Reevaluating Citizenship

Last week saw the European Union raise concerns about golden passports, schemes that amount to little more than a sale of citizenship by some EU member-nations to rich individuals in lieu of investments. The EU is understandably worried that many individuals with questionable credentials could use a golden passport to enter and operate in the region. This is an excellent opportunity to wonder aloud about what citizenship entails in today’s world, particularly because there have been plenty of other cases in the past year alone that drive home the need for more clarity on the subject.

First, there was the case of Roman Abramovich, a Russian billionaire, being granted Israeli citizenship and using that to enter the UK when the extension of his original visa was held up by red tape and tensions between the two countries. Israel grants citizenship to any person of the Jewish faith who wishes to relocate to the country and a person holding an Israeli passport can visit the UK without a visa for short periods. But is not a citizenship based on religious denomination an anachronism? Religion remains a powerful identifier but should it be a sufficient condition to gain citizenship of a country?

Second, the conversation following France’s football World Cup win earlier this year shows the need to distinguish between citizenship and nationalism. Hamsini Hariharan has written about this nationalism debate before in the Pragati Express. However, what would be of interest is to know how many of the victorious French squad hold dual-citizenship, something that is recognised by France. If the answer is yes, how would it affect the existing conversation?

Third, and not really connected to citizenship, is the farcical case of Boris Becker, the former tennis player seeking immunity from bankruptcy proceedings by claiming he has a diplomatic passport from the Central African Republic, which the latter denied. While there are genuine reasons for the continued existence of diplomatic immunity, an illustrative list of other cases from the past shows that the system can be abused. And, in the context of this post, if an individual with sufficient funds and influence manages to gain not just citizenship but also diplomatic immunity, there is surely a need to revisit the Vienna Convention on Diplomatic Relations to see if a change to the status quo is necessary.

Closer home, two features of Indian citizenship bear mentioning. One, the absence of dual-citizenship. Two, the absence of a monetary component, be it through net worth or investments in the country, to become a naturalised citizen under the Citizenship Act, 1955. These are sound positions, lending citizenship an exclusivity while at the same time avoiding the pitfalls that come with ascribing a monetary value to it. It would be interesting to see if the world moves towards a similar system in the future.

Note: It would remiss to end this post by only mentioning the positives of Indian citizenship without mentioning the recent furore over the register of citizens in Assam, which surely demands a better way of being handled than stripping four million people of their citizenship.

A Major Setback in Kandahar

Things just got worse in South Afghanistan. The screenshot below taken from Long War Journal’s Mapping Taliban Control in Afghanistan project illustrates the significance. The areas marked in dark grey are under Taliban control. Those in red are contested districts. The uncoloured ones are controlled by the Government of Afghanistan. Kandahar city and surrounding districts immediately pop out as islands of government control in Southern Afghanistan. May be not for long anymore.

Image source: Mapping Taliban Control in Afghanistan, Long War Journal by Bill Roggio and Alexandra Gutowski

The reason is that Lt Gen Abdul Raziq, who was the police chief and the governor of the province was killed on 18 Oct 2018 supposedly by Taliban fighters who had infiltrated his inner circle. Gen Raziq was a major anti-Taliban leader in the South and his death makes Taliban’s complete control of the South imminent.

In many of our previous articles covering Afghanistan, we had mentioned how important Raziq’s role was. This is from 2015:

An unstated tenet of Afghan history is that the march for control of Kabul and the country is predicated on wresting control of Kandahar, the Taliban’s traditional base. In recent times though, ever since General Abdul Raziq was appointed police chief of the province, the Taliban have not tasted much success in Kandahar. Raziq has singularly been responsible for the relative peace in the province.

Raziq was no stranger to suicide attacks on his life. Various estimates say that there have been 30-40 attempts on his life before the fatal one. Only in May this year, there was an suicide bombing in front of his house. In his previous speeches, he had singled out the Haqqani Network and ISI for trying to wipe out the military leadership of the province.

It seems unlikely that such an attack could have been arranged without Pakistan’s support. It is also strange that this attack happened while the Taliban leadership is in talks with the US envoy. Moreover, the attack took place in the presence of the US Commander in Afghanistan. Some reports even claim that the main target of this attack were these US military leaders and not Lt Gen Raziq.

