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There Are Very Strong Concerns About The Indian Economy: Joseph Stiglitz

India and U.S. have taken measures to detain illegal migrants. Amit Shah in India, has talked about NRC while the U.S. is planning to take DNA samples from asylum seekers and other migrants. What is the fallout of such measures?

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Joseph E Stiglitz
Joseph Eugene Stiglitz is an American economist

Joseph Stiglitz, 76, gently placed his walking stick beside the sofa and a stack of papers on the table as he settled in to savour some South Indian breakfast. He was in the city to deliver a lecture organised by a university.

It has been almost three decades since India liberalised and integrated with the global economy. It was the seventh largest economy in the world by gross domestic product in 2018. But this growth has slowed, and is expected to shrink further in 2019-20, according to multiple global institutions.

“The data that I have seen reinforces very strong concerns [about the economy],” Stiglitz told IndiaSpend in the course of an interview. “I do not know anybody who is not in the government who is not worried.” Governments tend to “suppress data when it is on shaky grounds”, he added.

While India has been able to benefit from globalisation, there is a view that is “not an uncommon view but an unpleasant one”, that in a regulated market like India foreign players “have a disadvantage because the insiders know how to play the game”.

Stiglitz won the 2001 Nobel Prize in economics for his analyses of markets with asymmetric information. He was a member of the Council of Economic Advisers in the US from 1993-95, during the Bill Clinton administration, and its chairperson from 1995-97. Between 1997 and 2000, he served as chief economist and senior vice-president of the World Bank.

Stiglitz has authored multiple books on economics including People, Power, and Profits: Progressive Capitalism for an Age of Discontent; Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump; and The Price of Inequality: How Today’s Divided Society Endangers Our Future. In 2011, he was among Time magazine’s 100 most influential people in the world. He is a professor in the department of economics at Columbia University and founder and president of the Initiative for Policy Dialogue, a think-tank on international development based at the university.

In this interview, Stiglitz explains the impact of globalisation in the last two decades, and of populism, the rise of the gig economy, and the problem of inequality in India and the world. Edite

How has globalisation changed in the last couple of decades, particularly with the rise of protectionism and populism and what impact have you seen on emerging economies like India?

Twenty years ago the common wisdom was that trade would benefit all. It was a contested view in both the [global] North and South. While it was held by a lot of elites, it was not universally held. Many developing countries only liberalised with the threat of the International Monetary Fund as a condition of getting aid in the structural adjustment programme.

I wrote papers in the early 1980s pointing out that [global markets] are not perfect risk markets and trade can make everybody worse off. Trade exposes countries to risk without risk insurance, producers of risky products may contract production that might hurt people in other parts of the economy, and similarly, many people in all countries could be worse off.

It was meant to be a warning against naive globalisation. Although it [paper] did not ask people to not go ahead with globalisation, but it says that those people who think that everyone will be better off have not proved the case. Under certain assumptions, it would make some better off while others would be worse off. The gainers could compensate the losers, but they never did. The other problem is the assumption that markets are perfect, which was not true.

When I wrote this nobody in the policy world paid any attention to it, even when I was in the White House and the World Bank. Eventually (by the time I wrote ‘Globalisation and Its Discontents’), there were examples of jobs being destroyed and not as many being created. It showed that we had to learn to manage globalisation better. It was not that globalisation was necessarily bad, but it was not good either.

India has gained a lot with its integration into the global economy (U.S. and western Europe), including the technology sector, modernisation, [new] universities, etc. Though it is not so clear that better managed policies with respect to importing cheap Chinese manufactured goods would have led to a robust manufacturing sector [in India].

Young people seem to have found opportunities in the gig economy through cab aggregators like Uber and Ola, and other food delivery applications in India, often working long hours with inadequate benefits. In California, new legislation has made it harder for gig economy companies to treat their workers as contractors instead of employees. Similarly in India, there have been protests demanding labour benefits for workers in the gig economy. How do you assess the gig economy globally and its effect on economies like India?

At one level you can celebrate that they make it easier for people to enter the labour force, but clearly part of their business model is exploitation and circumvention of existing regulation, most of which have a good purpose.

In New York [city] there was a study on the wages paid to the taxi cab drivers on [such] platforms which said that they received $6 per hour which was below the minimum wage and a livable wage. This is also a dangerous wage because of the increased number of hours that a person would have to drive. New York city has passed a law that tripled the wage to about $18.

Knowing where your cab is and being able to call them has efficiency gains, but this could have been done even if it was regulated by taxi cabs. I think there are efficiencies that the gig economy can bring, but the business model is driven by exploitation and circumvention. We have to maintain the advantages the model offers but at the same time restore more bargaining power and regulate the bad aspects.

While you have maintained that “GDP is not a good measure of wellbeing”, India’s GDP growth has been revised downwards by multiple agencies. Further, there are issues of data suppression. Abhijit Banerjee, one of the 2019 Nobel Prize winners, believes that the “Indian economy is on shaky ground”. Would you agree?

