The Peninsula Foundation

Category: Democracy & Governance

  • An unmitigated disaster

    An unmitigated disaster

    Category : Democracy & Governance/Governance, Law & Order

    Title : An Unmitigated Disaster

    Author : Deepak Sinha 04.03.2020

    The ill-conceived CAA act and the fears induced by it and the issues of National Population Register have led to nation-wide protests. The resultant police actions at various places culminated in the Delhi violence and police inaction that has given rise to world-wide condemnation. That it coincided with US President Trump’s visit should be even more worrisome for the government. Deepak Sinha analyses the issue in his Op-Ed.

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  • Budget 2020: Rhetoric vs Reality

    Budget 2020: Rhetoric vs Reality

    Sharing structural similarities with the 1991 economic conditions, , the current decline in Indian economy is in desperate need  for radical reforms to energize the growth. Faced with severe fiscal constraints, the optimistic projection of revenue by the government   seems more of a challenge than realistic prospects for economic growth. Tax revenue is expected to fall short by INR 2.5 lakh crores in FY20 as the GDP records an 11- year low of 4.5 %.  As against the target of INR 24.6 lakh crores, there is likely to be a shortfall of INR 2 lakh crores for the current fiscal year. Expenditure cannot only depend on the expected revenue and fall in revenue collection will become a grave concern to achieve the fiscal deficit target set at 3.5 percent .  The budget is expected to balance deficit and growth by laying down a plan for fiscal consolidation and pushing the growth fundamentals. The Finance Minister in her speech mentioned three pillars under which the budgetary allocation has been rationalized. There is a need for deeper examination of budget proposals  beyond the slogans of the budget speech in order to comprehend the government’s long-term economic strategy.

    Aspirational India

    The agriculture sector with poor growth rate yet employing 50 percent of the workforce required significant capital infusion. 2.6 lakh crore has been allocated to agriculture & allied activities out of which 75,000 crores are dedicated to double farmers’ income. In reality, implementing a cash transfer scheme with a huge quantum of finance is a strenuous task facing  challenges on the ground. Schemes such as setting up solar panels and village storage run by Self Help Groups will act as a non monetary support measure. However, infusion of cash in rural credit structure and ease in acquiring credit facilities is largely ignored. The absence of  adequate investment for R & D in agriculture is a major shortfall in the budget. A target to increase the milk production capacity to 108 million tonnes is ambitious, yet no road map has been laid down to enhance the capacity in the current structure.  Weak consumption and high unemployment has contracted rural economic growth but the budget has failed to directly inject finance to increase effective demand. Sharp cuts in MGNREGA budget is giving rise to concerns as the total money in circulation in the economy continues to be low.

    Income insecurity will weaken the consumption demand for a few more quarters, arresting the medium-term growth. Healthcare Sector has been allocated  a total of 67,000 crores which is a significant increase of 10 percent compared to the last budget. The government’s flagship healthcare program, Pradhan Mantri Jan Arogya Yojana or  Ayushman Bharat, is allocated 6,400 crores which is the same as the previous year along with the National Rural Health Mission being allotted 28,000 crores. The Finance Minister has approved a Private-Public Partnership (PPP) between private medical colleges and hospitals in the country. The initiative is aimed to improve the skill levels of enrolled students to export their services abroad. Effectiveness of the PPP model in healthcare will depend on the amount of scrutiny and quality checks placed at the execution stage. Highest decline in funds was for Rashtriya Swasthya Bima Yojana from Rs 156 crores to Rs 29 crores, and Food Safety & Standards Authority of India was reduced to Rs 283.71.

    The draft of National Education Policy in 2019 invited multiple debates but achieving quality education has been the common goal across all levels of education. Human capital investment and skill development has been crucial to the 2020 budget with an allocation of almost 1 lakh crore for education and training. Breakup of funds for education under primary, secondary and higher education was not spelt out.  Finance minister citing the increase in gross enrolment ratio of girls in education has clearly missed the data on falling rates of women in labour force. The narrow lens of viewing enrolment number as a measure  women empowerment has to be revisited to achieve gender equality status. Encouraging apprenticeship and internships in rural areas for engineering and technical graduates is an important mention as the students lack experiential learning. Higher education population stands at around 36.6 million, surging the demand for  institutions offering graduate courses. The Government due to its limited fiscal capacity has allowed private institutions to address the demand for higher education. Despite this opening up tertiary education remains at only 25.8 percent of Gross Enrolment Rate. Quality in higher education is still a distant dream in India and it is important to dedicate funds to improve the quality of higher education in particular.

    Economic Development 

    Under Economic Development, promoting MSME sector and developing infrastructure have been the focus areas. Setting up NIRVIK scheme for higher export credit disbursement and facilitating investment clearance cells is a favourable move for medium and small scale business. Primarily, encouraging potential start-ups to equip their operations  with technology and managerial skills for creating export market demand must take precedence.

    National Logistic Policy is underway to revamp the transport infrastructure and new trains are to be operated under PPP. 100 new airports to be developed under UDAAN scheme is expected to create substantial employment in infrastructure sector. Linking basic Bharatnet services to 1 lakh gram panchayats is a notable initiative to improve the internet connection at local unit level. An exclusive direct investment in disruptive technology and artificial intelligence continues to be absent indicating India’s lag in becoming more competitive. Failure of the ‘Make in India’ initiative to materialize as expected is a relevant evaluation to reframe the fund allocation to accelerate indeginious production. Foreign trade of India presents a grim picture with exports slipping by 1.8 % in the last few months.  Although the political aspect of ditching Regional Comprehensive Economic Cooperation (RCEP) played well, quitting a multilateral trade deal has reduced the scope to upgrade domestic technologies. Frailty of the economy has clearly reduced the incentive for small businesses to invest in production and service despite schemes dedicated for this domain. Entrepreneurship culture in a favourable environment to undertake small businesses with insurance cover should aim at utilizing the existing human and capital resources through upgraded technology. A National Pipeline project has been proposed to ensure public spending on road, irrigation, power (conventional and renewable), railways and housing. Under this project, substantial funds are allocated for roads and least is for rural infrastructure. A prepaid  ‘smart metering’ system is to be substituted for conventional energy meters. On the financial front, tax concessions for corporate companies and foreign investment have been proposed. Reducing income tax slabs cheered the middle class but it has been a necessary and not sufficient condition to push the economy in a growth trajectory. Extension of tax holiday for real estate corporations would not qualify as fiscal stimulus with poor housing demand. As Dr Rathin Roy, economist suggests, either productivity should improve for pushing the demand at existing wage or minimum wage should increase. Decoding his post-Keynesian idea, structural crisis present in India offers much more complexity in practice. Land, labour and capital market reforms are inevitable to catch the growth momentum in the long run. Revising tax structure under Goods & Service Tax (GST) does not count for a structural reform to revive growth and scant attention has been paid for resolving systemic issues using budget as a tool. 

    Caring India

    The last pillar of the budget, emphasizing the importance of national and social security,  allocated funds for marginal groups, senior citizens and women, adopting a populist measure.  Over 6 lakh anganwadi workers are to be given smartphones and the budget estimate for nutritional related programs stands at 35,600 crores. Proposals were made to establish Indian Institute of Heritage and Conservation along with the development of 5 archaeological sites.  Major schemes like PM KISAN, Direct Benefit Transfer, Pradhan Mantri Awas Yojna and ICDS (Integrated Child Development Service) witnessed a jump from revised budget estimates of 2019-20. The Finance Minister in her budget had mentioned a number of schemes aimed at the Environment, Pollution and Climate Change. It includes 4,400 crores for the Clean Air Policy, 460 crores for Pollution Control and 3,100 crores for the Ministry of Environment, Forest and Climate Change. The last budget witnessed reduction in GST rates on Electric Vehicles (EV) and an annual tax reduction of up to 1.5 lakhs on interest paid to purchase EVs. However, the current budget has increased the custom duties to curb the import of cheap materials from China making the vehicles more expensive. National Adaptation Fund for Climate Change (NAFCC) is a central sector scheme set up to support concrete adaptation activities that mitigate the adverse effects of climate change. The Budget missed out on the replenishment of the much-needed NAFCC and has ignored it for two consecutive years. The overall fund allocation for Climate Change and Environment has increased by 5 per cent in the budget. Promoting sustainable business practices at micro levels is a key in tackling climate change. Accommodating the green budget would demand more involvement beyond mere budget allocation, effective plans need to be developed that can constantly track the progress of India’s climate change dialogue and advocacy.

