India: Growth in the 2000s—Key Facts

by Arvind Subramanian, Peterson Institute for International Economics

Op-ed in the Business Standard, New Delhi
June 22, 2011

© Business Standard

India's policy turnaround enters its third decade this month, but the remarkable Indian growth turnaround is now in its fourth decade. The first two decades of higher growth—the 1980s and 1990s—have been well explored. Only now, with data becoming available, can we begin studying Indian growth patterns in the third decade, the 2000s.

My ongoing research with Utsav Kumar of the Asian Development Bank throws up four key findings about growth within India in the 2000s compared to the 1990s.

1. The good news: Average growth has doubled. Figure 1 [pdf] illustrates this fact. It plots the per capita growth rate for the 21 largest states for two time periods: between 1993 and 2001 (horizontal axis) and between 2001 and 2009 (vertical axis). The figure shows that with the exception of Himachal Pradesh and Rajasthan, all states are above the 45 degree line, indicating that growth in the 2000s was substantially greater than in the 1990s. Indeed, average per capita growth across the 21 states increased from 2.8 percent in the 1990s to 5.8 percent in the 2000s. The largest improvements were posted by Uttarakhand (7.1 percentage points), Maharashtra (5.8) and Chhattisgarh (5) with Gujarat and Bihar not far behind. The figure provides a clue both to the long-standing success of the Communist party in West Bengal and its overthrow in the recent elections: West Bengal was one of the strongest performers in the 1990s but was one of the few states that stagnated in the 2000s while others surged.

2. Less good news: Divergence continues. The strong performance of the hitherto laggards—Bihar, Orissa and Chhattisgarh—has been one of the remarkable stories of the 2000s. But this should not obscure the more general pattern that across the Indian states, we still do not see a trend towards greater equality—that is, we do not see the phenomenon of convergence within India, whereby the poorer states, by virtue of growing faster than the richer states, start catching up with the latter's level of income. In fact, figure 2 [pdf] portrays a picture of divergence. It plots the growth rate of the states for the period 2001–09 against their starting level of per capita GDP (in 2001). If convergence holds, the relationship should be downward sloping because the poorer the initial standard of living, the faster the subsequent growth ought to be. But, as the figure shows, richer states on average grew faster so that inequality across states increased.

What is surprising is that the 2000s, far from reversing the unequalizing pattern of growth in the 1990s, continues it. In fact, if Bihar is excluded from the sample, the tendency towards divergence and inequality is even stronger in the 2000s.

3. Globalized but vulnerable states? India's rapid globalization is one of the clichés of our time. The crisis of 2008–10 highlighted the vulnerability that is the flip side of the dynamism that globalization has engendered: growth declined in, and capital fled from, India, as in most other countries, albeit to a lesser extent. But the question remained as to which states were more dependent on foreign markets and hence more susceptible to a downturn as conditions abroad faltered.

Our analysis shows, unsurprisingly, that Karnataka, with Bangalore as the globalized IT-hub of India, fared the worst with a dramatic growth drop of about 4.4 percentage points during the crisis. Andhra Pradesh and Maharashtra also saw a decline in growth of about two to three percentage points. Gujarat and Tamil Nadu experienced a smaller decline. On average, it seems those states that grew faster before the crisis experienced a greater decline in growth during the crisis. While the multiplicity of factors at work precludes drawing clear conclusions, the evidence is consistent with globalization conferring benefits and at the same time increasing downside risks.

4. Whither demographic dividend? Hope in India's future growth is founded on the demographic dividend: a rapidly expanding young population will save more and inject entrepreneurial vigor that will lift the country to a faster growth trajectory. And corroborative evidence was provided in an excellent recent paper by Shekhar Aiyar and Ashoka Mody of the International Monetary Fund. But the pattern of growth in the 2000s appears to muddy the waters. Our preliminary analysis, based on the 2001 Census projections rather than actual data from the 2011 Census, suggests that key demographic factors such as changes in the share of working-age population are not correlated—they may indeed be negatively correlated—with growth performance. This may not be surprising given that many of the demographically aging states such as Kerala, Tamil Nadu, and, to a lesser extent, Maharashtra and Gujarat have done remarkably well while demographically dynamic states such as Uttar Pradesh, Rajasthan and Madhya Pradesh have not fared as well. The preliminary nature of these results must be stressed, but succumbing to a demography-based complacency must be resisted.

