Getting team India to win again – The 1991 financial crisis

The 1991 financial crisis in India is instructive. Having tried to save the embattled rupee, India was left with sufficient reserves to cover three weeks of imports and was on the verge of default. The newly appointed government approached the IMF for a $2.2 billion loan that would hinged on a set of conditions demanding that India reduce its budget deficit, open its markets to foreign competition, diminish its maze of licensing requirements, cut subsidies, and liberalize investment. India was also required to provide 67 tonnes of gold as collateral.

After a decade of decline, India was left no ‘soft options’, and the economic liberisation was the turning point. Manmohan Singh, the Finance Minister at the time and now Prime Minister, was credited with unleashing the ‘caged tiger’ that led to India’s sustained economic growth.

In a 2012 report in which Standard & Poor’s voiced the potential that India’s credit standing was on the verge of downgrade, they concluded “It would be ironic if a government under the economist who spurred much of the liberalization of India’s economy and helped unleash such gains were to preside over their potential erosion.1

More at:
Getting team India to win again
Getting team India to win again – poverty
Getting team India to win again – infrastructure
Getting team India to win again – fiscal consolidation
Getting team India to win again – the plan
Economic Crisis Forcing Once Self-Reliant India to Seek Aid
India 1991 Country Economic Memorandum
What Caused the 1991 Currency Crisis in India?
Will India Be The First BRIC Fallen Angel?

  1. Will India Be The First BRIC Fallen Angel? pg13 []

Getting team India to win again – infrastructure

India’s massive investment in infrastructure is evident everywhere. The New Delhi metro, often packed to capacity and inexpensive for commuters, is clean and efficient. New highways, many still works in progress, are starting to link the major cities. But India is moving down the World competitive index ranking. Having once been ahead of both Brazil and South Africa, it now ranks 10 places lower. Business leaders cite Infrastructure as the single biggest hindrance1 for doing business, ahead of corruption and bureaucracy.

India’s subsidy policies have distorted infrastructure challenges. An example is the rail subsidy. Fares are heavily subsidised, and the cost apportioned to the goods that are carried by rail. Shipping companies have calculated that it’s cheaper to move goods by road. Heavy goods vehicles are destroying the new highways. Traveling from one city to another by road is a surreal experience seeing small sedans dwarfed by 18 wheel pantechnicons. The little cars cars skirt around the lumbering giants, their passengers praying that their vehicle’s horn is being heard above the cacophony. Not surprisingly road deaths in developing countries are disproportionately higher than in the developed world.

Roads are the dominant mode of transportation in India today. They carry almost 90 percent of the country’s passenger traffic and 65 percent of its freight. The density of India’s highway network – at 0.66 km of highway per square kilometer of land – is similar to that of the United States (0.65) and much greater than China’s (0.16) or Brazil’s (0.20). However, most highways in India are narrow and congested with poor surface quality, and 40 percent of India’s villages do not have access to all-weather roads.

Indian Railways has had the distinction of being one of the biggest and busiest rail networks in the world. It operates 9,000 passenger trains and transports 22.5 million passengers every day of which 53% are suburban and 2.7 million tonnes of freight per day. The Indian Railway employs approximately 1.3 million people. Most of its major corridors have capacity constraints requiring capacity enhancement plans.

India has 12 major and 187 minor and intermediate ports along its more than 7500 km long coastline. These ports serve the country’s growing foreign trade in petroleum products, iron ore, and coal, as well as the increasing movement of containers. Inland water transportation remains largely undeveloped despite India’s 14,000 kilometers of navigable rivers and canals.

India has 125 airports, including 11 international airports. Indian airports handled 159 million passengers in year 20012-2013, a drop of 1.9% for passengers with the previous year. Airport capacity has been increased in recent years, alleviating The dramatic increase in air traffic that frequently made India’s airport chaos hit International headlines in 2007.

Almost 400 million Indians—about a third of the subcontinent’s population don’t have access to electricity. This power deficit, which includes about 100,000 un-electrified villages, places India’s per capita electricity consumption at just 639 kWh—among the world’s lowest rates.