    The defence budget for 2020-21 stands at 3.37 lakh crores, constituting 1.5% of the GDP, excluding pensions. Capital and revenue expenditure is valued at 1.18 and 2.18  lakh crores and pension at 1.33 lakh crores. This will affect several big projects taken up by the armed forces to build capabilities against Pakistan and China as there has been only a marginal increase in capital expenditure compared to previous year (1.08 lakh crores). Armed forces will be forced to cut down on arms and equipment purchases, thereby diluting the state’s priority on national security. However, with adequate government support there is scope for the private sector to bridge  the gap in areas of maintenance and logistics of the armed forces. Corporate tax cuts in the manufacturing sector, strategic disinvestment in Central Public Sector Enterprises (CPSE) and abolition of ‘angel tax’ for start-ups is appreciable. However, more involvement and sincere efforts should be undertaken by the Government to enhance private sector involvement in creating additional funding for developing a robust defence industry and meeting the needs of the armed forces at the same time.

     A recent study by Oxfam reported that 73% of the total wealth is owned by 1% of India’s population, as a result the number of billionaires has increased to 120 in 2019 from nine in 2000. A funding strategy that does not  attend to the growth of income among masses would lead to furthering the inequality and handicap the long term growth of an economy. Budget continues to be a powerful instrument to reallocate resources through fiscal policies and reduce economic inequality in a country. Facing a high risk of missing the demographic dividend, the budget was expected to make radical and structural reforms. Immediate measures to revitalise economic wealth among middle-class and rural residents is the need of the hour. The ostensible budget might garner popularity but the foundation to achieve India’s growth potential remains insufficient. Choice between managing fiscal deficit at the cost of reduced demand and initiating growth at the cost of huge fiscal deficit summarizes budget decisions. Biting the fiscal bullet, the finance ministry has assumed more accountability in explaining every component of expenditure but has failed to provide confidence for a resurgent Indian economy. Micro level assessment reveals a rosy picture but the exercise has undoubtedly choked the Indian economy in the short run.

    Contributions by

    Manjari Balu and Swaminathan S are Research Analysts with TPF.

    Aditya Balakrishna is an Intern with TPF.

    Views expressed are their own.

    Image Courtesy: Sanjay Rawat // www.fortuneindia.com

  • Falling Consumption Expenditure: Need for Labour Market Reforms

    Falling Consumption Expenditure: Need for Labour Market Reforms

    Government withholding consumption expenditure data on the grounds of data quality has stirred many criticisms from economists and other interest groups. Growing concern over falling rural consumption especially amidst economic slowdown has crystallized a categorical debate on the nature of slowdown. Irrespective of the validity of methodology employed, low consumption expenditure can sequel falling growth rates. Slowdown of the automobile industry as a case, sluggish growth and rising unemployment corroborate the unofficial claims on falling consumption expenditure. According to Business Standard report, the average amount spent per month by an individual declined from INR 1501 in 2011-12 to INR 1,446 2017-18. Although falling rural consumption expenditure evinces an economic malaise, issue of inefficient labour market has received less attention. Consumption is considered an important way to assess the health of an economy according to neoclassical economists. Multiple theories on income and consumption relationship are advanced in the field of economics. According to permanent income hypothesis, consumption expenditure varies in relation to the expected future income. In simple terms, an individual’s consumption will be distributed across their lifetime based on the permanent income they are expected to receive. Every theory has reiterated the central role of income in determining the consumption levels of the individuals. 

    Income insecurity in Informal sector

    A study conducted  on consumption spending in Ghana concluded that income and inflation had a long-run relationship on consumption expenditure. The Monthly Per capita Consumption Expenditure (MPCE) in 2011-12 revealed that urban MPCE was higher by 84 percent than rural MPCE. India, operating as a dual economy, considers casual wages and regular salaries as a proxies to study informal and formal sector. The wage differential among salary earning individuals operating in informal and formal sector was higher than casual labourers’ wages. Increasing number of regular employees working in informal sector shifted the concern to penetration of ‘informality’ across the labour market.  Post globalization labour market has theoretically encouraged organized sector but the wage employment in the organized sector has employed more casual labourers with no social security. A new layer of casual labours was created post reforms to cushion the weight from competitive prices. Fragmentation within the organized sector with growing contractual labourers has weakened the expected income levels which could directly affect consumption behaviour. Working-poor in India are highly concentrated in the organized sector as casual labourers and self-employed with a combined share of 51 percent of the total workforce as of 2012.

     A recent report on consumption expenditure points out that rural monthly consumption has fallen by 10 per cent from INR 643 to INR 580 indicating a need to accumulate more income in rural India. The main industries functioning under informal structure were construction, manufacturing and wholesale-trade employing majority of unskilled and semi-skilled labourers. In 2011-12, rural employment contributed 76 percent of total informal sector labourers in the three main sectors. Almost 80 per cent of rural workers are engaged in casual employment and despite a moderate growth in casual wages over the years; it amounted to only 36 percent of a regular worker’s earnings. Increasing share of informal employment within the organized sector coupled with poor social security has reduced expected financial flow of labourers. State induced social spending would propel consumption levels to a limited extent but the underlying crisis in the rural labour market would continue to contract long term consumption expenditure. Total social sector spending as a percentage of GDP has reduced from 2.7 per cent in 2000 to 2 percent in 2014. Reduced government spending and lack of labour market reforms are responsible for poor disposable income in the rural economy. 

    Rural labour market instability

    Casual labourers have constituted consistently 28 percent in Indian rural labour force since 1983. The periodic labour force survey report (2017-18) observed a decline in the share of self-employment in both rural and urban sectors. The unemployment rate in urban sector is 7.3 percent, comparatively higher than rural unemployment rates of 5.8 percent. A major portion of rural labourers are associated with the casual sector in rural areas with unstable income and weak social security. For instance, average earning per day in public workfare programme such as MGNREGA has fluctuating wage rates in rural areas, recording as low as INR 136 in 2018. Such a precarious structure in the labour market has diluted the spending capacity of rural residents in the recent times. According to the usual status in employment, there is a moderate increase in casual labourers and salary earners but the self-employment rates have been on the downtrend. In 1983, 60 percent were self-employed, which has gone down to 57 percent in 2018 despite the attractive loan schemes introduced by the government. 

    Female workers’ earnings play a vital role in determining the consumption health of an economy, a drastic fall in female work participation deserves an in-depth investigation. Falling participation rate could mean either women drop out due to social conditions or due to unavailability of jobs matching their skills. While sufficient literature studying these two areas are available, the first issue can be viewed with scepticism as earnings of men have increased significantly while women’s wages have stagnated. Although overall women in the workforce have reduced, 73 percent of women are engaged in agriculture as primary activity compared to 50 percent of men. A deceleration in agriculture and low investment on public infrastructure in the past few quarters have  decimated the consumption capacity of rural India. Women being the bigger component of agricultural labour force, and with factors of social discrimination, tend to have lower wage rates, thereby contributing significantly to reduced capacity for consumption and expenditure.