A final intriguing factoid relates to Kerala. The conventional wisdom is of a state that is Scandinavian in its social achievements but sclerotic in its growth performance because of investment-chilling labor laws and militant trade unions, and reflected in a labor force that has voted with its feet by emigrating to West Asia. The abiding caricature is of the lazy, argumentative Malayali, discussing Foucault and Gramsci over endless cups of chai while living parasitically off the remittances sent by the relatives-in-exile. Well, the data suggest that the conventional wisdom and the caricature are dead wrong. Kerala posted amongst the highest rates of growth in the 1990s (4 percent per capita), continued its stellar performance in the go-go 2000s (7.5 percent), and exhibited great resilience during the crisis, experiencing virtually no decline in growth.

India, evidently, is capacious enough to allow both Bania, reforming Gujarat and Marxist, reform-resistant Kerala to flourish. Or, to put it more honestly, the Indian growth miracle continues to confound.

It isn't just the euro. Europe's democracy itself is at stake

Greece illustrates the danger of allowing rating agencies, despite their abysmal record, to lord it over the political terrain

Amartya Sen

Europe has led the world in the practice of democracy. It is therefore worrying that the dangers to democratic governance today, coming through the back door of financial priority, are not receiving the attention they should. There are profound issues to be faced about how Europe's democratic governance could be undermined by the hugely heightened role of financial institutions and rating agencies, which now lord it freely over parts of Europe's political terrain.

Two distinct issues need to be separated. The first concerns the place of democratic priorities, including what Walter Bagehot and John Stuart Mill saw as the need for "governance by discussion". Suppose we accept that the powerful financial bosses have a realistic understanding of what needs to be done. This would strengthen the case for paying attention to their voices in a democratic dialogue. But that is not the same thing as allowing the international financial institutions and rating agencies the unilateral power to command democratically elected governments.

Second, it is quite hard to see that the sacrifices that the financial commanders have been demanding from precarious countries would deliver the ultimate viability of these countries and guarantee the continuation of the euro within an unreformed pattern of financial amalgamation and an unchanged membership of the euro club. The diagnosis of economic problems by rating agencies is not the voice of verity that they pretend. It is worth remembering that the record of rating agencies in certifying financial and business institutions preceding the 2008 economic crisis was so abysmal that the US Congress seriously debated whether they should be prosecuted.

Since much of Europe is now engaged in achieving quick reduction of public deficits through drastic reduction of public expenditure, it is crucial to scrutinise realistically what the likely impact of the chosen policies may be, both on people and the generating of public revenue through economic growth. The high morals of "sacrifice" do, of course, have an intoxicating effect. This is the philosophy of the "right" corset: "If madam is at all comfortable in it, then madam certainly needs a smaller size." However, if the demands of financial appropriateness are linked too mechanically to immediate cuts, the result could be the killing of the goose that lays the golden egg of economic growth.

This concern applies to a number of countries, from Britain to Greece. The commonality of the "blood, sweat and tears" strategy of deficit reduction gives some apparent plausibility to what is being imposed on more precarious countries like Greece or Portugal. It also makes it harder to have a united political voice in Europe that can stand up to the panic generated in the financial markets.

In addition to a bigger political vision, there is a need for clearer economic thinking. The tendency to ignore the importance of economic growth in generating public revenue should be a major item for scrutiny. The strong connection between growth and public revenue has been observed in many countries, from China and India to the US and Brazil.

There are lessons from history here, too. The big public debts of many countries when the second world war ended caused huge anxieties, but the burden diminished rapidly thanks to fast economic growth. Similarly, the huge deficits that President Clinton faced when he came to office in 1992 melted away during his presidency, greatly aided by speedy economic growth.

The fear of a threat to democracy does not, of course, apply to Britain, since these policies have been chosen by a government empowered by democratic elections. Even though the unfolding of a strategy that was not revealed at the time of election can be a reason for some pause, this is the kind of freedom that a democratic system does allow the electorally victorious. But that does not eliminate the need for more public discussion, even in Britain. There is also a need to recognise how the self-chosen restrictive policies in Britain seem to give plausibility to the even more drastic policies being imposed on Greece.

