oikos online version

Contents

Editorial Board 1

Economics Society Office Bearers 1

Principal’s Note 2 Dr Dinesh Khattar

Staff Advisor’s Note 2 Samir Kumar Singh

Economics Society President’s Note 3 Bhanu Sharma

Editorial 4 The Governance of the Global Commons in a Post-Truth World Ujjwal Krishna

Acknowledgements 7 Himanshi Goel

Research Paper An Analysis of Poverty Reduction in India and Brazil 7 Ujjwal Krishna, Mayank Jain and Jatin Nair

Articles Reserve Bank of India: Loss of Identity 19 Jatin Nair

Risks of Financialization 21 Ujjwal Krishna

Smart Cities are Economic Levers for Sustainability 24 Rupsha Mitra

Analysing Indo-German Economic Linkages 26 Sara Switala

Nostalgia: Why the Old One? 29 Jyotsana Kala

Automation and the Future of Labour 30 Mayank Jain

Economic Impact of the Refugee Crisis: Humanitarianism versus Nationalism 33 Rupsha Mitra

Brexit and its Impact on Infrastructure Investment in the UK 35 Mehak Tyagi

Decoding Trump’s Oil Policy 37 Pratyush Shah

Report: Lecture by Prof Praveen K Jha, JNU 38 On the Refugee Crisis and its Economic Impact Manik Aggarwal

Editorial Board

L-R: Manik Aggarwal, Pratyush Shah, Rupsha Mitra, Kanika Malhotra, Ridhima Kukreja, Ujjwal Krishna, Himanshi Goel, Jyotsana Kala, Mayank Jain, Fareha Naaz, Jatin Nair

Editor-in-Chief Ujjwal Krishna Co-Editor Himanshi Goel Associate Editor Mayank Jain Assistant Editor Ridhima Kukreja Front Cover Artist Fareha Naaz Members Jatin Nair, Rupsha Mitra, Jyotsana Kala, Manik Aggarwal,

Pratyush Shah, Kanika Malhotra, Arpit Panda

Economics Society Office Bearers

L-R: Parth Sondager (Joint Secretary), Deepak Kumar Pathak (Joint Secretary), Ujjwal Krishna (Editor-in-Chief), Bhanu Sharma (President), Jyotsana Kala (Treasurer),

Nomy Katta (Event Coordinator), Ayush Burman (General Secretary)

Oikos Annual Journal of Economics (2016-2017)

Kirori Mal College, University of Delhi 1

Principal’s Note

Dr Dinesh Khattar Officiating Principal Kirori Mal College, University of Delhi, India I am very pleased to learn that the Economics Society of Kirori Mal College has, in keeping with tradition and high standards of research excellence, produced another volume of the Oikos Annual Journal of Economics. The first volume of this journal was published in 1987, and in the last 30 years, Oikos has seen commendable enthusiasm from the students, in addition to excellent articles and research papers. This year’s volume of Oikos has surely excelled itself in terms of its content and aesthetic appeal. As an academic and researcher throughout my career, I can vouch for the fact that this year’s Oikos adds a lot of value to the table, and ably demonstrates the sophisticated research and writing capabilities of the students of the highly prestigious BA (Honours) programme in Economics at Kirori Mal College, University of Delhi. Having attained an A+ rating in the recent National Assessment and Accreditation Council (NAAC) review, Kirori Mal College has not only exceeded several other prominent constituent colleges of the University of Delhi in establishing for itself a well-deserved position in the highest league, but has also proved the immense impact it makes on its student body as an institution. As one of the finest colleges in India, we are committed to supporting initiatives like Oikos, which provide a platform for undergraduate students to publish their research, as well as their well-articulated and informative views about complex issues in a peer-reviewed journal at an early stage in their respective careers. I heartily congratulate Ujjwal Krishna, Editor-in-Chief, and his team for this accomplishment. I am certain that this volume of Oikos will be widely read.

Staff Advisor’s Note

Samir Kumar Singh Assistant Professor Department of Economics Kirori Mal College, University of Delhi, India Now running into its 31st volume, the Oikos Annual Journal of Economics, published by the Economics Society of Kirori Mal College, University of Delhi, is a platform where students have been able to display their knowledge and express their analyses of economic conditions throughout the world. All the research papers and articles in Oikos reflect the passion and respect our students have for economics and it is always a pleasure to publish them. On behalf of the Economics Department of Kirori Mal College, I would like to heartily congratulate all the office bearers and members of the Editorial Board for months of dedicated hard work that have resulted in the successful completion of this remarkable journal. Oikos Annual Journal of Economics (2016-2017)


Economics Society President’s Note

Bhanu Sharma Kirori Mal College, University of Delhi, India Education makes one empowered, education makes one believe in oneself, education makes one feel worthy enough to consider oneself a leader, and receiving education from a premier institution like Kirori Mal College has been a completely phenomenal experience. Kirori Mal teaches one the importance of being a part of a society, of making a home out of the people one works with, of creating an atmosphere of mutual appreciation. Even though I have the opportunity to write this, it doesn’t mean that the milestones which we have managed to achieve throughout the year were the fruit of my leadership alone. I believe that a leader does not make followers, a leader provides opportunities for others to lead. The events of the academic year 2016-2017 were not the fruits of my leadership, or of the other eight office bearers, or our department heads; the success has come because of the leadership and participation of the entire team of 83 people of the Economics Society. Pareto Time ’17 has been about the efforts, the enthusiasm, and the cooperation of the entire Economics Society. I would like to take this opportunity to express my humble gratitude towards my trusted and able Vice President, Ayushi Srivastava, as well as my team for their unparalleled support. I am deeply thankful towards the staff members for their guidance. A special mention is for our Staff Advisor, Mr Samir Singh, for encouraging us throughout the year. Lastly, I congratulate the Editorial Board for managing to bring out yet another successful edition of the Oikos Annual Journal of Economics. The Economics Society was started in 1989, the year when the first Pareto Time was held. Being a part of such an old legacy makes one feel proud and privileged, and encourages one to keep the trend going and bring one’s own ‘touch’ to it. The department has given all of us a lot in our three years. Organizing various events is just a way to appreciate it back and keep the spirit and working environment of the society alive. Reading the previous editions of Oikos makes one realize the sentiments of the people from different decades and the dedication they had for the Society. Every President has added something new to the table, leaving behind his own legacy. I wish to leave behind a legacy which would be remembered for the mixture of a well-balanced environment of personal and professional ethics, an environment of cooperation. If a team can master the art of keeping their morals and ethics alive throughout their journey, and if they can manage to respect each other for the unique talents that each possesses, then success will not remain merely a dream. Organizing and managing the fest was a heavy mantle, but I can proudly say that the weight was shared. I feel extremely honoured to have led a wonderful team of enthusiastic people. I wish that the coming generations keep up the good work, and keep the spirit of EcoSoc, KMC alive.



