Saturday, June 15, 2013

Delhi University and the Crisis in India’s Higher Education

Delhi University and the Crisis in India’s Higher Education
Arun Kumar
Sukhamoy Chakravarty Chair Professor, CESP, SSS, JNU.
EPW Web edition Vol - XLVIII No. 24, June 15, 2013

I.          Introduction
Delhi University has been in the news for introducing the proposed Four Year Undergraduate Programme (FYUP). Many have accused the administration of being autocratic and rushing through with a scheme that is potentially disastrous. The administration claims to have followed procedures - having discussions with the stake holders and getting approval of the University’s Academic bodies. They suggest that the new scheme will change the way undergraduate teaching/learning occurs by providing greater flexibility to the students. The administration brands the opponents as status quoists and shirkers who are afraid of change.
A section of the MPs petitioned the PM and met him. The HRD Minister and his MOS have argued that politicians should not intervene in what is essentially an academic matter. This is a signal to the University administration to go ahead. Five top intellectuals appealed for intervention by the higher authorities to prevent the University administration from pushing its agenda. They characterize non-intervention as abdication of responsibility. Could they not have appealed to the academic body to rise to the occasion?
It is a cause for concern that academic matters rather than being resolved within the University are sought to be settled by calling for outside intervention. The crisis is that those outside who intervene all the time are calling for non-intervention and those who should be demanding autonomy want intervention.

II.        Concerns regarding the proposed FYUP
In principle, a four year (instead of three year) undergraduate programme poses little problem. It is being justified in terms of improved teaching-learning. In the first two years of programme the students are to get a wide background before specializing in the next two years. Nothing wrong if the students get more time to discover their interest. Inter-disciplinarily is to be introduced through allied subjects and `foundation courses’ and this sounds good. However, the problems are with the nature of the proposed courses, operational aspects and the manner of introduction of the programme.
Students joining the programme have already specialized in school and chosen their narrow field - social sciences or sciences and so on - and studied courses only in that area. So, in the FYUP, they will study subjects that they have not had at the secondary level and, therefore, the basic courses for all would have to be pitched at the level of the 9th class. So, the problem of specialization is linked to our secondary education but it is sought to be resolved at the College level.
The deeper problem is how to make courses interesting? Innovative syllabi and teaching would be required. JNU was supposed to be inter-disciplinary. For instance, instead of having geography, there is the Centre for Study of Regional Development. But, after more than 40 years of existence and many attempts to be true to the original mandate, inter-disciplinarily remains a distant goal in JNU. Inter-disciplinarity does not mean combining modules from different subjects or doing a cut and paste job from existing courses. It implies making an interconnected whole.
The manner in which FYUP has been pushed through has antagonized many academics and getting their commitment will be hard. Those who are concerned are protesting and those who are quiet are perhaps indifferent. The supporters of FYUP have drafted the new courses in a matter of months and even days. At JNU to revamp an entire MA course has at times taken ten years (not that it should). When the challenge is inter-disciplinarily and innovativeness, rounds of discussions would be required but some departments have stated that they have been bypassed.
Operational problems with the FYUP will be serious since more teachers and infrastructure would be required. There will be a mismatch between the Delhi University and other institutions of higher education. Since in India credits are not transferable across different institutions, Delhi University students will face problems.
Students who leave after two years would get a diploma which would be little better than a school degree given the nature of the courses taught. If students leave after the third year they would have done very few courses in the subject of their specialization so they would not be equivalent to students of other institutions and they would not be acceptable in the Masters programme of other institutions. If they complete the 4 year programme and decide to go for the Masters programme they would still have to do two years since there is no possibility of transferring credits and they would have just about completed what an undergraduate student from another institution would have done.
Is Delhi University copying the system in the USA? Some argue that Indian students going to study in the USA face difficulties because our system is different. But Indian students have been studying in the US for a long time and have had little problem. The real problem is not a three year undergraduate programme but rote learning and lack of questioning (Richard, 2013).
India as a poor country has to worry about access and equity – more than in the rich nations. Education is crucial for upward mobility for the marginalized sections. Adding one more year of studies to get to a better job will be a disincentive for the deprived. In India there is a huge reserve army of labour so that even for a job of a peon where the minimum requirement is a high school degree invariably undergraduates also apply. The increase in the costs of education due to an extra year will further undermine democratization in higher education which is under attack due to privatization (Chattopadhyay, 2012).
Finally, the real problem in India is with what in the US is called Graduate study. In India, this consists of 2 years of Masters followed by 2 years of M.Phil. and a minimum of 4 years of Ph.D. – in all at least 8 years. In the US the graduate programme is of 4 years after the undergraduate degree. Thus, in the US compared to India, students spend one year more in the undergraduate programme but save 4 years at the graduate level. In India, the M.Phil and Ph.D. are often a parking place for students who are waiting for some other job. It is this that needs urgent reform.
In brief, the wider ramifications of the introduction of the FYUP need analysis. If at all it is to required it should be implemented all over the country. Further, it is desirable that students specialize later rather than earlier but this change needs to start from the schools. We need to decide as a nation when and how to introduce specialization? Finally, reform of graduate studies and manner of learning are more urgent than FYUP. The moot question is how is the Delhi University administration able to push through FYUP in spite of the substantial opposition?

