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The Hindu Notes for 17th October 2018

Getting the economy back on track

It is important to understand the myth and reality of the current economic situation in order to map the road ahead

  • Economics is a technical subject of interdependent variables and parameters, that allows for objective mathematical and statistical analysis. It is no more a single commodity demand-supply subject. Those in responsible positions who are ignorant of this fact end up trying to put a spin and gloss on reality, and thus get exposed soon as ridiculous, as we can see today in media debates.
  • Is it true then that the Indian economy is headed for a serious crisis? Yes, that is a reality. It is, however, a myth that any or every crisis necessarily means an imminent collapse of the economy. The Indian economy is not near a collapse yet.
  • The situation today in the Indian economy is therefore still retrievable and a turnaround can be commenced within three months if the government initiates “real” economic policy changes, as was done in 1991-96 during the tenures of Chandra Shekhar and P.V. Narasimha Rao as Prime Ministers.
  • Hence, no amount of quoting foreign agencies such as the International Monetary Fund, or international events in explanations will help address the crisis that is looming unless we initiate major economic reforms that are credible and incentive-driven for the people. We therefore need a reality check today.

    • A few basic facts

  • The reality of today can be assessed from the following facts. One, the growth rate of the economy with proper index number-based GDP has declined over the last two financial years. The annual rate for 2018-19 is for obvious reason not available, but my guess is the trend has not changed.
  • Two, household savings, which are the bulk of India’s national investment, dropped from a high of 34% of GDP to about 24% of GDP in 2017. Non-household savings are about 5% of GDP. This decline happened even before demonetisation and the decline continues because of intrusive and sometime obnoxious tax measures. I consider the Goods and Services Tax (GST) a flop borrowed from the United Progressive Alliance (UPA) government. Despite my protest, it was introduced much as a carnival in Parliament, with gongs reverberating.
  • Three, non-performing assets of the public sector banks (PSBs) have also risen sharply, in fact at a rate of growth much higher than the rate of new advances of these banks, making many large PSBs financially unviable and likely to collapse. This could cause financial contagion in 2019 in all sectors.
  • Four, the Ministry of Finance has brutally cut allocations of the investments in infrastructure despite the urgent need for such infrastructure. The economy needs about $1 trillion investment in infrastructure to render “Make in India” a reality, but the actual investment in sanctioned projects is valued even less in real terms than the amount invested in the pre-2014 years.
  • Five, the manufacturing sector, especially MSMEs (micro, small and medium enterprises) which provide the bulk of the employment for the skilled and semi-skilled in the labour force, has been growing at abysmally low rates of between 2% and 5%.
  • Six, India’s agricultural products are among the cheapest in the world, and despite a low yield per hectare, we are not able to increase the yield to its potential maximum and at least double the production and export the agricultural products abroad commensurately. Consequently, agriculture, as the sector that is the largest employer of India’s manpower, is grossly under-performing.
  • Seven, when crude oil prices had steeply fallen over the four years since 2014, and despite the dollar value of the rupee till mid-2018 having been steady at around Rs.65 per dollar, nevertheless both exports and imports simultaneously declined over 2014-17.