Editorial The Governance of the Global Commons in a Post-Truth World Ujjwal Krishna Editor-in-Chief Oikos Annual Journal of Economics Kirori Mal College, University of Delhi, India

If the past one year has shown anything, it is the remarkable ability of politicians, their aides and strategists, to shape economic, political and social debates by appeals to emotion, and a seductive, albeit illusory idea of nationalism. Truth, fact, science, rationality, and logic have been indubitably defeated by a veritable onslaught of denial, xenophobia, demagoguery, protectionism and intolerance across the globe. The details of policy, and the immense complexities involved in policymaking have been rendered inconsequential in our age. Falsification and the relegation of the truth to a position of secondary importance have gained an impetus through false balance in the media, and the creation of ideological bubbles on either side of the political spectrum on social media. This year’s Oikos has attempted to, among other economic analyses, shed some light on the multiple aspects of the consequences of a post-truth world. Our journal’s cover portrays a sense of unease, with the ascendancy of billionaire real-estate mogul and former reality TV host Donald Trump to the Presidency of the United States, the poorly conceptualized and incompetently executed demonetization of high-denomination currency notes in India, the retreat from globalization most notably exemplified by Britain’s referendum on exiting the European Union, the continuing refugee crisis in the Middle East, Europe and Africa, and the war against global warming being lost with large swathes of people feeding into delusion and rejection of evidence and data. Our intention is not to point-blank declare that there is no hope, no silver lining, but we certainly wish to flag major concerns over the turn our world is taking, and to provide a view of how, as the English economist Arthur Cecil Pigou envisaged, the knowledge of economics can help bring about the healing that is very much needed. President Trump’s Counsellor Kellyanne Conway let slip an illuminating term while defending the administration’s controversial views on an issue. When questioned with regard to certain facts presented by the White House Press Secretary being provable falsehoods, Conway attempted to downplay the seriousness of that charge by stating that the Press Secretary simply provided ‘alternative facts’. This response was sharply criticised by various quarters, however, it


Kirori Mal College, University of Delhi 4 Ujjwal Krishna

shed considerable light on the strategy that would be followed by the highly influential public relations machineries of post-truth regimes across the world, from the US to Russia, China, Australia, Britain, India and Turkey, among others.

Responses to critical policy challenges in such a framework are bound to retard progress and set the world on a dangerous course, where expediency to supposedly benefit the present will blatantly disregard the long-run sustainability of the planet. The threat posed to the global commons is a major policy challenge facing the world today. The way in which we share the world’s physical space and natural environment, leading to global warming, loss of biodiversity, depletion of fisheries, deficits in water availability, trans-boundary pollution, tropical deforestation, and maritime safety and pollution, constitutes grave situations, including population migration, conflict, and war over water and other resources, as well as rising tensions between rich and poor nations, and health problems caused by water shortages and crop failures. The botched up realisation of the vision of the Kyoto Protocol to reduce global greenhouse emissions is indicative of sheer geopolitical inability to take decisive steps on climate change. While COP21 has renewed global efforts in this direction, it remains to be seen to what extent countries will adopt its commitments to their national laws. A paper published by Thomas Dietz, Elinor Ostrom, and Paul C. Stern in Science, titled ‘The Struggle to Govern the Commons’, sheds light on important institutional solutions to the issues surrounding the governance of the global commons. The paper illuminates the need for systematic interdisciplinary research to avoid a large-scale ‘tragedy of the commons’. It recommends an experimental approach to be taken through policies, to arrive at adaptive institutions, capable of being dynamic and responsive to evolving requirements. A requirement for adaptive governance is suggested to be inducing rule compliance by incentivizing desirable behaviour, either through market mechanisms (Tradeable Environmental Allowances) or community-based systems. Using the instance of inshore fishery governance in the US state of Maine, versus the governance of lobster fishery in the same state, the authors, in the strongest central argument of the paper, show how the involvement of local knowledge and autonomy at the level of local officers in the



lobster fishery led to far greater compliance with rules, as opposed to the top-heavy governance structures that the inshore fishery employed. With officials higher up in the bureaucratic hierarchy calling the shots, bereft of local knowledge and nuance, the rules were far less credible for the inshore fishery. As a result, the conclusion of the authors that strategies for the governance of local commons should be designed locally and not in capital cities, ignorant of the state of the science and the local conditions, is a credible one, and is empirically justifiable in several other instances as well. It is necessary that formal and informal user institutions converge to influence state-level rules in order to achieve worthwhile outcomes. While the need to collect and model both local and aggregated information about resource conditions and to use it in policymaking, as well as the desirability of informational systems that simultaneously meet high scientific standards, are emphasized, the authors provide a weak analysis of how this information can balance both easily procured locally available data and difficult-to-capture global, diffuse data. Regardless of this difficulty, there is clear evidence of global warming, and stark indications that temperatures will continue to rise for a long time even if carbon dioxide emissions were to be ceased with immediate effect. However, in a post-truth world, all initiatives taken to contain climate change and other issues surrounding the global commons are likely to be reversed, with the enthusiastic support of those for whom current living standards and incomes are a far greater concern than striving to benefit future generations. In light of all that afflicts the global order today, it is extremely important that students of economics, who would go forth in their lives and careers with the benefit, both tangible and intangible, of an educational background that continuously prompted them to critically analyse and examine trends and policies in a secular and nonpartisan manner, look for interdisciplinary convergences to seek better explanations for complex phenomenon, and fundamentally believe in the need for rationality and openness to obvious interpretations of data, will continue to challenge these problematic developments in the world. The pendulum of public opinion would only shift back from its current post-truth extreme if we continue to defy the fundamental forces that are suppressing reason, with a steadfast commitment to facts and truth.



Acknowledgements Himanshi Goel Co-Editor Oikos Annual Journal of Economics Kirori Mal College, University of Delhi, India The Editorial Board would like to express its gratitude to all those who left no stone unturned in providing their constant support. We thank our Principal, Dr Dinesh Khattar for providing us with the platform to launch Oikos. We also express our appreciation to our colleagues in the Economics Society for providing logistical support. The publication of Oikos would not have been successful were it not for the generous support of our principal sponsors, Gyan Books Pvt. Ltd. We also wish to note the contribution of JK White Cement, the sponsors of out fest, Pareto Time. We are thankful to all those who contributed their well-written, informative and thought-provoking articles to Oikos.

Research Paper An Analysis of Poverty Reduction in India and Brazil Ujjwal Krishna, Mayank Jain and Jatin Nair Kirori Mal College, University of Delhi, India

Introduction ‘Poverty reduction’ is a term that describes the promotion of various measures, both economic and humanitarian, that will permanently lift people out of poverty. This paper assesses the performance of the Republic of India (hereinafter referred to as ‘India’) and the Federative Republic of Brazil (hereinafter referred to as ‘Brazil’) with reference to their national programmes and efforts directed towards poverty reduction, in their post-economic reforms periods, which broadly corresponded with each other in the early to mid-1990s, in addition to attempts at reform at earlier stages in both countries. Both India and Brazil are classified as ‘developing countries’ and are member states of BRICS (five emerging national economies: Brazil,


Kirori Mal College, University of Delhi 7 Ujjwal Krishna, Mayank Jain, Jatin Nair