Jawaharlal Nehru, the country’s first prime minister after independence, was obsessed with hydroelectric dams, calling them the “temples of modern India”. It would have been good for India’s environment, and the world’s, had many more temples been raised. The fad for hydro trickled away and it now provides only 14% of India’s power compared with up to a half in the 1960s.

By 2050 India will require 1 terawatt of electricity capacity, a sixfold increase on current requirements. Not tied to legacy technologies, it is an opportunity to put India at an advantage. It also suggests that any procrastination will be costly.

Electricity meters are installed in unexpected places. Power in Dharavi, a giant Mumbai slum, is now largely tolled, with meters nestling next to curing factories piled with goat skins and people melting down used plastic cutlery. But the city, where power is distributed mainly by two private firms, is an exception: almost everywhere else state electricity boards operate the grid, usually badly. They typically lose about a third of the power they buy through theft or inefficient kit, and one executive reckons that up to another third is delivered legally to rural customers who pay subsidised prices or get it free. The result is that a small proportion of customers foot the bills.

Although tariffs are notionally set by regulators, local politicians often hold sway and keep them low to win votes. The legislation that governs power is reasonable but unenforced. The electricity boards haemorrhage cash as a result. They lost $11 billion, excluding any subsidies, in the 12 months to March 2010—the last year for which reliable figures are available.

The consequences are twofold. First, there is not enough money to upgrade the network: up to $200 billion of capital investment is required. And second, if the cost of the power rises because of the expense of imported coal, these outfits are neither strong enough to absorb the financial hit themselves nor capable of easily passing it through by raising prices to customers. That means it is their suppliers, the generating companies, that get squashed.

Telephone and Internet
The penetration of mobile phones in developing countries has been credited for a significant part the exceptional economic growth experienced there. Because of its novelty, the impact of broadband Internet is more tenuous. An unpublished World Bank study found that each 10% increase in penetration produced a 1.38% increase in GDP in developing countries (In developed countries the figure is 1.21%)2.

Only 3% of India’s homes have Internet. India spends 1% of it’s GDP on Internet coverage, compared to 2.5% for the rest of the world. The pricing structures for broadband have archaic caps that place restrictions on the amount of data transmitted, frustrating parents of children trying to gain an advantage at school, and the technically savvy. India’s politicians as a group are the world’s oldest, many octogenarian, and in these policies the gap of generations is most evident.

More at:
Getting team India to win again
Getting team India to win again – poverty
Getting team India to win again – The 1991 financial crisis
Getting team India to win again – fiscal consolidation
Getting team India to win again – the plan
A price worth paying
Broadband: A Catalyst for Small Business Growth
Broadband Beats Mobile Phones in Boosting GDP
Chaos at airports
Chaos at New Delhi airport highlights India’s infrastructure woes
Concrete jungles
Eureka moments
Everlasting light
Halfway to paradise
High-speed Internet plans in India
Ideas coming down the track
India Infrastructure
India still out of the Net
India Transport Sector
Poor countries have half the world’s cars but almost all of its fatal car accidents
Tech-Starting the Innovation Economy
The future is black
The Kudankulam conundrum
The long view
Understanding Energy Challenges in India
Unleashing the Potential of Renewable Energy in India
Why only 3% of India has home internet access

  1. The Global Competitiveness Report 2012–2013 pg30 []
  2. Broadband Strategies Handbook pg5 []

Getting team India to win again – poverty

People living on less than $1.25 per day are below the poverty line. India is home to 250 million, a quarter of the global total.

In the a recent paper Martin Ravallion points out that the eradication of poverty was not always considered to be good policy. Between the 16th and 18th centuries, Europeans believed that poverty kept the economic engine humming by ensuring the availability of plentiful cheap labour. That led to laws that were palliative, keeping the poor in place. The subsidies of energy, rail fares and diesel, and meal subsidies in India are part of this same legacy. The politicians value these as tools to win favor with voters, and so are loath to get rid of them. But the economic distortions they create make the potential of the country unreachable.