III. Weaknesses of Indian Academia: Eroding of Autonomy
The answer to this question lies in the change in the character of the academic body of Delhi University due to the increasing bureaucratization of the institution. This is a problem common to most institutions of higher education in India.
FYUP has gone through the formal process of approval by the Academic Council (AC), the highest academic body of the University and the Executive Council (EC), the highest decision making body of the University. The question is why did these bodies discount the arguments presented by the opponents of FYUP? The answer lies in the character of the AC and EC in Indian universities.
The AC and the EC consist of the top most academics of the University - the Deans, the department heads, senior professors, outside experts and so on. The senior academics of the university are dependent on the University administration for many things and, therefore, prefer to hold their counsel and mostly take a cue from the VC. Those academics who dare to challenge the VC are branded as trouble maker. Often they face systematic harassment like, delays in project funding or sanction of leave and so on. An example is set to dissuade others from following these independent academics.
The result is the silence of most academics and the dominance of the administration. VCs resist decentralization of power so that they can have a hold on academics. This furthers bureaucratization since no VC can go through all the papers that come to them and, therefore, become dependent on the bureaucrats around them and largely mechanically sign on the note put up by the bureaucrats. No wonder, in academia, often decisions are taken for administrative convenience and not to serve an academic purpose. This is the bureaucratization of academia.
The erosion of autonomy (Kumar, 1987), growing bureaucratization and growing outside interference in the universities in India have gone together. This is at the root of the present crisis in Delhi University. This process has been accelerated by lack of dynamism in academia and the vacation of space for non-academics to intervene. So, currently, politicians, bureaucrats, etc., influence/ determine what happens in the field of education.
In India, politicians like to control institutions and ambitious academics collaborate in this to quickly move up the ladder to gain power. The search committees set up to form the panel for the post of VC largely consist of pliant members who look to the political masters for signals. The letters exchanged between Hill and Bhatnagar in 1952 show (Kumar, 2006) that in independent India VCs have been political appointees.
Such people at the helm who are usually academically weak often depend on bureaucratic structures to force academics to fall in line. Their mind set is such that they would not even consider opposing the impositions of the UGC and the Ministry. For instance, courses and syllabi have been proposed by the UGC and the Universities have meekly accepted them. Centres have been set up for the study of North East, Informal economy and so on. That this duplicates departments of regional studies or economics is immaterial. Soon political correctness would require opening Centres for the study of each of the Indian states.
Schemes have been introduced for improving the admittedly poor standards in most institutions of higher education. In the 1980s, the Academic Staff Colleges were started. Now an index of performance (API) has been initiated to quantitatively measure the performance of academics. It has set into motion a process of weeding out the committed academics in favour of mediocrity and paper chase. Hundreds of journals have sprouted to enable academics to earn points – quality be damned?  The philosophy underlying these changes is that standards can be achieved through standardization (Kumar, 2013).
Is the charge of bureaucratization in academia vacuous? It is argued that most committees suggesting the changes have consisted of academics. But, they are the `favourites’ who are willing to comply with the administration’s wishes. Thus, the Pay Commissions which have suggested many of the steps to improve quality have followed the wishes of the political and administrative masters rather than take an independent line.
Higher education has long term implications. It is crucially about knowledge generation which at the best of times is difficult since it requires questioning and dissent. Academic decisions typically have long term implications but the world is uncertain, so, the likely outcomes of any decision need careful consideration. In the case of FYUP, none of this is being considered. The impression is that the proposed changes are linked to some agenda of the administration and not based on the interest of the institution.
The new programme is not going to be co-terminus with the present administration. It is the faculty that will have to carry it forward but it is being marginalized. What if another administration is convinced that the proposed programme is not good for Delhi University, will the whole process be reversed and at what cost to the students?
Universities cannot function like a bureaucracy or the police where orders are implemented without questioning; compliance is expected and dissent is a malaise – the anti-thesis of what academia needs. In the universities, faculty make their own courses and syllabi. Given the unique thinking of an academic, what she/he wishes to teach tends to be unique. That is why autonomy of the institutions and of the academics is so crucial for advancing knowledge generation. In Delhi University with many colleges all the teachers are involved in syllabus making and that is the way it should be.
Often, indiscipline in institutions of higher learning has been given as an excuse to impose non-academics as their heads and justify intervention. Undoubtedly, indiscipline leads to a deterioration in the quality of education. But, the cause of the indiscipline is often the political interference. Politicians try to control the teachers and the student bodies since they need them for their elections and general support. Political patronage is given to the favourites and appointments manipulated top down. Thus, rather than merit often it is the connections that matter. This emboldens students and teachers who indulge in non-academic pursuits and makes them academically non-accountable. The problem due to outside interference in academia is mistakenly stated to be a problem of indiscipline. So, when a favourite army officer is placed at the helm of an institution, that is hardly the solution since that leads to further erosion of autonomy of academia with consequent problems.

IV.       Conclusion
Delhi University today presents in a distilled form the crisis in higher education in India. All that has been going wrong in academia has come to a head. FYUP will aggravate the problems it is supposed to solve. Delaying specialization till the students have found their interest is good but it has to start in the schools. Today the problem is more with the graduate degrees than with the undergraduate degree and reform is needed to promote questioning.
The events in Delhi University, suggest that the basic weakness of institutions of higher learning is outside interference enabled by weak and pliable academics at the helm who promote bureaucratization and erosion of autonomy in their institutions.
Delhi University teachers are seen as the stumbling block to change for the better and they are being marginalized. Can a perfectly designed FYUP succeed, if a large number of faculty members are demoralized by the autocratic behaviour at the top? Or, is FYUP to be taught mechanically? But then why introduce it at all?

References:
Chattopadhyay, S. 2012. Education and Economics: Disciplinary Evolution and Policy Discourse. N. Delhi: OUP
Kumar, A. 1987. Accountability and Autonomy in Higher Education. Economic & Political Weekly. October 31.
------------. 2013. Indian Economy since Independence: Persisting Colonial Disruption. N Delhi: Vision Books.
Kumar, D. 2006. Science and the Raj: A Study of British India. 2nd Edition. N Delhi: OUP.
Richard, T. 2013. Academic Excellence and St. Stephen’s College: A response. Guest Post in Kafila. April 30.

Friday, May 24, 2013

From Bofors to 2G, the same fate

From Bofors to 2G, the same fate
Arun Kumar
CESP, SSS, JNU.
The Hindu May 24, 2013

The parliamentary committees on the howitzer scam and the stock market scandal protected the powerful and failed to fix accountability. The same is true in the spectrum case


The current political situation brings back memories of 1989. The Prime Minister then was under a cloud in the Bofors scam. Many of his close associates like Lalit Suri and Ajitabh Bachchan were accused of wrong-doing. Today, Prime Minister Manmohan Singh and many around him are under a cloud. The Congress president has been weakened by allegations against her son-in-law. The Joint Parliamentary Committee report on Bofors was rejected by the Opposition. It resigned en masse from Parliament forcing national elections. Presently, the JPC draft report on 2G has been rejected by the entire Opposition.
In 1989, Rajiv Gandhi was protected by the ruling party members in the JPC. The Opposition felt that some key people associated with the Bofors deal were not called to depose or had not been adequately questioned. Now too, A. Raja has not been called to depose, even though he is the key accused in the 2G scam, lest he should implicate the Prime Minister and the Finance Minister.