Russia, India, China and South Africa) and the IBSA Dialogue Forum (an international tripartite grouping of India, Brazil and South Africa, representing three poles for galvanizing ‘South-South cooperation’, which is a term used by policymakers and academics to describe the exchange of resources, technology and knowledge between developing countries, also known as countries of the ‘Global South’). India and Brazil are also G4 (Group of Four, consisting of Brazil, Germany, India and Japan) nations and support each other’s bids for permanent seats on the United Nations Security Council. Broadly, India and Brazil have similar features, the most striking being their huge populations. While at 1,276,267,000 (2015 estimate), India has the second largest population among all nations, Brazil has the fifth largest at 205,338,000 (2015 estimates). In absolute terms, there is a difference of over one billion people in the populations of these two countries. Indeed, the northern Indian state of Uttar Pradesh, with 195.8 million people (as of 2008), has a larger population than Brazil as a whole, with 191.5 million people (as of 2008). They represent, collectively, 20.42% of the global population (as of 2016). It has been argued that while contemporary comparisons, fuelled by international investors, financial institutions and media houses, tend to restrict the comparison to India and China and place emphasis on their supposedly rivalrous vying for the status of the next superpower, India and Brazil are a much more apt comparison. This is due to the far superior position of the Chinese economy relative to them, traceable to its favourable initial conditions which allowed it to rapidly reduce poverty through economic growth led by the market and by a boost to the manufacturing sector to systematically raise a sizeable and not necessarily skill-constrained labour force from poverty by providing ample room for transitioning from traditionalistic agricultural subsistence to factories and plants. While real gross domestic product (GDP) growth rates are impressively higher in India (7.6% during 2015) as compared to Brazil (which saw a negative GDP growth rate of -3%), Brazil has witnessed significantly greater success in eliminating poverty through the strength of its social programmes, which have reduced inequality despite the negative GDP growth rates. During the second half of this period (between 1993 and 2005), Brazil’s per capita GDP grew at just 1% or so, compared with nearly 5% in India. Yet, the rate of poverty reduction (in terms of annual percentage reduction of the ‘head-count ratio’) was much larger in Brazil, where this was also a period of substantial redistribution, in contrast with India where economic inequality went up. The GDP (purchasing power parity) listing, arguably a more robust measure to assess the quality of a national domestic market due to its adjustments for cost of living, relative cost of local goods, services and inflation rates of the country, places India third in the world at Int$ (international dollars) 7,411,093, while it places Brazil seventh in the world with Int$3,275,799. Both countries have also maintained a more or less constant gold standard of macroeconomic stability to provide a sustainable framework for their respective national and regional efforts at poverty reduction. Literature Review The seminal academic research on the theme has been carried out by Australian economist Martin Ravallion (currently the inaugural Edmond D Villani Professor of Economics at Georgetown University), who states that ‘There are some similarities among the three countries (India, Brazil and China) in their policies over the last 15 years, notably in the importance attached to macroeconomic stability, especially bringing inflation under control. But there are some big differences too, such as in the role played by policies directly aimed at redistributing incomes. When one looks more closely at their histories and policy regimes, Brazil and India turn out to have more in common with each other than with China. In 2005, India’s “$1.25 a day” headcount index was 42%, as compared to 16% in China and 8% in Brazil. Poverty is measured by the headcount index, namely the percentage of the population living in households with income per person below the poverty line. India had a lower headcount index than China until the mid-1990s. India’s headcount index was 60% in 1981, well below China’s. (Using a poverty



line close to India’s official line, which is almost exactly $1.00 a day at 2005 PPP, the headcount index fell from 42% in 1981 to 24% in 2005.) At 1.5% per annum for the $1.25 line, India’s proportionate rate of poverty reduction was lower than either Brazil’s or China’s, and was actually slightly higher in the earlier period (1981-1993). It was not sufficient to prevent a rise in the number of poor given the population growth rates. Less poverty reduction occurred at the $2.00 line, although this is expected given how many people live below the $2 line. India had a growth rate of almost 5% per annum in its reform period while in Brazil, the annual growth in per capita GDP was slightly over 1% in its reform period. Brazil achieved a higher rate of progress in poverty reduction than India, with a lower growth rate. Brazil’s growth rates rose in the reform period, though only to about 1.3% per year. The trend rate of growth in India’s GDP per capita in the period 1951-1991 was under 2% per annum, but it was more than double this rate in the period after 1991. Inequality, as measured by the Gini index, rose over time in the (initially) low inequality countries (China and India) and fell in the high inequality country (Brazil). Inequality is measured by the Gini coefficient, given by half the mean absolute difference between all pairs of incomes normalized by the overall mean. The headcount index and the Gini index have been the most popular measures in the literature and policy discussions, but they are not necessarily the best. The headcount index does not reflect distribution below the line and the Gini index need not reflect well how distributional shifts impact on poverty. Naturally, rising inequality will tend to dampen the impact of growth on poverty, while falling inequality will tend to enhance that impact. This pattern is suggestive of “inequality convergence,” as implied by neoclassical growth theory, although an equally plausible explanation is “policy convergence”: pre-reform policy regimes in some countries kept inequality “artificially” low while in others they kept it high. Amartya Sen and Jean Drèze (2013) argue that India is actually an exception within this group, in important ways. For instance, while every country in the set has achieved universal or near-universal literacy in the younger age groups, India is still quite far from this elementary foundation of participatory development: one fifth of all Indian men in the age group of 15–24 years, and one fourth of all women in the same age group, were unable to read and write in 2006. Similarly, child immunization is almost universal in every BRIC country except India. In fact, India’s immunization rates are abysmally low even in comparison with those of other South Asian countries, including Bangladesh and Nepal. India also stands out dramatically in terms of the extent of undernourishment among children. This terrible problem has largely disappeared in other BRIC countries, but is still rampant in India, where more than 40% of all children below the age of five are underweight, and an even higher proportion (close to 50%) are stunted. To some extent, this pattern reflects the fact that India is still much poorer than other BRIC countries: India’s per capita GDP (adjusted for purchasing power parity) is less than half of China’s, one third of Brazil’s, and one fourth of Russia’s. But clearly, much more needs to be done to fill these massive gaps than just ‘catching up’ in terms of per capita income. For instance, rapid economic growth has not achieved much on its own, during the last twenty years or so, to reduce India’s horrendous levels of child undernourishment, or to enhance child immunization rates. Similarly, making a swift and decisive transition to universal literacy in the younger age groups would take more than just waiting for the growth of per capita incomes to make it easier for parents to send their children to school. In others words, the required ‘catching up’ pertains not only to per capita incomes but also – very importantly – to public services, social support and redistribution. It is, in fact, worth noting that among these four countries, India is the only one that has not (at least not yet) gone through a phase of major expansion of public support or economic redistribution. Much has been written about India’s growth story post-Independence in multiple academic disciplines. Dani Rodrik and Arvind Subramanian’s ‘From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition’ (2005) has been drawn upon by various scholars who emphasise the role of the 1980s as foundational for the economic growth of India, even before the 1991 reforms. The other camp, i.e., the scholars who believe that post-reform growth has been much more significant and de-emphasise the importance of the preceding decade could broadly be classified as those subscribing to a more neoliberal economic



