To stop black money, Indian government withdraws Rs 500 and Rs 1,000 currency notes from circulation.

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Zulfiqar Sheth

Taking the nation by surprise, Prime Minister Narendra Modi on Tuesday night announced demonetisation of Rs. 1000 and Rs. 500 notes with effect from midnight, making these notes invalid in a major assault on black money, fake currency and corruption.

In his first televised address to the nation, Mr. Modi said people holding notes of Rs. 500 and Rs. 1000 can deposit the same in their bank and post office accounts from November 10 till December 30.

Here are the highlights from his address:

  • Corruption and black money are diseases rooted in this country, they are obstacles to our success.
  • We are among fastest-growing economies, but we also rank so high in global corruption rankings.
  • We need to take a new solid step to fight black money. From now on, Rs. 500 and Rs. 1000  notes will not be used. Have 50 days to turn them into banks and post offices.
  • On November 9 and in some places on November 10, ATMs will not work.
  • Respite for people for the initial 72 hours, government hospitals will accept old Rs. 500 and 1000 notes till 11 November midnight.
  • Petrol pumps and retail outlets will have to keep every single entry of cash transaction with 500 and 1000 notes till November 11.
  • Crematoriums and cemeteries will also be allowed to transact 500 and 1000 notes till November 11.
  • There will be no change in any other form of currency exchange be it cheque, DD, payment via credit or debit cards etc.
  • Those unable to deposit Rs. 1000, Rs. 500 notes by December 30 for some reason, can change them till March 31, 2017 by furnishing ID proof
  • Notes of Rs. 2000 and Rs. 500 will be circulated soon, RBI has decided to limit the notes with higher value.

This is not the first time this has happened in India, at least technically. Earlier, Rs 1,000 and Rs 10,000 banknotes, which were in circulation, were demonetized in January 1946, primarily to curb unaccounted money. The higher denomination banknotes in Rs 1,000, Rs 5,000 and Rs 10,000 were reintroduced in the year 1954, and these banknotes (Rs 1,000, Rs 5,000 and Rs 10,000) were again demonetized in January 1978. So that makes it the last time demonetisation was done in India. (Source :RBI)

 

Meet 2016 Nobel Laureates in Economics

nobel-prize-economists

By Zulfiqar Sheth

The Royal Swedish Academy of Sciences has decided to award the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2016 to Oliver Hart, Harvard University, Cambridge, MA, USA and Bengt Holmström of Massachusetts Institute of Technology, Cambridge, MA, USA for their contributions to contract theory.

Brief Biography of  Oliver Simon D’Arcy Hart 

1476093816_bengt-homstrom-oliver-hart68 years old Oliver Simon D’Arcy Hart  is a British-born American economist and the Andrew E. Furer Professor of Economics at Harvard University, where he has taught since 1993. Hart works mainly on contract theory, the theory of the firm, corporate finance, and law and economics. He obtained his PhD degree from Princeton University in 1974 , MA(Economics) from Warwick University in 1972 and B.A. in Mathematics from Cambridge University (King’s College) in 1969. His research centers on the roles that ownership structure and contractual arrangements play in the governance and boundaries of corporations. He has published a book (Firms, Contracts, and Financial Structure, Oxford University Press, 1995) and numerous journal articles. He has used his theoretical work on firms in two legal cases as a government expert (Black and Decker v. U.S.A. and WFC Holdings Corp. (Wells Fargo) v. U.S.A.). He is a Fellow of the Econometric Society, the American Academy of Arts and Sciences, the British Academy, and the American Finance Association, a member of the National Academy of Sciences, and has several honorary degrees. He has been president of the American Law and Economics Association and a vice president of the American Economic Association.

Oliver Simon D’Arcy Hart Detailed CV

Brief Biography of Bengt Robert Holmström

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Bengt Robert Holmström is the Paul A. Samuelson Professor of Economics at Massachusetts Institute of Technology, where he also was head of the Economics Department from 2003-2006. He holds a joint appointment with MIT’s Sloan School of Management. He is an elected fellow of the American Academy of Arts and Sciences, the Econometric Society and the American Finance Association, and an elected foreign member of the Royal Swedish Academy of Sciences and the Finnish Academy of Sciences and Letters. He is a research associate of the National Bureau of Economic Research and a member of the executive committee for the Center of Economic Policy Research. In 2011, he served as President of the Econometric Society. He received his doctoral degree from Stanford University in 1978. He has served as an associate professor at the Kellogg Graduate School of Management at Northwestern University (1979-82) and as the Edwin J. Beinecke Professor of Management at Yale University’s School of Management (1983-94). Holmström is a microeconomic theorist, best known for his research on the theory of contracting and incentives especially as applied to the theory of the firm, to corporate governance and to liquidity problems in financial crises.

Bengt Robert Holmström Detailed CV

 Contracts and contribution of Hart and Holmström

Modern economies are held together by innumerable contracts. The new theoretical tools created by Hart and Holmström are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design.