COALGATE

As in 1989, governance has taken a beating today with the government getting caught in one scam after another. In an attempt to brazen them out, the government is committing mistakes and compounding its problems. The mess created by the former Law Minister vis-à-vis the Central Bureau of Investigation and the Supreme Court, in an attempt to save Dr. Singh (who was also the Coal Minister when the scam took place), has embarrassed the government.
As the Bofors scam unravelled in 1987-88, India’s international standing plummeted. The GATT Uruguay round of negotiations was at a crucial stage with India acting as the leader of developing countries in negotiating with the advanced countries. India’s stand softened perceptibly at that time. Consequently, in 1999, in Seattle, India was not trusted by other developing countries. Today also, India’s stock has declined and its neighbours are taking advantage of the situation.
In 1987, it was the Swedish radio that brought to light the payoffs in the Bofors deal. In Parliament, Rajiv Gandhi denied any wrong-doing. His government argued that Bofors was a good gun but investigators in Sweden revealed that payoffs had been made. The UPA government, too, has denied wrongdoing in the various scams that have come to light and argued that its actions have furthered policy and helped keep prices down. It is the intervention by courts that has led to progress in investigations into scams like the CWG, Hasan Ali case, Liechtenstein disc, 2G and Coalgate.
In the Bofors case, the true beneficiaries could not be identified because of manipulation at the highest levels. This became clear soon enough but the matter was nailed when Madhav Singh Solanki passed on a note to the Swiss Minister — to slow down the case. This led to a furore in Parliament but rather than reveal the content of his note, he preferred to resign. Who sacrifices one’s career unless the stakes are very high? Ottavio Quattrocchi escaped from India and has been repeatedly helped by our agencies (which weakened the case) so that he does not return to India to face trial and questioning.
The Congress has accused the Opposition of playing politics with the Bofors scam saying even when the Opposition was in power, it was not able to unravel the case and find the ultimate recipient of the Bofors money. This is a pointer to how important cases are spoilt so that it becomes difficult even for an Opposition party to solve it when it comes to power. The system works like a mafia — in secrecy and silence. The institutions that should help expose scams are unable to do so because of the silence of those who know. The selection of people for key posts is often based on their pliability. IAS officers like Arun Bhatia or Khemka are marginalised. Some honest individuals who do get to the top typically keep their counsel and avoid ruffling the system much. They become the fig leaf behind which the system can hide its true nature.
In the Coalgate scam, it has emerged that the CBI is not independent of the political authority which it is supposed to investigate. It has now been confirmed that cases against politicians are activated or put on the back burner depending on the needs of the ruling dispensation. It is the Supreme Court that placed the CBI under the Central Vigilance Commission to introduce a degree of autonomy in its functioning. But it has now been proved beyond doubt that the administrative machinery under which the CBI personnel function can twist its arms, undermining its autonomy.
In India, Parliament is the ultimate watchdog to check wrong-doing by the authorities. The increasing number of scams is a testimony to its failure. JPCs are an instrumentality of Parliament and an analysis of their inability to make a dent is a pointer to what is wrong in the system. Their lack of success is due to their inability to pinpoint responsibility in the issues they have investigated, and this is largely due to the partisan attitude of the members of the JPCs. They have acted to protect the powerful. The JPC of 1992 on the stock market scam in which Harshad Mehta was the key player is a case in point.
Mehta played havoc with the financial system, including the RBI. He was the blue-eyed boy of the Finance Ministry at that time. In October 1991, when in spite of the crisis confronting the economy — high inflation, declining growth rate, and the BoP crisis — the stock market kept rising, concerns were raised in Parliament. The then Finance Minister replied that “he would not lose sleep” over the matter. A clear signal to people like Mehta that the government would not check their speculation in the stock market. However, when members of the JPC wanted this to be recorded in the report, the Congress members resisted and the report did not incorporate it. Clearly, accountability could not be established.
The Finance Minister met Mehta a few days before the budget in 1992 and accepted his demand that shares should be exempted from wealth tax. The markets rose sharply on the day of the budget and Mehta made a killing because he had advance information. Mehta was raided by the Income Tax department that day because of the huge amount of funds he had been moving around for some months but the Minister stopped the raid a few hours after it started. So the source of funds could not be traced and the scam could not be prevented. It was never revealed in the JPC who stopped the raid and why, because the officer concerned did not appear before the JPC. Again accountability could not be established.
The Janakiraman Committee report on the scam estimated a loss of Rs.3,128 crore to the public — huge compared to the Bofors scam of Rs. 64 crore. Today, the Coalgate and the 2G scams dwarf all other scams. It is clear that stock market scams have continued because accountability was not fixed in 1993. A large number of people lost their lifetime savings (as in the Saradha chit fund scam). Now again, accountability is not being established in the 2G scam.


ROT RUNS DEEP

Waves of scams have occurred in the stock market. Timber companies, granite companies and dotcom companies were floated only to disappear with the public money. It was estimated that 2,500 companies disappeared in the 1990s, leading to huge losses to the public. No one was prosecuted and that emboldened the scamsters. The collapse of the UTI had much to do with the manipulations in the stock market and the pressures from the Ministry of Finance but no responsibility was fixed. The problem is not peculiar to the Congress. Since 1989, almost all parties have been in power but the system has hardly changed. The rot of unaccountability runs deep and is visible in all institutions, including hospitals and universities where the most literate and conscious population of the country works.
Herein lies the lesson for the nation facing an increasing number of scams and breakdown of systems. Those in power are unaccountable since they operate in a system of silence and surround themselves with sycophants. Since little has been learnt on this score since 1989, the scale of disruption has grown manifold. When will we learn to fix responsibility?

Monday, March 4, 2013

Union Budget 2013-14: Caught Between Various Contradictions

Union Budget 2013-14: Caught Between Various Contradictions
Arun Kumar.
Sukhamoy Chakravarty Chair Professor, CESP, SSS, JNU
Mainstream. March 2, 2013. Vol LI No 11.