outlook. There have been a plethora of such scholars across various disciplines. That being said, Arvind Panagariya has been an ardent defender of free trade, and his 2008 work- India: The Emerging Giant has been seminal in this regard, along with most of his work. Angus Deaton and Jean Drèze’s work, especially ‘Poverty and Inequality in India: A Re-Examination’ (2002) has been a common strain in the analyses of inequality in India along with the work of Amartya Sen. André Averbug gives us a glimpse of the Brazilian economy in the 1990s. In the last few decades Brazil was struggling economically, with its currency being much weaker as compared to its Latin American neighbours and its inflation rate sky-rocketing. The consumers were finding it difficult to buy goods and the government found that the balance of payment was headed towards a large deficit. In 1990s, the Brazilian government decided to abolish the practice of import substitution and lowered the tariff rate every year. Inviting foreign competition turned out to be a smart move as both buyers and suppliers enjoyed their share of benefits and it also helped in reducing the deficit to some extent. According to Averbug, ‘to increase trade liberalization, the country must complement it with strong macroeconomic measures that would sustain growth in the near future’. In 1993, Brazil introduced a new currency named ‘Real’ that helped in stabilizing the economy and at the same time improving Brazil’s performance in the international market. Rudiger Dornbusch of the Massachusetts Institute of Technology (MIT) claims that this was a bold move taken by the country and the biggest impact was a fall in its inflation rate over the years. His reports show that even though the GDP growth was modest, the per capita GDP was increasing every year, i.e., purchasing power of individuals was increasing. He put it in this manner: ‘Poor were becoming rich, without the rich becoming poor’. Another landmark policy launched by the Brazilian government was the Fome Zero project. This massive project envisioned ensuring that Brazilians get proper nutrition, the Brazilian poor get cash transfers and Brazilian children receive formal education. As an Oxfam case study finds, this project, implemented under the then President Luiz Inácio Lula da Silva (2003-10) turned out to be a big success as over 40 million people were raised out above the poverty line and there was a drop in income inequality. According to these studies, due to large-scale implementation, and a strong commitment shown by the government, many people benefited from this project. Jane Imai points out that, being a left wing politician, Lula was much more considerate about improving the lifestyle of the millions of poor Brazilians. He was a far-sighted leader who became a cult figure for his impressive work. However, the drawbacks of all these policies need to be considered. L Mello correctly states that Brazil is not a poor country, but one with many poor people. This turned out to be the accurate, as The Rio Times found that in 2011, 16.2 million were poor but out of them 4.8 million had no income whatsoever. This is a fact that still overshadows the previous achievements. The Council on Hemispheric Affairs (COHA) has reported that income inequality has led to social disturbances. Urban poverty has led to racial discrimination and the creation of notorious slums, known as ‘Favellas’, that have damaged the urban lifestyle. Dornbusch explained that Brazil has the most unequal distribution of income in the world, after Honduras, and it can only damage its society internally than damaging the economy externally. India’s Experience This section of the paper aims to explore India’s growth experience post the 1990-91 reforms and their consequent result on poverty reduction in the country. To fully understand this growth experience, it is important to analyse the historical context which resulted in these reforms, which in turn led to growth. Thus, we will begin with a narrative of the Indian economy in the pre-1990s and take that forward to a definitive turning point in Indian economic history- the 1990-91 reforms. The next section will deal with the idea that these reforms and the economic growth they initiated were not enough to deal with the problem of poverty, and will lays stress on the importance of reducing inequality and complementing economic growth with social welfare and redistributive policies. The Indian Economy pre- and post-reforms: Though the policies during Prime Minister Jawaharlal Nehru’s tenure (1947-1964) are almost always referred to pejoratively as ’socialist’ in today’s



popular discourse, it is important to realise that economic policies were a lot more socialist during the years of Indira Gandhi’s rule, in that the state played a much more active and controlling role in the economy. While Nehru followed a more ‘gradualist’ policy in terms of increasing the size of the public sector steadily over the period of each successive Five Year Plan, he had not embraced nationalisation of existing private sector enterprises. Indira Gandhi, however, took more radical decisions during her time. Nationalisation of the fourteen largest banks in 1969, along with oil, coal, and mining companies; imposing ceilings on urban land holdings, extending government monopolies over the import and export of many new products, channelling the investments of large firms to highly specific capital-intensive industries, are just a few of the many measures taken during her time to increase the presence of the state in the market on one hand, and controlling private enterprises on the other. By the mid-1970s, it was clear that continuing these policies is doing more harm than good. The result of this was piecemeal reforms and liberalisation, while preserving the same over-arching economic structure. Changes that were perceived as being too disruptive or radical enough to substantially change the system were avoided on the basis of shrewd, albeit self-limiting political motivations and calculations. This process continued in the 1980s, during Rajiv Gandhi’s tenure as the Prime Minister of India. However, since the fiscal deficits inherited from the previous decade (and not taken care of in this one) were financed by extensive external borrowings and were complemented by a largely unchanged inward-looking policy in trade, the economy ran straight into a balance-of-payments crisis in 1991. That crisis paved the way for, and provided an incentive for much needed structural overhauls and the reforms mentioned earlier. The reforms did away with excessive state control in terms of granting licenses (abuse of this power had earned this time period the moniker ‘License Raj’) and ownership of public enterprises, reduced tariffs and interest rates, and allowed foreign and domestic private enterprises a freer space to function in, thus truly becoming a free-market economy with an increasing participation in the global economy. Growth is not enough: Though India’s rapid economic development post the reform period, particularly after the turn of the century, propelled it to the status of the second-largest growing economy in the world (China being the first), this growth has been further and further distanced from the goal it was originally and ideally meant to serve, i.e. an improved lives for the masses. Sadly, however, a rise in inequality has gone hand-in-hand with economic growth in India, effectively obstructing the fruits of this growth from being enjoyed by everybody. To take a few examples- per capita expenditure in rural areas rose at a very low rate of 1% per year between 1993-94 and 2009-10. In urban areas, it rose at a rate of 2% per year for the same time period. There has been a similar slowdown in the growth of real agricultural wages, from around 5% per year in the 1980s, to about 2% in the 1990s and virtually zero in the 2000s. The performance of these metrics, when compared with countries like China, illustrate India’s extremely poor performance in evenly converting economic growth into a better standard of living for all sections of its population. Economic growth has also failed to generate adequate employment. As opposed to the route that a lot of countries took post-economic reforms, India’s post-reform boom has mainly been fuelled by the service sector, which contributes disproportionately more than agriculture and manufacturing to GDP figures. Even within the service sector, the growth is heavily concentrated in skill-intensive sectors, like software development, financial services, business process outsourcing (BPO) and call-centres, and other specialised work requiring a minimum level of education, among other vocational skills. Social indicators, like nutrition, also tell a story of empty economic growth, with almost half of the children under 5 years of age (48%) being chronically malnourished or undernourished, according to the 2005-06 National Family Health (NFHS) data.



India still has a higher proportion of undernourished children than almost all countries, even after decades of rapid economic growth. At the core of the problem of economic development not translating into reduction of poverty (measured through various indicators, some of them mentioned above), lies inequality. Inequality is a pervasive problem in the Indian context which has prevented economic growth from truly reducing poverty and improving the material living conditions of not just a few, but all Indians. Inequality seems to have risen on several fronts: a) Inter-state inequality- Broad trends in income distribution point towards the fact that inequality between Indian states has been growing. While inter-state inequality was quite steady in the 1970s and 1980s, there was a sharp increase in the 1990s. In 1988-89, inter-state inequality, given by the Gini coefficient, was 0.15, but by 1998-99, it had increased to 0.23. Inter-state inequalities also have historical reasons, as different states started with different pre-existing capabilities in terms of human capital, and public institutions like courts of law and schools, etc., which benefitted some states at the time of economic and political decentralisation during the 1980s over others. b) Inequality between rural and urban areas- According to a growing corpus of studies, the widening inequality between urban and rural areas is what drives inequality at an aggregate, all-India level. This pattern holds true not just at an all-India level, but also within most states. Taking the average of the number of years of education received, for example, NSS data reports that in 2004-05, an average urban worker had received an average of 7.65 years of education, while a rural worker had received only 3.94 years. c) Wage Inequality- The Gini coefficient of hourly wages for regular workers seems to have risen in 1999 after remaining fairly stable in the 1980s and 1990s. The wage gap across occupations has also widened- while the real wages for agricultural labourers have grown at a slow rate of 2.5% per year, the corresponding growth rate for public-sector employees is almost double. A similar pattern is observed in the case of the income share of top earners. Besides the growing rate of earnings of the top 1%, the ultra-rich, i.e., the top 1% within the previous percentage have experienced a much larger growth in income since the 1990s. This suggests that inequality amongst the rich is also increasing. d) Besides inequalities related to consumption and expenditure, other metrics like the Gini coefficient of adult schooling in India, which was 0.56 in 1998-2000 (much higher than Brazil’s, which stands at 0.39), are among the worst in the world. Land inequality in rural India was at 0.73 in 2003. Thus, we see enough indications to worry about the growth process becoming increasingly pro-rich in its orientation. Further, if the growth process is this skewed in favour of just one section of the population, it affects how effectively poverty can be tackled. Therefore, economic growth must not be divorced from the people it is supposed to bring benefits to in the first place. Social safety nets and redistribution policies also play a major role in ensuring that economic growth doesn’t run away from providing social benefits, and work towards making the most of the benefits that do accrue to a nation as a result of economic growth, enabling the most disadvantaged sections of society share in the growth experience. India has taken a slew of measures towards providing a social safety net, for example, the Public Distribution System (PDS), in existence since 1960; the Mid-Day Meal programme, extended to schools across India since the 1990s; the Food for Work programme, started in 2000-01, among others.