Society’s many contractual relationships include those between shareholders and top executive management, an insurance company and car owners, or a public authority and its suppliers. As such relationships typically entail conflicts of interest, contracts must be properly designed to ensure that the parties take mutually beneficial decisions. This year’s laureates have developed contract theory, a comprehensive framework for analysing many diverse issues in contractual design, like performance-based pay for top executives, deductibles and co-pays in insurance, and the privatisation of public-sector activities.

In the late 1970s, Bengt Holmström demonstrated how a principal (e.g., a company’s shareholders) should design an optimal contract for an agent (the company’s CEO), whose action is partly unobserved by the principal. Holmström’s informativeness principle stated precisely how this contract should link the agent’s pay to performance-relevant information. Using the basic principal-agent model, he showed how the optimal contract carefully weighs risks against incentives. In later work, Holmström generalised these results to more realistic settings, namely: when employees are not only rewarded with pay, but also with potential promotion; when agents expend effort on many tasks, while principals observe only some dimensions of performance; and when individual members of a team can free-ride on the efforts of others.

In the mid-1980s, Oliver Hart made fundamental contri-butions to a new branch of contract theory that deals with the important case of incomplete contracts. Because it is impossible for a contract to specify every eventuality, this branch of the theory spells out optimal allocations of control rights: which party to the contract should be entitled to make decisions in which circumstances? Hart’s findings on incomplete contracts have shed new light on the ownership and control of businesses and have had a vast impact on several fields of economics, as well as political science and law. His research provides us with new theoretical tools for studying questions such as which kinds of companies should merge, the proper mix of debt and equity financing, and when institutions such as schools or prisons ought to be privately or publicly owned.

Through their initial contributions, Hart and Holmström launched contract theory as a fertile field of basic research. Over the last few decades, they have also explored many of its applications. Their analysis of optimal contractual arrangements lays an intellectual foundation for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions.

Source : Press Release: The Prize in Economic Sciences 2016

 

(Zulfiqar Sheth is a doctoral fellow at the Department of Economics, Aligarh Muslim University, India. Can be reached at shethzulfi@yahoo.com)

New Monetary Policy Committee (MPC) – Issues and Challenges

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Compiled By Zulfiqar Sheth 

Monetary Policy, as the name suggests it is policy formulated by monetary authority i.e. central bank, Reserve Bank of India (RBI) in case of India. It deals with monetary i.e. money matters i.e. affects money supply in the economy. RBI controls money flow, maintains price stability and regulates interest rates through variety of tools  but most significant are Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Open Market Operations (OMO), REpurcahse Obligation rate (REPO rate) and Reverse REPO rate.

What is New Monetary Policy Committee?

  • Monetary policy decisions by central banks can have far-reaching implications for the economy, investors, savers and borrowers. And if seen to be taken by an individual, these decisions can cause a lot of heartburn. Therefore, globally many governments have solved this problem by appointing a committee.
  • On June 27, 2016, the Government amended the RBI Act to hand over the job of monetary policy-making in India to a newly constituted Monetary Policy Committee (MPC).
  • The new MPC is to be a six-member panel that is expected to bring “value and transparency” to rate-setting decisions. It will feature three members from the RBI — the Governor, a Deputy Governor and another official — and three independent members to be selected by the Government.
  • Government has appointed three external members, experts in the field of economics, banking or finance. They are
  1. Chetan Ghate, professor at Indian Statistical Institute
  2. Pami Dua, director at Delhi School of Economics
  3. Ravindra Dholakia, professor at IIM-Ahmedabad.

The government nominees will have a four-year term “or until further orders, whichever is earlier.

  • The MPC will meet four times a year to decide on monetary policy by a majority vote. And if there’s a tie between the ‘Ayes’ and the ‘Nays’, the RBI governor gets the deciding vote.
  • The committee will be guided by the consumer inflation target the government has set in discussion with the RBI — 4% with a margin of two percentage points for the five years ending March 2021.
  • The new framework should see a lowering of friction that has at times arisen between finance ministry and the central bank, which is often regarded by the government as ignoring the need to nurture growth in the drive to quell inflation.

 

Why MPC is path breaking?

Until recently, India’s central bank used to take its monetary policy decisions based on the multiple indicator approach. Its rate decisions were expected to take into account inflation, growth, employment, banking stability and the need for a stable exchange rate.

As you can see, this is a tall order. Thus, RBI (with the Governor as the focal point) would be subject to hectic lobbying ahead of each policy review and trenchant criticism after it. The Government would clamour for lower rates while consumers bemoaned high inflation. Bank chiefs would want rate cuts, but pensioners would want high rates. RBI ended up juggling all these objectives and focussing on different indicators at different points in time.

To resolve this, RBI set up an Expert Committee under Urijit Patel to revise the monetary policy framework, and it came up with its report in January 2014. It suggested that RBI abandon the ‘multiple indicator’ approach and make inflation targeting the primary objective of its monetary policy. It also mooted having an MPC so that these decisions could be made through majority vote. Having both Government and RBI members on the MPC was suggested for accountability. The Government would have to keep its deficit under check and RBI would owe an explanation for runaway inflation.

