture Sompal emphasised factoring in economics in any attempt at raising the productivity level of the sector. Studying the cost of production is as important as raising the productivity level, he said.

India may produce record rice this year