How did some of the euro countries get into this mess? The oddity of going for a united currency without more political and economic integration has certainly played a part, even after taking note of financial transgressions that have undoubtedly been committed in the past by countries such as Greece or Portugal (and even after noting Mario Monti's important point that a culture of "excessive deference" in the EU has allowed these transgressions to go unchecked). It is to the huge credit of the Greek government – George Papandreou, the prime minister, in particular – that it is doing what it can despite political resistance, but the pained willingness of Athens to comply does not eliminate the European need to examine the wisdom of the requirements – and the timing – being imposed on Greece.

It is no consolation for me to recollect that I was firmly opposed to the euro, despite being very strongly in favour of European unity. My worry about the euro was partly connected with each country giving up the freedom of monetary policy and of exchange rate adjustments, which have greatly helped countries in difficulty in the past, and prevented the necessity of massive destabilisation of human lives in frantic efforts to stabilise the financial markets. That monetary freedom could be given up when there is also political and fiscal integration (as the states in the US have), but the halfway house of the eurozone has been a recipe for disaster. The wonderful political idea of a united democratic Europe has been made to incorporate a precarious programme of incoherent financial amalgamation.

Rearranging the eurozone now would have many problems, but difficult issues have to be intelligently discussed, rather than allowing Europe to drift in financial winds fed by narrow-minded thinking with a terrible track record. The process has to begin with some immediate restraining of the unopposed power of rating agencies to issue unilateral commands. These agencies are hard to discipline despite their abysmal record, but a well-reflected voice of legitimate governments can make a big difference to financial confidence while solutions are worked out, especially if the international financial institutions lend their support. Stopping the marginalisation of the democratic tradition of Europe has an urgency that is hard to exaggerate. European democracy is important for Europe – and for the world.

Interesting Stories of the Day

After the UK MPs were caught with their hands in the till, watch out for Euro MPs expenses scandal:

The UK Government has made it appear that all those who receive public sector pensions are the richest folks in the land:

After bombing Libya for so many days now the Arab League chief admits that the plan has not worked and may even be dysfunctional

George Osborne refuses to tell UK citizens how much the Libyan bombings will cost in an age of austerity.

The coalition hopes that the public sector strikes can be used to blame them for preventing the non existent economic recovery

Large yoga class takes place in Times Square, New York, USA.

Half of Britons have German blood.

The Super Rich Sabotage The Arab Revolutions

By Shamus Cooke

20 June, 2011
Countercurrents.org

With revolutions sweeping the Arab world and bubbling-up across Europe, aging tyrants or discredited governments are doing their best to cling to power. It's hard to over-exaggerate the importance of these events: the global political and economic status-quo is in deep crisis. If pro-democracy or anti-austerity movements emerge victorious, they'll have an immediate problem to solve -- how to pay for their vision of a better world. The experiences thus far in Egypt and Greece are proof enough that money matters. The wealthy nations holding the purse strings are still able to influence the unfolding of events from afar, subjecting humiliating conditions on those countries undergoing profound social change.

This strategy is being ruthlessly deployed in the Arab world. Take for example Egypt, where the U.S. and Europe are quietly supporting the military dictatorship that replaced the dictatorship of Hosni Mubarak. Now Mubarak's generals rule the country. The people of Egypt, however, still want real change, not a mere shuffling at the top; a strike wave and mass demonstrations are testing the power of the new military dictatorship.

A strike wave implies that Egyptians want better wages and working conditions; and economic opportunity was one of the central demands of the revolutionaries who toppled Mubarak. But revolutions tend to have a temporarily negative effect on a nation's economy. This is mainly because those who dominate the economy, the rich, do their best to sabotage any social change.

One defining feature of revolutions is the exodus of the rich, who correctly assume their wealth will be targeted for redistribution. This is often referred to as "capital flight.” Also, rich foreign investors stop investing money in the revolutionary country, not knowing if the company they're investing in will remain privately owned, or if the government they're investing in will strategically default and choose not to pay back foreign investors. Lastly, workers demand higher wages in revolutions, and many owners would rather shut down -- if they don't flee -- than operate for small profits. All of this hurts the economy overall.