    Labour market reforms needed to revive long term consumption

    It would be erroneous to isolate the core economic problem to be categorical- the structural issue or cyclical slowdown can be both demand-side and supply-side driven. The whole economic apparatus is strongly integrated and a supply-side constraint can indirectly choke the demand which would, in turn, weaken the growth. Many economists have recommended the need for structural reforms; labour and capital relations have to be redefined as a measure to redistribute the resources. Further, the labour code on wages, 2019 has invited criticisms on grounds of poor protection for informal labourers and favouring corporate profit. Financial ecosystem requires corporates to make profits but a stagnant reinvestment convulses the cycle. Deepening crisis in the economy is conspicuous and falling consumption reiterates the need for better land and labour reforms. 

    Closer examination of the rural labour structure provides a bleak picture of low-income concomitant with minimum social and economic security, thus seriously impacting rural economic consumption. According to the PLFS report, the percentage of rural regular salaried employees with no job contracts increased from 58 percent in 2004 to 69 percent in 2018. Around 88 percent of rural female casual labourers against 84 percent of rural male casual labourers had no union or association. Absence of union is a proxy for weak bargaining power which eventually distorts the real market wages for the labour. Systematic labour market reform is critical especially for fixing the minimum wages and restructuring the labour market. Failure of manufacturing and service sectors to absorb the excess unskilled labourers from the agricultural sector has posed a major challenge. A short term cash transfer or providing welfare schemes should not be mistaken for structural reform. Enhancing the skill levels of rural labourers so as to enable their displacement to the manufacturing sector would augment employment and income. 

    Effect of demonetisation on the informal rural economy cannot be underestimated; removing 80 percent of currency from the economy damaged small and medium scale businesses operating on cash. ‘Make in India’ has not succeeded in accelerating business entrepreneurship in the country. Only 5 % of the adult population manages to establish a business that survives for longer than 42 months according to Global Entrepreneurship Monitor, a rate that is the lowest in the world. Financial investment in medium scale and small scale industries has been poor due to bureaucratic hurdles and unfavourable business environment leading to world’s highest business discontinuation rate of 26.4 %.

    From the supply side, low reinvestment despite a reduction in interest rate has exacerbated the falling consumption situation. Slowing automobile industry and consistent downtrend in manufacturing have contracted the capacity for employment generation in the industrial sector. CMIE has observed corporate profits to be more volatile than wages in the last two decades. The standard deviation of increased profit was recorded to be 32 percent as compared to 6.3 percent in the wage share. The erratic change in profit component implies entrepreneurs are more likely to be discouraged to invest in a business and play it safe. This invariably allows only the big corporate companies to survive. Low share of labour income in the economy is undoubtedly a structural phenomenon; the state’s apathy to induce private capital investment is detrimental to the labour market as well. 

    Reforms should have distinct rural and urban labour market strategies

    Departing from viewing economy in a political lens, a state must prioritize market reforms especially labour reforms. It is the state’s responsibility to ensure efficient allocation of resources and guarantee economic development and welfare of people. The slogan of ‘minimum government and maximum governance’ can be realised only through radical reforms and policy changes.

    The problem of shrinking consumption in rural areas is an outcome of constraints in the supply-side and unorganized labour market. Mere infusion of money as a solution is neither practical nor sustainable; a long term strategy to improve the structure of the rural economy is necessary to address the current economic crisis. Policies should be directed towards energising the informal sector, provide social security and economic dynamism that accelerates capital formation and induces private investment to support business growth. Consumption levels can be revived by making demand side and supply side changes simultaneously; increasing public gross capital formation and encouraging private investment by improving the investment climate would revive private consumption. A clear distinction has to be drawn between rural and urban labour markets, reforms to monitor the movement and prices will emerge as a structural reform to support both growth and development. 

    Manjari Balu is a Research Analyst with TPF. Views expressed are her own. 

    Image credit: www.newskarnataka.com

  • Rural Development and Gender Equality: A reality check in Tamilnadu

    Rural Development and Gender Equality: A reality check in Tamilnadu

    Category : Agriculture/Rural Development/Gender Equality

    Title : Rural development and gender equality: A reality check in Tamilnadu

    Author : Manjari Balu 06.01.2020

    Tamilnadu continues to be one of the fastest growing states in India, despite some major declines due to political instability, rampant corruption, and populist measures at the cost of development. Despite significant progress in literacy, women’s education, and some aspects of social security, there are still major shortfalls with respect to rural employment, skill development, and gender wage inequality. Tamilnadu has to develop a policy framework to achieve employability through quality secondary education for women, shifting focus from only enrolment of girls in primary education. Manjari Balu analyses this issue in Tamilnadu.


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  • Local Protests: A New Status-Quo in Political Lifestyle?

    Local Protests: A New Status-Quo in Political Lifestyle?

    Hong Kong and Chile convulse, Lebanon possibly spiralling into a civil strife, and sanctions induced discontent paralysing Iran, a pattern of global protests is increasingly evident. The global political landscape is currently marked by frequent mass protests, and this wave is geographically much broader and unfolding in countries at different stages of development. Unlike earlier protest movements that aimed at radical political change and revolutionising the existing order, the modern demands abandon this narrative of overthrowing the system instead aiming for democratisation of the established institutions. In other words, the anti-government protests cropping up in various parts are not trying to dismantle the democratic structures but to redefine its scope and depth.

    New Wave of Protests – questioning inept governance

    In contrast to the previous waves of uprising like the Pink Tide in Latin America or the Arab Spring, that was spreading in a particular region with similar agenda, the recent protests are occurring in different zones and is marked by the uniqueness of initial triggers and demands put forth by the protestors. In Lebanon, the discontent was sparked by regressive taxes proposed (mainly Whatsapp tax) but turned into massive demonstrations, transcending sects and classes, calling for a technocratic government in the backdrop of sectarian political regime, widespread corruption and mishandling of the economy. The Yellow Vest movement in France originally against the fuel tax snowballed into nationwide protests to address the socio economic inequalities, stemming from high unemployment and stagnating economy. Protests in Chile against hiked transport fares escalated to countrywide riots revealing the dissatisfaction with the pro rich growth, heavily privatised welfare system and pro market regime. On observation, these isolated protests by themselves can be a defining feature of the current wave of protests, different from the previous waves that were characterised by common contestations.

    Despite being unrelated events with independent agendas, the countries undergoing mass protests share similar trends of inequality and economic downturns. Further scrutiny beyond the seemingly small initial triggers reveal an evident pattern of economic anger and insecurity in these nations. Experts have suggested that Hong Kong’s pro democracy movement is also fuelled by wide income inequality (highest among developed nations), especially in the last 45 years since its handover to the Chinese. The Latin American region, witnessing the most number of countries breaking into sustained protests, is the world’s most unequal zone. In addition to inequality, sustained unrest in states like Colombia, Catalonia to Iraq and Egypt, the protests are driven by slowing economic growth, mounting public debt and austerity measures. Even in populist and authoritarian regimes, citizens are demanding an end to corruption and restoration of democratic rule of law. For instance, long serving, extremely popular, leftist leader Evo Morales was forced to resign in Bolivia after protests erupted accusing him of undermining democracy to extent his rule. There are increasing clashes against repressive democracy in Russia, and revolts against autocrats in Slovenia and Czech Republic.

    Leaderless or smart mobilization?

    Interestingly, a majority of the modern protests are leaderless, led by students and youth. In Hong Kong, the protests are gaining momentum through the active involvement of the students while in Chile the unrest for systematic change was ignited after school students launched a campaign to end the 4 percent subway fare increase. Niall Ferguson noted that this demographic trend of the young leading the demonstrations is a repeat of the 1960s, which like the present had an excess of educated youth over the number of available jobs. Another similarity amongst the protests is the urban-centric mass unrest. According to migration theorists, uncontrolled urbanisation resulting in rural to urban movements is a major cause for the ongoing demonstrations. Pushed into informal settlements in cities, often ignored by authorities and without basic social coverage, the urban area becomes a ground for discontent. For instance, in Haiti the protests began due to gasoline and food scarcity. Therefore, the socio-economic marginalisation of the urban poor is a significant yet overlooked factor that drives people to the streets. This is also compounded by a lack of faith in the government. More than the poor state policies adopted and prevalent corruption, in some protesting nations, there is deep distrust among the citizens. Hong Kongers believe that their government does not have legitimate powers over Beijing, and in countries like Lebanon, Chile or Ecuador, reversal of the initial triggers did not stop the dissenters from demanding a new government.

