Saturday, April 21, 2018

Weekend reading links

1. The agriculture distress cycle threatens to repeat again. Sample this latest status on farm prices in Maharashtra (unlikely to be much different elsewhere),
Barring soyabean, not a single commodity is trading at government-specified Minimum Support Price (MSP). In the case of perishables like fruits and vegetables, the situation is worse. Rabi tomato, which sells at the rate of Rs 10 a kg, is now trading at Rs 1-2 per kg at the markets of Narayangaon and Junnar. Onions, which till recently were fetching Rs 20 a kg at wholesale markets, are now priced at Rs 6 a kg... A crop like tur, which has reported lower sowing than last year, is also trading over Rs 1,200 per quintal below its MSP... Last year, the government had increased the procurement price of milk from Rs 24 to Rs 27 per litre. Dairies are, however, barely able to pay Rs 20 per litre to farmers owing to a glut of milk powder in the market. Sugar prices are on a steady fall which has made mills default in their payment. There are over Rs 2,200 crore in dues by the mills to cane farmers.

The result has been that farmers are staring at another debt trap. With no immediate relief in sight, the farmers find themselves with no option but to start a fresh stir. Their demands are no different from the last time — assured returns and a full loan waiver.
2. What explains economic growth? Free Exchange highlights the limitations of economic theories, 
An economist might explain China’s rapid growth in the 1980s by saying that it began to deploy more capital per worker and to adopt foreign technologies. Yet it was very clearly the result of a political decision to loosen state control over economic activity. It would similarly be accurate to say that China’s future growth will depend on how well it develops and deploys new technologies. But that depends on decisions about economic governance taken by its leaders, which will in turn be influenced by social and geopolitical forces that economists scarcely understand and generally ignore... a formula for growth that takes no account of social and political complexities is no formula at all... The economics of growth should therefore be central to the discipline, even though the questions it poses are objectively hard, and the answers rest more in history and politics than in elegant mathematics. Until they can give better answers in this area, economists should speak with greater humility about how this structural reform or that tax change might affect long-term growth. They have not earned the right to confidence.
3. India's state capacity problem in law and order management is acute even by the standards of the G-20 economies. 

4. Thomas Piketty uses evidence from France, Britain, and US for the 1948-2017 period to explore the long-run evolution of political cleavages and the rise of populist parties in recent times,
In the 1950s-1960s, the vote for left-wing (socialist-labour- democratic) parties was associated with lower education and lower income voters. It has gradually become associated with higher education voters, giving rise to a “multiple-elite” party system in the 2000s-2010s: high-education elites now vote for the “left”, while high-income/high-wealth elites still vote for the “right” (though less and less so). I have argued that this can contribute to explain rising inequality and the lack of democratic response to it, as well as the rise of “populism”. In effect, globalization and educational expansion have created new dimensions of inequality and conflict, leading to the weakening of previous class-based redistributive coalitions and the gradual development of new cleavages...Two main lessons emerge. First, with multi-dimensional inequality, multiple political equilibria and bifurcations can occur. Next, without a strong egalitarian-internationalist platform, it is difficult to unite low- education, low-income voters from all origins within the same party.
5. Tadit Kundu in Livemint explores the North-South taxation. I am not sympathetic to going down the numbers based approach on this issue. 

The issue here is not and was never about the cold logic of numbers. In fact, going down the numbers tunnel and framing the debate around it may actually be counter-productive. For example, establishing that fiscal transfers in per capita total population terms is not progressive, while refuting those critical of the current fiscal transfers regime, also makes it more difficult to moot any incremental progressivity. After all, after defending the status quo and the fact that transfers are not progressive, you cannot turn around and start arguing for increased transfers to the poor states. And the critics could come up with another framing, say, a fiscal transfers in per capita poor people population terms and maybe that is progressive? 

This is essentially a debate about being a nation state, a single country, and the appetite for the same. The numbers debate is a shadow-boxing for real and perceived emergent social and political trends. They need to be discussed in the open. In Econ-speak, it is about being an optimal currency area and the benefits of shared and mutually dependent prosperity. Net fiscal transfers across regions are necessary to sustain either a country or an optimal currency area. The counterfactual is the challenge with maintaining the European Monetary Union without a fiscal union. This has to be debated on those political and economic grounds. I have not seen too many of them. 