An example is the rail subsidy. Fares are heavily subsidised, and the cost apportioned to the goods that are carried by rail. Shipping companies have calculated that it’s cheaper to move goods by road. Heavy goods vehicles are destroying the new highways. Traveling from one city to another by road is a surreal experience, with the passengers in small road cars, regularly dwarfed by 18 wheel pantechnicons, hoping that their vehicle’s horn has been heard above the cacophony.

When politicians try to remove any of the subsidies, the poor object with such vehemence that the idea is quickly scrapped1. The poor make up a big part of the vote.

Poverty is not just a problem for the politicians and the poor. It is a challenge that the whole country must solve.

It would be unfair to leave the impression that the intent of politicians is to keep the poor in penury. The Right of Children to Free and Compulsory Education Act enacted in 2009, which came into force on 1 April 2010 is intended to address poor levels of eduction among the poor. Some of the states are experimenting with conditional cash transfer (CCT) schemes to encourage attendance. The central government has introduced school meals with the same intention.

Even with these positive ideas the challenges are huge. With almost 300 million children of school going age, recruiting and training the teachers, designing the curricula, building schools, and ensuring standards of education are established and maintained is a mammoth undertaking.

The CCT and free meals encourage the students to attend, but that does not guarantee the attendance of teachers, who are poorly paid. Indian parents, both rich and poor, have been shifting their children out of government-run schools in search of the better education in private schools2.

The more innovative states are finding solutions to these challenges, and the competition between the states drives the others to emulate those successes.

But it will take time, and the clock is already running on India’s demographic dividend. If the youth becoming available to power India’s future economy do not find jobs, they will become disenchanted. India can’t afford that.

More at:
Getting team India to win again
Getting team India to win again – infrastructure
Getting team India to win again – The 1991 financial crisis
Getting team India to win again – fiscal consolidation
Getting team India to win again – the plan
A mess of pottage
Express or stopping?
Feast and famine
How Long Will It Take to Lift One Billion People Out of Poverty?
Lessons from Palanpur
Not always with us
Penury portrait
The Idea of Antipoverty Policy
The Future of Global Poverty in a Multi-Speed World: New Estimates of Scale, Location and Cost
Where Do The World’s Poor Live?
Where will the world’s poor live?

  1. Will India Be The First BRIC Fallen Angel? pg3 []
  2. Will India Be The First BRIC Fallen Angel? pg10 []

Getting team India to win again

At the start of the 16th century India had 25% of the World’s GDP. So did China. By 1820 China’s share was 33%, but for India the decline had already begun, and it held 16%. By 1973, the low point, India produced 3% of global GDP. Then as the economy almost collapsed in 1991, it introduced a series of sound economic reforms, so that after that it’s economic growth sometimes reached double digits. And then it stopped.

The bureaucracy, corruption, cronyism, nepotism, poor infrastructure, energy shortages, poverty, population, and lack of openness to foreign competition are legion. India’s government has recently concluded it’s most unproductive session of parliament since independence. The phenomenal growth was the surprise, not that it stopped. And that offers the solutions.

India’s has some world leading companies. The resurgence of Landrover and Jaguar is being inspired by leadership from their new Indian holding company. Providing remote capable outsourced services in tele centers and software development are both Indian inventions, and for a long time India has led1.

But the country failed to respond to the inevitable competition that the collapse of the developed wold’s economy brought. The Philippines is competing strongly for the tele center business. High unemployment in the developed countries, especially among the young, has brought much of the outsourced IT work back home.

India has the potential for sustained high economic growth, provided it can tap it’s world beating demographic dividend, it’s youth.

To do that it must address the issues with conviction.

This series of articles will suggest how that can be done.