The New York Times reports:

"The 18-day [Egyptian] revolt stopped new foreign investment and decimated the pivotal tourist industry... The revolution has inspired new demands for more jobs and higher wages that are fast colliding with the economy's diminished capacity...Strikes by workers demanding their share of the revolution's spoils continue to snarl industry... The main sources of capital in this country have either been arrested, escaped or are too afraid to engage in any business..." (June 10, 2011).

Understanding this dynamic, the rich G8 nations are doing their best to exploit it. Knowing that any governments that emerge from the Arab revolutions will be instantly cash-starved, the G8 is dangling $20 billion with strings attached. The strings in this case are demands that the Arab countries pursue only "open market" policies, i.e., business-friendly reforms, such as privatizations, elimination of food and gas subsidies, and allowing foreign banks and corporations better access to the economy. A separate New York Times article addressed the subject with the misleading title, Aid Pledge by Group of 8 Seeks to Bolster Arab Democracy:

"Democracy, the [G8] leaders said, could be rooted only in economic reforms that created open markets ...The [$20 billion] pledge, an aide to President Obama said, was “not a blank check” but “an envelope that could be achieved in the context of suitable [economic] reform efforts.” (May 28, 2011).

The G8 policy towards the Arab world is thus the same policy the International Monetary Fund (IMF) and World Bank have pursued against weaker nations that have run into economic problems. The cure is always worse than the disease, since "open market" reforms always lead to the national wealth being siphoned into the hands of fewer and fewer people as public entities are privatized, making the rich even richer, while social services are eliminated, making the poor even poorer. Also, the open door to foreign investors evolves into a speculative bubble that inevitably bursts; the investors flee an economically devastated country. It is no accident that many former IMF "beneficiary" countries have paid off their debts and denounced their benefactors, swearing never to return.

Nations that refuse the conditions imposed by the G8 or IMF are thus cut off from the capital that any country would need to maintain itself and expand amid a time of social change. The rich nations proclaim victory in both instances: either the poorer nation asks for help and becomes economically penetrated by western corporations, or the poor country is economically and politically isolated, punished and used as an example of what becomes of those countries that attempt a non-capitalist route to development.

Many Arab countries are especially appetizing to foreign corporations hungry for new investments, since large state-run industries remain in place to help the working-class populations, a tradition begun under the socialist-inspired Egyptian President, Gamal Abdel Nasser that spread across the Arab world. If Egypt falls victim to an Iraq-like privatization frenzy, Egypt's working people and poor will pay higher prices for food, gas, and other basic necessities. This is one reason, other than oil, that many U.S. corporations would also like to invade Iran.

The social turmoil in the Arab world and Europe have fully exposed the domination that wealthy investors and corporations have over the politics of nations. All over Europe "bailouts" are being discussed for poorer nations facing economic crises. The terms of these bailout loans are ruthless and are dictated by nothing more than the desire to maximize profits. In Greece, for example, the profit-motive of the lenders is obvious to everyone, helping to create a social movement that might reach Arab proportions. The New York Times reports:

"The new [Greece bailout] loans, however, will only be forthcoming if more austerity measures are introduced...Along with faster progress on privatization, Europe and the [IMF] fund have been demanding that Greece finally begin cutting public sector jobs and closing down unprofitable entities." (June 1, 2011).

This same phenomenon is happening all over Europe, from England to Spain, as working people are told that social programs must be slashed, public jobs eliminated, and state industries privatized. The U.S. is also deeply affected, with daily media threats about the "vigilante bond holders" [rich investors] who will stop buying U.S. debt if Social Security, Medicare, and other social services are not eliminated.

Never before has the global market economy been so damningly exposed as biased and dominated by the super-wealthy. These consciousness-raising experiences cannot be easily siphoned into politicians promising "democracy,” since democracy is precisely the problem: a tiny minority of super-rich individuals have dictatorial power due to their enormous wealth, which they use to threaten governments who don't cater to their every whim. Money is thus given to subservient governments and taken away from independent ones, while the western media never questions these often sudden shifts in policy, which can instantly transform a longtime U.S. ally into a "dictator" or vice-versa.