The Union Budget is the largest single economic event of the year for the nation. It sets the direction for the economy for the coming year. Hence it is keenly watched by the public. The Union Budget for 2013-14 projects an expenditure of 14.6% of the GDP for that year, i.e., Rs.16,65,297 crore. This is a huge sum of money and as usual the FM doles it out in dribs and drabs to every politically important section of the nation. In the part A of his speech which presents the government’s intentions, he mentions almost all these sections – SC, ST, minorities, women, youth and so on. The impression created is that it takes care of everyone. But the real question is, what does it do for the economy as a whole and whether it tackles the major problems that the economy currently faces?
The Finance Minister at the outset identifies the problem facing the economy – the difficult macroeconomic situation. Three aspects are mentioned. First, the economy is rapidly slowing down with the rate of growth falling quarter by quarter in the last more than a year. Secondly, the rate of inflation remains at a high level in spite of all the attempts by the government and the Reserve Bank. This high rate is persisting over the last three years, especially in food items, in spite of the high foodgrain reserves. Finally, the Current Account Deficit in the external account of the nation is dangerously high.
In addition to this, there were two mutually contradictory constraints on the budget. First, this is possibly the last budget before the next general elections and the party expected it to have a strongly pro-poor image to garner votes in a very bleak political scenario given its severely tarnished image due to scams and mismanagement of the economy. Secondly, the international agencies are watching hawk like the performance of the Indian economy from the point of view of the business climate and especially for international finance capital. They want the government to adopt a conservative political stance. The international credit rating agencies have been threatening to lower the rating of the economy because India’s foreign debt ($ 365 billion in September 2012) has been mounting rapidly given the current account deficit. If that were to happen, then in spite of the current high foreign exchange reserves ($295 billion in January 2013) of the country, capital may begin to flow out and lead to a sharp devaluation of the currency with consequent problems. There has been a rapid slow down in flow of FII and FDI into India.
Thus, the room for maneuver for the Finance Minister to give big ticket concessions to a lot of people (as in the 2008 budget) was limited. Yet, it can be termed as an election year budget given that it has not taken the tough steps required to put the economy back on the rails so that it could grow faster. For India a 5% rate of growth is inadequate in the present development scenario since that results in rising unemployment – a consequence of a high capital intensive development. The concession to elections is that the budget projects many small give aways to many sections of the population without giving away any major amounts to any one which would have dented the macro economic scenario and produced a reaction from the international institution.
Another concession to the international institutions is that the expansionary policies needed to step up growth have been held in abeyance and instead supply side response is sought to be generated via concessions to the corporates and the stock markets. That is why expenditures were severely curtailed in the present year (2012-13) and are sought to be kept in check in the year 2013-14. The attempt is to not increase direct tax collections rapidly and curtail the fiscal deficit but to cut back on expenditures given that the revenues have fallen short with a slowing economy.
In 2012-13, an optimistic nominal rate of growth of the economy (14%) was projected. At that time also the experts had pointed out that a 7.5% rate of real growth was unrealistic but the government was adamant that this rate of growth would be achieved. Now it is clear that the year is ending with a less than 5% rate of growth. What is also clear is that all the agencies predicting the economy’s rate of growth – IMF, RBI, ADB, World Bank, private agencies, etc. - have proved to be wrong. The consequence of this incorrect assumption is clear. Revenues have been less than projected by 7.3%. The government is again doing the same by projecting a rate of growth of 13.4% while this is nowhere in sight unless the rate of inflation rises sharply but that will have other adverse consequences and targets will not be met.
Again due to wrong assumptions, the expenditures in 2012-13 have turned out to be more than projected. The government is forced to show higher expenditures to dress up its image. For instance, 2012-13 is the first year of the 12th Plan and the government wanted to show that it is serious so it projected an increase of 16.8% in the Central Plan outlay over the revised estimates of the previous year.  But from the figures now available it is clear that in 2011-12 it ended up spending (Rs.5,08,596 crore), much less than the revised estimates of that year (Rs.5,58,172 crore). Further the revised estimates of 2012-13 are Rs.5,56,176 crore which is less than the revised estimate of the preceding year. Thus, comparison of revised estimates shows that in 2012-13, there is a decline rather than an increase in plan spending. The actual figure is likely to be even less given the previous year’s experience. Such jugglery with figures seems to be the hallmark of successful Finance Ministers.
A consequence of this kind of creative playing with figures is that the government projects a higher allocation in the Plan for the important ministries like, Agriculture, Rural development, Irrigation and flood control and Tribal Affairs but ends up spending much less. In each of these cases, the revised estimates of expenditures (in 2012-13) are less than the actual spent in 2011-12. There is an absolute decline and not an increase. For other important ministries like, Ministry of Human Resource Development, Ministry of Housing and Urban Poverty Alleviation, Ministry of Women and Child Development and Ministry of Health and Family Welfare the increase in Revised estimates for 2012-13 over the actual of the 2011-12 is hardly enough to compensate for inflation and as such there is little increase in expenditures for these necessities of the common man in real terms.
In his budget speech the Finance Minister now claims that he is increasing allocation to each of these Ministries by substantial amounts (to garner brownie points from the public for the coming elections). What he is showing is that over the much lower revised figures of expenditures in 2012-13 he will increase the allocations substantially in the coming year 2013-14. This is the usual jugglery adopted in the recent past and that is why the budgetary arithmetic turns out to be incorrect.
One of the unintended consequences of all this is that when the revenues of the Centre fall short then the transfers to the states also becomes less since they get 32% of the Central tax collections. The reduction in 2012-13 is Rs.32,000 crore. This makes the position of the states difficult and they also cut back from key social sector expenditures. Since they are the major spenders on the social sectors this worsens the position of the marginalized sections who depend more on the state expenditures. No wonder, we are unable to achieve the target of 6% of expenditures on education and so on. The Financé Minister has also promised to revamp the transfers to the states by changing the criterion and some backward states CMs seem to be happy with this. But unless the pie increases there may be only internal redistribution with some states losing out to others.
The Finance Minister has increased the tax on those earning more than Rs.1 crore per annum (42,800 in number) by 3% by imposing a surcharge of 10% on the tax they pay. This would garner along with other items of increased tax on luxuries about Rs.14,000 crore. But, this section benefits the most from the budget since the tax expenditures (taxes that should have been collected but are not, due to concessions) will rise by Rs.40,000 crore. Thus, the earlier statement by the Finance Minister that the super rich should pay more taxes comes to naught. There is also no increase in either the wealth tax or the estate duty.
To increase the revenue it was important to tackle the black economy and get additional resources but the Finance Minister has done little on this in spite of having received the reports from the three institutes that were charged with the task of analyzing the black economy. The postponement of implementation of GAAR to 2016 is a sop to the corporates and foreign entities. The changes in the secrecy provisions of funds routed through Mauritius and other tax havens were diluted immediately after announcement in the budget because of the reaction in the stock market. All this makes clear that the government is not serious about tackling the black economy. But this one step is the key to tackling inflation, improving governance, increasing the growth rate of the economy and checking the outflow of funds causing the BOP crisis at present.
In brief, the Finance Minister has missed the chance to correct the macro economic imbalance that afflicts the economy according to his own analysis. It is clear that there is much confusion in the Union Budget 2013-14 which has fallen between several stools and will not be able to give a clear direction to the economy apart from not disturbing the corporates and the foreign investors. The Aam Admi, in whose name the Congress (I) asked for vote, is once again marginalized.

      arunkumar1000@hotmail.com

Friday, November 23, 2012

Black Economy in India and Transnational Organized Crime: Undermining Democracy*

Black Economy in India and Transnational Organized Crime: Undermining Democracy*
Arun Kumar
CESP, SSS, JNU[1]. India

