True cost of Dynasty: Sonia sends us a Rs 5,45,000 cr bill

R Jagannathan, FirstPost, 19/12/2011

source: http://www.firstpost.com/politics/true-cost-of-dynasty-sonia-sends-us-a-rs-545000-cr-bill-159602.html

Despite the objections of many in the UPA cabinet and the advice of economists, Sonia Gandhi is shoving the Food Security Bill down our throats.

It is tempting to conclude that all this is prompted by a desire to see the poor fed, but the truth is that the Food Security Bill (FSB) – like many of its predecessors – will end up achieving the exact opposite of what it wants to. It will achieve food insecurity and a devastated economy.

The FSB’s bills will fall due only later, but Sonia Gandhi’s old bills are already costing us plenty – not least inflation and a busted budget.

Let us add up the real cost to the country when Sonia Gandhi’s party feeds itself off someone else’s money: ours. This is the true cost of keeping the Dynasty in power.

The following are Sonia Gandhi’s political bills that have been paid by all of us – taxpayers and consumers.

# 1 Farm loan write-off of Rs 72,000 crore in 2008. All that the UPA needed to do to help farmers in debt was to waive interest, freeze the outstandings, and allow them to pay it all in easy instalments. But what could have been a bill of less than Rs 10,000 crore of interest waivers, which would have helped maintain a proper climate for loan recovery while providing real relief, ended up with a cost of Rs 72,000 crore for the exchequer. The political part of the bill is thus Rs 72,000 crore minus interest waiver costs – say around Rs 60,000 crore. The cost of damaging the repayment culture is incalculable – and will be paid by subsequent generations and banks.

# 2: Subsidies paid for keeping diesel, cooking gas and kerosene prices low:Rs 2,23,203 crore in 2005-11. Add this year’s under-recoveries of another Rs 1,32,000 crore, and the total bill is Rs 3,55,000-and-odd crore. Let’s further assume that all politicians would have subsidised petro-goods to some extent. But the NDA did not subsidise half as much. If we take 50 percent of the amount as subsidies that every politician would have paid to consumers, the subsidies paid only to humour Sonia Gandhi would be around Rs 1,75,000 crore.

# 3: The National Rural Employment Guarantee Act (NREGA) has cost all of Rs 1,00,000 crore so far, and by March, 2012, it will have cost around Rs 1,40,000 crore. Assuming, once again, a more sensible kind of populism would have ended up with only half the expenditure on such schemes, Sonia’s bill would work out to Rs 70,000 crore.

The Sonia-Rahul re-election bill so far thus amounts to Rs 3,05,000 crore.

Now, let’s bring in the Food Security Bill. The official estimate of costs is around Rs 1,00,000 crore, but since these are likely to be underestimates intended to force a foolish bill through a reluctant cabinet, we should look at more realistic estimates.

Ashok Gulati and Jyoti Gujral – the former is chairman of the Commission of Agricultural Costs and Prices, and thus should know what he is talking about – wrote in The Economic Times that the real cost of the FSB, taking both the direct cost of subsidies and the accompanying investment in infrastructure (godowns, higher food procurement prices, et al), should be reckoned at Rs 2,00,000 crore per annum in the next three-year period.

Now let’s assume that even this money is worth spending to feed the poor. But the existing public distribution system (PDS) leads to a leakage of nearly 60 percent.

Says a World Bank study prepared at the instance of the UPA government: “Leakages and diversion of grains are high. Only 41 per cent of the grains released by government reach households, according to the 2004-05 National Sample Survey (the latest data available), with some states doing much worse. In 2001, the Planning Commission has estimated this leakage of BPL (below poverty line) grains at 58 percent nationally.”

If 58-60 percent of Rs 2,00,000 crore spent on the Food Security Bill is going to be lost due to leakage and pilferage, this is a humongous Rs 1,20,000 crore loss every year. Since it is Sonia Gandhi who insists on the FSB in its current form after rejecting every other alternative (including cash transfers to the poor), it means this bill ought to be sent to her and the National Advisory Council (NAC) she heads. Since we have two years of food security to finance before the next election, the real bill will be Rs 2,40,000 crore for 2012-13 and 2013-14.