Post enactment of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005, there was a shift in the developmental approach of the Indian government from allocation towards universalization and entitlements, operationalized through the Union funding and State execution route, in order to ensure no lack of availability of resources, along with seamless implementation capability at the district, block and Panchayati Raj level with local participation, ownership, initiative and supervision. MGNREGA provides assured employment for one hundred days to a rural household, making this a right or guarantee which can be expected, demanded and legally enforced. In addition to short-term employment generation, it also creates durable assets like productive infrastructure for poverty alleviation. Their efficacy however, remains under question. Common problems run through most of these measures, as they do in a lot of policies that India undertakes. These problems mostly come to fore in the implementation of these projects.

Corruption, patronage, financial leakages, hoarding of resources, poor infrastructure, lack of coverage in rural areas, untrained or incompletely trained employees, short-termism and policy-myopia on a political level are just a few of the many problems that the Indian social safety net and policy environment in general, are fraught with. These policies must work in an effective, efficient and all-encompassing manner to complement economic growth. Countries like Brazil have a robust social safety net and perform much better than India with regard to poverty reduction, even though it hasn’t witnessed economic growth as fast or high as India. We shall see in subsequent sections why this is the case. Brazil’s Experience Brazil is not a poor country, but one with many poor people. It is the world’s seventh largest economy but one in which 16.27 million people live in extreme poverty. The Human Development Index (HDI) places the country as the 84th highest in the world (2011), still in the “high human development” category, but with many social shortcomings. While northeast Brazil is one of the poorest regions of the country, southern and south-western regions enjoy decent share of the national economic growth. Just like China and India, Brazil is also a big name in the international market. Known for its primary products (corn, soybeans etc.), the country has always maintained an impressive Balance of Payments (BoP) surplus. While it does well in foreign markets, internally, Brazil has seen its ups and downs vis-à-vis unemployment, the fight against malnutrition, and dealing with social and economic inequality. In order to shed light on the range of different reforms implemented by the government in order to tackle these problems, we will begin our timeline from the 1990s, as this was the time period during which Brazil chose to go for trade liberalization. Just like India in the 1990s, Brazil also lowered its tariffs and abolished the system of import substitution. In the 1990s. Brazil saw a right-wing government in power and therefore the nation became more open to foreign trade and accepted the idea of opening up the economy completely. It was quite clear that the country was ready for foreign competition so that more money could be pumped into the economy. Another major step that the government took was to introduce a new currency named ‘Real’ (July 1, 1994), and to control inflation cut down its expenditure along with high interest rates. This resulted in Brazilian goods becoming cheaper and attracting foreign attention. With many international



currencies flowing in, many people benefitted (almost 25 million people turned into consumers). The purchasing power of the country increased significantly. Now that the economy was stabilized, Brazil started exporting its own products to different corners of the world, including its new Asian partners. Since Brazilian crops were in high demand, this meant that farmers were given an incentive to produce more. With both public and private backing, many poor farmers took loans in order to grow more crops and found themselves in an improved financial situation. Another crucial step taken under the ‘Real Plan’ was to stop price indexing, enabling the price level to adjust automatically, as a result of the equilibrium action of demand and supply. Therefore, the Brazilian economy was accustomed to quick stability in case of excess demand or supply. With the above plan being implemented, Brazil ensured that with a stable economy (with no signs of hyperinflation) and with an impressive balance of payment surplus, it could expect a smooth growth rate over the next few years.

At this juncture, it was crucial to get rid of regional disparity and eliminate poverty. In 2000, the then Brazilian President, Lula da Silva, released a new project named ‘Fome Zero’ (Zero Hunger), the objective of which was to provide millions of people with adequate food supply and in doing so, uplifting them out of the poverty zone. It turned out to be a massively successful move as by the end of 2009, over 20 million people were raised out of poverty. Fome Zero consisted of three main policies: Bolsa Família (family allowance): One of the most unique and much appreciated policies presented by the Lula government, Bolsa Família focuses on providing financial aid to the poor sections of the country. These families with children receive an average of R$70 (about US$35) in direct transfers. In return, they commit to keeping their children in school and taking them for regular health checks. Therefore, Bolsa Família has two important results: helping reduce current poverty, and getting families to invest in their children, thus breaking the cycle of inter-generational transmission and reducing future poverty. It is a highly effective fiscal policy given that more than 11 million people directly benefited as a result. Around 94% of the funds go to the poorest 40% of the population and most of the money provided is used to buy food, school supplies and clothes for the children. Studies show that till 2004, the



project itself has helped in reducing income disparity by more than 4.6%. Bolsa Família became such an iconic project that many developing countries also adopted variants of it, aimed at helping raise people out of poverty. Alimentacao Escolar (school meal): Very similar to India’s Mid-Day Meal scheme’, this policy provides free meals to children in schools. A large-scale programme, it provides over 87 million free school meals every day. Healthy and nutritious food is provided to every student in schools. This ensures that the young section of the population does not succumb to malnutrition and it also encourages parents to send their children to schools. Fortalecimento da Agricultura Familiar (strengthening family agriculture): The policy is intended to strengthen and stimulate small-scale and family-based agriculture in order to increase the quality and quantity of the food supply, and to support increased incomes for rural households. This programme includes subsidized credit, training and technical assistance, and insurance for small-scale and family farmers. It also aims to ensure a stable market price for products produced by small-scale farmers. Effective governance has been the key to the successes of Fome Zero. President Lula, in his two terms, ensured efficient and rigorous implementation of the project, and his commitment to it not only bolstered his political prospects leading to his re-election in 2006, but also helped many Brazilians enjoy a better lifestyle. The project resulted in the creation of formal jobs and therefore raised the minimum real wage level. It also led to secured agricultural production and guaranteed wages to many farmers. With increased food security, it was obvious that a sharp decline in the level of malnutrition would be observed. By 2010 (the end of Lula’s term), more than 40 million people were reclassified as middle class and the Gini coefficient fell from 0.60 (2000) to 0.53 (2010), indicating a fall in income inequality. The above points give us a promising picture of Brazil but in reality it is a more complex situation. By 2011, IBGE revealed that 16.2 million people (8.5% of the population) fall under the poor section category. Of those 16.2 million people, 4.8 million survive on no income at all, and the incomes of the remaining 11.4 million range between R$1 per month and R$70 per month. Furthermore, the minimum wage is just R$622 (US$ 361) per month, despite an increase of more than 14% decreed at the beginning of the year. Therefore, it is clear that the poorest of the poor did not get any benefits from the policies stated above. This disparity has led to a big problem in urban Brazil. Many people have shifted from rural to urban areas in search of jobs, but with housing prices being too high and jobs being scarce, these people have settled down in urban slums. These slums are known as favelas, and since people there have neither a formal education, nor jobs, they turn to crime. Favelas, over the past few years, have become the notorious hotspot of many cities. Many studies show that a majority of the people living in these slums are black, an ethnic minority which has been discriminated against. Hence, income inequality has become an issue that also includes social discrimination. Rocinha, Brazil’s largest favela, located in Rio de Janeiro, has a population of nearly 70,000 (2010). Dilma Rousseff, the then President of Brazil, launched a multi-billion dollar project aimed at eradicating this inequality. However, her government has been mired in political and legal controversies, and the level of both inflation and unemployment has risen in the last 4-5 years. Poor fiscal policies and ill-advised investments have led to the inability of Rousseff’s government to deliver, unlike the former Lula government. Economists have said that the government needs to come up with effective mechanisms as quickly as possible, else risk Brazil losing its position as one of the most promising economies in the world today. Oikos Annual Journal of Economics (2016-2017)