This is a big moment for Afghanistan. Even as elections take place on Saturday, the focus will be on what the US decides to do in response.

 

 

 

India’s Human Capital Problem Won’t go Away.

The World Bank released it’s first Human Capital Index (HCI) on the 11th.

Our government was quick to reject the findings – presumably, in respect of the comments on India*.

The headline finding – “A child born in India today will be 44 percent as productive when she grows up as she could be if she enjoyed complete education and full health.”

But we already know much of this – for example, that we have more stunted children than all of sub-Saharan Africa.

Part of the motivation for the Swacch Bharat exercise came from the research regarding stunted chidren – the insight being that fecal-borne diseases led to stunted growth, rather than food shortage. Sanitation would be a key contributor to children achieving their full growth potential.

Rejecting the World Bank findings does nothing to improve the lot of these children.

Our government’s reaction to the HCI report mirrors the reaction of an earlier regime to our participation in the bi-annual PISA rating on education in 2009. The report showed our students at the bottom of the charts – we did beat Kyrgyzistan, though**. Lant Pritchett said, “The PISA 2009+ results, which are both official and are beyond gain-saying, are unspeakably bad.” Our bureaucrats and politicians muttered some stuff about the tests being inappropriately designed, and withdrew in a sulk.

But again, we already know how dysfunctional our school system is. The home-grown ASER tests have measured learning levels for over a decade now, and tell us that less than half our 5th grade children can read a 2nd grade text; less than half of 8th grade children can do a simple division. The 2016 ASER report underlined that “this situation has remained unchanged since 2009, when the Right to Education, or RTE, Act was passed by Parliament.”

Dismissing a report just because it was Not Made Here helps no one – it shows a deep-seated inferiority and refusal to deal with reality.

 

*http://databank.worldbank.org/data/download/hci/HCI_2pager_IND.pdf

** https://blog.theleapjournal.org/2012/01/first-pisa-results-for-india-end-of.html

 

Deontology and Dogma

When I read the Stanford Encyclopaedia of Philosophy entry on Deontological Ethics, I was struck by a phrase that brought out the distinction between deontology and consequentialism. It states that in deontology,

…the Right is said to have priority over the Good.

Does this mean that deontology as an ethical discourse is vulnerable to the influx of dogmatic positions masquerading as the Right? I ask this because deontology depends on a pre-emptive determination of whether a particular act passes the necessary ethical muster. This can lead to a regressive agenda hijacking the discourse and becoming the norm, suppressing dissident voices in the process.

In its defence, the article does provide a more nuanced study of deontology. It can be argued that a hijacking of the discourse would be antithetical to the way deontology is meant to function. For example, true agency is not being exercised in the agent-centric version of deontology if an individual is merely following the norms set by others. Similarly, a regressive position is unlikely to be in the interests of the subject matter of an act in the patient-centric version of deontology. Both of these are valid arguments for a continued engagement with deontological thought, particularly given some of the benefits that this discourse brings to the table.

That said, these discussions around ethical positions often take place in an ideal setting. This approach fails in a setting where actors do not necessarily spend a lot of time introspecting on the merits and demerits of their actions. Of course, this fallibility can be extended to any ethical standpoint that requires an individual to be aware of his actions. What this means for the study of ethical discourses is a different question altogether.

Note: If this short post seems muddled in its reasoning, it is because my thoughts on the subject are still in a state of flux. I do hope to attain more clarity on this in the future.

Why the RBI held interest rates (the dog that didn’t bark)

On Friday, the RBI surprised our financial markets by holding the interest rate structure.

There was a broad-based consensus that the Monetary Policy Committee (MPC) of the RBI would raise rates by 0.25% (25 bps). Some market watchers predicted a steeper hike, of 0.5%. Less than 20 % of economists surveyed before the MPC meet thought it would vote to hold rates. Yet, the committee took that decision, by an overwhelming majority of 5:1.

My effort here is not to opine whether the MPC took the right decision or not; both on the committee, and outside, there are highly qualified economists, armed with massive data sets, who do this kind of analysis full-time. I am, instead intrigued by how there can be such a sharp divide between economists on the panel, and those outside – 82% on the outside for a hike; 83% on the inside against it. Polar opposites.