    The youth bulge and the shrinking economic opportunities only partly explains the global protests. The reach and accessibility of social media and free messaging apps have exploded in the past decade. In addition to acting as a medium to organise and sustain mass protests, these channels are also used to express political frustrations. Unlike before when media had a monopoly over mass reach, individuals and groups have the capacity to mobilise and garner support over specific issues. While the protests seem unconnected, it is possible to see a copycat element in the way protests are carried out. The coverage of news and faster reach makes it possible for protestors to adopt methods of action that were successful elsewhere. It is also harder for states to contain and repress dissenting voices. Thus, the spread of communicative technology and social platforms offer a conducive environment for protests. 

    Social Media enables activism

    The ability of electronic media to break down physical barriers and bring more events to global audiences might be increasing the visibility of protests, which would have otherwise remained local. Data from GEDLT Project, which has been tracking protests around the world from the past 40 years, reveals that the frequency of protests has not significantly increased. However, the intensity and the length of protests have improved. Despite a spike in these political activities wherein citizens are actively mobilising to pursue their demands, there has been a decline in the success rate of protests. A recent study highlights the staggering decline in success rate of protests from 70 percent in 1990s to 30 percent in 2010. Some highlight the “smart” methods adopted by regimes to prevent and suppress clashes like reinforcing loyalty of the elite, infiltrating and dividing the opposition, etc. For instance, in Lebanon, the initially united protests has created anti protest groups that supports the Hezbollah. Governments are also adopting a strategy of blaming foreigners and outsiders to reinforce support from the public. For instance, China is building a narrative of US backed forces disrupting Hong Kong to get an advantage in the ongoing trade war, which has strengthened after US signed a Hong Kong Human Rights and Democracy law. Iran’s authorities are also blaming outsiders, especially the US, for the violence that ensued after state raising gasoline prices by 50 percent.

    Overall, there is an influx in political activism. Global unrests are now spreading and have significant implications for countries everywhere. With electronic media and its potential for mobilisation, it is now easier to bring issues to national discourse. However, while the willingness and ability of mass political activism to recur and cause disruptions have increased manyfold, its success rates have decreased. It may be said that the political frustrations and the current protests will not bring a major transformation in the political structures but rather it is a new status quo in the nature of political lifestyles.  

    Renuka Paul is a Research Analyst with TPF. She holds a masters in Public Policy.

    Image: Aerial night shot of Beirut Downtown, Lebanon during protest against Government, Lebanese revolution – Phot by Ramzi – Licensed from www.stock.adobe.com

  • ‘Pawar Play’ in Maharashtra

    ‘Pawar Play’ in Maharashtra

    Henry Luis Mencken (1880-1956), well known American journalist and essayist, once wrote “As democracy is perfected, the office of president represents, more and more closely, the inner soul of the people. On some great and glorious day the plain folks of the land will reach their heart’s desire at last and the White House will be adorned by a downright moron.” As we sit back and watch as the Impeachment drama plays out in the United States, one cannot help but marvel at Mr. Mencken prescience. The election of Donald Trump does seem to suggest that the American public has indeed found its inner soul, but as to whether it has really perfected democracy in the process remains questionable.

                Especially, more so, if it was to compare itself to what passes for democracy here. In short order they would then realize the vast distance they have yet to cover to reach true perfection. As a matter of fact, they would do well to follow the ongoing “Pawar Play” in Maharashtra, which incidentally is only the latest manifestation of what perfection in a democracy looks like, and has all the ingredients of a true Bollywood potboiler in the making. That is the only way in which realization would dawn on them that Mencken’s deductions were slightly awry. Invariably in perfect democracies it is not the political leaders who are morons, but the people who voted them to power. That is the fundamental reality we have been confronting ever since Independence, regardless of the political ideologies of the people and parties we vote into power.

                Whatever the host of legal eagles fighting the case in our Supreme Court may say to justify their arguments, and regardless of the conclusions the Hon’ble Court may arrive at, the simple truth of the matter is that for all sides concerned, Maharashtra is too important to lose. To start with the inability to form the government in Maharashtra would not just be a simple loss of face, but utter humiliation for the BJP, and more importantly, for its mentors from Nagpur, located in the heart of the State. If they cannot control their own fiefdom, what control will they exercise tomorrow over the rest of the country, more so given that elections are due in states like Bihar and Jharkhand in the coming months?

                Similarly for the Shiv Sena after having openly cast aside the cloak of morality and gambled everything, including the kitchen sink, in its blatant attempt to go one up and grab the Chief Ministership for Balasaheb’s scion, a loss would spell utter disaster and lead to questions of survivability of the dynasty. For the NCP, and especially the Pawars, being on the winning side is the only hope for redemption for past transgressions. As events have played out, it is now obvious that Pawar the younger was carried away by the brashness of youth and the fact that leadership of the Party would remain just a mirage due to circumstances of birth as long as Pawar the elder had any say in the matter. Finally, for the Congress that continues to be on the ventilator this was an unexpected bonus, a fleeting opportunity to start again.

         While each of these stakeholders has its own particular motivations for their actions, however, the most important aspect  incentive for all in this battle royal for the stewardship of the State is the simple fact that not only is Maharashtra a large state, governing which is undoubtedly prestigious, but also an extremely rich one. It doesn’t exactly require a leap of faith to suggest that whosoever controls the money controls the votes. After all, is that not the very reason that controversy dogs the issue of electoral bonds that were introduced not too long back?

                Leave aside mundane issues of malfeasance, personal greed, overarching ambition and rank opportunism, what is indeed truly astounding to see is the utter lack of constitutional propriety and ethical conduct on the part of those charged with its very protection. For them to let petty loyalties and servility take precedence over self- respect and principled conduct is not just a reflection on how unworthy they are to hold such positions of eminence, but also a shameful blot on our social mores that encourages such people to claw their way up despite lacking an iota of integrity or moral fibre. One cannot but feel embarrassment for the President, a former advocate, who unquestioningly accepts the recommendations of a Prime Minister without the requisite cabinet approval, justified by the use of a most inappropriate rule to cover the lapse. That such a rule can be invoked at the dead of night to swear- in a government at dawn, in the futile hope that it would provide stability, after weeks of confusion, is indeed laughable, if it were not so tragic.

                The Supreme Court’s directions to the newly sworn-in Chief Minister, Devendra Fadnavis, to prove his majority on the floor of the House within two days, set the cat among the pigeons as it left only limited scope for horse trading. It forced him to resign prior to the House being called into session as by that time it was abundantly clear that Mr. Ajit Pawar was in no position to provide the necessary support of the NCP legislators required to gain a majority, as he had promised. It is only now becoming increasingly clear that the ‘Ajit Pawar move’ was in all likelihood, a move conceived by his uncle and leader of the NCP, Mr. Sharad Pawar, to kill two birds with one stone; firstly lure the BJP into withdrawing President’s Rule in the State, which it may otherwise not have done in a hurry, and to force the Congress to reduce its demands in exchange for joining the anti BJP Coalition, Maharashtra Vikas Agadi, under the leadership of Mr. Uddhav Thackeray as Chief Minister.