One of the problems when there seems to be data suppression is that you cannot precisely know what the state of the economy is. But usually governments suppress data when they are on shaky grounds. They will suppress data when there is weak growth.

There are a number of indicators like consumption which are, to say the least, worrisome. It is hard to have a robust economy when the basic data for consumption and investment are weak, as they are [in India]. So, the data that I have seen reinforces very strong concerns [about the economy]. I do not know anybody who is not in the government who is not worried.

The pre-tax national income of the top 10 percent in India increased by nearly 23 percentage points to 56.1 percent, while that of the bottom 50 percent declined nearly 8 percentage points to 14.7 percent over 25 years to 2015, according to the World Inequality Database. The nine richest Indians now own wealth equivalent to the bottom 50 percent of the country. Why is there an increasing accumulat of wealth globally, and what are the solutions?

There are many dimensions to this problem. The people at the top figure out ways of not paying taxes, so their wealth multiplies in a way ordinary people’s cannot. The largest Foreign Direct Investment source for India for a long time has been Mauritius, which is a tax haven. A lot of the wealth [in India] has to do with special deals in telecom or defence, where the government gives a license or contract. It becomes difficult to know if the price is competitive.

In the U.S., real estate developers get zoning variances that allow them to do things others do not (through political connections). Two of the richest contributors to the Republican party were people who run gambling establishments globally. Gambling is a part of the money laundering industry.

Even in China, a lot of billionaires are part of the real estate industry with connections to local party officials and have access to land. In a natural resource economy, getting favourable access to it brings wealth. But there are also people like Jack Ma of Alibaba who have been really entrepreneurial.

Was it the corruption and bureaucratic red tape? Are there solutions?

They could manage the red tape. It was a combination of corruption and thuggishness, although I never got a clear view of the nexus between outright thuggishness and corruption. But they left. These were honest and brilliant people [U.S. companies], who would have brought talent.

It was not an uncommon view but an unpleasant one, which was that in a highly regulated country with big players, outsiders have a disadvantage because the insiders know how to play the game.

The solutions are that with the right government you establish rules of transparency, oversight, independent procurement agencies, independent corruption agencies. Singapore and Hong Kong have managed it to a good extent.

How does the rise of populism and majoritarian governments worldwide perpetuate the problem of inequality? And what changes do you observe in democratic institutions in India and the U.S., particularly in the role of civil society?

When people see unfair outcomes they get disillusioned with the system. Things can go a couple of ways. You could get a demagogue like [Donald] Trump who knows how to exploit the discontent but not cure the problem, [which can] make things worse. Then you have the other side where you have reform movements (which is hopefully happening in the Democratic party) where policies are being put in place for more competition, stringent ethics, oversight, among others.

The central governments of India and the U.S. have taken measures to detain illegal migrants. Amit Shah, India’s home minister, has talked about a nation-wide expansion of the National Register of Citizens while the U.S. is planning to take DNA samples from asylum seekers and other migrants. What is the fallout of such measures?

When things are not going well, people always want to blame somebody else. This may be foreign trade [for example]. But we made that trade [deal]. India may make the excuse that the U.S. forced it to sign, but the U.S. cannot make that excuse because we were the ones who wrote the deal.

Immigration is not the source of the problem in the U.S. The parts of the country with a lot of immigration love their immigrants. We could not function without our immigrants. It is a problem in the country where immigrants do not want to go, and where there is emigration and not immigration. The issue is that [in these parts] societies are collapsing as there is no economic opportunity, reduced life expectancy, and issues of drug overdose, alcoholism and [high rates of] suicide. This is the problem, not immigration.

(Paliath is an analyst with IndiaSpend.)

This copy was published in a special arrangement with IndiaSpend and IANS.

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Rahul Gandhi returning to lead Congress again?

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scindia rahul gandhi priyanka gandhi

New Delhi/Wayanad (Kerala), Dec 6 : Former Congress President Rahul Gandhi is all set to return to lead the party and is likely to take over after the Delhi assembly polls early next year. A hint to this effect was dropped by Congress General Secretary, Organisation, K.C. Venugopal who said that country wants his leadership more now.

Venugopal, who is accompanying Gandhi to his Kerala constituency Wayanad, told reporters: “The nation is going through a critical phase… The party needs his leadership and there is loud chorus from the workers to bring him again and we hope he will listen to them.”

A Congress session is scheduled in the next few months to ratify the appointment of interim President Sonia Gandhi. A source said that in the same meet, a chorus will grow to bring again Rahul Gandhi as planned by young leaders in the party.

Rahul Gandhi’s elevation to the party organisation was first demanded at the AICC’s Hyderabad session in 2006 where workers from UP raised slogans in his favour and he was made party General Secretary in 2007. After that, the demand to make him Vice President was raised at the brainstorming session in Jaipur in 2013.