 

Why should I care?

What happens to interest rates in the country matters to you as a saver, investor, consumer and borrower. High rates can help savers earn more on debt options. Loan-takers may prefer lower retes. The MPC will ensure that decisions on interest rates are made through debate by a panel of experts. The many-heads-are-better-than-one approach may also help ensure that the decision isn’t easily influenced by bias or lobbying.

India’s shift to an MPC, driven by a clear inflation-targeting framework, if it succeeds, may also ensure that consumers and investors can look forward to lower inflation rates over the long-term. The public disclosure of MPC deliberations will also tell you why its members batted for higher or lower rates.

The bottomline

The MPC may put a stop to the public skirmishes between the Government and the RBI. But with the RBI governor holding the casting vote, don’t expect controversies to die down.

(Source – http://www.thehindubusinessline.com/opinion/columns/slate/all-you-wanted-to-know-about-monetary-policy-committee/article8807786.ece)

 

Concerns with MPC

The setting up of the monetary policy committee last week creates a new framework from which to judge the independence of RBI from government pressure and interference. This is important because global rating agencies have always recognised central bank independence as one of the pillars holding up their favourable rating of the Indian economy.

These are the main concerns with MPC

  • Three members appointed by the Government may work under the influence of Government. However Official cleared that “Although appointed by the government, the three will function as independent members, a top finance ministry official said.”Nominated MPC members enjoy arm’s-length distance from the government,”
  • Experts are split on their views on how the MPC would impact the RBI’s mandate in setting interest rates with some arguing that it would not only take away autonomy but also downgrade powers of the central bank.
  • Contending that the new monetary policy framework agreement puts the onus on the RBI to control inflation, former RBI Governor C Rangarajan said, “Under these circumstances, if at all an MPC is required, the majority of its members must come from RBI. This will avoid the question of veto powers for the RBI Governor while making it more accountable for maintaining the inflation rate within a specified zone.”

(Source: http://indianexpress.com/article/india/india-others/monetary-policy-committee-will-the-reserve-bank-governor-have-the-last-say/)

  • Internationally, MPCs function in different ways but decisions are taken largely through a consensus. For instance, the nine-member MPC of the Bank of England meets every month to set the interest rates. Its decisions are made on the basis of one-person, one vote and is not based on a consensus of opinion. On the other hand, the US Federal Reserve’s Federal Open Market Committee (FOMC) consists of twelve members and holds eight regularly scheduled meetings per year. Each of the FOMC members discusses their policy preferences and then vote. But it is expected to reach a consensus on the appropriate course for policy. Similarly, for the European Central Bank, the governor council is the main decision making body. It consists of the six members of the Executive Board, plus the governors of the national central banks of the 19 Euro area countries.
  • “RBI tends to take a long-term view to maintain price stability which is a necessary condition for growth whereas government typically has a shorter-term horizon because they have to show results for the purposes of electoral politics. Therefore, there is some tension between the central banks and government everywhere. Having a MPC need not necessarily reduce the friction. It depends on how the institution of MPC gets established. If there is healthy convention, healthy protocol and healthy practices of the MPC reaching at an independent decision, then the friction between the government on one side and MPC and RBI on the other side will continue. If on the other hand, the members of the MPC, appointed by the government, continue to show their allegiance to the government and canvass the government’s point of view compromising their own judgment, it will undermine MPC”. –  Subbarao , Former RBI Governor
  • “There possibility of government members in the MPC canvassing the government point of view” – Subbarao , Former RBI Governor

(Source: http://www.businesstoday.in/opinion/interviews/monetary-policy-committee-friction-govt-rbi-d-subbarao/story/235593.html )

Challenges to make  MPC work

A lot now depends on how the MPC operates. There are several issues that need to be sorted out to ensure that the shift to the new system of deciding monetary policy is indeed worth it. First, all members of the MPC should have access to the same amount of information. What this means in practice is that the external members should have open access to the research done by central bank economists. Members of the old technical advisory committee have often in private complained about the lack of adequate data before meetings. An MPC secretariat may need to be set up for this.

Second, the group dynamics will matter. Experiments conducted by economist Alan Blinder show that committees take better monetary policy decisions than individuals. Yet, we must not ignore the risks from groupthink. There is little use of a committee if everybody thinks alike, or at least toes the official line. Governor Urjit Patel will have a big role to play in ensuring that discussions are open. Mervyn King at the Bank of England often allowed himself to be outvoted in the MPC. It would be especially welcome if the RBI members do not habitually vote as a block in the meetings. And the governor should try not to use his casting vote at least in the initial years

Third, there should be a robust communications policy so that other participants in the economy have a clear sense of how MPC members are thinking about the economy. The US Federal Reserve provides dot plots on how various members of its rate-setting committee assess the trajectory of interest rates. The Indian central bank is not structured like its US counterpart. But there can be no doubt that the two major components of MPC meetings—the assessments of the state of the economy followed by the actual voting on interest rates—need to be communicated well.