More at:
Getting team India to win again – poverty
Getting team India to win again – infrastructure
Getting team India to win again – The 1991 financial crisis
Getting team India to win again – fiscal consolidation
Getting team India to win again – the plan
The firm that builds India
On a hiding to something
The screen revolution
Ratan Tata’s legacy
From pupil to master
Goodwill Hunting
Rape and murder in Delhi
How India got its funk
Report of the Committee on Unorganised Sector Statistics
Losing its magic
Will India Be The First BRIC Fallen Angel?
The democracy bottleneck
Stopping the spiral
A walk on the wild side
Once in a lifetime
Walk the line
Why Everyone Is Freaking Out About India
5 Reasons India’s GDP Growth Is Heading To A 10-Year Low
Express or stopping?
India raises duty on gold imports as demand surges
What’s The Matter With India?
Asian Development Outlook
When giants slow down
A billion brains
What a waste
Harnessing human computation
World Development Report 2013
The future is black
The Kudankulam conundrum
Now finish the job
Everlasting light
An uphill walk
A Delhi particular
The road from perdition
Foreign policy
No frills
Parsnips unbuttered
Aim higher
The Global Competitiveness Report
A tale of two villages
Cash, with strings
A million rupees now
A rotten state
Throwing the rascals out
Evasive action
Zapping mosquitoes, and corruption
In search of a dream
Money where your mouth is
Farewell to Incredible India
Can India become a great power?
Lenders of the last resort
The capitalist manifesto
India PM Manmohan Singh: Pakistan ‘attack dastardly’
Unfinished journey
Show your hand
Mischief Minister
Hugging him close
Fragile hope
On the prowl
Power shifts
The candidate
The degeneration game
An illiberal turn
Another country
Memento Modi
Concrete jungles
India Transport Sector
Halfway to paradise
Ideas coming down the track
Know your own strength
2CN or not 2CN?
Poor Economics Abhijit V. Banerjee and Esther Duflo
Lessons from Palanpur
Where Do The World’s Poor Live?
Where will the world’s poor live?
The Future of Global Poverty in a Multi-Speed World
How Long Will It Take to Lift One Billion People Out of Poverty?
Poverty, geography and the double dilemma
Not always with us
Render unto Padmanabhaswamy
Growing, and neglected
The good of small things
Bloodshed and futility
Out of the trees
India’s identity revolution
Water for all
Allo, allo

  1. World Development Report 2013 pg20 []

Tourism in India

Taj Mahal
The Taj Mahal is India’s premiere tourist destination. As one would hope, there are rigorous security checks at the entrances. But, if the officials responsible for the security don’t understand that they are manhandling one of India’s most vital assets, they are doing their country a disservice.

It was disconcerting to watch their handling of an American teacher. The teacher was carrying a paper cut-out doll, a well known children’s character, often photographed with the world’s leading landmarks, and shown to young students in foreign countries, who are then tasked with identifying the landmark, and writing about it.


This cut-out, according to the over-zealous official, was disallowed according to statute determined by the national assembly. The teacher’s efforts to appeal to logic were in met with disdain. So, she gave up on diplomacy, and explained to the senior officer that the official list of disallowed items at the gate did not include anything that could, even in the broadest terms, include the paper doll. The doll got in, but no-one won.

That experience was not unique among the tourists.

In contrast, a local youth carrying a hockey stick, apparently the weapon of choice among the young men in Agra, was allowed in without question.

India really needs its tourists.

Looking at the national statistics makes that clear. The country has a population of 1.22 billion people. More than 150 times as many as tiny Switzerland. Both countries earn the same amount from tourism – $16.6 billion. But India needs its tourist a lot more. Switzerland is running an international trade surplus of $66.5 billion, while fighting against an appreciating Swiss Franc. India runs a deficit of $80.15 billion and the Rupee is in decline.

The tourist in India soon realizes that the government is heavily reliant on visitors for its revenue. Every bill at hotels and restaurants contains a plethora of taxes, usually adding more than a third to the cost of the meal.

Government expenditures at 14.4% of GDP vastly overshadow the revenue (8.8%). It desperately needs the money because its not anywhere close to balancing the books.

Taxing tourists also acts as a disincentive, but with so few alternatives, one would expect an effort to treat guests well. Apparently not.

More at:
India tourism statistics at a glance
India tourism statistics
CIA World Factbook – Switzerland
CIA World Factbook – India