                Events in Maharashtra only accentuate the utter lack of morality on display on the part of all concerned. If we were to look at the winners and losers that have emerged after this power play, clearly the BJP finds itself stranded by the wayside and has much to introspect, but it is not the only loser, The Shiv Sena may have won itself a reprieve and fulfilled Thackeray’s ambition of being Chief Minister, it has come at a cost, as it appears to have caused grevious damage to its ideological foundations. There is always the possibility that Uddhav may have realized that with the Ayodhya Temple issue having been resolved to a large extent, hard Hindutva is unlikely to be a crowd puller in the coming days and an ideological shift was necessary if the Shiv Sena is to flourish. The Congress continues to be seen as disorganized, lacking leadership, confused and opportunistic, a perception that is unlikely to change until the Gandhi’s are leached out of its organizational structure. Only the NCP appears to have emerged as clear winners, especially Mr. Sharad Pawar, as he will undoubtedly wield the remote control on this coalition government. Off course, all of these shenanigans only reinforce the fact that it has been the people of Maharashtra, who have lost out the most, and were, in Mencken’s words, “moronic” enough to vote these ingrates into power.

    The writer is a military veteran and consultant with the Observer Research Foundation and a Senior Visiting Fellow with The Peninsula Foundation, Chennai. The views expressed are the author’s own.

  • Gender Wage Inequality: A Core Problem in Rural Indian Economy

    Gender Wage Inequality: A Core Problem in Rural Indian Economy

    Growing unemployment rates, inadequate demand and low productivity in rural India is currently drawing significant attention particularly in view of the current economic slowdown. Debates on falling agriculture productivity and consumption in rural areas have partially ignored the gender dimension. The sexual division of labour in a rural production framework arbitrarily sets the female wages lower than men. Declining participation of women in labour force could relate to various socio-economic conditions, a sector wise analysis mirrors an intelligible dynamics of the problem.   Informal rural market already operating below the minimum wage exploits women as they are presumed to have poor bargaining power and social constraints blocking their employment migration tracks. While the dire status of marginal farmers and casual labourers are talked about, economic and social inequality across gender misses the radar.

    Optimism on gender grounds rose after the wage gap between men and women started reducing in rural labour market across India. A closer examination of the wage data among rural labour reveals the complex nature of female labour wages. More importantly, the seeming reduction in  wage gap in actuality is more due to  decline in male wage rates. The overall percentage of women in rural casual labour market has seen a marginal reduction from 35 percent in 1983 to 31 percent in 2017-18. Analysis of informal casual labour market reveals a pattern of women being paid low wages and with no social security schemes resulting in decline in already poor quality of living. Significantly, economic contribution of women is grossly underestimated in the current System of National Accounts (SNA). Time Use Survey captures all unpaid activities of men and women which would be more accurate to calculate. However, the problem of valuation remains an issue, and calculation of woman’s opportunity cost in a rural household is an arduous task.

    Complex pattern of decline in female work participation rate

    Female Workers Participation Rate (FWPR) in rural sector declined from 32 percent in 1972-73 to 17 percent in 2017-18. Studies suggest various reasons could be responsible for a fall in proportion of women in rural work force.  According to Census India 2001 and NSSO 2010, increasing number of women migrate from one rural area to other and round 64 percent of women migrants move because of marriage. A research study in Institute of Asian Studies observed an income effect, U shaped probability curve of female participation with the log of male income in the family. This means more women were working during the times of economic distress to support the family and participation rate gradually reduced with higher income earned by the men. However, with increase in income, there is also a pattern of women working to meet the increased consumption expenditure. Education is also considered an important component contributing to reduced percentage of women in labour force. As literacy rates grow, graduate women are aspiring to get employed in skilled jobs and voluntarily withdraw from the work force. However, proportion of women in primary sector has only declined from 89.7 percent (Krishnaraj & Kanchi, 2008) in 1972 to 83.6 percent in 2004. Evidently, majority of women in rural areas are dependent on primary sector for employment, a drop to 67 percent of men dependent on primary sector for employment is due to their shift to secondary and tertiary sectors. Employment in unorganised sector is beset with low wages, an exploitation by the employers.  Moreover, absence of social security cripples the income earning capacity of women. This deliberately places women in the lower strata of rural economy leading to poor socio-economic living conditions and has a direct impact on their inability to invest in education, health and nutrition.

    Women in informal sector and Poverty in rural India

    India’s rural sector is characterized by a large segment of informal labour force where 90 percent of the population is either self-employed or work for casual wage. Rural areas in particular operate in an informal economy and wages are mostly determined by the labour market where women are inherently considered less productive and paid less than men.

    As of 2011-12, 68 percent of female casual labourers were receiving less than National Minimum Wage of INR 122. Around 47 percent of men in rural India received less than the minimum wage indicating the unreliable nature of rural informal job market. Men, naturally with higher migration possibility, shift to informal urban sector jobs but women are left with depressed wages even as the labour demand remains high. Although the rural urban migration among women is higher than men, 60.8 per cent of women migrating to urban areas are due to marriage. As far as employment is concerned only 2.6 percent of women migrate as opposed to 52.7 percent of men. The decline in women participation in labour force is visible among educated women. Unskilled women in poor households tend to work for daily wages and have not substantially reduced from workforce. In rural India, where casual farm and nonfarm jobs are exploited it makes limited sense to use only wage gap to measure the gender equality.

    Agriculture, evolved from a traditional household structure, supports if not advocates, defined gender roles and discriminates women overtly through economic means. According to the recent NSSO report unemployment rates among rural females has increased from 1.8 percent in 2004-05 to 3.8 percent in 2017-18. However, an average of 5.4 percent of women had reported to be available for additional work in PLFS survey 2017-18. Unemployment is rampant across the country in all sectors but women labour supply for casual jobs especially in poor household still remains high pushing the daily wages further down. Intense land fragmentation has increased the percentage of marginal landowners to 85 percent but the demand for labour has reduced, forcing men to migrate into other sectors. Deepening crisis in agriculture also contributes directly to low wages among residual unskilled women labourers. Effectively the ‘informal labour’ market conditions has become a trap that exploits unskilled women as they are willing to work even at a lower wage rate. In effect, an increase in participation would not guarantee a better standard of living if the market is unregulated and exploitation based on gender continues.

    Why Government measures are only partially effective?

    Government initiatives for the rural economy have led to various policies to increase the income levels of marginal farmers and unskilled labourers. Women participation has been prioritized in such schemes and has shown to reduce poverty among rural households. National workfare program MGNREGS provides employment on demand and has managed to attract many women to participate by claiming to offer equal wages. As the Public employment program also mandates 33 percent of labours to be women, unskilled women are largely entering into the MGNREGS program. For the financial year 2011-12, 48 percent of women are engaged in this program from all the rural districts. However, wage gap exists even in a state intervention program- calculating from Annual Report of PLFS 2017-18, men on an average are reported to earn 152 INR per day while women are paid 143 INR from the state employment guarantee program. Further, in few states like Gujarat, Tamil Nadu, Punjab, Madhya Pradesh, Maharashtra and Telengana casual worker’s (both male and female) wage is below the notified wage for financial year 2017-18. State programs are accused of various leakages and operational inefficiencies, yet the participation remains high indicating a much serious problem in rural labour market. An important long term issue pertaining to state run workfare program is the stagnation of skill levels in rural India.  Women participation in secondary and tertiary sector is low; a possible explanation for unskilled women labourers’ compromise for low wages is because of lack of any other alternative. Skill augmentation is prerequisite to transform from an agrarian to an industrial society. A significant effort needs to be directed in training unskilled work force in rural sector, and government employment program has to be a seasonal support system.

    Skill development and Vocational Training to combat rural poverty

    The national average wage difference between men and women for casual employment other than MGNREGS work is calculated to be 55.02 INR for the year 2017-18 and states like Tamil Nadu, Kerala, Tripura and Andhra Pradesh are observed to have the highest gender wage difference. Ironically, these are the states with female participation (in casual labour force) higher than the national average of 25.5 percent, implying that wages (equal wages) are not the only driving force for influencing labour participation. In rural India, while socially defined roles result in unequal wages in labour market, women’s labour does not seem to follow the traditional backward bending labour supply curve. The natural withdrawal of women from workforce is not as serious as unskilled women remaining in informal sector even with lower wages. Real problem of women in rural economy is their diminishing bargaining power and skill stagnation or non-development of any skills due to informal structure and counterproductive state measures.