(Source:http://www.livemint.com/Opinion/E6sBagGU4owCw8jFUwvLLL/How-to-make-the-monetary-policy-committee-work.html )

 

Points for Discussions

  • How monetary policy affects us? How it affects trade and market?
  • How MPC is different than earlier framework? Do you think it will boost our market and attract more investors?
  • The independence of RBI compromised? How?
  • Challenges to make MPC work.
  • What are the solutions to minimize Central bank and Government frictions?
  • Who would be responsible in case of failure of monetary policy? RBI or Government? Why?
  • Similarities and differences between other countries MPC and India’s MPC?
  • Any other you think relevant and significant.

Download full document PDF here -> new-monetary-policy-committee-mpc-issues-and-challenges-by-zulfiqar-sheth

Image credit – http://www.thehindubusinessline.com/multimedia/dynamic/00924/bl15newRaja_JPG_924156f.jpg

(Zulfiqar Sheth is a PhD Research Scholar at department of Economics, Aligarh Muslim University. Can be reached at shethzulfi@yahoo.com )

Kaveri water dispute –Water economics and challenges to policy interventions

cauverydamn_b

Compiled By Zulfiqar Sheth

 

“…. Rivers are not human artifacts; they are natural phenomena, integral components of ecological systems, and inextricable parts of the cultural, social, economic and spiritual lives of the communities concerned. They are not pipelines to be cut, turned around, welded and rejoined…..” – Ramaswamy R. Iyer, water policy expert

Our economics text books reflect largely the current thinking that – growth is most important, for this exploitation of natural resources must be maximized. However, this thinking is causing serious damage to nature as well as the poor and marginalized (mining destroys poor farmers livelihoods and makes rich miners richer… etc).

 The demand for water of India’s rivers has grown as a part of post-Independence India’s economic growth. Consequently, inter-state and intra-state disputes over water have arisen, but none have been finally resolved by political or judicial means available under the Constitution of India. One of the oldest disputes concerns the water of the Kaveri (also spelt “Cauvery”) river which flows from Karnataka into Tamil Nadu. Its waters have been the subject of dispute since the 19th Century. As on date, with a failed monsoon, a political-judicial battle is raging between Tamil Nadu and Karnataka regarding sharing of scarce water. The genesis of this conflict rests in two agreements in 1892 and 1924 between the erstwhile Madras Presidency and Princely State of Mysore. The 802 kilometers (498 mi) Kaveri river has 44,000 km2 basin area in Tamil Nadu and 32,000 km2 basin area in Karnataka.

What is the root cause of the dispute?

After the reorganization of states in 1956, Kodagu (Coorg), where the river originates, became a part of Karnataka as did parts of the Hyderabad State and the Bombay Presidency. Similarly, the Malabar region of the Madras Presidency became Kerala and Puducherry came under the Union government. Thus, not only did the quantum of need and generation of Cauvery water in the catchment areas under the respective states change, it also mean two new parties in all water-sharing arrangements—Kerala and Puducherry. Karnataka and Tamil Nadu, however, remained the major parties.

tamil_nadu_topo_deutsch_mit_gebirgen

While the 1924 sharing agreement was to end in 1974, in 1959-60, Karnataka demanded that several clauses of the agreement be changed. With the dispute revived, the Cauvery Fact Finding Committee was formed, and it submitted its final report in 1973—in which it had noted that the agricultural land in Tamil Nadu that was dependent on Cauvery was far larger than that in Karnataka. On the basis of this report, a draft agreement was drawn in 1974, but was only ratified in 1976.

When Karnataka again started talking of a dam in Kodagu, Tamil Nadu moved the courts, demanding a Tribunal be set up under the Inter-state Water Disputes Tribunal Act 1956. It later withdrew the plea, but in 1986, a farmers’ association from the state moved the SC with the demand for a Tribunal. Following directions from the apex court, the VP Singh government at the Centre formed the Cauvery Water Dispute Tribunal (CWDT) in June 1990. In June 1991, after SC directed the CWDT to provide interim relief to Tamil Nadu, the tribunal ordered Karnataka to release 205 tmc ft to the lower riparian state, but Karnataka refused to implement the order—it even brought an ordinance to nullify the order, but the SC struck it down. In 1998, the Cauvery River Authority was formed to ensure implementation, and in 2002, it ordered Karnataka to release 9,000 cusec of water every day to Tamil Nadu. Refusing to comply, Karnataka went to the SC. Between then and 2007, when the CWDT’s final order came, many attempts to resolve the issue, including the ones initiated by the governments of the two states, failed. In February 2007, the CWDT announced its final order, allocating—out of the 740 tmc feet of water available in the river annually—270 tmc feet to Karnataka, 419 tmc feet to Tamil Nadu, 14 tmc feet to Kerala and 7 tmc feet to Puducherry, reserving the remaining 14 TMC ft was reserved for environmental protection and outflow to sea.