Why would this have happened?

At this point, I can think of only one reason – the economists on the inside have access to data that those on the outside don’t have.

This cannot be about external conditions, which occupy so much of the economic news today – oil prices on the boil; our widening foreign exchange gap; the sliding rupee; surging interest rates in the US; reverse fund flow from emerging markets to global financial centres.

It can only be about Indian data sets. Our public data shows India is growing at 8.2% per annum. If this were the case, since imported inflation is a threat, it would make sense to raise interest rates pre-emptively. But supposing the economy is NOT growing at 8%, and domestic demand is under threat, then it might just make sense to hold back an interest rate hike.

Economy-watchers know that the new GDP series has several inconsistencies, but are not equipped with the data to understand exactly how wrong it is; the RBI, on the other hand, has much more insight into the current state of the economy, and the risks to growth.

To my mind, the RBI’s concern about the fragility of the Indian economy is the most logical explanation for its surprise decision to hold back a rate hike.

Frederick Douglass and Some Lessons for the Present

Too often political speeches aim to temporarily rouse the passions of those who listen without making any attempt to be a record for posterity. To be prescient requires an understanding of human nature and the wisdom to foresee the future that is beyond the ability of many who engage in rhetoric. This cannot be said of Frederick Douglass, the American social reformer and abolitionist, and his speech What to the Slave is the Fourth of July?, delivered all the way back in 1852 but which remains timely even now.

The speech is a great piece of oration. It deserves to be read for the strength of its purpose and the clarity of its vision. Here are the two things in it that stood out for me, aspects that resonate in today’s world.

One, when Douglass refuses to engage in argument and reason with those who support slavery. Instead, he says he will rebuke such people and lay bare their faults as individuals. These are his words:

At a time like this, scorching irony, not convincing argument, is needed. O! had I the ability, and could I reach the nation’s ear, I would, to-day, pour out a fiery stream of biting ridicule, blasting reproach, withering sarcasm, and stern rebuke. For it is not light that is needed, but fire; it is not the gentle shower, but thunder. We need the storm, the whirlwind, and the earthquake. The feeling of the nation must be quickened; the conscience of the nation must be roused; the propriety of the nation must be startled; the hypocrisy of the nation must be exposed; and its crimes against God and man must be proclaimed and denounced.

This is a position that is reminiscent of many of the so-called liberal elites today (exemplified, in the US at least, by several late-night show hosts). The reasoning goes that the people you are in opposition to hold values that you disdain so much that it makes no sense to try and reason with them, to engage in a conversation with the aim of persuading them to your line of thinking. Is this the best method to adopt? I do not have an answer to this yet.

Two, and a more unambiguous lesson at that, is that Douglass is critical of his nation’s hypocrisy when it comes to liberty: extolling it as one of the foundations on which the nation is built and at the same time depriving millions of their liberty under the institution of slavery. He does not mince his words when talking about these national inconsistencies. If someone were to utter the sort of harsh words that Douglass uses today, they are likely to be branded unpatriotic. But as Douglass’ example shows, calling out the ills of your nation is an act of patriotism itself. For only when you know where you are going wrong as a nation can you correct your course.

Note: For more information about Douglass’ life, I would recommend this episode from BBC’s In Our Time.

India’s Defence Production Optimisation Problem

The Caravan has an excellent in-depth story on the Rafale controversy. Beyond the specifics of the current controversy, the investigation throws light on the problems in defence production that continue to haunt India’s strategic ambitions.

On the face of it, defence production suffers from an acute case of what I had referred to earlier as hyper multi-objective optimisation. My argument was that the reason some government policies in India fail is because they try to optimise several objectives simultaneously, ultimately creating a solution that meets none of the objectives.

Now defence procurement is essentially an oligopsony i.e. it is a market where only a few buyers exists — only a few nation-states in the world have the financial muscle to buy 10 submarines or 100 multirole aircraft for example. My argument is that this oligopsony makes the optimisation problem even worse. The government believes that because it has more weight in the market, it has the luxury of optimising many more objectives in the process.

Let us look at what the government is optimising when it sets out to purchase defence equipment today.

