Sunday, February 28, 2016

Weekend reading links

1. In the context of the Jat agitation, Christophe Jaffrelot makes the argument that it is a reflection of the inadequacy of private sector employment opportunities and the relatively high wages in public sector, 
In the private sector, the average daily earnings of the workers was Rs 249 in 2011-12, according to the Labour Bureau, and those of the employees at large, Rs 388. By contrast, in the public sector, the figures were respectively almost three times more at Rs 679 and Rs 945... Understandably, the young Jats, Patels, Kapus and Marathas who do not find good jobs in the private sector fall back on the government. The search for government jobs among these castes is also influenced by their particularly skewed sex ratio... With fewer girls compared to boys in these castes, there is competition in the marriage market. However, there are fewer government jobs these days. There were 19.5 million jobs in the public sector in 1992-93 when India’s population was 839 million. While there are 1.2 billion Indians now, the number of jobs in the public sector has shrunk to 17.6 million. In states that have aggressively implemented the liberalisation policy, government jobs have almost disappeared. For instance, the government’s share in employment in Gujarat is only 1.18 per cent whereas it is 16 per cent in Kerala.
2. Livemint has six graphics drawn from IMF data illustrating how badly India fares on general public finance indicators and expenditures on health and education in comparison to other far less developed countries. General government revenues as a share of GDP is the lowest among the comparison group,
3. The second consecutive weak monsoon and declining farm prices mean that rural distress is compounding general economic woes. Rural incomes have been falling, as reflected in the declining tractor sales,
4. The latest addition to the very large body of evidence that India's middle class is disturbingly small comes from Livemint - just 51 million households with annual income above $10000 out of 267 m families, with the vast majority living at extremely vulnerable income levels. 
And as a reminder to those constantly playing the China theme, the contrast is night and day,
5. Livemint reports that the experiment of having an exclusive tax bench in the Supreme Court, hearing only tax matters, appears to have been a success. The two-judge bench disposed-off 170 cases, a four-fold increase over previous years. 
6. Business Standard draws attention to the just released data on investment proposals, which at Rs 3.11 trillion for 2015, touched an 11 year low. Actual investments too were down from Rs 787.47 bn in 2014 to Rs 779.72 bn in 2015. 
As the Livemint grahic below shows, while the metrics are smaller in investment proposals, the actuals materialized have stayed the same over the past four years. Further, ten industries accounted for 65% of all investment implemented and 10 states for 80% of all proposals. 
The most worrying sign is about the level of investment proposals. Given the aggressive courting of investors and the widespread euphoria, coupled with economic weakness across the world, it was only to be expected that the investment proposals increase. This would especially be so given the low base effects legacy from a weak economy and decision-paralysed governance of 2012-14. But even here, the decline in investment proposals over 2012-15 has been about 40%. 

7. Distressed corporate balance sheets and rising bank NPAs have created a self-reinforcing downward spiral of bank credit squeeze to private firms, especially those outside the larger corporates
8. While capital investment as a share of total central government expenditure has been rising slowly to nearly a fifth, its distribution has increasingly been towards social services - housing, labor welfare, and rural works - whereas the share of transportation has declined sharply.
Interestingly, and underlining the importance of co-operative federalism, just a third of the capital expenditure of the central government is executed by itself, with the major share being transfers and loans to state and local governments. 
In fact, in 2014-15, the central government's capital expenditure was 1.78% of GDP or Rs 1.92 trillion, to the state government's 3.54% of GDP or over Rs 4 trillion.

9. Interesting observation on the changes in India's tax-to-GDP ratio over time,
In the 25-year period from 1965 to 1990, India’s tax-to-GDP increased steadily from 10% to 16% while GDP increased 2.8-fold. In the subsequent 25-year period from 1991 to 2014, India’s tax-to-GDP stayed roughly constant between 16% and 17% while GDP increased 4.5-fold. It is puzzling to us that just as India broke away from its clich├ęd Hindu rate of growth post the 1991 economic reforms to grow much more rapidly, its tax-to-GDP ratio stayed constant, belying those who would have predicted an increase. That, curiously, India’s rate of tax revenues did not grow commensurate with its GDP growth post the 1991 reforms is inexplicable.
What could possibly be the reason? Given that direct taxes at 2-3% of GDP is marginal, most of the changes would have revolved around indirect taxes. Evidently, in the 1965-90 period, state expanded its indirect tax base, while in the 1990-2014 period, it did little to expand the direct tax base. The later is difficult to rationalize, given the massive income growth, concentrated especially at the top of the income ladder, both individuals and corporates, who, in any case, form the lion's share of direct taxation. In other words, these incomes at the top may have grown much faster than the proportionate rise in their income tax payments. Among all public policy priorities, this demands an urgent examination by the government.    

10. The positive side of the high inflation was that it kept the tax revenues high and ensured that the debt-to-GDP ratio was kept under control. Now with low inflation, nominal GDP growth has fallen, even touching the government's average interest cost, thereby raising questions about the country's debt sustainability.
11. While this is well-known within the government, but rigorous evidence has been scarce,
Since 2009, Accountability Initiative’s PAISA study (Planning, Allocations and Expenditures, Institutions: Studies in Accountability) has been tracking money flows in elementary education. In not one of the eight districts across six states that we have studied did we find a district that received its entire allocated budget within the financial year. For the money that does reach, much of it makes its way to the district half way through the financial year. Even districts in well-functioning states like Maharashtra and Himachal Pradesh face this unpredictability. Once money reaches the district, it can take two to six months to travel from the district bank account to the schools, where expenditure actually takes place... for over 50% schools in India, even small grants that schools are expected to receive annually for essential purchases, are credited to their bank accounts somewhere between November and December, well over halfway into the school year. 
12. For all talk of decentralization, local governments share of revenues and expenditures, on a variety of metrics, remain marginal.
13. This analysis of the CAG report, which paints a very dismal picture of Indian Railways,
As of March 2014, the Indian Railways had spent around Rs.92,000 crore on 479 projects, including some dating back to the 1970s and 80s. But due to shoddy contract and project management, costs have more than doubled, and the Railways needs an additional Rs.183,000 crore just to finish these ongoing projects.
And this analysis of the ticket prices,
The Indian Railways' average revenue per passenger km for ordinary second class is a mere 13.80 paise, 14.54 paise for suburban trains, 27.47 paise for second class mail and express trains, and 109.47 paise for upper class, making it possibly the cheapest rail transport system in the world.
The assumptions underlying the optimism presented in the Railways Budget may not exactly be forthcoming. 

14. Finally, in order to relieve crowding, and boost revenues, Disney introduces surge pricing in its Florida and California theme parks during holidays and some weekends, raising prices by about 20%, 
At Disneyland, located in Anaheim, Calif., which attracts roughly 17 million visitors annually, single-day tickets now cost $99... “Value” tickets, for Mondays through Thursdays during weeks when most schools are in session, will drop to $95. “Regular” tickets (most weekends and many summertime weeks) will climb to $105. “Peak” tickets (most of December, spring break weeks, July weekends) will cost $119. At Disney World in Orlando, Fla., which includes four major theme parks, the price changes are more complex, because they vary by park. At the most popular Disney World park, the Magic Kingdom, which handles nearly 20 million visitors annually, single-day prices will remain at the current level, $105, for value periods. Prices will rise to $110 for regular periods, and to $124 for peak... The largest proportion of days at both Disneyland (46 percent) and Disney World (49 percent) fall in periods designated as regular; peak days account for 27 percent of the year at Disneyland and 29 percent at Disney World.

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