Tuesday, September 29, 2015
Thursday, September 10, 2015
Will the crude oil windfall make the “India Story” complete?
It is said that economic theories are only good for academics but not for intelligent animals and of course not for real world politics. Are the ‘acchey din’ (good days) here again? Well a lot will be incumbent on the policy response to the drop in crude oil prices, well over 25% since July that means a cumulative saving of USD 10 billion or INR 61000 crore for the Indian economy. Surely, this is a windfall for a country like India, which has large oil import needs and external adjustment pressures that also impact its overall credit ratings. No wonder external agencies such as Fitch Ratings are now painting a rosy picture with better economic growth prospects, improved terms of trade provided that the lower prices are sustained below USD 90/bbl through 2015, as being forecast.
But there is a lot more than what meets the eye! Incidentally this month’s production output has been the highest for the last two years by OPEC at 31.06 million bpd according to Reuter’s surveys. Latest reports suggest that the weighted average marginal cost of oil at Shale dominated onshore at USD 73 a barrel plays an important role in fixing international oil price and therefore a short position now will play a major role for a rally later as observed in case of gold. Also, paradoxically there would be a big winner in the US oil industry and the US consumer who gain a rebate of almost USD 600 per household in case Brent crude falls to USD 80 per Barrel. Yes, there would be an income boost to the BRICS as also the emerging economies as their net oil import bills are significant. On the world stage the global economy is set to have a daily windfall of USD 1.8 billion dollars.
The big question remains whether or not the impact will be passed on to the consumers for positive consumption effect as the lower oil prices may not only help in lowering inflation but also may act as a trade offset. Our policy makers have the twin challenge to bolster growth while reducing the external account deficits. Thus in India the diesel prices were rightly enough, deregulated on October 18 and the direct impact on headline fiscal forecast is expected to be limited making the fiscal accounts more robust against future oil shocks as both diesel and petrol prices will now be determined by the markets. Unlike in Indonesia where President Joko Widodo raised the administered price by over 30% recently to cater to the fuel subsidies and to implement his reforms agenda, to make the best of this happy reversal of fortunes, India is yet to come up with some very ingenious measures to make the best of the fortune.
Let us also have a brief overview of the impact of such a fall in countries other than India. Lest we forget, the collapse of Soviet Union in 1991 was preceded by a fall in price of oil, its main export by two thirds during 1980 and 1986. Likewise oil producing countries such as Iraq, Syria, Nigeria and Libya, now are in turmoil as the price of Brent crude fell over 25% in the last three months and for countries such as Saudi Arabia their budgets may go into red as this translates into a yearly loss of 100 billion USD in export income. Venezuela wants oil at USD 120 barrel and Iran at USD 135 a barrel to sustain their spending plans. Even emerging economies like Brazil want to have high oil prices to attract investments for its deep offshore oil reserves.
The assumption is not off the mark that though a windfall for some, at least half the world economy may face a slowdown with crude oil prices at historic low. On a strategic front it is held that by 2018 the US crude will replace the entire Middle East production that will also help the US save its dollar from being replaced as a reserve trading currency. Similarly, Russia has much more to achieve on the strategic front with higher defense and military spending in recent years that can be met only by higher production and higher prices currently estimated at USD 130 a barrel for its sustainability. There is no denying the fact that sovereign funds accumulated over the years by the Middle East and Arab world, have been a threat to the US and the European economies. Thus there appears to be a competing drive to achieve more production outcomes rather than just the debt sustainability that is ostensibly professed by these nations.
In order to sustain crude at levels of USD 120 there have been concerted and frantic efforts by many oil majors that need a potential capital spend of over 550 billion USD in the next ten years for newer projects and to keep pace with higher oil field service bills. Thus there is an imminent danger of a price war that will keep pace with a cold war between major oil exporters. The aggressive Russian posturing and the latest air strikes by the US in Syria at targeted oil facilities controlled by the ISIS may be a pointer of the shape of things to come. Mathew Levitt, a former US financial intelligence official has reportedly stated that ‘the ISIS is probably the wealthiest terrorist group we have ever known’ as it now controls a huge swath of land area that is now bigger than the UK and has enormous revenue currently estimated by Iraq Energy Institute at over USD 3 million a day from the oil resources that it controls and the discounted sales in the black market at USD 40 a barrel.