  1. defence preparedness: primarily determined by the end users i.e. the armed forces
  2. costs: both explicit and opportunity costs
  3. strategic value: every defence purchase from foreign players raises the question that should we buy from existing trade partners or not
  4. creating an indigenous defence-industrial complex: this is further divided into two sub-goals. One is sustaining the ailing government-owned public sector companies. The second one is spurring investment from private Indian entities.

Now, even without any prior background, optimising all these objectives appears to be a herculean task. But even while India’s procurement processes were notoriously lethargic, new objectives were being added. The fourth objective was explicitly added  through an offset policy in 2005 and more recently through a strategic partnership model in 2016. And quite naturally, it is this fourth objective that has become the main sticking point in the Rafale controversy.

So with the government’s flagship reform failing, we are back to the starting point: what should be the mechanism to address India’s defence requirements? What principles should govern procurement and purchase?

One of the ways to resolve hyper multi-objective dilemmas is withdrawal. The government could let go of the aim to indigenise when it is looking to make a specific defence purchase. Get rid of the offsets policy altogether for a few years. The indigenisation problem should then be targeted at a later point of time. This is just one method. There could be other variations of choosing objectives that can work better but what is clear is that the current method needs a complete and urgent shakeup.

 

 

Why do Murder Rates Vary so Much Between Nations?

Earlier this year, my wife was invited to Brazil for a conference. When she said she would extend her trip to travel a bit, I was more than a little concerned by the prospect of her traveling alone in a country I associated with violence.

Travel Advisories from US and UK governments were not very cheery, but when we talked to friends who had been there, and mailed contacts in Brazil, the general consensus was, one needed to be careful, and aware of ‘No-Go’ areas.

Meanwhile I had looked at the numbers – Brazil has a homicide rate of almost 30 per 100,000 people per annum. India is just above 3. The global average is just above 6.

I can’t make sense of the numbers; the popular notion is that poverty, inequality and joblessnes bring violence.  Brazil and India have all three afflictions – both are poor, though India does worse in this regard; both are highly unequal, with Brazil worse off; jobs for the youth a common problem. Why does one nation have a homicide rate that is almost 10 times as high as the other?

I don’t have a clue, and welcome inputs. Global data suggests there is a geographical (and hence cultural) pattern. The Americas have a homicide rate of 16.3, with the Central American nation of El Salvador topping the charts at 80+. Africa comes next at 12.5. Europe, Oceania and South Asia, are all around 3, with some tiny nations like Liechtenstein and Nauru reporting zero homicides.

 

 

 

What Explains the High Demand for Low Paying Government Jobs?

We are increasingly seeing the phenomenon where there are an enormous amount of applicants for a few government postings. Take this story where a million people applied for 700 clerical postings in Telengana. Or where there were 302 applicants for each posting of railway gangman:

On 17 September, 1.9 crore applicants will appear for the Railway Recruitment Board (RRB) examination to fill 62,907 vacancies at ‘Level 1’, earlier called ‘Group D’.

That is, 302 applicants for every job — jobs that are at the lowest level in the railways, including posts such as gangman (those who maintain tracks), gateman, pointsman, helper in electrical/mechanical/engineering/ signal/telecommunications, porter etc.

A majority of applicants for these jobs are graduates, post-graduates and even engineers, according to RRB sources.

Or take this case:

3,700 PHDs, 50,000 graduates, and 28,000 PGs have applied to fill 62 messenger posts in UP Police; position like this requires the minimum skills and has the lowest bar of eligibility.

Stories such as these have become all too common and are perhaps the most accurate reflection of India’s ongoing jobs crisis.