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Reasons of dispute – water economy and challenges to policy interventions

  • Nearly 29 lakh acres of paddy crop in TN and an estimated 14 lakh acres of paddy and semi-dry crops in Karnataka are currently dependent on Cauvery water. Karnataka farmers have traditionally resented the fact that their TN counterparts grow 3 paddy crops a year while they have to be satisfied with 1 and, if there is water left in the dams after release to TN, a second, less water-intensive crop.
  • Agriculture experts have pointed to the refusal of farmers in both states to move towards cultivating less water-intensive but profitable crops even in the drier years. “Almost all irrigated areas are growing paddy. In unirrigated areas, ragi is the predominant crop. If the Kharif ragi could be grown under irrigated conditions instead of paddy, there would be saving in water without any economic detriment to the farmers…,” a Fact Finding Committee reported on the cropping pattern in Karnataka. “Further,… there is scope for intensive research and introduction of short-term varieties (of paddy),” the report said.
  • The one of solutions can be- water intensive crops should be restricted. Sugar cane growing should be completely banned as it consumes maximum water. Where two crops are grown only one should be rice and the other some millet which consumes less water.
  • Changing water-needs, cropping patterns, increasing climate uncertainty, all have caused the states to try and appropriate a greater share of the river’s water.
  • Eighty percent of the water-supply in Bengaluru is met by Cauvery water. Tamil Nadu and Karnataka have both been urbanising fast—the requirement of their cities is only burgeoning. Meanwhile, both states have shifted from water-frugal crops like millet to water-intensive cash crops like sugarcane (in Karnataka) and samba rice (in Tamil Nadu). With great local variance in rainfall, despite a normal overall monsoon, Cauvery water reservoirs in both states are short of water—by 30% in Karnataka and 49% in Tamil Nadu.
  • A way forward to more permanent dispute resolution mechanism may be one that continually evaluates needs and usage patterns to work out solutions—needs to be instituted. Besides, usage needs to be calibrated relative to availability to prevent unjustified drawing. For instance, areas which depend on rain-fed rivers must cap cultivation of water-intensive crops; that would mean Tamil Nadu must bring down samba cultivation while Karnataka reduces sugarcane acreage irrigated with Cauvery water. [1]
  • Pricing water appropriately is the best way to achieve this, including in cities, to dissuade wasteful usage.

About the river Ramashwami Iyer once said that, “….the economists think of it as a commodity like any other, left to market forces. What is common to all these perceptions is the reduction of the river to the water that it carries. And an instrumentalist or utilitarian view of the river.”

When we are discussing water disputes in India with respect to present ongoing Kaveri dispute, we should also focus on Sardar Sarovar Project and Narmada Bachao Andolan. Since the struggle of people affected by the Sardar Sarovar Project (SSP) and other projects still continues, I feel I must recount what Iyer said “The present…official and industry thinking seems to be that land should be had for the asking. The average administrator…engineer and expert think of the peasantry, the boatmen, the fisherfolk and others, particularly tribal communities, as backward, needing to be brought into the mainstream…They have no understanding of the pain of the displacement that will remain in spite of the rehabilitation package, however good it may be. From the perspective of development as currently understood, Polavaram and other similar projects are symbols of development. In that view, the disappearance of traditional societies and their centuries’ old relationship with nature will seem inevitable and necessary transition to modernity. A person holding such a view will have little time or patience for the agony and anguish experienced by the dispossessed…”

Lastly I want to quote following from the book “Towards Water Wisdom: Limits, Justice, Harmony”   By Ramashwami R Iyer.

“In the Indian context the problem of water has been a “crisis of gross mismanagement” and in the international context, “a crisis of rapacity.”

“The theory that ‘development’ entails ‘costs’ and that this is a ‘sacrifice’ that some must accept in order that others might benefit must be recognized to be disingenuous and sanctimonious; it must be firmly abandoned. Pain and hardship imposed by some on others cannot be described as a sacrifice by the latter…‘Stakeholder consultation’ is another misleading and sanctimonious formulation. Both the beneficiaries of big projects (farmers receiving irrigation in the command area, industries and cities getting electricity, etc.) and those lands, livelihoods, and centuries-old access to the natural resource base are being taken away are lumped together as ‘stakeholders’ who must be consulted. In truth, the beneficiaries are stake-gainers whereas the project-affected groups are stake-losers, and the primacy of the latter over the former needs to be recognized…”

Points for Discussions

  • What are the main reasons of Kaveri water dispute? And possible solutions to resolve the dispute.
  • Has water become a commodity in India? Up to what degree?
  • On the name of modernization and economic development, lands, livelihoods, and centuries-old access to the natural resource base are being taken away from the poor (stake-losers). Do you agree? How we can improve the situation?
  • In Kaveri basin, farmers have shifted traditional crops like millet to cash crops like sugarcane. Do you think this is one of the reasons of dispute? Is this same trend going all over country? Why?
  • Do you think India should adopt water pricing concept and make mandatory for all big businesses and industries?
  • Damages caused by our idea of growth that says “Growth is most important, and for this exploitation of natural resources must be maximized”
  • Role played by state, center, and judiciary in resolving Kaveri dispute.