The toppling of dictators in the Arab world has immediately raised the question of, "What next"? The economic demands of working people cannot be satisfied while giant corporations dominate the economy, since higher wages mean lower corporate profits, while better social services require that the rich pay higher taxes. These fundamental conflicts lay just beneath the social upheavals all over the world, which came into maturity with the global recession and will continue to dominate social life for years to come. The outcome of this prolonged struggle will determine what type of society emerges from the political tumult, and will meet either the demands of working people or serve the needs of rich investors and giant corporations.

Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action ( www.workerscompass.org ) He can be reached at shamuscooke@gmail.com

What's it costing British taxpayers to bomb Libya?

The UK government has shrouded the financial cost of bombing Gaddafi in secrecy and obfuscation

Ian Katz

guardian.co.uk, Sunday 19 June 2011 22.00 BST



This weekend provided sobering reminders of the human and financial cost of the three-month bombing campaign against Muammar Gaddafi's regime: in Tripoli several civilians appeared to have been killed by a Nato strike; while in London the Treasury chief secretary, Danny Alexander, admitted that the bill for Britain's contribution could run to "hundreds of millions of pounds".

Until now the UK government has shrouded the issue of how much taxpayers are spending on bombing Libya in the sort of secrecy and obfuscation you'd expect if you asked the current location of all its Trident submarines.

By contrast, here are a few things I can tell you about how much the US's contribution to the preposterously named Operation Unified Protector is costing: as of 3 June, Washington had spent $715.9m on its military operation and associated humanitarian assistance, $398.3m on bombs and missiles alone. The Pentagon sent 120,000 halal meals ready to eat (MREs) to Benghazi at a cost of $1.3m. And by 30 September it reckons its Libya bill will have risen to $1.1bn. I know all this because it was laid out in a document produced by the Obama administration for Congress last week.

On Friday I tried to find out some equivalent figures for Britain's involvement. I called the Ministry of Defence, where a spokeswoman told me the Treasury was "doing an assessment", but no "actual figures" were available yet. She mentioned a month-old estimate "sort of within the region of £100m", but conceded that since the deployment of Apache helicopters the figure was probably significantly higher.

She thought the Treasury might be able to provide more detail, which did not amuse the Treasury spokesman I reached: "It is currently not possible to pull together real-time figures. Apparently the MoD are working on a breakdown but that's not ready to be released."

Perhaps the Foreign Office could help? Not likely: "The foreign secretary has made clear that we will present accurate costings to parliament in due course. We will not be providing a running commentary."

This from the government that trumpets its commitment on the Downing Street website to being "the most open and transparent in the world".

Fortunately, we do know a little more about the likely bill for Britain's part in the conflict from other sources. This month Nick Harvey, the armed forces minister, said in answer to a parliamentary question that Britain was targeting Libya with £6m worth of munitions a week. A Guardian report in May quoted defence experts who suggested the total bill by autumn is likely to be £400m-£1bn.

Public spending comparisons can be glib, but in times of slashed budgets and brutal choices it is hard – perhaps even irresponsible – to avoid making them. So here are a few striking ones: taking the most conservative estimate, the cost to the UK taxpayer of bombing Gaddafi for six months is four times the cut to the arts budget; three times the sum saved by Ken Clark's controversial sentencing reforms; more than the proposed cuts to the legal aid budget; about the same as the savings from ending the education maintenance allowance (EMA); or three times the amount saved by scrapping the disability living allowance.

Are these reasons to conclude Britain should stop bombing Gaddafi? Of course not: any decision to go to war is a complex equation of morality, risk and national interest, in which financial cost is just one, frequently trumped, consideration. But are they relevant to forming an intelligent view on whether Britain should be involved? Surely.

Yet when it comes to military action there is a curious reluctance to apply the same scrutiny to the bottom line as we do to every other area of public spending. As the New Yorker's Amy Davidson puts it: "There is something almost pathological about the way we don't talk about budgets when we talk about war … as if brave men don't think about things like money."

Anyone who has the temerity to ask how much Britain's Libya campaign is costing is reassured that it is all being paid for from Treasury reserves, so we needn't worry our pretty little heads. But anyone who has lost their EMA or disability living allowance could quite justifiably wonder why cash can be found for bombs but not for them.