1.         Definitions     
Illegality typically leads to the generation of black market profits. The activities associated with it and the profits generated from it constitute the black economy. Hence, the size of a black economy represents the prevalence of illegality in a country. Illegality can be committed either through legal activities or illegal activities. Legal activities are those that are allowed by law (e.g., agriculture, finance, construction) and produce social “goods.” Revenues from these activities are counted as part of the national revenues. The implication is that they improve the welfare of the citizens and make society better.
Illegal activities are not permitted by law (e.g., smuggling, peddling of narcotic drugs, theft) and are said to produce social “bads,” since they degrade the welfare of society, if not also the individuals indulging in these activities. Profits from these activities are not counted in national revenue totals. Such activities are linked to criminal activities of various kinds (see Government of India 2011 for data on crime in India). However, not all crime is linked to generation of profits, for example murder or gender violence. Hence, the black economy will not capture such crimes. Furthermore, crime linked to economic activities that generate profits is often connected with organized crime, whether within countries or across borders – the latter is referred to as transnational organized crime.
The black economy can be understood as broadly reflecting illegality in an economy, even if it does not capture all criminal activities within a society (Kumar 1999). In India, the black economy pervades all sectors of the economy. Elite professions have also been found to be involved, for example businessmen, politicians, bureaucrats, police, legal representatives, medical personnel, chartered accountants, and education professionals, among others.
The size of the black economy has been rising since India’s independence in 1947. It has been estimated to have consecutively increased over the years: it was 4 to 5 percent of GDP in 1955/1956 (Government of India 1956); 7 percent in 1970 (Government of India 1971); 21 percent in 1980/1981 (NIPFP 1985); 40 percent in 1995/1996 (Kumar 1999); per projections by this author, it was 50 percent in 2005/2006. Thus, illegality and crime are constantly on the rise in the country, not only in absolute terms but in relative terms. It has grown from being petty and sporadic to becoming more organized (national and transnational).
Organized crime in India operates within a multitude of areas: illegal forestry and mining; narcotic drugs trafficking; gun-running; human trafficking; sex trade; illicit liquor making and distribution; encroachment of public land; production of spurious medicines and fake goods; adulteration of food items; malpractices in medical profession, including the sale of blood and organs and other malpractices, such as recycling of hospital waste; entertainment and film industry; hawala (an alternative remittance system that operates outside of traditional financing structures); flight of capital; illegal financing of trade; smuggling of goods, including gold and electronic items; and so on. Underlying these illegalities is the “Triad” of the corrupt businessmen, politicians, and the executive, which is made up of the bureaucracy, the police, and the judiciary.
2. Causes, history, and analysis
The black economy and illegality have existed in all societies at some point. In India, it became systematic during World War II, when shortages of essential items became critical. Rationing of food was introduced but there were black market activities to compensate. To escape detection, perpetrators bribed the bureaucracy and the police. Inflation led to increases in the prices of property, meaning that those without property found it difficult to get housing. The government introduced rent control laws, which became a source of corruption in the courts.
The British set up a civil service to administer (keep control of) India. The public servant became the public master with enormous power over the public, and this was used to extract bribes. However, the bulk of the population was poor, self-employed, and worked in agriculture. They had few public dealings, meaning that the level of corruption and the black economy was negligible. The civil service was accountable to the colonial masters. Because they were interested in efficient control of the country, they did not allow corruption to grow. They also paid the civil servants high salaries, as compared to the per capita incomes of locals, and gave them many privileges to lessen the temptation for corruption.
There was a landlord class ruling over the peasantry that extracted rent from the farmers on behalf of the colonial masters. They were a part of the tiny colonial ruling elite and had substantial powers, which were misused to extract money from the people they ruled. They were a law unto themselves and could extract money from the peasantry.
After independence, a political class came to power and replaced the colonial ruling elite. They started the task of development in a very poor country. They depended on the civil service for governing the country and did not transform it into a public service that was accountable to the people. The political class that emerged from the national freedom movement was democratic in its aspirations, but its members came from the country’s elite class and had feudal intentions. They thought of themselves as rulers and not as representatives of the people.
Consequently, independent India started with high aspirations but a weak democracy because the power was transferred from the colonial masters to a relatively unaccountable political class and a civil service that was accountable mostly to itself. As the democratic aspirations of the national movement weakened, the political class became more corrupt. The government of India (1956) talked about the need to keep the black economy in check so that more resources could be raised for development. It found businesses generating profits from black market activities in all sectors of the economy.
The Indian national movement understood that colonial rule was the source both of the poverty and the helplessness of the common man in dealing with their problems of unemployment, illiteracy, and so on. Therefore, it was decided that society as a whole had to overcome these basic problems of the people and the state was given a large role in economic matters. Furthermore, optimal utilization of resources required central planning, which required licensing of capacity in industries. This reinforced the role of the state in the economy.
Due to de-industrialization in India during colonial rule, Indian capitalists were too small to provide capital for the creation of the necessary infrastructure for transportation and power, for example. They lacked the technology and capital to invest in basic goods like metals and petroleum, or in capital goods manufacturing. The corollary was that a large public sector was needed to support both the growth of the private sector and the planning process. This required the mobilization of savings in a country that was poor. Consequently, consumption had to be restrained through taxation and limiting the production and importing of luxury goods. Imports were limited so as to conserve the foreign exchange required to import capital goods for development. A strategy of import substitution was adopted to boost industry and high customs duties were introduced for this purpose.
In 1944, the Indian capitalist class drew up a plan of industrialization in post-independence India that contained the abovementioned elements of policy (Thakurdas 1944). These plans were also incorporated in the industrial policy statements of 1948 and 1956. However, what the capitalists agreed to collectively, they undid through their private actions by fouling up policies through illegality. They cornered licenses by bribing authorities and creating monopolies for economic gain. In the various development activities and projects, corruption was introduced to make extra profits. This was not feasible without the connivance of the politicians and the bureaucracy, who were drawn into corruption. Luxury goods – or those goods that faced high customs duties – were smuggled in.
As India developed, the size of the middle class increased and shortages of basic goods (e.g., food, scooters, cement) or basic services (e.g., telephone and railway reservations) appeared. Queues formed for each of them, and soon thereafter black markets developed. Businesses took advantage of these black markets and corruption spread to the lower levels of society.
Big business in India realized that manipulating policies required close proximity to political power. It started exercising direct control over the political process by financing political parties and individual candidates for legislatures. It also increasingly interfered in appointments at the senior levels of the bureaucracy in key ministries. The Triad proved useful for this purpose and it was mutually convenient for the three arms of the Triad. The businessmen could manipulate policies, whereas the other two could get the help of businessmen to invest their ill-gotten gains.
Another aspect of colonial rule helped to spread corruption – the policy of divide and rule. The end of colonial rule left behind antagonisms and instability in India’s immediate neighborhood, which helped illegality to spread. There have been several wars and  continuing communal tensions with Pakistan; with China, there have been border disputes and strategic conflicts. These realities have fostered terrorist/separatist movements in India’s border states – Kashmir, Punjab, and in the northeast. In turn, they became areas for smuggling, gun-running, counterfeit-currency trading, human trafficking, sex trade, and so on.
India has had historically close relations with Nepal and, therefore, open borders. Large-scale poverty in Nepal and Bangladesh has spurred illegal activities in the border areas. The corrupt monarchy in Nepal and the unstable political climate in Bangladesh led to the spread of large-scale corruption. Ethnic problems emerged in Sri Lanka between the dominant Sinhala community and the Tamils concentrated in the north. The Liberation Tigers of Tamil Eelam emerged to fight a civil war over three decades. To finance its activities, it indulged in a wide array of illegalities. Their links with Tamils in India and across the globe helped in the proliferation of illegalities around the world.
Growing illegality in India was also linked to the oil crisis and the sharp increase in the petro goods prices in the 1970s. The sudden wealth in the oil-exporting countries led to large-scale economic activities there, but India lacked the necessary skilled labor (carpenters, plumbers, drivers, teachers, engineers, doctors), which they imported from South Asia on a large scale. These migrants started sending money back home to their families. This encouraged the spread of hawala internationally because the hawala operators provided cheap services and a premium on the money sent through them. Simultaneously, this service also allowed Indian businesses to send their capital abroad.
In 1991, India changed its policies and made massive concessions to the private sector – whatever it had been demanding in the 1980s was granted. Taxes were reduced, licensing was eliminated, and imports were liberalized, and so on. The role of the public sector and planning was minimized. With the arrival of the WTO in 1995, there was a further opening up of the economy to foreign trade and capital. The amount of illegality grew, and the nature of the black economy changed but it grew as well. As the market economy grew, queues ended but money determined who would get what. Anything could be imported, and the private sector allowed for the production of luxury goods. Thus, shortages of telephones, automobiles, televisions, and so on, disappeared, as did the black markets associated with them.
But, as restraints on business declined with the weakening of the state, business indulged in corruption in an even bigger way. The Triad, already in place, started functioning differently and shared the gains from corruption differently. Many politicians became businessmen – openly or in names of their family members. Businessmen also entered politics in larger numbers. Privatization and the establishment of the infrastructure of the private sector (in public-private partnership mode) offered new opportunities for making illegal gains by cornering resources like land, forests, and mines. Greater participation by the private sector since 1991 in the education and health sectors has created enormous opportunities to indulge in illegalities. The number of scams and the amount of money involved per scam has grown exponentially since the 1990s (Kumar 2012).
In brief, systematic illegality and corruption in the country has its roots in big business and the Triad it created. This has led to the emergence of organized crime in the country. The problems fostered at the borders with neighbors and the hawala links for flight of capital have enabled the linkage between local illegality and transnational crime. Finally, the indiscriminate opening up of the economy in 1991 has led to a further spread of illegality and crime.

