Retail FDI - a controversy of "illiteralism"?

The fiasco over FDI in multi-brand retail was one of the many faced by the government in the year gone by, but in many ways exemplified the policy paralysis.

Be that as it may, while the government can be legitimately be accused of incompetence, the intellectual opposition to the measure can surely be largely accused of being, simply put, illiteracy. Nothing exemplified this as this op-ed in The Hindu by none other than Prabhat Patnaik. Now, Prabhat Patnaik is not a pamphleteer of the RSS-type, nor indeed one of the Leftist cabal. He is a distinguished professor of JNU, has held important policy positions, and usually argues with his facts and rationale impeccably in place. True even when his prescriptions can be argued as antediluvian.

In this case however, he has "worsted" the worst of the RSS brand of unintellectual pamphleteering. To start with, the very basis, Pareto Optimality.

Vilfredo Pareto, the Italian philosopher-economist, had suggested a criterion for comparing alternative states of society, which has acquired wide currency in economics. According to it, between social states A and B, if there are some persons who are better off, and nobody is worse off, in A compared to B, then A is socially preferable. On the other hand, if some persons are worse off in A compared to B while others are better off then we cannot say that A is to be preferred to B. Taking A to be the social state where MNCs are operating in retail, it clearly follows that we cannot consider their operation to be socially preferable to a state where they are not operating.

If Prof Patnaik take pure Pareto Optimality as a touchstone for every policy action, first up he has been bypassed by the entire body of economics work around Pareto Optimality. Almost nothing in the real world can be Pareto Optimal, given frictional costs of implementation, as well as rent seeking behaviour from all economic agents. Shorn of the jargon, what it means is that in any policy decision taken, there will be winners and there will be losers, the decisions are therefore taken in order to maximise the total benefits accruing to society. In the process, "winners" are incentivised (or taxed) to compensate the "losers".

But I am sure that Prof Patnaik knows more than a thing or two about Kaldor-Hicks Efficiency (among others around Pareto Optimality), but he simply uses amateur sophistry to base his opposition towards a completely indefensible intellectual paradigm. The most eggregious of which is the reference to economic policies of the Raj.

And it is exactly identical to the argument put forward in the colonial context that since imported manufactured goods were of superior quality and benefited the consumers (who would not have bought them otherwise), among whom were numerous peasants, the fact that they destroyed the livelihoods of millions of artisans and weavers, should not be held against the policy that freely allowed such imports. In fact the argument for FDI in retail is a precise recreation of the discourse of colonialism.

The irony cannot be more delicious. The nationalist discourse of the freedom movement bases itself on how India was starved of opportunities to produce domestically the same goods that were incentivised for imports from Great Britain. The greater issue wasnt that of mill-made cloth versus hand-woven, but of the fact that the same was being produced in Britain, and not India. In economic terms, the Pareto frontier was being built through a loss to Indian producers offset by gains to Indian consumers and gains to British manufacturers. The nationalist narrative was largely focused on the last element. Which in itself drive much of the protectionist industrial policies post independence.

With FDI in retail, the propositionists are really saying that efficiency gains from logistics are to be passed on to producers and consumers of India, with the logistics itself being owned "within" India.

Ofcourse, if the touchstone of Pareto optimality, Prof Patnaik style, is taken to its logical end, every single social welfare measure in India will be deemed sub optimal. With coruption eating away much of the outlays and therefore benefits being uncertain while "losers" in terms of higher burden on taxpayers being pretty certainly identified, the equation isnt much different from what he is painting in the op-ed.

Which is really the issue with the opposition to retail FDI, Right or Left (another delicious irony - on most contentious issue, the congruence of views of both makes one wonder) - there is really no intellectual praxis of the opposition, only sophistry to suit a cynical political position.

Left Wing Terror - lessons from Andhra

This headline in the Indian Express today caught my attention. Andhra Pradesh recorded the lowest ever fatalities in recent memory as a result of Maoist violence. Press reports are often half baked, so a its always good to refer back to more rigorous sources. South Asia Terrorism Portal (SATP) is perhaps the best on the matter. Surprisingly, SATP confirms the view - the total number of non-Maoist fatalities in AP in 2011 is 6, and no police/paramil fatalities. For a change, the media is carrying the right facts.