At the very least, a democracy ought to ventilate the choices it is making. Ed Miliband has been reluctant to rock the boat over Libya, perhaps because the Labour leader can see no better option. But it's time his party started asking difficult questions about our third war in a decade. And if David Cameron is serious about transparency, he needs to show he can be as open about inconvenient facts as he has been about inconsequential ones.

Decent housing is not just a wish, it is a human right

The former US president says we are morally obligated to act, and should do so more urgently and effectively

Jimmy Carter

Guardian Professional, Monday 20 June 2011 08.30 BST


In order to create true, sweeping changes in providing decent housing, we must begin to talk about this human necessity as a basic human right. This is not something that families around the world can only wish to have, not something that only the luckiest can hope to realise, but something that everyone should have an opportunity to achieve.

When we understand the magnitude of housing needs and their different forms in communities worldwide, we will recognise that as more fortunate people we are morally obligated to act. Once we view the issue of housing in these appropriately urgent terms, we will begin to act in concert more effectively.

A good first step is to make sure we are personally engaged in striving together to achieve specific goals. There are many unified and well-proven advocacy efforts that we can support. We need to raise awareness so that our fellow citizens will join us in providing solutions for those who are struggling to overcome the obstacles that prevent their families from having a decent home. We can take an active role, from participating in large-scale efforts such as the UN-designated World Habitat Day, to joining local organisations that meet housing needs and provide funding for projects in our own towns and neighbourhoods.

Creating safe and decent places to live can have incredibly positive effects on a family's health, on study habits of students, and on a neighbourhood's overall attractiveness and stability. With so much at stake, it is time for our definition of decent housing to expand to include a spectrum of solutions: new construction, repair and renovation, housing finance, infrastructure development, secure land tenure. It is time for us to plan and build together.

Through my international work with the Carter Centre and 28 years of volunteering to build homes with Habitat for Humanity, I have seen that the best, most sustainable results achieved when communities and families are deeply involved in orchestrating their own changes.

In locations around the world, from South Africa to South Korea, my wife Rosalynn and I have had the privilege of building simple Habitat homes alongside the parents, grandparents, and neighbours who will inhabit them. We have experienced the very real difference that a strong roof and sturdy walls can make to a family that has never known the security of either, and we have come away with a lasting impression of achievement and gratification.

Efforts that invite families into the process of improving their own lives and their own homes ensure that those individuals have the materials, assistance, and skills they need to lay all the right foundations. People sometimes just need a little help to transform their lives, and community-based efforts work best. So does creating an opportunity for people from all backgrounds to come together in a common cause to help each other; because that's exactly what happens.

When we work alongside families and play a part in helping them achieve what we consider to be a basic human right, we participate in a potentially world-changing result. Their lives aren't the only ones that change. So do ours.

Former US president Jimmy Carter is a volunteer for Habitat for Humanity International.

Eight million gallons of water drained from reservoir after man urinates in it

by Nick Allen in The Telegraph

The operation is costing the state's taxpayers $36,000 (£22,000) and was ordered after Joshua Seater, 21, was caught on a security camera relieving himself in the pristine lake.

Health experts said the incident would not have caused any harm to people in the city of Portland, who are supplied with drinking water from the reservoir.

They said the average human bladder holds only six to eight ounces, and the urine would have been vastly diluted.

But David Shaff, an administrator at the Portland Water Bureau, defended the decision to empty the lake.

"There are people who will say it's an over reaction. I don't think so. I think what you have to deal with here is the 'yuck' factor," he said.

"I can imagine how many people would be saying 'I made orange juice with that water this morning.' "Do you want to drink pee? Most people are going to be pretty damn squeamish about that."

Mr Seater had been out drinking with friends when he decided to relieve himself in the open air reservoir at 1.30am.

He has not been arrested or charged with a crime, but may ultimately face a fine.

He apologised publicly for his behaviour, adding: "It was a stupid thing to do. I didn't know it was a water supply, I thought it was a sewage plant.

"I wouldn't mind paying for it but I don't have a job right now. I'm willing to do community service to clean up the place because I feel bad and feel pretty stupid." Sergeant Pete Simpson, of Portland Police, said: "It's really an unfortunate incident that probably could have been avoided if he had just chosen a bush."