[1] http://www.financialexpress.com/fe-columnist/cauvery-water-row-all-you-need-to-know/377752/

River image credit – http://images.jagran.com/Cauverydamn_B.jpg

Map image credit – wiki-commons – wikipedia

Download full document in PDF -> kaveri-river-dispute-and-economics-of-water-and-policy

(Zulfiqar Sheth is a doctoral fellow at Department of Economics, Aligarh Muslim University. Can be reached at shethzulfi@yahoo.com)

 

Reliance “JIO” is basically “MARO” for Rural Telecom

 

 

By Mohd Umair khan

STD_ISD_PCO_India

 

Got the limelight in the AGM of the Reliance Industries limited where Mukesh Ambani devoted majority of time in his address to the shareholders to it. Bulk of discount schemes containing the offer of ‘Free Voice Call’ is dominating the discussions of general public. Student offer though not a unique thing but portrayed uniquely in the presentation of the Managing Director of Reliance Industries with the sentence – ‘Connecting 30,000 schools and colleges With WiFi and high speed internet’, but upto when didn’t mentioned.
As per TRAI report of June 2013, urban India has reached a teledensity of 146%, whereas the teledensity in rural India stands only at 42%. For achieving the ambitions of the Digital India initiatives which go on the principle of inclusion, every villager of India must have the availability of basic telecommunication. But the question arises that who is going to provide that? The answer would be The Govt. of India, but through which agency? Probably through Bharat Sanchar Nigam Limited (BSNL). Whether BSNL is itself capable to do that or Whether BSNL is compatible with this ever increasing Competition and the Price War (particularly after the R-Jio’s low price announcement).

BSNL, during the year 2014-15, incurred a loss of Rs.8234.09 Crores [Previous year 7,019.76Crore].With that huge loss it is unlikely and uneconomical that it play a crucial role in the remote part of the country as far as telecom is concerned. MukeshAmbani includes in his presentation a sentence on the subject of Digital India that- ‘Data is the oxygen of digital life, Data demand is growing exponentially, Jio will meet this demand for india, Jio will realize the Digital India’. But with this much of low price will it be feasible for Jio to invest in remote rural areas? Remoteness is not that big a challenge but only because it demands a hefty amount of investment with no or really less chance of a return. Since R-Jio and other private players are profit maximizers so they don’t have any incentive to go to a remote area where no initial infrastructure is available and provide the locals with the services concern.

It’s a no new phenomenon but a traditional economic rule that Govt. must intervene at point where market fails to or not deliberately,  provide basic services to the people. R-Jio is initiating a price war that is detrimental for (already) loss makers like BSNL, doesn’t matter that Govt.’s financial injections make it run.

By MohdUmair khan
(An Undergraduate student at Deptt. Of Economics, Aligarh Muslim University and can be reached at mohdumairkhan396@gmail.com )

 

IMPACT OF PRESENT UNREST ON KASHMIR’S ECONOMY  

 

Compiled By Zulfiqar Sheth

Kashmir, Paradise on Earth
SRINAGAR, JAMMU & KASHMIR, INDIA – 2013/07/07: The “Floating market”, a vegetable market on Dal Lake, where vendors sell vegetables from shikara to shikara (boat to boat).. (Photo by Frank Bienewald/LightRocket via Getty Images)

Tourist and other business activities in Kashmir have come to a halt for the past 55 days after protests erupted in Kashmir following the killing of Hizbul Mujahideen commander Burhan Wani in an encounter with security forces in south Kashmir’s Anantnag district on July 8. Clashes between protesters and security forces have claimed the lives of 71 people and left thousands of others injured.

The tourism sector, which is believed to be the major contributor towards the employment and economy in the State, has been dented badly by the ongoing unrest. Horticulture is one of the core sectors of the state economy which contributes around Rs 5000 crore annually, also severely hit by the present unrest.

IMPACT ON LOCAL ECONOMY

  • Mohd Yasin Khan, president of Kashmir Traders and Manufacturers Federation, told TOI the sector is bleeding by approximately Rs 135 crore every day. In the 46 days of curfew it would be upwards of Rs 6,000 crore,” Mohd Yasin Khan, president of Kashmir Traders and Manufacturers Federation, said.

 

  • The violence in Jammu and Kashmir has hit tourism, one of the most important sector for the state economy. Tourist arrivals have gone down from 12,000 to 250 per day and hotel occupancy is around 3 per cent. The Valley is now a stopover destination for tourists who visit Ladakh and reach Srinagar to catch a flight back to New Delhi.