Data Analysis

Figure 1: This corroborates the fact that Brazil's share of those in poverty fell by nearly half from 17% to 8%, at an annual reduction of 3.2%. India did least well, cutting the share below the poverty line from 60% to 42% between 1981 and 2005. This implies an annual reduction of 1.5% a year. These figures do not mirror growth rates. Brazil cut poverty by more than India despite much lower growth, at just over 1% a year in 1993-2005, compared with India's 5%. Source: The Economist

Figure 2: Import Tariffs

Year 1990 1991 1992 1993 1994 1995

Average Basic Rate

32.1 25.2 20.8 16.5 14.0 13.1

This table corroborates the fact that Brazil effectively lowered its import tariffs as a result of its trade liberalization policies in the early 1990s. Source: Baumann et al. (1998) Figure 3:

The above graphs indicate the time period during which the most effective policies (Real Plan and Fome Zero) were implemented. It is clear that the GDP of the country was determined by when was the policy introduced and implemented, for instance Fome Zero from 2000-2010 shows a somewhat upward trajectory of GDP growth (ignoring the 2007-08 global crisis). Also, in the two decades, i.e., 1990-2010, Brazil made a remarkable

recovery as we find a fall in poverty, and at the same time a rise in GDP per capita. Source: The Economist



Figure 4:

This graph shows what was missing from the Brazilian government’s policies. While it is true that poverty rate fell significantly, only those who were at top of the pile received the maximum benefit. The poorest of the poor are yet to experience a change in their lifestyles and their contribution to the

Brazilian economy is negligible. Therefore, the poverty eradication methods used by the government are two-sided. The Brazilian government, hence, needs to come up with strong policies that enable benefits to trickle down to the very last poor person. Source: The Economist

Figure 5: BRIC nations’ statistics

Source: Drèze, J. and A. Sen, An

Uncertain Glory, 2013

Conclusion Both countries saw a drop in the percentage of their populations living below the poverty line in the period between 1981 and 2005, India from 60% to 42%; and Brazil from 17% to 8%. Over that period, the rise in inequality, as measured by the Gini index, increased in India; however, inequality fell in Brazil. Brazil’s history, however, is different: it clearly has a larger capacity for using redistribution to address its poverty problem than India does. In attempting to reduce poverty through redistribution, an important role was played by various cash transfer programs. These included both non-contributory, unconditional transfers as well as Conditional Cash Transfers (CCTs) targeted to poor families, which have played an important role from the late 1990s

onwards. Due to the scope of its poverty and the massive amounts of money required for potential state interventions to make a difference, the case of India can be distinguished from Brazil’s. The potential for using income redistribution to address India’s poverty problem is far more limited



than in Brazil. Still, there is much hope for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which promises to provide up to 100 days of unskilled manual labour per family per year, at the statutory minimum wage rate for agricultural labour, to anyone who opts for it as per their legal right in rural India. In our view, it is quite important that the benefits of policies which are effective should also reach the poorest of the poor. It is not just the tip but the whole iceberg that should be covered by the Brazilian government. However, this demands significantly more effort, more commitment and, most importantly, more patience. It is important that we realize, and appreciate the scale of this problem, by virtue of the revealing statistic that the poor sections of Brazil’s society barely contributes 4% of its GDP. To conclude, Brazil’s case is one of lack of growth and in India’s the case is of lack of poverty-reducing growth. Brazil scores well on the social policies side, but India does not; in India’s case the bigger problems are the extent of capture of the many existing policies by non-poor groups and the weak capabilities of the state to deliver better basic public services. While Brazil needs to focus on improving its growth rates as a languishing economy hurts the formation of new jobs in the market economy to accommodate people beyond the coverage of social programmes, we hold the opinion that India needs to learn a lesson from Brazil and promulgate comprehensive and well-funded targeted social interventions and programmes which will reduce the staggering inequality in the country and leapfrog towards raising a near-universal portion of its populace from the shackles of inter-generational and repressive poverty. References International Monetary Fund (IMF) Instituto Brasileiro de Geografia e Estatística (The Brazilian Institute of Geography and Statistics) CEIC and The Economist Intelligence Unit, An Indian Summary: Comparing Indian states and territories with countries Central Intelligence Agency (CIA) World Factbook Drèze J. and A. Sen, An Uncertain Glory, 2013 Ravallion, M., A Comparative Perspective on Poverty Reduction in Brazil, China and India, Development Research Group, The World Bank, October 2009 Aveburg, A., Brazilian Trade Liberalisation and Integration in the 1990s Dornbusch, R., Brazil’s Incomplete Stabilization and Reform, 1997 Oxfam Case Study, Fighting Hunger in Brazil, 2010 Imai, J., Seeds of Change in a Deep-Rooted Society: Poverty Reduction in Brazil under President Lula, International Affairs Review The Rio Times, Brazil Strives for Economic Equality, 2012 Ali, R., Income Inequality and Poverty: A Comparison of Brazil and Honduras, 2015 Bhagwati, J, and A. Panagariya, India's Tryst with Destiny, 2013



National Family Health Survey (NFHS), 2005-06 Mishra, A. and I. Dutta, Inequality, in Basu, K and A. Maertens 'The New Oxford Companion to Economics in India' (2012) Hnatkovska, V. and A. Lahiri, The Rural-Urban Divide in India Krishna, U., Summary Report, Second Administrative Reforms Commission, The Brookings Institution, 2016

Articles Reserve Bank of India: Loss of Identity Jatin Nair Kirori Mal College, University of Delhi, India

As an autonomous body, the central bank holds big powers and responsibilities to shape the present and future economic conditions of a nation. The central bank of India, known as Reserve Bank of India (RBI), is one of those central banks which has seen an expansion of its jurisdiction along with added responsibilities in the last few decades. Since the reforms of the 1990s there has been a dramatic growth of the banking sector, with more and more foreign banks and financial institutions entering the Indian economy. This has been complemented with impressive development of the economy itself as it witnessed an escalation in consumption, investment, and savings. The 1990s also saw a change in the political power structure as both Congress and BJP-led governments ruled either half of the decade respectively. Despite such monumental changes in the last few decades, RBI has always stood for its own principles and has been acting as a rational institution, blessed with some brilliant governors who have been in charge. Being a