Here is where the praise stops though. The article goes on to ascribe the success of anti-Maoist capmpaign to the Greyhounds, the elite police formation in AP. Unfortunately, this is the party line bought hook, line and sinker by most politicians and policy makers as well - terror threats need to be combated using "special" forces. However, had that been true, Chattisgarh and Jharkhand, with their long experience and experiments with "special" forces like Koya commandos and salwa judum would have had the same success. Or for that matter, West Bengal, whose police forces are "special" only in their sheer inexperience and lack of capacities even by Indian standards, would not have seen such a drastic fall in 2011 from the previous couple of years.

The reasons therefore are more complex than the potency of a special force.

At a combat level, the decisive cutting edge comes from intelligence and basic policing capacities. AP has invested persistently in setting up a first class intelligence network against the Maoists, with the State Intelligence Bureau at the helm of that effort. The potency of this network has enabled it (for now) to mask the inadequacies in capacities endemic to police forces all over the country. Absent this, no number of "specials" can do the job, as the Greyhounds themselves discovered in the Balimella incident, where 33 commandos were killed by the Maoists.

At a different, and more strategic level, tackling Maoism (or any insurgency) is a political challenge. Combat forces can soften up the underground and remove the more virulent personalities from the equation, the final solution has to be always political. The exaggerated operations of the Maoists in West Bengal in the last few years had a lot to do with the large scale rural disaffectation with the ruling CPIM cadres. Incidents like Nandigram provided fertile ground for the Maoists to breed violent actions against state (and quasi state CPIM) elements. The transfer of power post elections to Mamta Bannerjee has given an immediate outlet to people's grievances, and the results are therefore visible in the numbers. Maoism is still alive in WB, but has a much harder job at hand. It is upto the state government to not let the situation drift.

The lessons for states like Jharkhand and C'garh are clear. There are no short cuts possible, disastrous attempts like Salwa Judum worsen the issue. Political action and policing capacities need to be built up in order to defang the Maoist threat.

Monetarists view - good viewpoint!

http://business-standard.com/india/news/mihir-s-sharma-out-of-textbook-thinking/459403/
Good one from Mihir Sharma on RBI's monetary policy stance...

Food Security Act - an idea whose time is long overdue?

The cabinet has reportedly cleared the Food Security Bill for introduction in the winter session of Parliament. With this, another round of spirited, but often vitupirative debates has started. For a country that has the largest proportion of malnourished children, the tenor of the opposition is startling, and in case sympotomatic, a scary reflection of middle class sensitivities of the day.

Let us look at some of the objections to the Act.

1. It is too expensive, and we cant afford it.
This is the oft-repeated argument, that the Bill is fiscally ruinous and there is no way it can be afforded. And what is the estimated cost to the fisc? Well, depending on who is doing the maths, it ranges from 30,000 crores to 1 lac crores. Lets take the upper boundary. And as a perspective, compare this against the subsidy on oil (estimated to be touching 60000 crores this year), or indeed, taxes foregone on account of exemptions (mind you, distortionary exemptions, not tax rate rationalisaitons) add up to 6-7 times that number.

Are sops to the middle class of India and vested corporate interests (which is what most exemptions are for) more critical than ensuring a healthier new generation?

2. PDS is too inefficient, and cant be trusted to deliver
An old chestnut, but continuing as a red herring! PDS has been historically inefficient, but has made rapid progress in recent years. Driven by states like Tamil Nadu and Chattisgarh, and bolstered by measures like RTI and innovations in technology, PDS wastages have been reduced drastically. Not just in the exemplar states mentioned above, but almost across the board. The Centre's showpiece UID project is a prime variable to be used to increasae efficiencies even further! The Food Security Bill should be used as an opportunity to carry out more innovations in delivery, not throw up hands in depair!

3. Cash transfers and food stamps are more "efficient" options
Somewhat similar to arguments made in support of "fortified biscuits" in lieu of hot meals in the mid day meal programme for school kids. Cash transfers are a great idea, but not for solving the issue of access. Food security addresses issues of both affordibility AND access.

4. It will be beyond India's means in terms of availability terms
The biggest non sequitor that is peddled about. The total requirement, and in these programmes (just as in NREGA), actuals always come out lower than estimates as larger sections of the populace migrate to superior foods (and superior jobs). The estimated foodgrain procurement for the Food Security bill is 60 million tons, that is exactly the ballpark number being procured today. Without even accouting for a natural growth in procurements that has been over the trend growth in agriculture itself.

At a basic level, it is fundamentally about what sort of country do we want to build. Will we as a society agree to a stunted growth of our new generation? Or will we do all that we can (and some more, if required) to reverse that trend. At the cost, if necessary, of a few less exemptions on real estate projects masquerading as SEZs.