No wonder that the reason why crude prices are on the down swing now need no further elaboration. Let us now examine the policy imperatives and a strategic plan for India at this juncture. Of course India needs superb storage facilities for a time when crude price may hit the roof in the international market as also better exploration outcomes and efficiencies in existing production. Developing alternative energy resources particularly for the agriculture and agro-business sector may be a necessity as in the near future the world economy will have a predicted slow down with consequential impact on India. Also on the downside is also the fear of a unemployment due to a prolonged and massive slow down of global economy. We may at this stage question RBI about cutting down interest rates as the economy is now in terms of the FRBM as promised during the last budget.
For India, though the India story gets a boost when global growth is weakening, the twin deficits–current account and fiscal–will surely moderate and inflation will decline with liquidity in the banking system likely to improve leaving more room for cutting interest rates. Yet there is no need for complacency–notwithstanding the jubilation among the public over Prime Minister Narendra Modi’s much publicized India story because its too early in the day and the story is far from complete! Indeed there is the conventional wisdom, but there are pertinent issues that we should not be losing sight of. As it is perhaps the conventional wisdom that has held us back all these years! Now since the global crude prices are low and are expected to be below USD 100 until March 2015 based on the reports from the world market in view of the low productivity and demand in the US, Europe and China. Finance Minister Arun Jaitly may well have an opportunity as India’s emerging economy not only needs more crude from abroad but also the surplus funds that would now be available for investments in well thought out policy initiatives to break from the ghosts of the past.
The crude war is indeed dirty. There are so many challenges and we may have little to smile at due to the dark clouds that loom on the horizon.The drop in crude oil price has given an opportunity that we cannot afford to throw away by inadequate policy response.
On values, morals, ethics and good governance Mr. Prime Minister!
Let us examine the underpinnings in a democracy such as ours as also the continuities and change in our societal heritage in the backdrop of both ancient and modern practices of our own upbringing, values that transcend socio religious beliefs, public life and duties, private morals and virtues, political governance and personal rights, and responsibilities.
We may have no doubt that such a study is important as it stands at the intersection between the practice of our belief system, our own democratic citizenship, and the exercise of morals, values and political ethics.
This issue has been addressed through the ages in different countries, on law and morality, from the Vedic ages and ancient Mesopotamia to the age of enlightenment to modern times; this millennium’s scientific, technological and information transformations to that of evolving links with various cultures, religions, practices, civilizations and different beliefs. Also intricate and complex ethical issues in domestic and international democratic governance that in varying contexts assume critical importance for our developing economy in today’s globalizing world should be understood before we understand morals, ethics, values and good governance.
I do believe that when a government and its representatives such as ours justify their actions in our name that is the public at large, we not only have the right but also a moral duty to be concerned. Thus public wrong doing or even apathy by the political class or the bureaucrats or for that matter even the judiciary may not be exposed by the fourth estate and that leads to the need for us to separate individual citizens who bear a special responsibility. It is not very infrequent that individual citizens may bear the wrath of failures of their representatives and the state institutions and the intellectual class will have to be responsible and act lest they would be taken to be morally corrupt be complicit. A case in point is the lal batti (beacon light now in different colors) culture of the ruling classes that include all the pillars of our democracy and the clamor for more goodies such as pensions by the elected representatives. The confrontation with the political class of any ideology is a moral dilemma or an ethical challenge that many a times institutional remedies fail to cope with and hence we need a fair discourse on the issue.
Our obligation to participate in the democratic process does make it incumbent on us to question every decision of the political class that tends to believe that it is the master particularly due to the feudal mindset of our polity. It is in this context particularly welcome is the call of Prime Minister Narendra Modi that each of the 125 crore citizen in our country will be his ‘think tank’. We should nonetheless be mindful that obligation to participate in the democratic process is much greater when we risk serving as accomplices in the process. At this juncture I may question whether a country such as ours that is steeped in poverty, ignorance, superstitions, beliefs and identities in the garb of ‘unity in diversity’ be allowed to delay the process of development, prosperity, literacy, scientific temperament and positivity? If the answer is no than it is high time that we should be led by the ‘highest common factor’ and not the ‘least common multiple’. If this be the case than the time is ripe for our country to have a debate on Presidential form of Government where the country is led by the professionals and experts in disparate fields instead of so called public representatives who may be good orators but have little interest in good governance and perhaps negligible understanding of the very complex and intricate policy issues and processes. Having said so based on my own past dealings with the political class in various Ministries of the Government I may assert that more often than not the babus do tend to find an easy way to either discover a via media or be complicit with their political masters much to the detriment of the masses. Thus the two pillars in our democracy more by incidence than by design only fortify each other much to the detriment of the masses. It is also very frequently asserted that the fourth estate is only a fiction and does not exist. The notable exception is judiciary but in most cases justice can be delayed and perhaps denied due to complicity in an archaic and stale framework of eighteenth century Anglo-Saxon jurisprudence that we have inherited from the Raj days.