conservative central bank, i.e. always targeting lower inflation, RBI has been more or less successful in achieving its basic motive. But with the recent developments in the last few months, questions have been raised regarding the credibility and the autonomy of RBI. Being an independent body, it shouldn’t be under any pressure from the central government to take decisions. But it seems like the central bank is being pushed to take drastic decisions, if not being completely controlled by the Centre. Whenever there is a transformation in the status of the legal tender, the central bank, and the governor will obviously come under the microscope. And when almost 60 to 70% of the cash is instantly flushed out of the economy, it is not only the institution and the head that is questioned, but it also raises several doubts about the credibility of that institution. In any previous regime, it would have been hard to imagine such steps being taken. Initially, demonetization was touted as a bold move by both the Centre and the RBI, but a sudden decision applied on an economy that is primarily dependent on cash led to its effect as being patently chaotic. If the RBI had been conservative as it had been before, why would it have involved itself in the demonetization process- hopefully being aware of its consequences? The consequences surfaced just after few weeks of the announcement as prices of agricultural output increased in many regions. It was disappointing to see that even though farmers had a much better Rabi season, they couldn’t sell their products in the market because of lack of demand. This is just one of the several cases where local businesses were affected not because of some natural economic anomaly but because of a forced monetary action. Also, many well-known economists couldn’t understand the casual approach the RBI took in order to approve such a massive move. The worst part of this issue is that the RBI has simply followed the footsteps of the central government by promoting the idea of demonetization as the next step to go cashless rather than sticking to the original intentions (i.e. to prevent corruption, counterfeiting, and funding to terrorist organizations). Our central bank is filled with some of the most brilliant minds of the nation, yet to change objectives while not looking at the future results, has not only baffled many within the country but also many foreign economists, business tycoons, and central bank officials. To some extent, we can understand the approach in tackling the above three issues, but to go purely cashless is an idea that not only seems shocking but purely irrational. We have to remember that India is a major cash economy, where almost all of the lower middle class and the lower class population is completely dependent on cash transactions. In the past, we have seen the RBI and the central government clashing over several economic issues, but this is the first time that the central bank is going in sync with the Centre from one step to the other step, without any questions being raised. It’s not just following the Centre blindly that has surprised many, but it is the lack of responsiveness and accountability from the central bank that makes this problem even more serious. RBI refused to declare the minutes of the central board meeting that led to cancelling of legal tender of higher denominations, until January 10, 2017, which is bemusing. Before the given date on which the RBI released a 7-page note, the Right to Information (RTI) application for these minutes was turned down. From the recently released note we get to know that on November 7, 2016, the central government advised the RBI to consider the note ban and on the very next day after ‘discussions and deliberations’, the latter gave the approval. The note also mentions that the central government and the central bank discussed the prospects of releasing new notes earlier but it turns out that the preparations made by both were poor. For instance, when Prime Minister Narendra Modi announced the decision to demonetize on November 8, 2016, the stock of Rs 2000 notes was only 6% of the total value of 15 lakh crores of cash withdrawn from the economy. It is also to be noted, that the central board of the RBI that gave the final approval consisted of only 4 independent members instead of 14, and 6 executive members instead of 7. Even though the RBI has released information, it still hasn’t clarified how new currency notes were going to be distributed and prioritized. But what comes as the biggest shock is that the sources within the RBI reported that almost 97% of the demonetized notes are back in the banks. Even though RBI has played down these claims, stating that calculations are still underway with the possibilities of double counting and other errors being included. In December, the RBI released an official


Kirori Mal College, University of Delhi 20 Jatin Nair

update wherein it declared that 80% of the demonetized notes are back in the banks. If we even include minor errors in calculation, the latest update would still come very close 95%, which is very concerning because if a major step like demonetization leads to such an insignificant result, then it seems like the RBI has not only underestimated its calculations but may have also affected the future economic growth of the nation. Poor planning, and a lack of transparency, accountability and vision have left the RBI on the back foot, which may require some serious remodelling in order regain its reputation.

Risks of Financialization

Ujjwal Krishna Kirori Mal College, University of Delhi, India

Financialization is a broad term used to refer to a trend wherein the ascendance and domination of financial actors, financial motives, financial markets and financial institutions, in the domestic and international economies, has left finance in command of the fortunes of the world economy. The basic role of finance, that is to act as an intermediary between lenders in an economy with actors who seek capital to make productive investments in the form of bank loans with reasonable rates of interest, has in the post 1980s period, also considered to be the period during which neoliberalism took centre-stage as the de facto system of economic policymaking in the world, changed into an increasingly complex process with a decisive depersonalization in the relationship between lenders and borrowers. The steady deregulation of national economies undertaken by British Prime Minister Margaret Thatcher and US President Ronald Reagan in the 1980s, as a response to an increasingly inefficient public sector and excess welfarism in their respective countries, saw the steady dismantling of the controls that were put in place to guard against financial excesses and dangerous financial innovations in the post-World War II era.



Neoliberalism essentially represents a system wherein certain firm beliefs, for instance, in the supposed all-encompassing infallibility of the market, in the virtues of a competitive structure that supposedly perfectly ensures the production and delivery of efficient goods and services, in strong property rights as a bedrock requirement for any economic activity to proceed, ensured as a result of a strong legal and intellectual property rights-defending institutional backing, and through the protection of contractual obligations thereof, as well as a belief in privatisation, deregulation, and the strategic divestment and disinvestment of the public sector, are sacrosanct. Plenty of these core beliefs, enshrined in the institutional mechanisms of Bretton Woods institutions like the World Bank and the International Monetary Fund (IMF), are accepted as sacrosanct due to an instinctive link that has permeated within the neoliberal psyche that such measures promote equity and fairness in general, ensuring a fair outcome for all economic agents. This trend has also gained academic impetus, wherein an increasingly larger number of Nobel Memorial Prizes in Economic Sciences are awarded to economists who develop increasingly complex financial models, and the emergence of game-theoretic frameworks in the ‘principal-agent’ model, wherein best outcomes for both powerful and powerless agents ought to be simultaneously ensured. Financialization is essentially reinforcing the core tendencies of neoliberalism. There is a near-perfect correlation between the features of financialization and those of neoliberalism, to the extent that it would even be fair to say that it constitutes neoliberalism at a fundamental level. Class configurations Financialization has aided in the reconsolidation of class power, not in its pre-World War II hereditary sense necessarily, but through an increasingly larger proportion of incomes from jobs in the financial sector. This is in stark contrast to the secular post-War phenomenon wherein income equality steadily rose, and legislations and institutional regulations kept excesses in check. However, class power, exacerbated further as a result of hereditary passing on of wealth, and a steady increase in the incomes of the financial sector, is on the unquestionable ascendant. Pension funds and mutual funds have had a big role to play in complicating the financial sector and skewing people’s traits, given that they would willingly default on critical dependencies like housing as opposed to automobiles due to the conditioning by the financial sector. Corporate governance In this realm there has been a significant departure from Chandler’s conception of a manager-led capitalism of the post-War era and John Kenneth Galbraith’s vision of a capitalist structure independent of purely shareholder interests and profits essentially being utilised to improve societal conditions, predicated on the belief that companies are a force for good and have a responsibility towards the society whence they operate. However, financialization has altered corporate governance structures so drastically that now investors and shareholders call the shots and a company’s sole motive is to deliver value and profits for the shareholders to partake in. Rakesh Khurana, Dean of Harvard College, puts this as the shift from managerial capitalism to investor capitalism, in which managers are reduced to nothing but mere hired hands. Even managers have aligned their actions and interests with the expectations of their investor or hedge fund masters, and this is also due to top CEO’s incomes rising to around 400 times the mean US wage, as opposed to around 25 times higher in the pre-financialization era. A vast superstructure of gambling transactions is built on the needs of consumers of goods and non-financial services. The increasing complexity of the financial sector can be attributed to a trend of shifting from low-risk high-yield instruments to high-risk instruments that can potentially have high yields in a short span of time. The risks therein are hedged to insure against unfavourable outcomes. The very process of intermediation itself has changed fundamentally through complex processes of slicing and tranching, giving rise to securitization. This essentially



means that loans and mortgages that were originally a single security are now reconfigured into tranches of a range of low-yield to high-yield securities, known as collateralized debt obligations (CDOs). There is also a higher variety known as CDO square, essentially meaning a CDO that is backed by tranches of CDOs of a usually slim range, consisting of high-credit rated (AAA and AA) securities bundled with securities rated even worse, like BBB, BB and CC, and so on and so forth. However, the overall credit rating of a CDO was determined using deliberately complicated financial models by credit rating agencies like Standard and Poor's and Moody’s, who would a oblige banks by rating the CDO at an AAA or AA level, given that they also operate in a competitive market where they are paid by banks to carry out these assessments. This chain of securitization is an inherently a week and unstable one, given the patent inferiority of the CDOs’ constituent securities, which would run into the hundreds for just a single CDO.