(http://economictimes.indiatimes.com/articleshow/53834351.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst)

  • The number of tourist arrivals has come down to around 200 to 250 per day from around 12,000 to 15,000 per day. Hotel occupancy is at all-time low,” a senior official in tourism department told Economic Times (Dated – Aug 24, 2016). The official said that every hotel in the Valley was booked till September end and expected a huge rush of domestic tourists in October as well. Flight tickets are at all-time low.

 

  • Unrest in Kashmir has hit Jammu economy badly with businessmen there claiming to incur an estimated Rs 1,000 crore loss during past 43 days as the summer capital of the state remained under siege in the wake of civilian killings. Kashmir receives majority of supplies from edibles to industrial goods from the winter capital as major industries in the state are situated in Jammu. Also most of the multinational companies supplying edibles to the state have stationed their forwarding agents there, thus all the supplies have to pass through the Jammu region before reaching Kashmir. “Last two months have been worse for us,” said president Jammu Chamber of Commerce and Industry, Rakesk Gupta. (http://www.greaterkashmir.com/news/business/kashmir-unrest-hits-jammu-economy/226397.html)

 

  • President, Chamber of Commerce and Industries Kashmir, General Trade, Jan Muhammad Koul said Jammu industry and business is heavily dependent on Kashmir. “Kashmir is their major market and curfew, restrictions have serious ramifications on their trade as the demand in Kashmir has dried up which has created slump in Jammu business,” he said, adding that most of the forwarding agents of MNCs are located in Jammu.

 

  • From horticulture to hospitality, almost all activities have come to a standstill. There is zero occupancy in hotels, and houseboats and shikaras have been empty for weeks now. Carpets and shawsl are lying unsold in shops across Srinagar. Those in transport say they haven’t seen such bad days.

 

  • “Seventy per cent of apples that India gets are from Kashmir,” a businessman said. “Imagine the situation in the orchards. Farmers have sent their labourers home, but what do they do in places like Sopore, Tarzoo and Anantnag, where the situation is worse?”

(http://timesofindia.indiatimes.com/india/Jammu-and-Kashmir-economy-hit-losses-touch-Rs-6000-crore/articleshow/53836037.cms )

  • The state government has suffered revenue losses close to Rs 300 crore in the past one-anda-a-half months. “The collection of levies and taxes has come down drastically since the unrest began. The sales tax collection has been the worst hit,” an official in the Finance department said.

 

(http://economictimes.indiatimes.com/articleshow/53870862.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst)

 

  • The tour operators are flooded with cancellations and some of the trips have already been diverted to other Himalayan regions. “Last year not a single room was vacant during this time in Kashmir but these days the hotels are empty. I continuously get enquiries about the situation in Kashmir. All bookings have cancelled. These are worrying signs for the Kashmir tourism,” said a tour operator, Farhat Ahmad.

(http://www.dailyexcelsior.com/tourist-season-hit-hard-unrest/)

  • Director Tourism, Mehmood Shah while expressing concern over the prevailing situation said the loss cannot be quantified at the moment. “You cannot quantify the loss. Major chunk of population is directly or indirectly associated with tourism and it effects them all. This was the peak season of our tourism wherein we receive majority of tourists. But the footfall has declined drastically due to the current unrest.”

 

  • Persistent curfews and shutdowns have sounded a death knell to the fledgling fruit industry of Kashmir. Fruit growers have suffered a whopping loss of Rs800 to 900 crore as they are unable to export their produce to outside mandies in the unrest.”We have incurred loss of Rs 800 to 900 crore so far. We are unable to send our produce to outside markets on time because government has imposed night curfew which is hampering the shipping of fruits. Plus the markets are shut and growers are unable to ship fruits from the orchards,” Bashir Ahmad Basheer, chairman of Kashmir Valley Fruit Growers Cum Dealers Union, told dna.

(http://www.dnaindia.com/india/report-post-burhan-unrest-costs-fruit-growers-rs-900-crore-2248273)

  • Horticulture is the mainstay of Kashmir’s economy with 23 lakh people associated with this sector. More than 3.37 lakh hectares are under the fruit cultivation in Jammu and Kashmir. Of which 2.18 lakh hectares of land is under the fruit cultivation in the valley. Of which 65 per cent comprise of the apple orchards.Fruit production in Jammu and Kashmir was recorded at 24.93 lakh metric tonnes in 2015-16. Of which the valley alone produced 22.12 lakh metric tonnes. Kashmir valley is one of the largest producers of apple in the country with production touching 19.21 lakh metric tonnes in 2015-16. The apple production in 2014-15 was recorded at 11.70 lakh metric tonnes given the devastating floods of September 2014.

 

  • Horticulture department however said 34331 Metric Tonnes (MT) of fruit have been dispatched to mandis outside the state since April 1 2016. A horticulture department spokesman said 8876 MTs of fruit have been dispatched in 953 truckloads outside the State in the current month.

