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Friday, January 17, 2014

Aam Admi Party (AAP): An Economic Evaluation



Introduction

   In the election to the Delhi State assembly, AAP emerged as the second largest party and formed the government with the help of the Congress party.  As far as Delhi is considered it should have 4-5 years till the next election to demonstrate its abilities.  However, it has already declared its intention to enter the General elections in a big way.  So the public has the right to use all available information including the utterances of its leaders, their personal actions and its performance so far in Delhi, to make a judgement about its national potential!  Given its outsized ambition one is forced make quick judgements about it from the available information.

Anti-corruption Crusade

   The most positive feature of the AAP is its declared objective of attacking corruption in Public life and the Bureaucracy.  In fact one could call this its USP to the urban voters, particularly the urban middle class, who are fed up of the harassment and corruption. The appeal of this issue encompasses the poor who face the brunt of the corruption of the lower bureaucracy and its overbearing attitude towards the citizens who they are supposed to service.  It also touches the small business man who has to deal with extortion, corruption and inadequate public services on a daily basis. Thus this issue cuts across all classes and unites them. Given the origins of the AAP leadership in the Anna Hazare movement for probity in public life and against corruption, it has a certain amount of credibility in this respect.  However, this goodwill is not likely to last till the general election, unless it is able to demonstrate that it can bring the corrupt (who it had so vociferously attacked when in opposition) to book and make a visible difference in the extent and degree of corruption in Delhi.  It should keep a lazer focus on this issue, introduce the promised Lok Ayukt bill and show how a reduction of corruption can lead to an improvement in the quality and volume of services provided (including for example in the incidence of rape & water-sewage-sanitation).  Given that estimated fraction of corrupt payments on virtually all government expenditures ranges from 30% to 50% this is far from impossible!

Correctable Weakness

Constitutional & Govt. Rules

 Having never run a government before, the public statements and actions of several AAP ministers seem to display a weak understanding of government systems and procedures, though this cannot be said of Mr Kejriwal a former IRS officer. This is however, correctable with a little serious effort to listen and understand Governmental systems and procedures with an open mind (instead of suspecting every interlocutor to be corrupt).  These include the constitutional separation of powers and responsibilities between Center, States and localities (Nagarpalikas and Panchayats), between Government, Judiciary and other institutions and between ministers and their secretaries. Some of AAP’s  leaders also have to understand the complexity of government decisions. Most major decisions  have positive and negative effects on different sub-sets of voters. Any such decision will therefore have to be judged by its net overall effect.  This is an assessment that political leaders have to make.  It cannot be decided by mohalla sabhas, by those who agitate and shout the loudest or through pols & referendum.  Voter interaction is highly recommended for understanding public problems and concerns, but not for making decisions that affect many sub-groups, some positively & others negatively.

Self-Absorption(righteousness?)

         There also seems to be an excessively individualistic approach to corruption, with little thought or understanding of the pervasive and systemic nature of corruption in India today.  The AAP leaders have identified a set of “bad guys” in politics and business and posited themselves as the “good guys”.  It is assumed that once they the “good guys” replace the political “bad guys” and go after the “bad guys” in business most of India’s problems will be easily sorted out. This self-righteous approach, earlier seen in the V P Singh anti-corruption campaign, is extremely naive!  Though trial & punishment of the corrupt has important signalling effects, an anti-corruption campaign is unlikely to be sustained in the medium-long run, unless systemic improvements are made. This includes institutional improvements like the Lok Ayukt bill, police and bureaucratic reform and economic policies such those related to land use, auctioning of government land and public transport & parking, that create incentives for honest behavior.

Negatives

        From the past statements and behavior of the AAP leaders, their academic contacts  and the kind of prominent personalities that these leaders have invited & enticed into the party (as against those who applied and/or requested to join it), one can discern two  potential negatives in this party.