     A complete free market approach would deepen the wage difference as rural women are assumed to have low skills and weak bargaining power. State intervention to engage more women in labour market should not be limited to just providing 100 days of employment. Skill enhancement, vocational training demanded by industrial and service sectors needs to be imparted in rural areas. Residual women in rural areas are reserve army of labour available and usually are exploited for reasons given above. The gender wage gap is a consequence of a faulty design by the government and dyed-in-the-wool beliefs of people; solutions lie in the state prioritising proactive measures to reform the unorganized sector and improve market accessibility for women. Unequal remuneration in informal sector is a symptom of a fragile labour market. Women labourers end up bearing weights of both market and state failure with poor skills and low wages.

    Manjari Balu is a Research Analyst with The Peninsula Foundation.

    Image Credit:Photo by vishu vishuma on Unsplash.

  • Time for Structural Reforms, Modernisation

    Time for Structural Reforms, Modernisation

    The Prime Minister’s announcement on independence day of his decision to appoint Chief of Defence Staff (CDS) as the single-point military advisor to the CCS and the PM was received with great enthusiasm. The appointment of CDS, recommended in 2001 by the Kargil Review Committee and endorsed strongly by the Group of Ministers’ headed by the then Deputy Prime Minister Shri L K Advani has been long overdue. Like with every other decision with respect to military reforms, the CDS decision became a victim of bureaucratic manoeuvring, vindictiveness, engineered turf battles, and political indecisiveness. The process of setting up a tri-service integrated headquarters was, however, incorporated with a Vice Chief equivalent, CISC heading it. Major reforms such as integration of service headquarters, appointment of the CDS, and establishment of Indian Defence University – all remained in limbo or with just cosmetic changes. There is no doubt that the Indian military is in crying need of major structural reforms in tune with 21stcentury environment, technologies, strategies, and the primacy of joint operations in the conduct of war. The CDS is more than a single person’s appointment, it is an entire system.  Therefore, it needs to be accompanied by other major structural reforms.

     Integrated Defence Staff (IDS), the joint headquarters structure to assist the CDS is already in place. The current head, CISC, would become the VCDS. It has taken more than a decade for the IDS to establish a mature and optimised acquisition system and processes, develop Long-Term Integrated Perspective Plans, optimise the defence intelligence agency, and address joint operational and training systems. While significant expertise has evolved including coordination with multiple MOD agencies, the CISC has had to depend on the Chairman, COSC for major decisions. This was invariably subordinated to the Chairman’s priority for his role as the Chief of his Service. An integrated approach, driven by the CDS, should ensure speedy and optimal modernisation of individual services towards enhancing our joint warfare capability.

     Currently, Chiefs of respective services are responsible for operational capability, training, and the requisite modernisation plans. Acquisitions and modernisation plans were largely driven by individual service specific interests, and very often these ended up getting delayed or blocked by turf wars and prioritisation battles for share of the defence budget pie. This would change under the CDS, with operational decisions being driven by the CDS system while the Chiefs would be responsible for their service capability development, training, and maintenance in tune with joint strategies. This should speed up the modernisation process.

    This year’s defence budget is barely above the subsistence level. A decade of stalled modernisation has brought all three services to their lowest levels of force structures and capabilities. The Indian Air Force is down to 32 squadrons, and is likely to go down 28 squadrons over the next five years as the older, overdue for phase out aircraft are finally laid off. It would take more than a decade for the IAF to get back to its authorised force strength of 42 squadrons provided its modernisation process is undertaken on a war-footing. If not it would be at least two decades for full recovery. The Army is no better, as a former VCOAS stated – 60% of its weapon systems are vintage. Army’s two major modernisation programs – TCS and BMS, intended to be through ‘make’ route, has been shelved after more than a decade of work with two consortiums of Indian majors. This is bound to have huge adverse impact on its modernisation efforts. One can’t blame the Army though. Repeated delays in routine procurements, and lack of accountability on development programs have cost the Army dearly. Notwithstanding some of the recent decisions such as the joint venture between Kalashnikov and the OFB for small arms manufacture, light-weight howitzer and the fast-track procurement of assault rifles and weaponry for special forces, Army’s overall capability for a two-front war is  of concern. The FICV project continues to be in a limbo. Army Chief’s restructuring efforts towards ‘Integrated Battle Groups’ is a welcome step and would help the cause of jointness.

    Navy modernisation efforts are no better either. The progress of the Indian Aircraft Carrier continues in its slow pace. Very well laid out plans such as 30-year ship building and submarine-building programs have been approved years ago, if not decades ago. These have floundered for lack of timely budget allocation. Effectively the Navy continues to grapple with ageing ships, submarines and weapon systems.

    Much of the modernisation that has accrued over the last 15 years has been largely due to procurements from the US, almost exclusively through the FMS route, that is government-to-government contracts. It does not speak well for all our sloganeering on ‘make in India’, and reflects the lack of a coherent national strategy. This is a domain the CDS will need to address.

    In a recent announcement, the government indicated that it would allocate USD 130 billions over the next five to seven years for modernisation of the three services. The CDS will need to move beyond the current system of work in the IDS, as far as modernisation goes. Currently, the LTIPP is seen as a ‘Desired Capability’ document, which the government is happy to concur. There is no assurance of financial commitment, and so the plans remain wishful thinking. Big headlines are made whenever the DAC approves ‘Acceptance of Necessity’ for thousands of crores worth acquisitions. These turn out to be meaningless as the subsequent processes takes years, more than 50% AONs elapse, and less than 25% of approved AONs fructify into desired inductions. On an average the time taken from AON to contract signing has been about 9-10 years. The flaw lies in the mismatch between various aspects of indigenous development, ‘make in India’ manufacturing and huge import dependency versus the combat capability of the forces.

    It is quite clear that various organs of the government, over the last 70 years, have failed to address effectively the need of a vibrant indigenous defence industry that is export oriented and reduces our forces’ import dependency. The CDS system, if evolved correctly, should integrate different aspects of  integrated operational philosophy, requisite force structures and combat capability with indigenous manufacturing, technology development, and a balanced, accountable, and efficient  acquisition process. The CDS must also be given enough power to take operational and financial decisions to ensure appropriate force structures for India’s defence. The bottom line, however, is to see the wisdom that an allocation of 1.35% of GDP is abysmally low to meet India’s defence needs in the 21stcentury.

    This article was published earlier in Deccan Herald on 22 Sep 2019.

    The author is the Founder-Chairman and President of The Peninsula Foundation. He is a former Deputy Chief of Integrated Defence Staff. The views expressed are author’s own.

  • Hong Kong’s Pro-Democracy Movement and the Chinese Conundrum

    Hong Kong’s Pro-Democracy Movement and the Chinese Conundrum

    The protest that erupted in Hong Kong since early June, triggered by stark objections to the extradition bill, has spiraled into a pro-democracy movement in the region. Beyond the political situation, the widespread, leaderless yet organised demonstrations reveal deep social and economic frustrations of the Hong Kongers. As the unrest enters its fourth month, the course of the events in the upcoming days also remains crucial for People’s Republic of China that is gearing up for its 70thanniversary on 1stOctober. With the rest of the world keenly observing Beijing’s measures, China seems to be in a conundrum, often changing its reactionary responses towards Hong Kong.

    Despite wide opposition, the pro-China Legislative Council (LegCo) in Hong Kong passed an extradition bill, usurping the democratic members presiding the bills committee.  While the current laws permit Hong Kong to extradite people upon legislature’s approval, the government introduced the bill claiming that it was unfeasible and could alert targets to flee before proper action. Eventually, following massive protests, the bill was suspended as people claimed that the proposed changes allowing Hong Kongers to be tried in mainland China will erode the region’s autonomy and freedom. Dissidents asserted that the Chinese legal system is opaque and often subordinate to the political structures, not always respectful of the rule of law. Although the citizens succeeded in removing the bill, the protests gained momentum towards larger demands of democracy.