    • The current adversity

  • Now today in 2018, the Indian economy is facing a 180-degree adverse situation: a rise in the rupee-dollar rate to 75, and crude oil prices rising to $85 per barrel, although they are lower now. This is causing a massive crunch for our foreign exchange reserves.
  • Thus the present possibility of an economic crash should galvanise us to review honestly the way we have governed and done the business of governing, and then rise to new heights with an appropriate change in policy, and thereafter achieve higher growth rates of 10%-plus annual growth in GDP, with structural changes.
  • The Union government also needs to give an alternative ideological thrust to economic policy rather than try to improve on the failed economic policies of the UPA, as is currently being done. In particular, first, the individual has to be persuaded by the government by incentives — for example, by abolishing the income tax — and not by coercion, such as harsh levies and taxes. Of course, the state should make no promise to the people without specifying the sacrifice required to be made by them to make it happen.
  • Second, India can make rapid economic progress to become a developed country only through a globally competitive economy, which requires assured access to the markets and technological innovations of the U.S. and some of its allies such as Israel. This has concomitant political obligations which must be accepted as essential.
  • Since the growth rate in the GDP is calculated as equal to the rate of total investment (investment as a ratio of GDP) divided by the productivity coefficient of capital (called “capital-output” ratio which decreases with increasing productivity and vice versa), a fall in the rate of investment and/or a rise in capital output ratio means a decline in the growth rate in GDP.
  • Thus if the rate of investment is 39% and the productivity ratio is 3.9, then the GDP growth rate is 39 divided by 3.9, which equals 10%. Thus higher the productivity in the use of capital (same as lower capital output ratio), higher is the GDP growth for the same level of investment — and vice versa.
  • The decline in the level of household savings thus had caused a sharp decline in the GDP growth rate. It is imperative therefore that to accelerate the GDP growth rate, government policy should be to incentivise the saving habit to increase the savings rate to 35% of the GDP.
  • To seriously address these priority problems, it is essential to implement a new menu of measures: (a) dramatic incentives for the household expectation and sentiment to save; and (b) lowering the cost of capital via reducing the prime lending interest rates of banks to 9%, by shifting to a fixed exchange rate regime of Rs.50 per dollar for the financial year 2019 and then gradually lowering the exchange rate for subsequent years.

    • Cause for optimism

  • On a positive note, we should bear in mind that in the last 71 years, India has always come out successfully in all crises — once this is acknowledged as such by policy makers, it can then be dealt with squarely with reforms that incentivise the people. On each occasion, such as the food crisis of 1965, the foreign exchange crisis of 1990-91, thereafter growth renewed on to a higher accelerating path.
  • A recent biography of Narasimha Rao by Vinay Sitapati shows how as Prime Minister, Rao relied on my blueprints prepared for reform led to economic reforms moving away from Soviet socialism to the market system and led to doubling the GDP growth rate rising from the socialist 3.5% annual rate of four decades (1950 to 1990) to the market fuelled 8.5% annual rate.
  • The Indian economy, however, needs to grow at 10%-plus per year for the next 10 years to achieve full employment and for India’s GDP to overtake China’s GDP and pave the way to form a global economic triumvirate with the U.S. and China.
  • We can no more be satisfied with 7-9% growth rate if we want to become an economically developed country by 2040.

    • Unnecessary, destabilising and expensive

    The pursuit of nuclear-armed submarines reflects a security assessment that is becoming increasingly irrelevant

  • On November 5, Prime Minister Narendra Modi announced that India’s first indigenous ballistic-missile armed nuclear submarine (SSBN), Arihant, had “successfully completed its first deterrence patrol” and claimed that this “accomplishment” would “always be remembered in our history”. However, he failed to address some fundamental questions: why does India need such a submarine? And, are the enormous resources spent on the nuclear-submarine programme justified?
  • A nuclear submarine is fuelled by an onboard nuclear reactor, which allows it to operate underwater for long periods of time. In contrast, a conventional diesel submarine uses batteries to operate underwater, but is forced to surface periodically to recharge its batteries using diesel-combustion engines that require oxygen. SSBNs were first deployed during the Cold War and justified as a tool of last resort. If an adversary were to launch a devastating first-strike on a country, destroying its land-based missiles and paralysing its air force, the submarine — undetected at sea — could still deliver a counter-strike, assuring the “mutual destruction” of both countries.