The big obvious question here is regarding the inexplicably high demand for low paying government jobs by apparently overqualified job seekers. My hypothesis is that this can be explained by three factors:

  1. The number of private jobs available are obviously too few. Job creation has stagnated and even receded in the private sector. Thus, industry does not have the capacity to absorb the large number of graduates and post-graduates who are passing out of the system. Since supply of labour far outstrips the demand for labour, employees have increasingly stringent qualification requirements. Only the best of the lot get a good, high paying job in the private sector.
  2. There is also an obvious skills mismatch. A lot of the students who pass through the Indian education system are not as qualified as their degrees tend to signal. A typical Post-Graduate often has the skills of a person who has passed the 12th grade and thus, cannot obtain or at least retain a high paying job which would require the skills of a Post-Graduate (One report, for instance, finds that nearly 80% of the engineering graduates in India are unemployable as their skills set do not match the requirement of the industry). What further complicates this issue and turns it into a vicious cycle is the fact that a lot of individuals end up studying due to the lack of job opportunities. These are students who enter into an educational programme solely due to the signalling value and to differentiate themselves from the nearest competitors. However, while the degree gained has some signalling value, the skills gained are inadequate for industry standards.
  1. A person who has gained a degree but not the appropriate skills cannot get a job in the private sector which will assure a reasonably high salary and job security. The private sector option is typically a low paying job, which can be lost at any time and with no benefits. Given this scenario, a government job that is assured of job security, even at the cost of lower salary seems attractive.

 

Copping out on Privatisation

The recent bank merger between Bank of Baroda, Vijaya Bank, and Dena Bank is essentially a move of cowardice, and not the bold reformist step it is touted to be. The original plan (for reforming the banking sector) was to have just 6 public sector banks, and while Modi has reduced the number from 26 to 19, there’s still a far way to go. Further, the plan was not to achieve the reduction in numbers by merging all of the public sector banks into 6 mega banks that are still in government control, but to privatise them eventually. However, the traditional governmental dislike for privatisation and the lack of political will in an election year resulted in this sub-optimal solution of merged banks.

The merged entity is set to become the third largest Indian bank, however the size is hardly important. In fact, it would actually deter any real progress in reforming the banking sector. Another move of cowardice was in giving the assurance that no jobs would be lost due to merger. Thus, the banks cannot really cut cost and achieve economies of scale in this aspect.

The history of such mergers is not reassuring. The merger of New Bank of India (NBI) with Punjab National Bank (PNB) in September 1993, of Global Trust Bank with Oriental Bank of Commerce in 2004, and the spate of merging the associate State Banks with the main State Bank have all worked poorly. The strong bank in the merger eventually ends up suffering considerable losses. The editorial in The New Indian Express comments:

“When a strong and weak bank merge, the combined entity loses competitiveness and the merger is counterproductive. An RBI working group recommended avoiding such events without first restructuring weaklings—a step now being bypassed.”

Failures are the essence of capitalism, so before gaining size, we need measures that allow banks to fail safely without causing systemic shocks like Lehman Brothers. No math can correct errors made out of lack of self-discipline, and as we still fight the last NPA war, rather than planning for the next one, it’s time to act bold, taking haircuts and ceding control to private parties. For, in a growing economy, banks should lend without worrying about provisions or sacrificing profits at the altar.

 

Interventions at MSME level are not the answer for job creation

The jobs problem in India is acute and there isn’t enough we have done to solve it. We have around 12 million new people joining the working age population every year but we create only 4 million jobs per year. To solve this grave issue, the Union Skill Development and Entrepreneurship Minister Dharmendra Pradhan recently started a new centre to guide new entrepreneurs and provide helpline to MSMEs. A novel step but it based on a common assumption that interventions targeted at MSMEs would create new jobs. This assumption has been questioned by a systematic review by Michael Grimm and Anna Luisa Paffhausen that looks at whether the interventions targeted at MSMEs create new jobs.

Grimm and Paffhausen reviewed the existing evidence on the employment impact programmes to evaluate what impact do interventions have when made on the MSME level. The review concluded that the impact was modest. The interventions are able to “successfully affect intermediate outcomes such as management skills (however) only very few interventions enhance job creation.”

The reviewers have looked at employment created as the new jobs coming up in existing MSMEs (privately or publicly owned) and as jobs that arise through the creation of new MSMEs, including self-employment. The authors analysed 53 studies to understand what form of interventions were taken and if employment generation was the primary objective. The review considers that various interventions would have varied responses. For instance, a measure to increase productivity, such as training, would only result in an increase in employment if the interventions are able to increase outputs and reduce cost. A mere increase in efficiency that does not help reduce cost would not convert into more hiring.