    In 1997, when the British returned Hong Kong to China, Beijing allowed the region to retain a high degree of independence, with the mainland responsible only for defence and diplomacy. Although “one country, two systems”, set to expire in 2047, states political and economic autonomy, only 40 of the 70 LegCo members are directly elected by the people (others nominated by business houses mostly pro-China)  and the Chief Executive is appointed by a 1200 member committee, approved by China. Over the years, multiple protests for democracy have been observed in Hong Kong due the uncertainty post 2047 and increasing Chinese influence, like the Umbrella Movement in 2014. Currently, the discontent with the largely pro-China administration and its failure to represent the Hong Kongers, galvanised by the extradition bill, refuelled the pro-democracy movement in Hong Kong now primarily demanding free election of Hong Kong’s leader and LegCo, withdrawal of the suspended extradition bill and stepping down of Carrie Lam (present Chief Executive).

    The longest and largest unrest in Hong Kong since reunifying with the mainland seems to be spreading to include all sections of the population including lawmakers, civil servants, and even business houses. Mostly led by youth below 30 years, the movement has evolved to be a fight for the future of Hong Kong. Unlike older Hong Kongers, the younger generation did not grow up in a British colony and does not identify with the mainland, manifesting no pride in returning to the Chinese regime. According to Hong Kong University Public Opinion Program, the number of people expressing pride in being a Chinese citizen is at a record low, with an overwhelming majority identifying as Hong Kongers rather than Chinese. Despite being (seemingly) a leaderless rebellion, the sense of desperation and fear of Hong Kong losing its autonomy are powering the movement. While the driverless protests prevent protestors from becoming state targets, the nature of the crisis can easily turn violent and escalate since there is no set course of action, such as breaking into the legislature, shutting the city’s subways and airports, etc.  Many suggest that the protest is constantly gainingmomentumas the political frustration is also fuelled by socio-economic issues. Studies have revealed wide income disparities, especially in the last 45 years. Hong Kong has emerged as the most unequal nation amongst developed nations with the highest Gini coefficient- 0.539 (2017).  After Hong Kong was returned to China, it was hit by the Asian Financial Crisis in 1997 and SARS threat in 2003, worsening recession and unemployment, eventually leading to higher integration with the mainland in terms of trade and investment. As the GDP fell from an average rate of 5.1 percent in 1977-1997 to 2.6 percent in 1997-2017, the wealth gap widened as well. The younger generation equates the blame of poor economic opportunities, rising income inequality and reduced upward mobility to the pro China initiatives of the Hong Kong administration, which is not directly elected by the people. Aging population, low minimum wages, skyrocketing real estate, etc require immediate government policies to tackle the resulting social issues. In the absence of appropriate government action, the demand for a democratic government that acts in Hong Kong’s interests have strengthened.

    Interestingly, the official Chinese response to the Hong Kong situation has been constantly evolving over the course of the protests. Initially, the unrest was hardly covered in Chinese media and traces of Hong Kong incidents were censored from the mainland’s social media platforms. Further, the Chinese state downplayed the number of protestors, claiming that majority of the public in Hong Kong were in favour of the introduced extradition bill. As the movement gained momentum, Beijing portrayed the protestors as a radical, violent minority. Eventually, as pro-democracy demands were raised, Chinese official statements were released comparing the agitation to a “colour revolution”, a term used to highlight a direct threat to Chinese party and its authority. Since then, police force and violence have heightened, and paramilitary forces amassing in the nearest city of Shenzhen has been reported. Following this, Beijing signalled that it has a responsibility to intervene as the Hong Kong administration’s capacity to h andle the situations seems ineffective. In parallel, Hong Kong’s administration repeatedly stressed that the ongoing demonstrations are disrupting the economy, a strategy to undermine support to the protestors.  Additionally, Beijing have also claimed that foreign “black hands” are operating and funding the revolution, since pro democratic leaders were photographed with US leaders and protestors defaced the national symbol at central liaison office (Chinese representative authority in Hong Kong). Overall, this narrative seems to actively reduce positive sentiments towards Hong Kong protestors in the mainland. Moreover, Chinese origin accounts on social media have been found propagating a campaign against the dissenters. Twitter suspended over 2,00,000 accounts, and Facebook removed 7 pages, 3 groups and 5 accounts on account of depicting protestors as violent criminals or terrorist aimed at influencing public opinion around the globe. For directly connecting to younger masses, Beijing has also roped in popular figures like Jackie Chan and pop singers. However, despite these hard and soft measures, China has largely failed in curbing the ongoing crisis.

    The varying responses to contain the rebellion highlight Chinese helplessness. Beijing’s long term strategy of subtly eroding Hong Kong’s autonomy has effectively been defeated. Ruthlessly crushing pro-democracy demands, as it did in Tiananmen Square protests, will undermine China’s carefully constructed role as a responsible state actor. Moreover, unlike the Tiananmen protestors, Hong Kongers have no allegiance to the mainland and are conditioned to certain levels of freedom. Suppressing their rights and removing its current level of autonomy will work against China and could further create tensions in Taiwan, prompting the island to declare real independence. Furthermore, it will invite international repercussions as UK has already announced diplomatic retaliation if the Sino British declaration is not honoured by the Chinese and US has hinted that the special privileges it extends to Hong Kong will be reconsidered if its status is changed. Despite Hong Kong’s declining significance to Beijing, it still handles  75 percent of offshore RMB payments and 63 percent of FDI into China. However, failure to quell the protests will hamper China’s image of invincibility and imply that Beijing caved in against mob action. This will weaken national pride amongst mainlanders, from which the Communist Party derives its strength. China seems to be caught in a tough spot, between one that wants to achieve stability by instituting leadership change and upholding one country two systems approach with integrity, and one that wants to portray itself as an ambitious rising power with unquestionable strength.

    Renuka Paul is Research Analyst with The Peninsula Foundation.

    Image Credit: Photo by Joseph Chan on Unsplash.

  • Problems of Indian Agriculture: Low Incomes, Marginal Farmers , and lack of Modernisation

    Problems of Indian Agriculture: Low Incomes, Marginal Farmers , and lack of Modernisation

    Manjari Balu                                                                                                   August 23, 2019/Analysis

    Substantial fall in the number of farmers in the past decade with stagnant agriculture growth of 2.88 per cent corroborates the bleak condition of the Indian agriculture sector. The dire status of the agriculture assigns the state to either invest for agriculture (asset creation) or invest in agriculture (includes subsidized input). The ostensible manifestation for agriculture is visible during the union budget 2019 with falling public investment for agriculture even as budget expenditure rises. The number of cultivator has decreased by 7.5 per centfrom 2001 to 2011 but the number of labourers engaged in agriculture increased by 3.5 per cent for the same years. Contextualizing the movement of labourers with the ambitious plan of doubling the farmers’ income urges the need to investigate the income and wages which currently stands at INR 8931 per month. This figure includes both large landowners and marginal farmers   In the year 2018, waves of protests sparked off across the country, with disgruntled farmers demanding better support prices and waivers of loans. Fear mounted that frustrated farmers would jeopardise the electoral victory of the ruling party. In response, an annual cash transfer of INR 6000 to all marginal farmers was announced in the interim budget of 2019. The strategy paid off. Post-poll survey shows that around 68 per cent of Indian farmers were satisfied with the record of the BJP led government despite strong protests demonstrated earlier in the same year.