Now let me briefly delve into the apathy that our bureaucrat and political masters have when it comes to good quality school education for all our children who will be the citizens of tomorrow’s India. I may mention that with all the talk on introducing values and morals in the Universities, it is indeed the Schools that we should be more focused on. There is no denying that over the years we have created a distinct division between the haves and have nots in having government schools that in most cases impart poor quality education on one hand and the convents and the public schools in private hands on the other hand that invariably see a mad rush from desperate parents who spend their savings of a life time and loans in ensuring admissions for their wards. A society that does not care for its future generations has no right to question moral deprivations, and values in society and above all corruption at the political stage. It is amazing that when I questioned a bureaucrat who was incidentally vested with many other charges apart from elementary education in a state government when he replied demurely that the cost would be immense considering over 100,000 schools in the state. My obvious retort to him was to do away with all the unnecessary departments in the state ranging from fisheries development and public works to public enterprises and electricity and to just focus on key areas such as elementary education, health and infrastructure rest being a policy outcome as is being done in most countries.
When it comes to access, equity and quality of education that indeed holds the key to a good and enlightened society we should bank more on policy outcomes such as the concept of neighborhood schools and mid day meals, attract the best in the society to school education particularly government schools and to deliberate on what constitutes good education than on introducing mindless changes in the course content and curricula by the reigning political class and leave it to the academia. It will not be a surprise that the more the political and bureaucrat class control the quality of education more it will be the detrimental to the quality of education.
Postscript: I am reminded of Mahatma Gandhi, who had once noted : “I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]. Will he [she] gain anything by it? Will it restore him [her] to a control over his [her] own life and destiny? In other words, will it lead to Swaraj [freedom] for the hungry and spiritually starving millions? Then you will find your doubts and yourself melt away.” Ironically enough, the thumb rule prescribed by the Mahatma seems to have been forgotten completely by the political masters and bureaucrats.
Fortune at the bottom of the Pyramid: A case for “Acchey Din” Mr. Prime Minister
Dr Anoop Swarup
Is there fortune at the bottom of the pyramid? Yes indeed, I raise the question notwithstanding the assertion of Raghuram Rajan, the Governor of the Reserve Bank of India, who made a case before the Bankers that there was no fortune at the bottom and therefore not to look for it but only to seek reasonable profits. I would beg to differ and almost certainly go with C K Prahalad and Stuart L Hart who had made a strong case to the contrary in the Journal Strategy+ Business almost a decade ago that there indeed was fortune at the bottom of the pyramid and it is for us to make the best of the opportunity.
Obviously enough in our country the opportunity is there for a hitherto unrecognized and undiscovered world of prosperity in the heartland of rural India that can be unleashed for its unrealized potential. I foresee the wind of change that is now blowing across the rural landscape in our country and the dynamism of our youth and our entrepreneurial men and women that had unfortunately gone untapped over the years. We see that in recent years there has been an unprecedented rise in emerging opportunities and employment generation in rural India. In a recent report submitted to the Prime Minister, the potential to generate employment opportunities have been highlighted as there is a projected annual demand of 100 lakh additional vocational capacity necessary to cope with the rising demand for workers in rural India who have to be trained for country’s future needs. The unemployed as well as the underemployed in our country in terms of policy recommendations and opportunities have to be skilled on an urgent basis so that the demographic dividend is brought in line with the emerging opportunities. No wonder that the rising rural prosperity levels have been estimated to generate at least 100 million additional and self employment opportunities both in formal and non formal sectors in our country. There emphasis has to be on agriculture, animal husbandry, agro-industry, rural services and related vocations.
The Indian economy generates every year about seven million employment opportunities more so in rural settings but there is a lack of accurate information both in terms of numbers and places. With the rise in the productivity of Indian agriculture, crop yields have almost doubled in a decade and improving plant nutrition through micro-nutrient analysis and improving irrigation through deep chiseling of soil has resulted in a tripling of crop yields necessitating a three-fold increase in the requirement of farm technicians and labour force. The rise in rural incomes consequential to the rise in productivity has unleashed a multiplier effect with increase in the demand for farm and non-farm products thus stimulating opportunities for growth of other service sectors.