In any case, that federalism is never the case of each one's tax for himself, is borne out by the examples of other countries.
6. Just 13 years after the Multilateral Debt Relief Initiative which cancelled debt for African countries that met economic management and poverty reduction criteria, Africa stares at yet another debt crisis! The FT reports that 40% of Sub-Saharan African countries now are at high risk of debt distress - double that of five years - and the number of countries unable to service their debt doubled to eight last year.
It is taking a toll on public spending, as it eats up an ever increasing share of tax revenues and fiscal expenditures.
The problem with even a future debt relief becomes difficult given that almost half the region's debt comes from commercial sources instead of country governments, thereby making restructuring a difficult proposition.

Would be interesting to know how much is China's contribution?

7. Talking about China, sample the impact of Chinese loans funded railways investments in Pakistan,
In total, Islamabad says it has rehabilitated more than 300 locomotives, over 1,000 passenger coaches, nearly 5,000 freight wagons and 31 stations. Pakistan also purchased 75 high-powered locomotives last year in a $413.5 million deal with General Electric Co... Now the unprofitable state-owned Pakistan Railways has doubled its revenue to 40.1 billion rupees ($362 million) in the past five years and aims to do so again over the same time period... The drive is already attracting more passengers, up 25 percent to over 52 million people since 2013. Working through the carriages, 40-year-old Rana Iftikhar Ahmad has been selling snacks on trains for last 15 years and said his sales have grown as much as 50 percent in recent years. Five years ago a train from Karachi would take four days to get to Lahore, he said. That same route now takes just over half-a-day on the Green Line (22 hour express service from Islamabad to Karachi).
But the question is whether Pakistan can afford all these?
Beijing is set to upgrade a 1,163-miles track from Karachi to Peshawar near the Afghan border with an $8 billion loan to Pakistan. It’s part of Chinese President Xi Jinping’s Belt and Road trade initiative, which includes $60 billion of badly-needed works financed in Pakistan... To help ease increasing congestion in Pakistan’s second-largest city, a $1.6 billion metro-line in Lahore — funded by Chinese banks — is scheduled to open before this year’s vote.
8. On debt within China itself, nice summary of the problems by Henny Sender. The UBS estimate of debt-to-GDP ratio of 272%, itself a big concern, is surely on the lower side,
The biggest concern for a country with worsening demographics and which is trying to recalibrate away from investment to consumption is the rise in household debt, and in particular the spectacular growth of internet finance options like Peer-to-peer lending.

9. Adam Davidson thinks the Cohen raids form the beginning of the end for Trump,
Even if Trump pardons Cohen, the information the Feds have on him can become the basis for charges against others in the Trump Organization. This is the week we know, with increasing certainty, that we are entering the last phase of the Trump Presidency. This doesn’t feel like a prophecy; it feels like a simple statement of the apparent truth. I know dozens of reporters and other investigators who have studied Donald Trump and his business and political ties. Some have been skeptical of the idea that President Trump himself knowingly colluded with Russian officials. It seems not at all Trumpian to participate in a complex plan with a long-term, uncertain payoff. Collusion is an imprecise word, but it does seem close to certain that his son Donald, Jr., and several people who worked for him colluded with people close to the Kremlin; it is up to prosecutors and then the courts to figure out if this was illegal or merely deceitful... However, I am unaware of anybody who has taken a serious look at Trump’s business who doesn’t believe that there is a high likelihood of rampant criminality...

Cohen, Donald, Jr., and Ivanka monetized their willingness to sign contracts with people rejected by all sensible partners... There are important legal questions that remain. How much did Donald Trump and his children know about the criminality of their partners? How explicit were they in agreeing to put a shiny gold brand on top of corrupt deals? The answers to these questions will play a role in determining whether they go to jail and, if so, for how long.
10. Finally, India technical education fact of the day,
There were no takers for 51 per cent of 15.5 lakh BE/BTech seats in 3,291 engineering colleges in 2016-17.

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