Add Rs 2,40,000 crore to the Rs 3,05,000 crore bill the dynasty has already racked up to keep itself in the good books of the electorate and to get Rahul Gandhi the gaddi in 2014, and the true cost of Dynasty is Rs 5,45,000 crore.

NAC’s annual budget in just around Rs 4 crore. But the bill it is sending taxpayers is as much as Rs 5,45,000 crore.

Can India really afford dynastic politics of this irresponsible sort?

Let’s return to the economics of the Food Security Bill (FSB) again. It’s worth beginning with the old saying, slightly modified for our purposes: Teach a man to fish, and he will feed himself for life. Give him a fish every day, and you will have him eating out of your hands. You would have created a permanent dependency and ultimately run out of fish.

This is what Sonia-nomics will achieve with the FSB: a population dependent on the dole, and an economy ultimately unable to feed itself.

To be sure, let’s give Sonia the benefit of the doubt and assume she has a heart of gold and weeps buckets at the thought of anyone going hungry. But nothing in the policies she has backed so far suggests she has her head screwed right.

If there is a crisis, of course, you should provide food to the hungry. But this can only be a short-term measure. Since Sonia has been in power for more than seven years, the crisis phase should have ended long ago and long-term solutions found to the problem of hunger and food supplies.

Sonia Gandhi wakes up to hunger only when elections are in sight. But we shall let that pass.

However, the damage caused by the FSB will be with us long after the UPA is gone. The Bill will result in the following dangers:

1)  It will damage the exchequer and stoke inflation – causing the subsidy bill to go higher and higher every year, leading to a pile-up of debts. India will be Greece by 2014.

2)  The huge procurement targets needed to feed 75 percent of rural households and 50 percent or urban ones will call for regular increases in food procurement prices. This will again feed inflation.

3)  If the monsoon fails in any particular year, we will have to import grain. International food prices are already well above Indian levels. If we enter the market – which we have seldom done – prices will go through the roof. High imports will send the rupee crashing – raising prices again. This is a recipe for disaster.

4)  High procurement means closing down three-fourths of the market system in grains since the government becomes a monopoly buyer everywhere.

5)  Both poor and rich farmers will try to game the system. If the market gets you a price of Rs 20 a kg for rice, and you can get 35 kg of rice per family per month at Rs 3, who will not buy from the PDS and sell to the market? This is cash transfer by another name: graft will be the only result.

6)  The massive bill of Rs 6,00,000 crore for the FSB over three years is essentially money down the drain. It works against the fundamental argument about teaching someone to fish as against feeding him indefinitely. It will create dependencies, when the amount could have been spent to create rural infrastructure to improve agricultural productivity, and incomes. What we have essentially done is consumed the seed corn of the future by spending money to feed instead of investing in rural infrastructure.

Raghuram Rajan, who teaches at Chicago’s Booth School of Business, said the other day at alecture organised by Business Standard that the root cause of poverty in India was poor rural productivity. But instead of raising productivity, Indian governments were busy offering palliatives through money transfer schemes like NREGA, higher support prices for food, and, now, the Food Security Bill. This can merely raise rural demand without improving agricultural productivity – causing inflation.

But with UPA-2 listen? Unlikely, for the government has just got its ears tweaked by Sonia Gandhi for delaying her Food Security Bill.

UPA-2 is hastening our tryst with economic disaster.

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28/7/2011

source: http://www.economysavvy.com/2011/07/us-treasury-holders.html

As the discussions on the debt ceiling  in US continue and the Credit Rating Agencies mull on the downgrade of the US debt let’s go through the major US Treasury holders.

The major US treasury holders end of  May 2011 are as below :

China Mainland – 1159.80 Billion USD – It is app. 26% of the total treasury holdings by foreigners.

Japan – The second largest holder of US treasury holds 912.4 Billion USD.  Yesterday the dollar has fallen against the Yen to 77.60 its lowest level since its all time low of 76.25 on 17 March. The stronger yen will affect the export driven economy to a great extent.