    • Indian context

  • However, this strategic function makes little sense in the modern Indian context. There is no realistic threat, which the Arihant could counter, that could wipe out India’s existing nuclear deterrent. The range of the missiles carried by the Arihant is about 750 km, and so it can only target Pakistan and perhaps China.
  • The Pakistan government has threatened to use “tactical nuclear weapons” to counter India’s cold-start doctrine that envisions a limited invasion of Pakistan. However, these are relatively small nuclear weapons that could devastate a battlefield but would not affect the Indian military’s ability to launch a counter-strike using its existing land or air-based forces.
  • China has consistently pledged, for more than 50 years, that it will never be the first to use nuclear weapons in a conflict. Even if China were to suddenly change its policy, any attempt to disable India’s nuclear weapons would be fraught with unacceptable risks regardless of whether India possesses SSBNs. Even the United States, which maintains such a large nuclear stockpile, is unwilling to militarily engage a limited nuclear power such as North Korea since it understands that it cannot reliably disable Pyongyang’s land-based deterrent.
  • Much of the rest of the world has moved to outlaw nuclear weapons. Last year, 122 nations voted in favour of the “Treaty on the Prohibition of Nuclear Weapons”. The Indian government skipped these negotiations claiming, nevertheless, that it was “committed to universal... nuclear disarmament”. So the government’s active pursuit of nuclear-armed submarines undermines India’s stated international position and reflects a security assessment that is becoming increasingly irrelevant.

    • Some risks

  • In fact, nuclear-armed submarines increase the risks of an accidental conflict. Traditionally, nuclear weapons in India have been kept under civilian control, and separate from their delivery systems. However, the crew of a nuclear-armed submarine will have both the custody of nuclear weapons and the ability to launch them at short notice. Even though reports suggest that nuclear weapons on Indian SSBNs will be safeguarded by electronic switches, called “permissive action links”, such a setup can dangerously weaken the civilian command-and-control structure, as declassified documents from the Cuban missile crisis show.
  • During the crisis, U.S. warships recklessly attacked a Soviet submarine with practice depth charges to force it to surface. The captain of the submarine, which had been sailing under difficult conditions and was out of radio contact with the Soviet leadership, thought that war had broken out and decided to respond with nuclear torpedoes. It was only the sober intervention of another senior officer on the submarine, Vasili Arkhipov, that prevented the outbreak of large-scale nuclear hostilities. For his actions, which averted a civilisation-threatening event, Arkhipov was posthumously awarded the “Future of Life” award last year.

    • Prohibitive costs

  • Given its uncertain, and even adverse, impact on the country’s security, it is especially important to examine the costs of the SSBN programme. Media reports suggest that the Indian Navy would eventually like about four SSBNs. The government has not released precise figures, but the international experience can be used to estimate the costs of such a fleet.
  • The British government recently estimated that the cost of four new SSBNs would be £31 billion, or about ₹70,000 crore per submarine. This is similar to the U.S. Navy’s estimate of the cost of a new “Columbia-class” SSBN. The lifetime costs of operating such submarines are even larger than these initial costs; British and American estimates suggest that each SSBN requires between ₹2,000 crore and ₹5,000 crore in annual operational costs.
  • The Indian submarines will be smaller, and perhaps cheaper. However, even if their costs are only half as large as the lower end of the British and American estimates, the total cost of maintaining a fleet of four SSBNs, over a 40-year life cycle, will be at least ₹3 lakh crore.
  • It is senseless to spend this money on nuclear submarines when thousands of lives are lost each year because the state pleads that it lacks resources for basic health care and nutrition. It seems appropriate to revisit the words of Sardar Patel, who is held in high esteem by the current dispensation. Patel was hardly a pacifist but he was alive to the issue of wasteful military expenditure. “We must not... be frightened by the bogey of foreign designs upon India,” Patel explained in his presidential address to the 1931 Karachi Congress, or allow it to be used to turn the army into an “octopus we are daily bleeding to support”.

    • The ‘outsiders’ of Haryana

    Trafficked into Haryana in their teens, they were sexually exploited and physically abused all through their youth before being abandoned by their ‘husbands’ in their middle age. Ashok Kumar reports on the plight of the hundreds of survivors of trafficking, some elderly, who, in the absence of any support from the local administration or civil society, have been left to fend for themselves