NGO Ethos

       Given the background of the original leaders (as well as of the prominent personalities they are trying to attract into the leadership) in the NGO sector, they share the micro-specialized approach of these NGOs. Most of the activist NGOs operate at the village or mohalla level and have a good idea of the problems faced by the local people. To the extent that problem and solution is purely local they can contribute to the solution, even though the issue of scalability is often ignored -success depends on every locality have the same quality of leaders who are just not available elsewhere. But when any potential solution has repercussions beyond the locality to the district, State or Nation, their approach is often too narrow to offer a viable & sustainable solution. In other words such NGOs usually lack an understanding of broader macro issues and often act betray a self-centered arrogance towards other equally well -meaning experts!  There is thus a serious danger that the AAP will rapidly deteriorate into a Federation of NGOs with narrow interests, thus bringing the worst features of the NAC right into the government, with not even a cabinet system to limit the macro damage to an indulgent list of micro policies.

Leftist Ideology

     Many of the academics, intellectuals and think tankers associated with the AAP leadership appear to be leftist adherents of State Socialism with an ideological distrust of markets.  They seem to have learned little from the 30 years of Nehru-Indira socialism and the LPQ Raj from 1950 to 1979.  They even refuse to believe the fact that the real per capita income (Pc GDP at PPP) in India declined progressively from 29 per cent of World average to about 20 per cent of World average during this period. In other words, the ostensibly pro-poor Socialism reduced the Welfare of the average Indian relative to that of the average World inhabitant by nine per cent points (or 30%).  There is therefore a serious danger that an AAP government would re-introduce failed policies, which put the economy back on a lower growth path with serious adverse consequences for growth of job opportunities and public welfare!

Conclusion

   The Aam Admi Party (AAP) has stirred up the political system by showing that an underdog can come from nowhere to second place finish in India’s capital.  Its anti-corruption plank makes it a good candidate for running urban local governments, where it could demonstrate the positive effect of reducing corruption and thus generating better public services as well as saving money that can be used to transform service delivery.  However, given its NGO origin & character and leftist, State socialist ideological baggage (that it seems to carry), it could be an uncertain proposition at the State level and downright dangerous at the Central government level. 
    This judgment can and will need to be reviewed, If and when AAP is able to establish a track record of good policies and governance.
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Wednesday, January 15, 2014

Per Capita GDP growth and Vote Share



Introduction

    In 2004 the BJP lost the general election, despite their belief that the Indian economy's performance was outstanding and the voters would reward it for this performance.   Many analysts and most opposition parties accepted the contention that the economy was performing very well, but the fruits of this growth had not reached the “Aam Admi / Aurat” who voted against the BJP.  As a contrarian I argued that the economic performance was in fact worse than during the previous regime and the voters had in fact punished the government for poor economic  outcomes (Virmani(2004))[i].
     Last week the Prime Minister gave a press conference to assert that the economic performance of his government had been outstanding and the Congress party was therefore likely to win the election again. Unfortunately he is making a mistake very similar to the one made by the BJP.  The actual performance that matters to the “Aam Admi / Aurat” voter, is much worse than the performance benchmark (as per the model developed by the author). The outcome is therefore likely to be equally disappointing for the Congress party.

The Model

    Under normal circumstances, elections are held every five years. At the end of the five years, the simplest way for the “Aam Admi / Aurat” to judge a Government’s performance is to see how (s)he and his(her) family, friends, neighbors and acquaintances have done during those five years and compare this with what happened during the previous five years (earlier government).  If the performance is better/worse than in the benchmark years there would be an increased/reduced likelihood (probability) of him(her) voting for the party in power.
   Reduced to the barest essentials, there are three economic indicators that in our view matter to the independent/swing/marginal voter.  These are Economic Growth, Public Goods and Services (popularly referred to as “Bijli, Pani, Sadak”) and transfers/subsidies net of taxes (“populist giveaways”).  The growth of per capita income determines not only the change in living standards of the average voter but also the employment opportunities (job or self-employment) created and available to the average person.  Public goods include a range of local & municipal services such as roads, drinking water, sewage, sanitation, drainage, public health and basic education. An improvement (worsening) in the quality and/or volume of such services would tend to have a positive (negative) impact on the voter and thus tend to increase (reduce) the ruling party’s vote share.  A change in net transfers (subsidy - taxes) would be similarly associated with a change in vote shares. It must be kept in mind that it is not the paper laws, verbal announcements or budgetary allocations (expenditures or subsidies) that matter to the Aam Aurat, but the actual delivery of services at the ground levels and the delivery experience. The quality of governance and the degree of corruption & harassment are a very important element of the Aam Aurat’s judgment about improvement or deterioration in delivery . 
   In this note we focus on the growth of per capita GDP as an indicator of the improvement or worsening of economic conditions for the average of marginal voter: Thus, if the rate of growth of per capita income has increased (decreased) the vote share of the ruling party is likely to increase (decline).