    Investments and Subsidies : Misplaced Priorities

    Marginal farmers account for 86 per cent of India’s total farmers. The government has proposed an allocation of INR 85,000 crore in the interim budget to directly support the small farmers and boost their income levels. The re-election of BJP to power is an approval from the agrarian society for idealistic pledges with an ultra-nationalistic manifesto.  But the party in power is resorting to increasing the quantum of spending on agriculture without addressing fundamental issues of the sector. Almost half of the population is engaged in agriculture and the sector accounts for nearly 17 per cent of total Gross Domestic Product (GDP). The 2019 budget has allotted INR 1,51,000 crores for agriculture and allied sectors; this constitutes a 75 per cent hike from the previous budget. Subsidies on fertilizers occupy a highly prominent position in the budget expenditure; INR 73,435 crores is budgeted for fertilizer subsidies for the year 2018-19. Fertilizer subsidy is increasing at an annual rate of 11.4 percent while the share of public investment in agriculture is a mere 0.4 percent of the total investment. The rationale behind large fertilizer subsidies is to reduce input cost and thereby increasing income margin of the farmers. However, a study conducted to assess the impact of different investment components on return on agriculture ranked subsidies below investment in Research & Development (R&D). The output elasticity of the States for expenditure varies from high-income states to low-income states. A state-wise subsidies plan has to be strategized to have a remunerative effect on the productivity and hence the income of the farmers.

                A disproportionate investment in subsidies might lead to short term rise in income but at the cost of long term productivity. The rising burden of liabilities to fertilizers companies is straining the government’s fiscal position. Comptroller Audit General India has criticized the recent budget for resorting to off-budget financing (to cover subsidies through bank loans) to reach the 3.3 per cent target of fiscal deficit. Such offset financing severely strains the government balance sheet and mounting liabilities would dent the future economy.

    Public investment in agriculture is much lower than private investment. In 2016-17, government spending on capital formation stood at only INR 45,981 crore while private spending was INR 2,19,371 crores. While overall public spending has been growing, the share of capital formation in the budget is relatively low.

    Agriculture Strategies in Indian and China: Difference is Technology and Modernisation

     An elementary comparison of India’s growth in agriculture with China highlights the divergent growth due to the different strategies adopted during their post-reformperiod. China focused on irrigation and invested in technology to attain efficiency in water management. The Total Factor Productivity (TFP) which measures the economic efficiency of inputs estimates China’s agriculture TFP to be growing at an average rate of 3.40 percent post the reforms. In contrast, India’s post reforms agriculture TFP stood at around 0.54 percent illustrating the deficiency in technology investment and excessive subsidies on credit, power and fertilizers. China’s indisputable focus was on rural spatial restructuringand land consolidation. Optimizing land-usepatterns and investing in rural regions to enhance productivity can be a transformative solution to address the problems created by industrialization. The remarkable success of China can also be attested to the stabilization of agricultural subsidies in the year 2009. Though input subsidies in 2004 were exponentially growing, the Chinese government conceded the inefficiency of resources allocated to the farmers.

    The principal justification behind institutionalising subsidies on credit, irrigation and fertilizers is to bolster marginal farmers in minimizing the difference between input costs and output prices. The input cost is primarily financed by short term agriculture credit; the short term crop loan has increased by 18 per cent from 2014 to 2018. Theoretically, a positive trend in the short term credit to farmers duplicates the function of subsidies to reduce the input cost. The dispensable expenditure on subsidies can be reduced if state prioritizes to streamline the credit flow to avoid leakages in the system. A fundamental task of the government is to channelize the gain from productivity and translate it to income and wages. Input cost reduction approach, in the long run, suffers from a potential threat of income being concentrated in the large land cultivators while labourers are discouraged to take up farm jobs.

    Income Wage paradox

    The average operational landholding reduced from 2.28 hectares in 1970-71 to 1.08 hectares in 2015-16 as a result of excessive land fragmentation with a swelling rural population. Farmers from India’s rural areas generate income majorly from cultivation and wages. Mahatma Gandhi National Rural Employment Guarantee Act is one such gambit to accelerate employment and incomes of the rural populace. Though the state intervention in the rural labour market has been acclaimed to the extent that it engages India’s unskilled labour force, the flaws of national workfare program are only too apparent with poor monitoring and supervision. A visible trend of farm labourers moving togovernment employment programs has contributed to the recent labour scarcity in agriculture. A shortfall of the labour force in labour-intensivecrops invariably inflates the wage even in the absence of skill augmentation and mechanization of agriculture. Rural workers are more attracted to employment programs as it offers fixed wages as opposed to volatile wage rates in agriculture.

    The union budget has provided an abstract roadmap to increase the income by hiking the Minimum Support Price (MSP) and reducing the input cost. Overall, the average daily wage rates of agriculture labourers in real terms are observed to be falling rapidly from 11.08 percent (derived from government data) in 2007-08 to 4.3 percent in 2018-19. The implication of government strategies to increase the farmers’ income and not that of the labour is based on the assumption that the profit is effectively channelized as wages. However, the discernible movement of the workforce from a labour-intensive agriculture sector to the service sector on account of surety implies the failure of State to stabilise income through agriculture. Indian agriculture has achieved only 40 percent of mechanization while the United States of America has 95 percent of farm mechanization. A transition to capital intensive production would justify a movement of labourers from the agriculture sector to the non-farmsector, but the majority of the farms being labour intensive faces low productivity due to the labour shift.  The disturbed labour market offers higher wages in agriculture but labourers choose to settle for the employment program due to less skill requirement and guarantee of a minimum wage. The farmers in need of labourers, work at a below optimal level with less productivity as it is hard to afford labourers at a higher wage. To untie the complex knot- dynamics of labourers and farmers, it needs to be thoroughly examined to achieve enhanced productivity through income. A mere cash transfer or subsidizing input cost would not guarantee higher income or efficient productivity in the long run.

    A quantitative study conducted to analyse income inequality in the agriculture sector concluded that there has been little change in the structural and distributional factors in the agricultural economy. The findings of the study stated that inequality in income is driven by the share of land ownership. The importance of examining income affected by land size is more relevant as the continuous land fragmentation gains logical attention with an income determined framework proposed by the government. Thus an important fact to be recognizedis that the marginal farmer households earn 9 percent of the total agriculture income while medium and large farmers earn 91 percent of the income. Evidence for growing income inequality based on the land size and land ownership implies the state expenditure has to be designed to redistribute the investment with a view to minimizing the disparity.

    Need for Effective Policy Alternatives

    There is a pressing need to consolidate land holdings and address the deteriorating quality of soil and incentivize farmers to specialize in production by cooperative farming. Self Help Groups is a success story for community-drivenentrepreneurship, a similar model can be experimented in agriculture, factoring the viability and feasibility. A revision of land reform policies to restructure the arable lands for achieving higher productivity needs to be factored in the entire spending formula. There should be a balance in capital and revenue expenditure for agriculture to avoid concentration of funds only on overheads. The state should facilitate a platform for a smooth transition from labour intensive to capital intensive agriculture from both sides. Incentivize farmers to own lands that can be mechanized and equip the residual labourers with skills to acquire jobs in the service and manufacturing sector. A prime target of improving productivity and maintaining the ecological balance has to be influenced to enhance the living standards of farmers.

    Three critical paradoxes that are driving Indian agriculture need to be studied in detail for  better fiscal and policy decisions. These are (i) problem of low productivity despite availability of abundant arable land with a tremendous history of agrarian community, (ii) Bulging population with increasing unemployment yet labour shortage in agriculture sector, and (iii) huge share of agriculture expenditure yet no substantial asset creation or returns on investment. Central government must assess the quality of natural resources and make initiatives for precision farming a priority component in respective states. A revision of labour wages based on productivity and employment programs have to be framed to engage workers in building agriculture infrastructure. The choice of viewing income as a means to achieve productivity or income as an end to beguile the voters during the election season lies with the government.

    Manjari Balu is a Research Analyst with The Peninsula Foundation.

    Photo : Small Farm in Vellore Dt, Tamilnadu, India.  Credit: M Matheswaran