United Kingdom (incl. Channel Islands and Isle of Man) -  346.5 billion USD.

Oil Exporters (incl. Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait,Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria) – 229.8 Billion USD

Brazil – 211.40 Billion USD

Taiwan – 153.4 Billion USD

Carib Bnkng Ctrs (Caribbean Banking Centers include Bahamas, Bermuda,Cayman Islands, Netherlands Antilles and Panama. Beginning with new series for June 2006, also includes British Virgin Islands.) – 148.3 Billion USD

Hong Kong – 121.9 Billion USD

Russia – 115.2 Billion USD

Switzerland – 108.2 Billion USD

Canada – 90.7 Billion USD

Luxembourg – 68 Billion USD

Germany – 61.2 Billion USD

Thailand – 59.8 Billion USD

Singapore – 57.4 Billion USD

India – 41.0 Billion USD

Source : Department of the Treasury/Federal Reserve Board

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The Reserve Bank of India’s decision to raise its policy rate by half a percentage point surprised the market as the widespread expectation was a quarter percentage point hike

Tamal Bandyopadhyay, Mint, 26/7/2011

source: http://www.livemint.com/2011/07/26160200/Three-surprises-and-one-lesson.html?h=A1

The Reserve Bank of India’s (RBI) decision to raise its policy rate by half a percentage point surprised the market as the widespread expectation was a quarter percentage point hike. And, this is not the only surprise in the Indian central bank’s quarterly review of monetary policy. There are other surprises too. For instance, RBI has admitted that growth is slowing but not changed its growth projection for the year even though the year-end inflation projection has been raised from 6% with an upward bias to 7%. Unchanged at 8%, the growth projection for fiscal 2012 seems a bit optimistic at this point.

But the biggest surprise is perhaps the tone of the policy — the way it has blamed the government for doing nothing to fight the persistently high inflation. The rate hike, going by the RBI statement, is “to maintain the credibility of the commitment of monetary policy to controlling inflation”. But more important than that, its objective is to “reinforce the point that in the absence of complementary policy responses on both demand and supply sides, stronger monetary policy actions are required.”

This is the second instance of a half a percentage point rate increase since the beginning of the tightening cycle. In March too, RBI had raised the policy rate by an identical margin but that was on expected lines, at least for a section of the market. But this time around, Subbarao’s determination to fight inflation is refreshingly different. In the “outlook and projections” section of the policy statement, three paragraphs have dealt with “growth” while 11 paragraphs have been used to highlight the gravity of the high inflation scenario.

Subbarao has also refrained from giving any guidance, and merely said, “Going forward, the monetary policy stance will depend on the evolving inflation trajectory.” To that extent, it’s an open-ended policy and no one can guess whether RBI is coming close to the end of the rate-tightening cycle. The market is factoring in one more rate hike by October.

The next mid-quarter review of the monetary policy is on 16 September and the second-quarter review is on 25 October. Since Subbarao’s three-year term will end on 6 September, this would have been his last policy unless he gets an extension. This possibly explains why he has been so bold in taking action and candid in criticizing the government’s inaction in tackling high inflation.

At one place, the policy document says, “In the absence of appropriate actions for addressing supply bottlenecks, especially in food and infrastructure, questions about the ability of the economy to sustain the current growth rate without significant inflationary pressures come to the fore.” At another place, it lists the high fiscal deficit as a key source of demand pressure and one of the key risk factors.

One can always say that Subbarao could have shown this determination earlier and raised rates more aggressively instead of staying behind the curve most of the time but that does not in any way dent the governor’s argument that the government is doing nothing to address macroeconomic concerns. Apart from tackling supply side issues and infrastructure bottlenecks, the government can also raise indirect taxes such as excise on automobiles to dampen demand and fight inflation. If it does not do so, and monetary tightening alone has to fight the persistently high inflation, the damage to the growth story will last longer.