  • A one-room school building has been Balqis’s home for the past 15 years. The ramshackle structure, which stands amid a grove of Kikar trees, has neither doors nor window frames. Located on the outskirts of Madhi village in Haryana’s Nuh district 60 km from the national capital, it is all that Balqis has by way of shelter. A monthly old-age pension of ₹1,800 and the occasional wages she gets for washing dishes at weddings are her only sources of income.
    • Haryana Village
  • Balqis, now in her late 50s, sits outside the building, thread basting a lap quilt. She takes a deep breath before she begins her story. Three decades ago, she, along with her then five-year-old son, was tricked by their family’s domestic help into travelling to a village in Nuh on the pretext attending a family function. Once they reached Nuh, she was sold to a man, a Nat by caste (traditionally a community of jugglers and entertainers), for ₹2,500.
  • Salim Khan, a Nuh-based social activist, says that Balqis Tai (Tai is ‘aunt’ in Haryanvi) was from a well-settled Pathan family in Bidar, Karnataka, and was married to a bus driver at the time she was trafficked. Left stranded in Nuh with neither money nor the means to return to her parents in Bidar, she resigned herself to her fate.
  • “Those were simple times. The women were too naive and innocent,” sighs Balqis, who was surrounded by some of her grandchildren. Four of them are in school, while the eldest, a girl of around 18, got married three years ago. Balqis’s only son, Karim, is illiterate and works as a daily-wager. Her daughter-in-law is expecting her 14th child in a few months.
  • Jaleva, the man who ‘purchased’ Balqis, was already married but childless. “He frequently beat me up and made me do all the household chores. He also maltreated and abused my son,” she recalls in a matter-of-fact manner. She and her son were thrown out of the house after 15 years of marriage when it became clear that she could not bear a child. She had to fend for herself without any source of income. Jaleva has since bought and married two more women.
    • Haryana Village Outside
  • Led by Khan’s father, affectionately known as Deena sarpanch, villagers then helped arrange the abandoned school building as a makeshift shelter for the distraught woman and her son. But the room has now been partially encroached by local ‘dabangs’, or musclemen, who have begun using it to store cattle fodder, leaving little space for the family. Karim recently erected a ‘kachcha’ room adjoining the building to accommodate his growing family.

    • Demand for cheap labour

  • Shafiq R. Khan, the founder of ‘Empower People’, a non-governmental organisation (NGO), has been working with trafficked women in Nuh since 2007. He emphasises the point that the need for cheap labour is the single biggest factor behind the demand for trafficked women in Nuh and other parts of Haryana. The heavily skewed sex ratio in the State (879 females per 1,000 males, as per the 2011 Census) further sharpens the demand.
  • “Inadequate irrigation facilities and large-scale animal farming are the two reasons for the enormous demand for cheap labour in Nuh,” says Shafiq. “In fact, there is a big demand for labour across the agricultural States of Haryana and Punjab.”
  • Elderly and physically/mentally challenged men are also among the buyers of women, as they fail to find a match locally. The women are usually trafficked from Bihar, Jharkhand, Assam and West Bengal. Widespread poverty and lack of employment opportunities have made them the preferred ‘source States’ for traffickers.
  • These women, who are each purchased for around ₹40,000-50,000, are in the prime of their life and often end up being sexually exploited at home and used as cheap labour in the fields. The patriarchal nature of society in Haryana ensures that even local women do not get to own land or have a say in family and social matters. So it is almost inconceivable for the trafficked women, derogatorily addressed as ‘Paro’ or ‘Molki’ (the term for ‘purchased’), to seek these rights. They rarely participate in local customs and cannot even dream of visiting their natal family or village after ‘marriage’. Though most of these women, especially those from West Bengal and Assam, are non-vegetarian, they are forced to adjust to vegetarian food habits that are prevalent in Haryana. Those in nuclear families may enjoy relatively more autonomy within the family, but not in the society at large.

    • Downward spiral

  • Separated from their loved ones in their early teens, often sold multiple times and repeatedly abused and assaulted for years, the women discover, as they reach menopausal age, that they have an even tougher future awaiting them. In their late forties, with their physical strength on the wane and men beginning to lose interest in them, they become ‘unwanted’. As the men begin to look for younger girls, the older women are abandoned along with their children. And no one — civil society, the political class or the local administration — comes to their rescue.
  • Those who are widows have a similar fate. Denied both property rights and social acceptance, these women are left to fight their own battles, with little access to government schemes meant for the poor and the widowed. To make matters worse, most are illiterate and do not have identity documents. Even their children, especially the daughters of these women, are not socially accepted. The boys find it difficult to get a local match.