 

  • President of Sopore Fruit Mandi, Mushtaq Ahmad Tantray, said restrictions imposed by authorities have already hit their business badly. “Now strike by transporters means that fruit won’t be transported to outside markets as they won’t allow trucks to travel on Srinagar-Jammu highway,” he said.“Already the restrictions have taken a toll on export of fruit. Last year, during this time we used to send around 175 truckloads to outside mandis but this year, only 30 to 35 fruit-laden trucks are sent from Sopore Fruit Mandi to outside, which itself reveals how much slump the fruit industry is witnessing,” he said. “Forces are not even allowing fruit growers from far-flung areas to reach Sopore Fruit Mandi.”Meanwhile, petrol outlets in Chenab Valley including Kishtwar district are not filling fuel in vehicles. Most pumps are claiming to be dry owing to the ongoing truckers’ strike.Hundreds of private and government vehicles are stranded on petrol outlets in Kishtwar.

 

(http://www.greaterkashmir.com/news/kashmir/truckers-strike-brings-supply-of-essentials-to-halt/226372.html)

 

Points for Discussion

  • Contribution of Jammu and Kashmir in our National Economy.
  • How to compensate whooping loses to Kashmiri farmers and people associated with tourism industry.
  • What is solution for creating sustainable economy in Jammu and Kashmir.
  • Ideas to solve Kashmir problem with respect to its’ present economic crisis.
  • Actions taken by state and Union government to stop present economic losses.
  • Role of Civil Societies, Human Rights groups and International organizations to revive Jammu and Kashmir’s Economy.

Download Document in PDF -IMPACT OF PRESENT UNREST ON KASHMIR’S ECONOMY  

 

Zulfiqar Sheth is a doctoral fellow at the department of Economics, Aligarh Muslim University. Can be reached at : shethzulfi@yahoo.com

Why Nehru’s Economic Model is Not a Failed Model

By Zulfiqar Sheth 

NehruWhile discussing in an event about Goods and Services Tax, Union Finance Minister Mr. Arun Jaitely said “Nehruvian model led to no development” He continued “That (Nehruvian) model of development was the reason India couldn’t get up to a growth rate of even 1 percent in those early decades”

The debate on Nehruvian  model of economic development continues for decades, Both opponent and proponent agree on the fact that even after 70 years of India’s independence we are terribly failed to provide urban amenities to rural areas, there is no significant change in the lives of rural masses, inequalities increased, and unemployment escalated at record high. But they differ on whom to blame ?

The first prime minister of India, Jawaharlal Nehru considered as an institution maker. He is the architect of the India’s greatest institutions. His secular, social views and rational, scientific temperament had lifted country to great heights.But they were his successors who constantly contributed in subsequent deterioration of the institutions Nehru built.

Swaminathan S. Anklesaria Aiyar on his blog writes that “It would be churlish to blame Nehru for this mess. He deserves the lion’s share of credit for India’s good institutions. His successors deserve the lion’s share of discredit for the subsequent deterioration.”

Nehru’s vision was to trickle down development fruits harvested from industrialization and institutions to Indian masses. And this step was well planned and had ample bases of economic theories. Dani Rodrik of Harvard University , a significant contributor to  literature on institutions, highlighted that Africa has failed badly to resolve internal conflicts, and so suffered in economic performance. India, on the other hand, has created a society  based on democracy and inclusion that has managed to resolve several economic crises.

In their paper titled Why India Can Grow at 7  Percent a Year or More: Projections and Reflections by Dani Rodrik and Arvind Subramanian concluded that  “Economic development results from the interaction of growth triggers with fundamentals that allow the triggers to be exploited. In the conventional view of the Indian development process, there was a long and dark period—the period of controls and import substitution—followed by the burst of sunlight and reforms since 1991. The boom in the IT sector first awakened observers to the facts that the dark age was not all dark; important cumulative elements (the fundamentals) were being built up that yielded rewards with a lag; and these fundamentals were as important as the triggers that sparked the IT boom. In this case, the fundamentals were the pools of skilled human capital built up through the technology, management, and research institutes—a sort of import substitution effort in skilled human capital—that were integral to the Nehruvian vision. ”

Nevertheless, the Nehruvian economic legacy went beyond the technical institutions: It included  the meta-institutions of democracy: the rule of law, free press, and technocratic bureaucracy that recent research shows are crucial to economic development.

Mr. Finance minister said the Nehruvian model did not help development because less than 1% of the population had a phone.True but it was Nehruvian fundamentals that enabled India to become second largest in the world based on the total number of telephone users. Yes our economic growth was slow and stagnant during first three decades after our independence, popularly known as the “Hindu” rate of growth. It was disappointing but not disastrous. But then following the same Nehruvian recipe of economic development (five years plans) the India saw nearly double-digit economic growth between 2005-06 to 2007-08. It is worth stating in the context that the India grew faster than China in the Nehru era.

(Zulfiqar Sheth is a PhD Research Scholar at the Department of Economics, Aligarh Muslim University, India. Can be reached at shethzulfi@yahoo.com )