The review brings out various insights but some of the most significant ones are:

  • Most interventions at the MSME level are not intended to create jobs. Primarily because, “enterprise performance is typically measured in terms of output, sales, revenues, business expenditures and profits.” The interventions, therefore, focus more on entrepreneurship training and business development.
  • Entrepreneurship training is beneficial for business skills but mostly does not result in business expansion or more jobs. Unless the firms can generate profit and reduce the cost to a point where they can expand, the training does not do much for job creation.
  • Addressing capital constraints is not enough. Most of the firms use the credit or cash provided as working capital used to increase the inventories. It is rare for firms to use it on fixed capital investment like labour. To add to it, the credit is mostly too small to lead to large changes in capital or production technology which could lead to an increase in employment. For potential business starters or subsistence-type enterprises, the credit is substituted for personal needs like healthcare, housing improvement etc.
  • Formalising the firms does not translate into job creation. To begin with, it is difficult to formalise a firm “because the average firm is simply too small and not profitable enough to make use of the potential that formality offers”. Instead one of the studies shows that the firms that do generate more jobs are the ones that create more permanent and large-scale jobs.

One of the things that do work is an intervention that provides a mix of financial assistance and entrepreneurial training. Although the review has looked at a handful of studies for certain conclusions, the learning is in-depth and needs to be taken seriously to avoid falling into the same traps as other countries have.

Employment Elasticity of Growth in India

Recently, there have been a spate of articles on employment elasticity of income in Indian newspapers and how important that is to job creation in India. The Hindustan Times has a series on India’s job challenge, Mint’s editorial discussed quality of jobs created, and the Economic Times cautions against India mimicking China’s strategy in creating jobs.

But what exactly is employment elasticity? And why is it important?

According to an RBI working paper by Sangita Misra and Anoop K. Suresh, employment elasticity is a measure of the percentage change in employment associated with a 1 percentage point change in economic growth. It indicates the ability of an economy to generate employment opportunities for its population as a per cent of its growth or developmentprocess.

An employment elasticity of 1 denotes that employment grows at the same rate as economic growth. Elasticity of 0 denotes that employment does not grow at all, regardless of economic growth. Negative employment elasticity denotes that employment shrinks as the economy grows.

This is crucial as it is commonly believed that economic growth alone will increase employment. However, as we examine the data, we see that despite India’s impressive economic growth, employment has not grown alongside. Ideally we would like to see an employment elasticity >=1, but, from the Misra and Suresh paper, we see that employment elasticity in India declined from 0.44 in the first half of the decade 1999–2000 to 2004–05, to as low as 0.01 during second half of the decade 2004–05 to 2009–10.

YearsEmployment Elasticity
1999-2000 to 2004-050.50
2004-05 to 2009-100.01
2009-10 to 2011-120.18

Similar trends have been witnessed at the sectoral level. In agriculture and manufacturing, employment elasticity between 2004-05 and 2009-10 has been negative.

Sector1999-2000 to 2004-052004-05 to 2009-102009-10 to 2011-122004-05 to 2011-121999-2000 to 2011-12
Agriculture1.09-0.39-0.44-0.41-0.08
Manufacturing0.80-0.271.740.100.33
Mining & quarrying0.870.20-1.76-0.140.34
Utilities0.67-0.277.601.421.17
Construction0.881.63-0.251.121.01
Trade, transport, hotels0.45-0.020.540.130.25
Finance, real estate1.400.34-2.32-0.450.06
Other services0.46-0.112.960.480.47
All sectors0.500.010.170.060.20

The negative employment elasticity in agriculture indicates movement of people out of agriculture to other sectors where wage rates are higher. This migration of surplus workers to other sectors for productive and gainful employment is necessary for inclusive growth. However, the negative employment elasticity in manufacturing sector was a cause of concern particularly when the sector has achieved 6.8 per cent growth in output during Eleventh Plan. It did bounce back during 2009-10 to 2011-12, but the average employment elasticity in manufacturing between 2004-05 and 2011-12 was still only 0.10.

 

References:

Misra, S., & Suresh, A. K. (2014). Estimating Employment Elasticity of Growth for the Indian Economy. Reserve Bank of India.

Planning Commission, India. (2013). Twelfth Five Year Plan, 2012-2017. Sage Publications, India.