    • She fought back

  • About 30 years ago, Manisha, 50, a native of Nanded in Maharashtra, was sold to a man who was more than twice her age. Her struggle over the decades typifies the plight of innumerable such women who become destitutes in their twilight years.
  • Unlike other women, Manisha had a relatively better life as long as her husband, Kishan Chand, was alive. But after he passed away, her in-laws tried to get her killed in order to grab her property. “My husband’s brothers hired goons to abduct and kill me,” she says, wiping her tears. “When it did not work, they overpowered me one day, tied me up and tried to run a tractor over me. This happened seven years ago.”
  • A scar on her left hand bears silent testimony to the brutality she has endured. Had it not been for the Muslim families in the village who came to her rescue on hearing her screams, the goons would have killed her that day, she says.
  • Pushed to the wall, Manisha decided to fight back. Refusing to be subdued, she sold her husband’s land and opened a fixed deposit with the money. “I filed a case of attempt to murder against my in-laws and spent a good amount of money fighting it, but they got away scot-free,” she says. “I now work as a daily wager. For the past two years, I have been getting ₹1,800 a month as widow pension. The 5 kg of wheat from the government ration shop is also a great help.” She has been staying in a rented room in Sakras village since the time she was forced out of her own home after her husband passed away.

    • Communes for the survivors

  • ‘Empower People’ has also been trying to develop community support for the trafficked women and build solidarity among them. It has organised some of them into village communes that are managed and led by the survivors themselves. These communes, which number around 100, run skill centres where trafficked women can meet and form bonds of support and solidarity with other women. Ten survivors have also been joined these communes as paralegal volunteers under the watch of Nuh’s District Legal Services Authority (DLSA). The women are paid ₹400 per day when on DLSA duty, which is subject to a maximum of 10 days a month.
  • There is also the story of Sabiha. Trafficked from Bihar when she was 11, Sabiha, now in her late 30s, has over the last three years transformed herself and taken on a new identity as a community leader, leading a commune, and paralegal volunteer. She now meets senior officers from the police, the judiciary and the local administration and commands respect among the trafficked women. “I now know that I can approach the police in case my husband beats me up, and that it is a crime,” she says. “I interact with women from Kansali and the neighbouring villages of Moolthan and Kareda to discuss their issues. We hold small meetings to inform them about their rights and the legal recourse available to them.” .
  • Sabiha, a mother of four, was trafficked by her neighbour in Bihar more than two decades ago. He sold her to Mobin, who was 20 years older. She became a mother at 13. Her family managed to trace her a few years ago but it was too late by then. “Mobin used to regularly beat me up,” Sabiha says. “But the violence and the abuse has become less frequent after I became a community leader.” While Mobin stays at home, the household runs on what she earns.
  • Sabiha also helps trafficked women get identity cards through the village panchayat so that they can claim the benefits of various government schemes. She feels that it is the elderly women among the survivors who have had the toughest life and that they are “better off dead”. In support of her opinion she says that most of the older women, who are disowned by their husbands and families, are often uneducated and work as daily wagers to make both ends meet. They mostly live on the charity of others, she adds.
  • “Not all of them are able to access government schemes such as old age and widow pension,” she says. “Most do get rations from government shops, but that is inadequate,” she adds. Of the 25 women she knows, around seven do not have the requisite documents.
  • “If we take the entire Nuh district for instance, at least 33% of elderly trafficked women are without any government support,” adds Khan. Given that there are an estimated 12-13 trafficked women in a village of 250 families, the number of such abandoned elderly women in Nuh alone, which has over 400 villages, could run into several hundred. “For Haryana as a whole, this figure could easily run into the thousands,” he says.
  • Even those who avail of government schemes are mostly enrolled only for pension or widow schemes and subsided rations. Says Shafiq: “As they do not have voter identity cards, they are deemed as outsiders and excluded from schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme, insurance schemes, and the distribution of plots under the Pradhan Mantri Awas Yojana [for affordable housing for the poor]. Not a single trafficked woman in Nuh has received a plot in any government scheme.”