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Economic Times, 29/6/2011

Source: http://m.economictimes.com/news/politics/nation/latest-nsso-survey-shows-upa-government-needs-to-go-all-out-on-reforms/articleshow/9032584.cms

The United Progressive Alliance (UPA) government’s much-vaunted strategies for "inclusive growth" stood exposed a few years ago when Arjun Sengupta Commission report highlighted that the "other India" gained very little from most pro-poor schemes.

The key findings of the latest National Sample Survey Office (NSSO) survey bring to the fore, yet again, the futility of pursing misguided job-generation policies in the name of lofty goals instead of going for all-out reforms, said economists and political analysts.

"The latest data reinforce the conviction that what we actually want are reforms, not mere schemes," said renowned economist Shankar Acharya. The government may not face any direct political threat, but they are following wrong policies in its efforts to achieve something big, he added.

The Manmohan Singh-led UPA government began showcasing the grand idea of financial inclusion in its first stint starting from 2004 and later expanded its pro-poor schemes to the second term as it looked to warm up to the aam aadmi (common man).

It also drew flak from other political parties, especially the Left, which calls the UPA’s pro-poor policy a "policy of deception" by creating greater avenues for profit maximisation for the corporates at the cost of increasing burdens on the common man.

According to the latest NSSO data, only 2 lakh jobs were created annually from 2004-05 to 2009-10, when the first UPA government was in power compared with 12 million jobs created by the previous Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) from 1999-00 to 2005-05. The latest survey was conducted between July 2009 and June 2010.

Madhu Kishwar, senior fellow at the Centre for the Study of Developing Societies, said: "These schemes such as the MNREGA and others are only band-aid solutions to address poverty and generate jobs."

"What is actually required," said Kishwar, who is also a member of the National Commission on Enterprises in the Unorganised and Informal Sector, "are economic reforms in non-corporate sectors such as agriculture and labour". She added that the poor can’t wait for benefits of liberalisation to trickle down. Instead, they need reforms that directly help them earn more, said she.

According to her, the flagship rural employment scheme of the UPA has become a cesspool of corruption. "It is a black hole as it is bound to be…governments should only create jobs, it shouldn’t offer jobs." Kishwar added: "Farm incomes need to rise and for it to happen the government must alter export norms."

In fact, the scenario is bleaker than expected. The Eleventh Plan (2007-12) targets creating 580 lakh jobs. But the latest NSSO survey confirms the creation of only 40 lakh jobs until 2010. According to BJP leader and former finance minister Yashwant Sinha, all this decline in work creation was caused by the "utter neglect" of infrastructure development, especially that of rural infrastructure.

"This is the major difference between our time and their time, and that explains the jobless growth during UPA’s first term." Sinha added that reforms in labour and farm sectors are crucial in generating more jobs and that the current dispensation is busy chasing wrong policies and not letting manufacturing in the country grow fast.

CPI lawmaker Gurudas Dasgupta is of the view that the problem, as such, is not with the MNREGA or similar so-called pro-poor schemes, but with their implementation. "Money is being stolen. There is no political will to implement the schemes…there is no accountability. Workers are underpaid and those responsible for it are walking away unpunished."

Other interesting finds of the NSSO survey include employment patterns in the country. According to it, 51% of the country’s overall workforce are self-employed, and that female employees receive less remuneration than their male counterparts for doing similar jobs.

Only 15.6% are "regular wage/salaried" employees and 33.5% are casual labours. Among workers in rural areas, about 54.2% are self-employed, while only 41.4 % of the workforce in urban areas are self-employed. While only 7.3% of workers in rural areas are regular wage earners, 41.4 % of workers in cities are getting regular salaries.

In urban areas, the average wage is 365 per day and it is 232 in rural areas. The NSSO survey also found that the average earning per day received by male workers is 249 but it is only 156 in case of female workers, indicating the female-male wage ratio at 0.63.

CPM politburo member Brinda Karat had earlier said that women workers were getting much less than what men earned. She had called it "sheer exploitation in the name of MNREGA". In urban areas, males earn 377 as against 309 by women, indicating a ratio of 0.82.