Past Elections

       Given this hypothesis, let us look briefly at the past two elections. The NDA government was in power from 1999-2000 to 2004-5 when the general elections were held. During this tenure the Per Capita GDP at factor cost grew at an average of 4.1% per year compared to an average of 4.5% per year in the previous five years. Thus average per capita growth during the NDA government's tenure was 0.4 per cent points per year (9%) lower than during the previous five years making a reduction in BJP-NDAs vote share likely.  It appears that the “India Shinning” campaign may have jarred with the reality as seen by the more aware/better informed urban voters and thus exaggerated the relatively small decline in per capita growth. Another potential factor may have been that new highway programs and Gram Sadak Yojna (very important "public goods") had not yet produced results that the Aam Admi could feel in the small towns and villages of India. The result was a reduction in the BJP’s vote share by 6.7 per cent points from 23.8% to 22.2%
      The Cong party consequently came into power in 2004-5 and ran the Government as part of the UPA till 2008-9.  During this period the growth of per capita GDP accelerated by an incredible 2.7 per cent points (69%) to 6.8 per cent per year.  As predicted by our model this 69% acceleration in the rate of growth of per capita income, resulted in an increase in the vote share of the Congress party, leading to a sweeping victory in the 2009 general election. This growth acceleration had such a large impact on the "Aam Aadmi/ Aurat" that the effect of other infrastructure & social programs was completely overshadowed.  The vote share increased by only 7.9% to 28.6% (from 26.5% in 2004).
       As is apparent from the varying results of different pols, the translation of votes shares into seat shares is a very difficult exercise. It depends on the distribution of victory margins, the number of serious parties (two or more) in the States as well as on alliances.  Consequently in 2009, the increase in the proportion of seats won by the Congress was much higher (49%) than the increase in the vote share..   

2014 General Election

   What does the model say about the forthcoming general election?  During the tenure of the current government (UPA2) from 2009-10 to 2013-14, per capita GDP growth is likely to average about 5.4 per cent per annum.  This is a decline of 1.4 per cent points or 21% relative to the growth rate during the previous five years. Thus (ipso facto) the fall in Cong vote share in the 2014 general election is likely to be greater than that of the BJP in the 2004-5 election but less than the gains of the Cong in the 2004 election. This suggests a decline in vote share between 6.5% and 7.5%.
   Two questions have been raised with respect to this model's predictions for the next election. One is whether the fact that part of the decline in growth is due to global factors matter?  In my view, what matters to the "Aam Admi/Aurat" is what they feel and see on the ground, not the data and analysis that financially sophisticated people spend so much time reading and discussing. The Second question is how important is economic performance during the most recent period, say the last 6 to 18 months, to the voters judgement?  We know that in a sophisticated economy and highly educated polity like the USA, the recent period is overwhelmingly important.  It is therefore likely that economic performance in the last few years (2-3) has a greater weight in the decisions of  highly educated, well informed, urban Indian voter.  However, what happens during the past 4-5 years is still much more relevant to the "Aam Aadmi."

Conclusion

     The slowdown in per capita income growth during 2009-10 to 2013-14, relative to the average per capita growth during 2004-5 to 2008-9, will have a substantial negative effect on the Congress party’s vote share in the general election.  In addition, the issue of Central government corruption and governance will also affect voter behavior as it is directly related to the quality and volume of public goods and services supplied by the government, as well as to the effectiveness & efficiency of welfare transfers.  Both these will have a further adverse effect on Congress party’s vote share, thus offsetting any positive effect of programs like NAREGA.  The "rights laws" and increased petroleum, fertilizer and electricity subsidies will have little or no effect on vote shares in the general election.