3. Forms, cases, and interfaces of Indian illegality
For the black economy to be 50 percent of GDP, as it is currently, it has to be both systematic and systemic. Laws have to be systematically violated so that those in charge of maintaining the law of the land can partake in violations of the law. For certain favors, they will look the other way while businesses commit illegal activities. Take, for instance, the way the police and the judiciary in India function.
Illegalities are to be checked by the police, and the persons committing the illegal action should be brought to justice through the courts. In India, presently there are 40 million cases in the courts and they continue for years or decades (sometimes more than 30 years). The time in prison for many awaiting trial is longer than any sentence they might have to serve if they are convicted for the crimes they were supposed to have committed. Thus, in many jails, there are more people awaiting trial than there are people who have been convicted.
The delays are due to the widespread corruption in the courts and the non-accountability of the judges. Judges postpone hearing cases for frivolous reasons. The legal profession is also interested in such delays, since they collect fees on the basis of the number of appearances in court. Often in routine cases – in which a decision should come in less than a year – cases may drag on for more than five years. This leads to a fivefold increase in the number of cases pending. The pressure on the judges also increases. They may have to go through 50 cases in a six-hour working day, meaning that they have an average of seven minutes per case. Each case may come up for a hearing after a few months, meaning the judge must refresh her memory, thereby taking up precious time and often resulting in mistakes.
To smooth the work in the courts, a bribe might be paid. For instance, a court bailiff may charge a party between INR 1,000 (US$20) to INR 25,000 ($500) for having a property vacated by the losing party. The local police, who are required to accompany the court bailiff, charges separately. For the inspection of files, filing papers, and so on, an off-the-books payment to the clerks may be required. Judges have also been caught letting one of the parties to a case see whether the judgment suits their needs. One cannot publicly talk about these matters due to the fear of being hauled up for “contempt of court.”
The poor are mostly unable to approach the courts for justice, since filing cases is expensive and the laws are so opaque that often the poor who are not very literate do not understand their complexity. Even if they do go to court against a stronger party, the latter is able to bribe their way through the court and delay or subvert justice. Often there is a nexus between the judges and the lawyers. The well-off party hires a lawyer who is able to manipulate the legal system and who can fix a case to appear before a judge of choice. To minimize this kind of manipulation, the judge in a case is often changed. This has created its own problems, sometimes resulting in situations where up to 8 judges hear a case over a two-and-a-half-year period. This means each of the judges is unfamiliar with the case and often postpones the case on frivolous grounds.
Powerful persons in politics, business, organized crime, etc., can get cases against them thrown out by the prosecution. This is done at the initial stage of investigation, whereby crucial evidence is misplaced or not presented carefully so that the case fails in the court. Thus, these people do not even need to use corruption in the courts to obtain favorable decisions. Judges have often commented on the poor preparation of cases by the police. The powerful are known to influence witnesses to change their testimony. Threats – coupled with inordinate delays (the witnesses also forget what they have seen or heard) – lead to the spoiling of cases against the powerful people.
The result is that the members of the Triad have contempt for the law and violate it with impunity. In India, laws on paper differ substantially from how they are implemented due to the judicial delays and manipulations by those in power. For instance, there are laws against child labor, but these are circumvented in large parts of the country, including in the cities. In such violations, the police play an important part.
Illegality flourishes because the police participate in the process. They collect a weekly or monthly sum (hafta) to allow the illegal activities to continue. This money is collected from beggars in the streets, street vendors, encroachers on public land, businessmen, sex workers, car thieves, pick pockets, those doing illegal construction, and any other kind of illegal activity. The post of the head of a police station (called thana) is auctioned. This person sets targets for the collection of money for each of the “beat” constables. The more commercial activity or the higher the level of illegality in the jurisdiction of a police station, the more money collected. The money is then shared right up to the top (political bosses) (Kumar 1999). At every level, half the money collected is kept and the rest is passed on. Since the pyramid narrows steeply, a lot of money goes up to the few at the top.
The hafta from illegal activities is also collected by the local municipal officers and the local politicians. Thus, a substantial part of the earnings of a poor person is siphoned away by these officials and the politicians. The hafta results in linkages between the criminals and the officials. For instance, the pickpocket gets protection from the police and no new pickpocket can encroach on their territory. Organized crime is a party to this payment of hafta and it flourishes because of the official protection it receives.
In India, since land in urban areas is expensive, relative to per capita incomes, a large number of people migrating annually to the cities cannot afford any kind of formal housing. So the migrants either become homeless and sleep under overpasses, bridges, etc.; or they encroach on public land with the consent of the police and local politicians; or they crowd into existing slums, most of which have various degrees of illegality associated with them. Thus, with illegal acquisition of their shelter, they tend to fall into the grip of criminals. Since they need income, the family members at times get into illegal work, like bootlegging, sex trade, and so on. Organized crime gangs use their unstable living conditions and poverty to recruit workers for illegal work.
In private professional educational institutions, students pay for admissions (called capitation fees). In case of medical education, the capitation fee can be up to $100,000. The situation is similar in the case of engineering, management, and other professional courses. These institutions are often run by politicians and businessmen. On the pretext of providing social service, these institutions are allotted land at low prices and granted concessions. The involvement of politicians guarantees quick government approval.
Software- and information-related services have experienced a boom in India since the mid 1990s. These lend themselves to under- and over-invoicing and, therefore, to the flight of capital from the country. During the dot-com boom, many fake companies floated initial public offerings on the stock market and they disappeared with the public’s money. The recent scandal involving Satyam Computer Services* is instructive in learning about the various kinds of illegalities that such software companies can indulge in: under-invoicing; registering in tax havens; creating fictitious employment records; diverting funds to other companies owned by the same owner; funding politicians; buying real estate; and so on.
*Satyam was one of the high-flying software companies of India and an exemplary one, according to the government and the business community. It was controlled by the highly respected Raju family of Andhra Pradesh. In January 2008, Mr. Raju of Satyam, the chairperson, stunned everyone when he admitted to committing massive fraud against the public over the years. Apparently, the company was defrauded of Rs 7,000 crore ($1.5 billion) but the final tally could be larger. The loss to the shareholders and employees was a multiple of this sum.
Mr. Raju claimed that Satyam was operating with margins of 3 to 4 percent, when for comparable software companies, they were in the range of 25 percent. Was Mr. Raju lying under the auspices of telling the truth? The puzzle is that Satyam should have had higher profit margins, but its owner, Mr. Raju, claimed that it had lower margins, thereby willingly implicating himself in fraud. Was he trying to cover up a bigger fraud?
In India, there have been concessions in taxation on profits from exports. So, it may pay to divert profits from a company that is not entitled to tax concessions to another group company that is entitled to tax concessions, and thereby save on tax payments. Mr. Raju was siphoning funds from Satyam to sister companies dealing in real estate.
To take advantage of the provisions for exports, they have to be over-invoiced. Hence, more foreign exchange has to be brought into the country than has been earned. This way, undeclared wealth held outside the country or profits of other companies transferred out of the country through hawala are brought back – that is, reverse hawala.
Satyam tried to buy its sister companies at high and inflated prices. So, its fictitious bank accounts, worth Rs 7,000 crores, would have been drawn down and money transferred to the owners of the sister companies, that is, to themselves, and then there would have been no one to ask where the money went. So, using book transfers, the earlier transferring out of funds would have been covered up and the false entries of the bank balances and fixed deposits reversed/ set right.
Satyam was forced to reverse its decision to buy the sister companies by the investment bankers who approached SEBI (stock exchange regulator) with the story of the non-existent balance in the banks. There was little time to bring back other undeclared funds, and perhaps due to the global crisis of 2008, they became stuck. Since the funds did not exist in the Satyam bank accounts, Mr. Raju had to cover up by saying that the actual profitability of Satyam was lower and that he had been inflating profits for years.
The Satyam affair points to the scheming practices adopted by crooked Indian businesses – siphoning profits, fudging muster rolls, the cozy relations with politicians and bureaucrats, and finally, manipulating bankers, “independent” auditors, and “independent” directors. Mr. Raju’s admission has brought into question the notion of a “respectable” or “honest” businessman.