Also, the participation of women in the labour force has declined, while that of men has been maintained. The indicators are based on a central sample of 1,00,957 households of which 59,129 were from the rural areas and 41,828 from urban areas. This was the 66th round of the survey by NSSO. The samples, collected between July 2009 and June 2010, were drawn from 7,402 villages and 5,252 urban blocks across the country.

Sure, the NSSO numbers do offer the previous NDA regime reasons to be upbeat. But the opposition brigade, which appears comatose at the moment, is in no mood to either take credit or put political pressure on the ruling dispensation to alter its stance on reforms.

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Indian Express, 24/6/2011

Source: http://www.indianexpress.com/news/50-of-indias-workforce-selfemployed/808256/

More than half of the India’s overall workforce is self-employed, even as female employees receive less remuneration than their male counterparts for doing similar jobs, as per the data of a government survey released today (NSSO survey).

While 51 per cent of the India’s total workforce are self-employed, only around 15.6 per cent are ‘regular wage/salaried’ employees and 33.5 per cent are casual labours, the key indicators from a survey the National Sample Survey Office (NSSO) revealed.

Among workers in rural areas, about 54.2 are self-employed, while only 41.4 per cent of the workforce in urban areas are self-employed.

While only 7.3 per cent of workers in rural areas are regular wage earners, 41.4 per cent of workers in cities are getting regular salaries.

The findings of the NSSO also reveal that women workers, both in rural and urban areas, continue to receive less remunerations than their male counterparts.

In urban areas, the average wage is Rs 365 per day and it is Rs 232 in rural areas.

NSSO survey found that the average earning per day received by male workers is Rs 249 but it is only Rs 156 in case of female workers, indicating the female-male wage ratio at 0.63.

Similarly, in urban areas males earn Rs 377 as against Rs 309 by woman, indicating a ratio of 0.82.

The indicators are based on a central sample of 1,00,957 households of which 59,129 were from the rural areas and 41,828 from urban areas.

This was the 66th round of the survey by NSSO.

The samples, collected between July 2009-June 2010, were drawn from 7,402 villages and 5,252 urban blocks across the country, a statement by the Ministry of Statistics and Programme Implementation said.

The survey found that the per day wage rates for a casual labourer in works other than public works in rural areas is Rs 93. In urban areas, the comparative rate is Rs 122.

In rural areas, male casual labourers engaged in such activities receive an average of Rs 102 per day. However, for a female labourer the rate is only Rs 69.

On the other hand, in urban areas the wage rates for casual labourers engaged in work other than public works is Rs 132 for males and Rs 77 for females.

The difference between the wages for males and females is visible even in projects under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

In rural areas, daily wage rates for casual labourers in MGNREG public works is Rs 91 for males and Rs 87 for females.

In public works other than MGNREG, the wages are Rs 98 for males and Rs 86 for females.

The NSS key indicators say that in rural areas nearly 63 per cent of the male workers are engaged in agriculture. The percentage engaged in secondary and tertiary sectors stood at 19 per cent and 18 per cent, respectively.

The agriculture sector is more dependent on female workers. Nearly 79 per cent of the female workforce is engaged in agriculture while secondary and tertiary sectors shared 13 per cent and 8 per cent of female workers, respectively.

The survey also found that the industry-wise distribution of workers in the urban areas was distinctly different from that of rural areas.

In urban areas the share of the tertiary sector is more, followed by that of secondary sector while agricultural sector engaged only a small proportion of total workers for both male and females.

In urban areas, nearly 59 per cent of male workers and 53 per cent of the female workers are engaged in the tertiary sector.

The secondary sector employs nearly 35 per cent of the male and 33 per cent of female workers, while the share of urban workforce in agriculture is nearly 6 per cent of male and 14 per cent for female workers.

The Ministry of Statistics and Programme Implementation said the key indicators have been released, before the full survey is made public, for use in planning, policy formulation, decision support and as input for further statistical exercises by the government and its agencies.

The NSSO 66th covered the whole country except interior villages in Nagaland situated beyond five kilometres of a bus route, villages in Andaman and Nicobar Islands which remain inaccessible throughout the year and the Leh, Kargil and Poonch districts of Jammu and Kashmir.

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