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A version of this article appeared on the editorial page of The Indian Express, on January 16, 2014, under the Banner, "The GDP Poll."   https://www.blogger.com/blogger.g?blogID=767588630765354778#editor/target=post;postID=7024682515623021753 


[i] Arvind Virmani, “Economic Growth, Governance And Voting Behaviour: An Application to Indian Elections,” Working Paper No. 138, ICRIER, July 2004. http://www.icrier.org/page.asp?MenuID=24&SubCatId=175&SubSubCatId=233 .

Friday, January 3, 2014

Mal-Nutrition in India




Introduction

Hunger and under-nutrition are the most persistent challenges for policy makers. According to FAO, 18 percent of India’s population was undernourished in 2012. And worst, children are the most visible victims of under-nutrition, which is the underlying cause of diarrhea, malaria, measles, and pneumonia. Under-nutrition accounts for half of the deaths in children below the age of five years. According to UNICEF, India houses one–third of the Stunted/Wasted (termed malnourished) children of the world and 46 percent of the children below the age of three are too small for their age and 47 are under weight. Under-nutrition can result from critical lack of nutrients in an individual’s diet, weakened immune system and inability to absorb nutrients. A weakened immune system can make people susceptible to diseases which in turn can lower appetite and nutrient absorption. The weakening of the absorptive capacity of the stomach due to gastrointestinal diseases and germs can lead to reduced nutrient intake even when sufficient nutrients are available in the diet. Under nutrition increases the risk of chronic diseases and its impact lasts lifelong.
Malnutrition is a complex multidimensional and intergenerational problem and needs a multisectoral as well as direct and specific interventions. In recent times, as these issues have been worrying global policy makers, there are new indices, different from the popular Global Hunger Index released annually since 2006 that are being developed to illustrate the complexity of hunger and malnutrition. At the outset, it must be mentioned that these indices, cannot capture important national, cultural and political dimensions but are merely tools to highlight the problem.

Indices

The Global Hunger Index (GHI) released by the International Food Policy Research Institute (IFPRI) and Welt Hunger Hilfe (WHH) was released recently. The GHI combines three equally weighted indicators into one index - a) under nourishment; b) Child underweight; and c) Child mortality. The multi-dimensional approach to measuring hunger reflects the nutrition’s situation not only of the population as a whole but also of a physiologically vulnerable group, children, who could be sick or stunted because of lack of nutrients. In terms of GHI components, India has the highest prevalence of underweight in children under 5 years;  40.2 percent, only worst country is Timor-Leste at 45.3 percent. The proportion of under nourished in India as a percentage of total population has declined from 21.3 percent in 1999-01 to 17.5 percent in 2010-12. The under 5 mortality rate is the worst in India. It is for the above reasons that the overall GHI for India is very serious and not because of hunger per se.  The other countries which perform worse than India in 2013 on GHI are Burundi, Chad, Comoros, Ethiopia, Haiti, Madagascar, Timor-Leste, Zambia and Yemen. 
Hunger and Nutrition Commitment Index (HANCI), launched in April 2013 for 2012 compares performance of 45 developing countries using 22 indicators of political commitment to reduce hunger and under-nutrition. It looks at government action in terms of policies and programs, legal frameworks and public expenditures. It takes into consideration women’s empowerment, social protection, food and agriculture, and health and nutrition environment. Overall, on HANCI, India is ranked 29th (2 ranks above its per capita GDP rank) while Brazil (4th), China (22nd) and South Africa (23rd). According to HANCI, there is low commitment by the government in India towards addressing the problem of stunting in children below 5 years of age.
A year earlier, Economist Intelligence Unit created the Global Food Security Index (GFSI) in 2012 to deepen the dialogue on food insecurity and measure the associated risks. The 2013 index is comprised of 27 indicators.  In this index, an important contributory factor is quality and safety which takes into account availability of nutrients, micronutrients, vitamin A, iron, protein quality, potable water, and national nutritional strategy. India ranks 70th while Brazil (29), South Africa (39), Russia (40) and China (42) are ahead of us as they are in per capita GDP.