He was elected President unopposed in 2017 after demand from different quarters of the party, but during the 2019 General Elections, the party was routed under his leadership and he resigned in May taking the responsibility of poll debacle and did not budge to the party’s repeated requests to reconsider. In August, Sonia Gandhi was appointed interim party chief.

Though he may not be the party chief, but Rahul Gandhi’s decisions are evident within the party’s decisions as evinced by appointment of Nitin Raut as minister in the Shiv Sena-Congress-Nationalist Congress Party coalition government in Maharashtra and of Nana Patole as the Assembly Speaker.

The party is finalising a venue for the AICC session, which could be held in the Congress-ruled states of Madhya Pradesh or Rajasthan in January and February, a source said.

By: BY SAIYED MOZIZ IMAM

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RBI holding repo rate bodes well for savings: Economists

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Reserve Bank of India RBI

New Delhi, Dec 6 : Even as many see the RBI’s pause on repo rate as a setback for the growth, some economists argue that any further cut could have affected households savings which have already seen a decline in recent times.

“Reduction in interest rate will work negatively. The interest rate is like a double-edged sword. It will have an impact on savings and it will have an impact on investments. We know very clearly that it does not have much impact on investments. Now, what is it doing? It is basically hampering the savings,” said N.R. Bhanumurthy of the National Institute of Public Finance and Policy (NIPFP).

He also said that monetary policy is not just about interest rates.

“There are many things which monetary policy does. It can ensure that credit flow is better and the banking sector is in good shape. They can create money supply. So, it can do many things. They have to now see how savings could be improved,” the NIPFP professor said.

M. Govinda Rao, Chief Economic Advisor, Brickwork Ratings, said that transmission of the reduction in the policy (repo rate) requires the lending rates to fall. Further, that would also require the deposit rates to fall, which could result in reduced saving by households.

“When the inflation rate is perking up, if the banks also reduce the deposit rates, the rate of return on savings will decline which could not only reduce the incentive to save but also can hurt the elderly who maintain themselves from the interest income,” he said.

As per Economic Survey of FY19, gross savings fell nearly 60 basis points as a share of GDP in two years to 30.5 per cent in 2017-18. Household savings led the decline as its share contracted from as high as 23.6 per cent of GDP in 2011-12 to 17.2 per cent of GDP in 2017-18.

“The household sector savings declined from 23.6 per cent of GDP in 2011-12 to 17.2 per cent in 2017-18 and its net financial savings and a ratio of GDP declined from 7.2 per cent to 6.5 per cent during the same period. Thus, besides inflationary expectations, ensuring adequate real rate of return on the savings could be an objective of keeping the repo rate constant,” Govinda Rao said.

As against market expectations of a rate cut, the RBI on Thursday maintained the policy repo rate at 5.15 per cent. With this, the reverse repo rate also stands unchanged at 4.9 per cent. The Monetary Policy Committee (MPC) was unanimous in its decision to maintain status quo on both rates and ‘accommodative’ stance.

(Nirbhay Kumar can be contacted at [email protected])

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Immediately probe the encounter: Legal experts

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Hyderabad Murder Encounter

New Delhi, Dec 6 : Legal experts say as per the law a probe should be immediately set up into the mysterious encounter of the four accused in the rape and murder of a Hyderabad-based veterinarian.

“The rule of law should prevail in the country, there should be an immediate inquiry into the encounter of the accused,” said senior advocate Vikas Singh, former President of Supreme Court Bar Association.

A week after the brutal gang rape and murder of the young veterinarian in Hyderabad, police shot dead all the four accused in an alleged ‘encounter’ near Shadnagar town.

The accused were killed in the early hours of Friday when they allegedly snatched weapons from the police and tried to escape from Chatanpally near Shadnagar, about 50 kms from Hyderabad.

Singh emphasised that there should be balance between justice delivery system and human rights of the citizens. “The authorities should immediately begin an inquiry into this encounter, and this probe should be completed as soon as possible. The authorities should ascertain whether it was a genuine encounter or it was stage managed by the police,” added Singh.

The four accused killed in the encounter were identified as lorry drivers Mohammed Arif (26) and Chintakunta Chennakeshavulu (20), and lorry cleaners Jollu Shiva (20) and Jollu Naveen (20). All hailed from the Narayanpet district of Telangana.

Senior advocate Puneet Mittal said that there should immediately be a judicial probe into the matter to unearth the real picture behind this mysterious encounter. “The probe should be on the factors that were behind this encounter. The families of the accused could also move the court seeking inquiry into the matter,” added Mittal.

Senior advocate Sanjay Parekh said according to the law the encounter should be looked into as killings. “As per law, a case should be registered against the police officials involved in the alleged encounter followed by a probe,” said Parekh.

He also insisted that usually the action of the police officials claiming self defence comes into the picture at the stage of the trial, but at this stage of the case there should be a probe immediately to verify the encounter.

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