    • Still in denial

  • The plight of the survivors was even more dire before ‘Empower People’, in association with the local administration, launched a special campaign, in 2010, to prepare identity cards for them. The NGO, through its village communes, generated official identities for the survivors by registering them in local government records as the wives of the men who were claiming them as spouses. It also managed to persuade the husbands to transfer a portion of their land to the women. Several of the survivors now own land gifted to them by the men who had bought them.
  • Says Shafiq: “Another scheme, known as ‘Pahal’, reached out to trafficked women with the aim of making identity cards for them. But it lost steam following a lack of response from the local administration.” The NGO now plans to make one of the survivors contest the Assembly elections in 2019. “This is not about winning or losing,” he says. “It is just to make a statement that these women also belong to society and that they too can do what the locals do and even contest elections. We came close to doing this in 2014, but our candidate bowed to local pressure and withdrew.”
  • While it is not exactly known when Nuh became a trafficking hub, Shafiq claims to have met a woman who had been sold as early as in 1947. The phenomenon appears to have abated considerably in recent years, primarily because of an increase in divorce rates and the reports of ill-treatment that local women face. “Since the men had the option of buying women from elsewhere, their marriages with local women did not last long. The locals have realised this and are now opposing trafficking,” he says. “We now get support from villagers in our battle against trafficking. This was not the case a few years ago. Greater awareness in the ‘source States’ such as Bihar, Jharkhand, West Bengal, Assam and Uttar Pradesh has also helped to fight the menace.”
  • Villagers, however, are still reluctant to acknowledge the problem. Former Madhi sarpanch Hazi Muse Khan claims that he has never heard of any woman being trafficked to his village. He adds that even if a woman was ever brought from outside, she would have been “treated like a flower”.
  • The political class too avoids talking about the controversial issue lest it angers the local community. This has resulted in corporates staying away from funding projects that help the trafficked women, as they are anxious to remain in the good books of politicians. This, says Shafiq, has made the job of social activists and NGOs even more difficult. “The resources are scarce. I could not arrange for enough funds to even get a study on the subject published,” he says. “Sometimes I feel like quitting.”
  • Shafiq lays stress on the fact that the magnitude of the problem in the case of ageing and abandoned victims of trafficking is far greater than that of the widows of Vrindavan or Varanasi. The judiciary and society at large have at least recognised the problem with regard to the Vrindavan widows and even come to their rescue, he says. But elderly trafficked women here continue to suffer in silence.
  • Earlier this year, ‘Empower People’ organised a long march against trafficking. The campaign began on March 25 in Assam and ended in Shimla, Himachal Pradesh on June 1, covering 70 trafficking-prone districts in 10 States. Despite all the efforts being made to raise awareness on the issue, human trafficking, which is a crime under the Indian Penal Code, remains grossly under-reported.
  • National Crime Records Bureau data for 2016 show that only 149 victims were trafficked in Haryana, which included 97 females. Similarly, a total of 108 victims of human trafficking were rescued, including 80 females. Of those rescued, the highest number (46) had been trafficked for sexual exploitation, prostitution (27), begging (8), forced marriage (6) and one each for organ theft and forced labour. Nineteen had been trafficked for other reasons.
  • As for Balqis, like the hundreds of other trafficked women, she still hopes to see her parents and siblings before she breathes her last. While memories of her early life have faded, she does remember that she had six siblings (three brothers and three sisters) and that she was the middle child. “Had I been not trafficked, my life would have been so different. But I do not want to blame anyone now. It was, perhaps, my destiny,” she says, getting back to working on her lap quilt in preparation for the approaching winter.
  • The names of the trafficked women and their family members have been changed to protect their identity