There is an increasing realization that Indian agriculture is constrained by weak linkages between agriculture training and extension, crop production, farm credit and insurance programmes, creation of linkages between crop insurance, crop loans, and farm school training and improved cultivation practices means an emerging prospect for a new breed of young professionals. This would also entail a requirement for prospective artisans who may range from agriculture graduates, management and marketing graduates, entrepreneurs and change agents. On another important front, rise in rural prosperity, with more and better health care products being introduced, require medical and paramedic staff to man the primary health centres and the various pathology labs in rural areas. Similarly investment both public and private that includes road connectivity through the Pradhan Mantri Gramin Sadak Nirman Yojana and the construction of offices and residential accommodation is the need of the hour in almost all the states. Similarly water, sanitation, hygiene now being resourced through the Swach Bharat Abhiyan that has seen a quantum jump in investments from both the State and the Central Government would require both civil engineering and architectural professionals apart from the ITI and polytechnic trained youth. There is concomitant requirement in both traditional and non-traditional sources such as Solar, Wind, Biogas, Biofuels and Geothermal as also the mining and resource sectors have seen a dramatic rise necessitating huge investments both from private and public resources thus requiring huge demand on both engineering and skilled manpower for construction and manning of the utilities and services. On the Sports, Tourism and Adventure front considering the huge interest in India particularly for offbeat places and the fact that the Ministry of Youth affairs and Sports as also the Ministry of Tourism and Culture have a strategic plan for investments in a big way through its network of Hotels, Archaeological Sites, World Heritage sites and places of historical interest the Ministry of Culture, Ministry of Tourism as also the Sports Authority of India and the Nehru Yuvak Kendras, have projected an increasing demand for sportsmen and women both amateurs and professionals as also hospitality and tourism professionals who will contribute to the massive demand as also participation in national and international events for the country. Let us now examine the literacy and education front where in keeping with our resolve to be a developed nation there is a dire necessity to educate and empower rural masses both on the adult literacy front and the primary school education front thus entailing the requirement for trained teachers in virtually every field ranging from languages, sciences, mathematics and humanities to physical education and vocational education & skilling.
A recent report recommends the establishment of newer agro-processing industries, fisheries and horticulture initiatives, dairy and bee-keeping cooperatives, pomiculture and sericulture products, village-based farm schools to demonstrate the impact of advanced technology, establishment of a network of sophisticated test laboratories, high volume precision analysis of 13 essential plant nutrients, recommendation of individualized packages of cultivation practices for each crop, new agro product, location and soil profile that would necessitate well equipped professionals who will bring about reforms and revolutionize past practices. If anyone has any doubts on the requirement of computer sciences and software professionals in rural India he is in for a shock as a new study reveals that the requirements for these skilled professionals is in for a quantum jump at Block and village level. The establishment of Rural Information Centers to act as a medium for transmission of all information and its uplink to the Districts and the State Capitals in a global age is the need of the hour. Also increasingly concepts such as the ‘Sanchar Haat’ and ‘e Choupal’ where meteorology, weather and soil test data as also recommended practices, access to current input and market prices, and other essential information for upgrading agriculture, agro products, village industries and exports is now a dire necessity.
On the export front, recent policy measures to encourage handicrafts, rural arts and crafts to encourage our traditional knowledge will encourage small and medium enterprises as also help agri-business firms and self-help groups to increase access to advanced technology, quality inputs, bank credit, processing, marketing and insurance.
There will be a need for young professionals to take charge both as self employed entrepreneurs and as skilled professionals who may contribute as partners and employees in the emerging rural prosperity revolution. In keeping with the rise in rural productivity the services sector particularly in banking and finance I foresee a new wave that will be sweeping the rural heartland that is fast emerging as the final frontier to usher in a revolution for better financial and personal services, micro-credit and insurance services. There is a emerging need for professionals in the vast financial services and financial planning sector that is seeing a year on year rise of almost 25 percent and it is for the new government to make the best of it.
On the eve of the New Year 2015, now free from electoral compulsions and political posturing the time is ripe Mr. Prime Minister for a decisive government where good policy and planning backed by real governance has to be the norm as promised. In our debate on ‘India Vs Bharat’ it is high time that the Prime Minister, with the right resolve, focuses on the rural heartland that is the real Bharat to bring in ‘Acchey Din’ (good days). Indeed it is the highly qualified professionals who are ready to work in rural settings who have to be encouraged and inspired to not only ‘make in India’ but more importantly to realize the ‘made in India’ dream come true. This would be a very welcome coming of age of India’s development and thought agenda and in no less a measure an omen for the change that would take the world by storm and the vision of Mahatma Gandhi will not be too distant a dream that ‘the future of India would be in its villages”.