As already mentioned above, hawala is active in India. It is not regulated by the Central Bank. It is used to transfer funds within the country and outside of it. Since it deals purely in cash, large sums of money are moved from the premises where hawala operates. The police and the intelligence agencies know of these places, but they do not act because of the high-level political protection available to the hawala operators. The top politicians in power also know of them, since they use this channel, but they do not act against these hawala operators either out of self-interest. Thus, what is known privately is not known officially. The hawala channels are used by organized crime units to transfer money around the country and outside of it. Terrorists, drug dealers, and others use these channels because of the anonymity they provide.
In summary, due to existence of the Triad, all kinds of illegal activities and crime flourish in India. The common man is helpless in the face of these powerful people.


4. Global economic flows and routes
Local criminal activities described above have been linked to transnational crimes through terrorism; the printing and circulation of counterfeit currencies; the operation of hawala; the production and distribution of narcotic drugs; arms-trafficking; and the smuggling of electronic items, gold, and gems. As discussed in section II, in all these cases, the neighboring countries – and at times their secret services – are involved. The profits from these activities help finance terrorism and destabilize the nation.
Myanmar was a closed nation till recently and there has been much ethnic conflict. Thus, it was easy to move narcotic drugs through these territories into India’s northeast, where separatist movements were taking place. Similarly, Bangladesh has been another porous border through which human trafficking have been taking place and where terrorist movements have found sanctuary. They also became conduits for organized crime.
Conflict in Afghanistan since the beginning of the 1970s has led to power rivalries. The Western nations armed the Taliban – fundamentalist Muslims – to fight the Soviet forces that entered Afghanistan to help the left-leaning regime that came to power by dethroning the King there. Soon, Afghanistan became the Vietnam of the Soviets and they had to eventually withdraw, leaving the Taliban in charge. But by then, Afghanistan was awash with weapons supplied by the West. Afghanistan was also known for its production of narcotic drugs. When the central power weakened and regional warlords emerged, the Taliban smuggled weapons and narcotic drugs to enrich themselves.
A nexus emerged between the Taliban and the Muslim fundamentalists in Pakistan. This impacted the separatist movement in Kashmir and also became a major source of financing Muslim fundamentalism in India. In the process, India became a route for transnational crime. This was facilitated by a corrupt bureaucracy and the police.
An amnesty was given to smugglers in 1983 so that they could come into the mainstream. But this led to the entry of criminals into politics, or at least their more active participation in politics. Before they had financed politicians but remained largely in the background. The Triad now had criminals in it – either the businessman or the politician in the Triad had criminal backgrounds. As criminals entered the legislatures, the rule of law weakened. They manipulated the police, the bureaucracy, and the judiciary to get favorable decisions and also interfered more blatantly in decision-making.
Smugglers developed links with organized crime abroad to carry on their activities systematically. These links also required them to be in touch with hawala operators, who did not distinguish between clean (but illegal) money and dirty money. So they transferred the money of terrorists just as often as that of businessmen under-invoicing exports. In fact, the gold smugglers often needed foreign currency to buy gold for smuggling into India, and they got it from narcotic drug rings that needed to send funds to finance their activities in India. Thus, many inter-linkages developed.
Smuggling was driven by the chance to make easy money, since custom duties were high for the import of luxury goods, liquor, tobacco products, gold, and gems. It required corrupting the customs officials and the politicians. Airports and ports turned into dens of corruption with all kinds of illegal activities taking place. Very complex importing rules were deliberately set up so that the misclassification of goods and services was possible. The threat of harassment is an important driver for the willingness to bribe the official machinery.
In India, laws on paper differ substantially from the way law is practiced. Being in power implies the ability to offer favors for utilitarian considerations. For instance, traffic rules are violated with impunity, especially by those in power. When the average citizen gets caught, they offer a small bribe to the police to be let off. Hence, traffic on the roads is chaotic. A driving license can be obtained without taking a test. This is symptomatic of all rules and laws in the country. The honest get harassed while the dishonest make money or jump the queues.
It is the Triad that has facilitated systematic illegality in the country and – as it has strengthened over time – it has spread. The individual citizen is not able to resist and is more willing to make bribes and commit illegal acts. The Triad takes advantage of this by pushing for more illegality. In the process, people have moved from collective action to individual action and weakened democracy in the country. With the Triad functioning unhindered, international organized crime gangs have also found it easy to penetrate into India and set up operations.

5. Consequences for victims, outlook and impacts on the rule of law
The consequences of the growing black economy have been that development has been set back due to widespread policy failure. Kumar (2005) shows that the Indian economy has been losing 5 percent rate of growth since the mid 1970s due to the growing black economy. Today, the Indian economy could already have become the second largest economy in the world. Income distribution is highly skewed against the poor, and this is having an adverse social impact. India has the largest number of poor people in the world as well as malnourished children and women, illiterate people, and sick people.
The state is considered to be weak and unable to carry out its mandate. The institutions of democracy (e.g., legislature, judiciary) have been weakened due to all of this and there is a feeling that the nation lacks social justice. Thus, today, every section of society is trying to gain something at the expense of others. This has resulted in massive conflicts in society and often chaotic conditions. The political structures are badly fragmented, whereby there are a few hundred political parties, each jostling for its space and share of power, which is exercised not for the national good but for the section it represents. Thus, faith in the nation has weakened.
The poor face a criminal environment and live insecure lives. Their children often engage in various kinds of illegal activities and get into drugs, smoking, and other addictive behaviors. Women engage in other kinds of illegal activities and have to bear a double burden of taking care of the home as well as working outside.
Black economies lead to both higher costs of production with lower quality and to environmental damage. Thus, the rate of inflation is higher than it need be and health costs rise due to increased levels of diseases and low capacities to fight them. Corruption in the medical profession adds to health costs, and as a result, the poor often fall below the poverty line when treating a major illness in the family.
Tackling the black economy is the key to making a dent in crime, whether national or transnational. Since India’s independence, dozens of committees and commissions have looked at the problem of the black economy (and its various aspects) in the country. They have made thousands of suggestions and hundreds have been implemented: reducing tax rates; reducing controls and regulations; demonetization of high denomination currency; voluntary disclosure schemes; bearer bond schemes; acquisition of undervalued property; and so on. There are already enough laws to check corruption; the problem is that they are not implemented. Intelligence about organized crime exists, but no action is taken since top businessmen and politicians are involved. So the problem is not a technical one, and the size of the black economy has increased in spite of the steps taken to check its growth. The issue is one of political will, which is non-existent.
It is crucial to have political movements that would strengthen democracy and bring about accountability among the members of the Triad. Movements on the right to information, judicial accountability, the right to education, the right to food, and the right to housing are all needed to strengthen democracy and bring about accountability in the political process. Movements centered around these issues have been created in the last two decades, and they may eventually change things for the better.