Hunger

The question is are there people hungry and starving in India? Banerjee and Duflo (2011), find that typical poor household could spend up to 30 percent more on food than it actually does and if it completely cut expenditures on alcohol, tobacco and festivals. Further, even the money that people spend on food is not spent to maximize the intake of calories or micro nutrients.  To illustrate, the poorest group in Maharashtra in 1983, would prefer to buy better tasting, more expensive calories rather than millets which provide calories but may not be good in taste. It is widely documented that poor people spend large amounts of money on weddings, dowries and christenings probably in part as a result of the compulsion not to lose face. In Udaipur, illustratively poor spend 14 percent of their budget on festivals.  According to Banerjee and Duflo the poor like subsidized grains but giving them more does not persuade them to eat better especially since the main problem is not calories but nutrients. On nutrition, it needs to be debated whether India distribute vitamin A and iron supplements or adopt bio fortification of crops with essential micronutrients as researched under Harvest Plus initiative? Pritchard, Rammohan, Sekhar, Parasuraman and Choithani in Feeding India (2013) argue that the problem of under-nutrition in India represents the inability of different institutions to deliver resources to individuals to adequately feed themselves.  They also flag another important issue pertaining to gender-based differences in under-nutrition between girls and boys.

Sanitation

     Virmani (2007)[i] showed that much of the inter-state variation in Child malnutrition (more prcecisely wasting and stunting) in India, could be explained by difference in availability of clean water and access to toilets. Other causal factors were related to information, education and nutritional knowledge particularly of mothers. The role of the PDS system was ambiguous (positive/negative but non-significant), suggesting that the availability of cereals was not per se an important causal element in child malnutrition! Virmani (2012)[ii] showed that the same was true of cross-country differences in child malnutrition (stunting & wasting). Thus much of the outlier status in terms of Child malnutrition was attributable to lack of sanitation with lack of clean drinking water and female education playing a supporting role. In both the Inter-State (India) and the cross-country study, poverty rates were not separate determinant of ‘malnutrition’ once these factors were accounted for! 
      Other studies have also shown that hygiene, clean drinking water, level of mother’s education and dietary diversification positively impact balanced nourishment of the child. Angus Deaton (2013, The Great Escape), observes that in countries like India it is malnutrition, lack of clean water and prevalence of poor sanitation that is the main cause of high child mortality. In fact, according to Deaton, net nutrition, more than food, after making allowance for nutrition lost to diseases like diarrhea, fevers and infections is important. The other cause of high mortality is unhygienic disposal of human waste, lack of protein, energy insufficiency, and lack of vital micro nutrients such as iron. There is a need for better pest control in countries like India.

Open Defecation

Dean Spears and Lamba (2013), undertook a study for India and their results suggest both that open defecation is an important threat to the human capital of the Indian labor force, and that a program feasible to low capital governments in developing countries could improve average cognitive skills. One of the largest sources of early disease worldwide is unsafe disposal of human feces. Over 600 million people in India – 53 percent of Indian households- defecate in the open, without using a toilet or latrine (UNICEF and WHO 2012). This open defecation is an important cause of infant and child disease and mortality. Spears (2013) observe that open defecation can statistically account for much of the variation across poor countries in average child height.  The first year of life is a critical period for the effects of health and net nutrition on subsequent development. Children above the age of one year are stronger and able to withstand the exposure to disease. The study finds that there is an effect of exposure to India’s sanitation drive in the first year of life on cognitive skills. Their finding suggests that even a low capacity government can implement a relatively inexpensive program that will cause an important improvement in cognitive skills given the context of widespread open defecation.

Conclusion

    On the basis of expert opinion, India needs a focused public health and nutritional policy with a concerted public campaign that would help in successfully achieving positive nutritional outcomes. The quick-fixes may not be sufficient and the need is providing cleaner water and better sanitation. India can dramatically close the gap in child malnutrition (wasting) if sewage and sanitation is brought on par with other countries, at least those with similar per capita income levels.
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This article is co-authored with Prof. Charan Singh of IIM, Bangalore. A version of this article appeared in the Tribune on January 4, 2014:   http://epaper.tribuneindia.com/c/2163212

[i] Arvind Virmani, “The Sudoku of Growth, Poverty and Malnutrition: Lessons For Lagging States,” Working Paper No. 2/2007-PC, Planning Commission, July  2007.
[ii] Arvind Virmani, "Undernurishment of Children: Causes of Cross-country Variation," Working paper No.WsWp 4/2012, October 2012 . https://sites.google.com/site/drarvindvirmani/working-papers