References
Government of India. 2011. Crime in India 2010. Ministry of Home Affairs, National Crime Records Bureau.
Government of India. 1971. Direct taxes enquiry report. Chairperson: Wanchoo.
Government of India. 1956. Direct tax reform: Report of a survey. Chairperson: Kaldor.
Kumar, A. 1999. The black economy in India. New Delhi: Penguin.
———. 2005. India’s Black Economy: The Macroeconomic Implications. South Asia: Journal of South Asian Studies. Vol. 28, No.2. August 2005. Pp 249-263.
———. 2012. Indian economy since independence: Tracing the dynamics of colonial disruption in society. Forthcoming.
NIPFP (National Institute of Public Finance and Policy). 1985. Aspects of black economy in India. New Delhi: NIPFP.
Thakurdas, P. 1944. A plan of economic development for India. Bombay: The Commercial Printing Press.



* This paper is based on the author’s two books, The Black Economy in India (1999/2002) and Indian Economy since Independence: Tracing the Dynamics of Colonial Disruption in Society (2010)’.
[1] CESP – Centre for economic Studies and Planning, SSS – Studies of Social Systems, JNU – Jawaharlal Nehru University

Friday, November 2, 2012

Mirroring India’s Future: The Decline of Retailers and Farmers in Mexico

Mirroring India’s Future: The Decline of Retailers and Farmers in Mexico
Arun Kumar
Chairperson and Sukhamoy Chakravarty Chair Professor, CESP, SSS, JNU.

A computer systems analyst was the driver of the taxi which took me from the airport to the hotel in Mexico city. A cheerful English speaking man who talked about himself and his family’s woes in the hour it took to cover the 30 kms. He wanted to know about the global economic crisis so that he could figure out why things were bad in Mexico for people like him. He complained about unemployment and his inability to get the right job without connections - a fate his children also face. He put the blame on the US and its policies and corruption in society. These themes were repeated many a times during my week of stay in Mexico.
The taxi passed through many commercial and residential areas but no small shops were visible. There were big malls, automobile dealers, petrol stations, restaurants, pharmacy stores and car repair shops. I wondered if they were inside the colonies. A friend who had been posted in the Indian Embassy in the mid-1980s had mentioned that there were fruit stores everywhere and one could make a meal of fruits in the evening but such shops were no where in evidence. I speculated if this was the future of the Indian metropolises.
The absence of small stores was perplexing but more intriguing was the serious unemployment given that Mexico has been a part of NAFTA since 1994 and which brought in much foreign investment, many factories have relocated from the US to Northern Mexico to supply the US and Canadian markets and so on. The city was bustling with cars and it is prosperous compared to India with a per capita income ten times ours. There are layers of flyovers one on top of the other but there were traffic jams. During day time, it takes 2 – 3 hours to cover a distance that takes 25 minutes early in the morning. Public transport system consists of rail, buses and trams but people are stuck in traffic for a good part of their day. The city has to spread horizontally since it is built on land fill and there is lots of water below the surface. Thus, multi-storeyed buildings require expensive deep foundations. So, most buildings are one or two stories high and that has forced the city of 25 million to spread out.
Old timers remember that Mexico city had small stores till the mid 1980s. Only the organized sector stores survive now, like, the Sanborn chain belonging to Mr. Slim, the richest man in the world. Sanborn has had a unique model of a restaurant on the first floor and a gift shop, pharmacy and other such conveniences on the ground floor. The young I talked to did not remember any time when there were corner stores in the residential colonies. From the Hotel window, perched 8 floors up, I could see malls but no small stores. Sears, Walmart, McDonalds and so on were all there like, anywhere in the USA. In residential colonies, I did see a few small stores but most of them were American `Seven Eleven’ stores. But, there are pavement stalls and markets where the poor purchase their necessities. It was ironic to see the workers in ties from the malls cross the street to eat at the pavement stalls – perhaps they could not afford to eat in the mall.
On a visit to the charming centre of town it was refreshing to see streets lined with small stores. My escort told me that many people came here to shop because it was cheaper here then in the malls. I found a sweet shop named Cellaya established in 1874, much like our Halwai shops. It had the equivalent of kaju, pista and badam barfis, but very expensive.
I went outside Mexico city to Teotihuacan to see the Pyramids. The huge pyramid of the Sun god is apparently a few times larger than the biggest Egyptian pyramids. It was a part of an ancient city 2,000 years back which was over 3 miles long and had more than 1.5 lakh people. All this was awe inspiring but it was tiring because it involved hours of walking and climbing up and down. At the end of it all we went to the neighbouring town to eat. At its entrance over the road there was a beautiful arch which announced `Teotihuacan Pueblo con Encanto’. There the streets were lined with small stores.
The next day I visited the village Tlalnepantla in Morelos. I counted dozens of small shops for a population of a few thousand. This is a revolutionary village. Alvaro, our host, was an economics graduate who settled down here 40 years back. He does Nopal (cactus) cultivation along with the rest of the villagers. His small garden at the house had trees bearing guava, avacados, lime, lukat and so on. He has successfully experimented with creating a village republic. It was amazing to see the hilly village surrounded by 4,000 hectares of Nopal cultivation. Even more breathtaking was the clear view of the distant volcano from which a plume of smoke emanated.
The village rejected the corrupt political parties. They selected their own leader and did not recognize the president of the municipality, a party man. The government sent in troops declaring Alvaro and others as terrorists and they had to go underground. There were protests all over Mexico and especially in the Universities. The government was forced to drop the charges and come to an agreement. Land here belongs to the community and cannot be sold to outsiders. Hearing that an Indian professor was visiting the village, its leaders came with lunch and cactus products - cooked as vegetable, turned into pickle and marmalade– very delicious. Alvero asked about Gandhi, his philosophy of non-violence and how it could be applied in modern society. Gandhi seems to have a special place in Mexico. A chain of book stores is called `Gandhi’. There are parks and roads named after Gandhi.
The farmers are upset with the USA and NAFTA. They complained that the free market had enabled subsidized food to come from the US and destroyed their agriculture which now contributes only 4% of GDP. Thus, the two big employers, agriculture and retail trade have suffered in the last two decades and that is why unemployment is high (5.2%) but underemployment maybe 25%. I met a professor who said his son got a job only because of his connections and another said his son doing a Ph.D. is worried about the future. Why is this happening with so much foreign investment? This unemployment has driven down wages so that a starting Asst Prof in the University complained that he barely makes ends meet with his salary determined by the number of lectures he gives in the month. He thought that the taxi driver was better off than himself.
Worse, in Northern Mexico where investments from the US have poured in, Mafia has taken over and there is lawlessness. There the state seems to be withering away. Unemployed youth joins the Mafia. There is drug trafficking and illegal migration of youth into the US. It is this migration that has kept unemployment from getting worse. The migrants send money back home. So, remittances along with income from petroleum exports and tourism keep the Mexican economy afloat and prevent the crisis from deepening.
The proximity to the US, free trade with it and the investments from there have instead of solving Mexico’s problems led to a deepening crisis of unemployment, decline of traditional agriculture and to the demise of small retailers in metro cities. I wondered whether what I was seeing in Mexico was India fast forwarded twenty years, when the Metros will see lots of cars and traffic jams, unemployment, malls but few small retail stores and agriculture in crisis. Small stores are likely to survive in small towns and villages.
Our crisis is likely to be worse than Mexico’s since we do not border the largest economy in the world where our youth could illegally migrate nor are we likely to get investment in per capita terms matching what Mexico has got nor do we have petroleum or tourism income to prop us up. So, does Mexico mirror a part of our future if we continue with our current policies? What the mirror does not reflect maybe even bleaker because we are not Mexico.