Thus, the extent to which speculation becomes critical to a bank's routine activities proves the extent to which financialization places the world at risk. The inherent risk in such malpractices resulted in the 2008 Wall Street crash with Lehman Brothers declaring bankruptcy. Given how all financial institutions are interconnected, the American Insurance Group (AIG), on the brink of collapse, was bailed out by the US Government. The very notion that a bank is ‘too big to fail’ is a red flag, in that it points to the inherent vulnerabilities that exist in a global economy that is dictated on the whims and fancies of the financial sector. Even governments align themselves with financial interests, fuelled not in the least by loose campaign finance regulations allowing banks to handsomely contribute to Political Action Committees (PACs) and Super PACs. Governments essentially kowtow to financial interests, and this is exposed in the face of a crisis wherein the bailing out of financial institutions becomes the priority of the government’s economic policies in the short-run, lest the consequences be too severe. The belief in equity ownership giving an impetus to innovation, and hence market competitiveness, is another instance of financialization, where tax deductions are freely granted to equity investments in unlisted securities. John Maynard Keynes’ observation that a country's capital development, when dependent on the activities of a global casino, is not likely to be well done, provides the concluding assessment of the risks financialization poses to the global economy.



Smart Cities are Economic Levers for Sustainability Rupsha Mitra Kirori Mal College, University of Delhi, India

The urban boom in India has raised questions about sustainable urban growth. New urban growth is expected to witness massive expansion in urban infrastructure. There are fears that this will lead to an enormous demand for resources, generate waste and lock in pollution and carbon in the infrastructure that can adversely affect the wellbeing and liveability of cities. This has, therefore, shifted the focus towards boosting climate smart, climate resilient and environment-friendly infrastructure that can reduce the carbon footprint of economic progress while stimulating productivity and growth. This debate has therefore brought the new Smart City Mission of the Government of India under the spotlight. Is this policy designed to deliver on the indicators of sustainability in the chosen cities to help guide other cities as well? In 2016, the Government of India released the first list of 20 smart cities, drawn from 11 states and Delhi. It decided on Rs 50802 crores of investment over five years to collectively develop 26735 acres of real estate for making them smart with a public-private partnership model of financing. These cities include Indore, Jabalpur and Bhopal in Madhya Pradesh, Surat and Ahmedabad in Gujarat, Udaipur in Rajasthan, Solapur in Maharashtra, Ludhiana in Punjab, New Delhi Municipal Council area in Delhi, Davanagere and Belgaum from Karnataka, Kochi in Kerala, Coimbatore and Chennai from Tamil Nadu, Visakhapatnam and Kakinada from Andhra Pradesh and Guwahati from Assam. Earlier the Union Budget of 2014-15 had earmarked Rs 7060 crores for 100 new “smart cities”. According to the Mission statement, the purpose of the Smart Cities Mission is to drive economic growth and improve the quality of life through local area development and harnessing technology. Area-based development will transform existing areas, including slums, and new areas will be developed to accommodate urban expansion. Some guidelines for smart cities have also been developed. How can India use this opportunity to take forward a sustainability roadmap for cities and improve the economy?


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What is the urban sustainability challenge? The kind of urban spaces that we live in now are hazardous dens. According to the World Energy Outlook 2015 of the International Energy Agency, population and incomes are on the rise and an additional 315 million people are anticipated to live in Indian cities by 2040. India is now experiencing rapid growth in energy consumption. According to the scientists of the Indian Institute of Science, Bangalore, the bigger states like Maharashtra followed by Andhra Pradesh, Uttar Pradesh, Gujarat, Tamil Nadu and West Bengal, are higher emitters of carbon dioxide (CO2). Smaller states and Union Territories like Arunachal Pradesh, Mizoram and the Andaman and the Nicobar Islands, have lower emissions. Bigger states also have a higher share of urban population. This is a serious challenge given the fact that there are 5000 cities and towns in India but 70% of the urban population is in about 400 cities and the rest is in about 4000 towns and cities. About one-third of the total urban population is in the megacities. Top ring cities also show a strong trend towards suburbanization. This has implications for infrastructure investments and rural-to-urban migration. In the name of development, current city planning compromises both health and the environment. The resource footprint of cities is growing rapidly. According to the Energy Outlook 2009, already two-thirds of the world’s energy is consumed in cities, half of the world’s population. By 2030, cities will be consuming 73% of world energy. The cities account for 70% of CO2 emissions. A big increase is expected in global CO2 from increase in floor space in buildings of various types across all countries. According to a McKinsey report, 70% of expected total building stock in India in 2030 has not been built yet. If this is not regulated well it can have serious impacts on resource use, pollution and waste generation. Cities collectively consume 75% of the world’s natural resources, generate 50% of the waste, and emit 70% of greenhouse gases. It is now a matter of global attention how urban infrastructure development can help in turning the climate around. According to the Global Commission on Economy and Climate, an independent initiative of European countries found climate-smart cities can stimulate economic growth and improve the quality of life by cutting carbon pollution. Based on this, The Guardian has reported that putting cities on a course of smart growth – with expanded public transit, energy-saving buildings, and better waste management - could save as much as USD 22 trillion by 2050. By 2030, this can avoid the equivalent of 3.7 gigatonnes a year globally – more than India's current greenhouse gas emissions. The same argument is valid for India. There is strong expectation that urban spaces which would be developed under the Indian government’s “Smart Cities Mission” will create a blueprint for transformational changes that will enable minimal carbon emissions while substantially contributing to the GDP of the country. This is important in view of India’s recent commitment at the climate summit in Paris (COP21) to reduce carbon intensity by 30-35% of its GDP by 2030. This will require massive reduction in CO2 emissions in cities to help meet this target. In fact, global cities that are under pressure to mitigate climate change are setting targets and deadlines for CO2 reduction -- London by 60% by 2025; Paris by 25% in 2020; Toronto 30% by 2020, from 1990 levels. Tokyo will reduce by 25% by 2020 from 2000 levels. To this is added the urban air pollution challenge of meeting clean air standards. This will require multipronged interventions in the major sectors of waste and energy management, transport, buildings and public spaces. Re-engineer the economy It is possible to improve the economic outlook as well as reduce the risks of climate change and pollution. Such investments can boost the economy and increase aggregate demand to stimulate growth. Smart city investments are linked with some core infrastructural elements that include e-governance and digitization, energy management, waste and water management, sanitation, affordable housing, skill development centres, and trade centres, etc.



According to a 2015 paper on the funding options for smart cities, published in the Indian Journal of Science and Technology, the government’s focus is institutional and physical infrastructure, and nearly 21% of the funds are allocated to water and sewerage while roads and mass transit have been allocated the remaining 79%. This investment in “smart development” will have to be guided by the principles of sustainability to ensure that fundamental structural reforms take place to reduce the resource and pollution impacts and also improve economic productivity. According to the Smart City Mission, the total energy required by the 20 cities by 2022 is projected to be around 12 million units per year. Of these, as per the smart cities proposal, 10% will be from solar power. This is over and above the existing solar energy programs which the Ministry of New and Renewable Energy (MNRE), Government of India, is currently implementing. According to MNRE estimates, Indian cities will account for nearly 30% of the total renewable energy production. Similarly, if the new building construction in our cities is built with adequate energy efficiency measures, it is possible to achieve operating energy savings of 20-30% and water savings of 30-50%. The infrastructure development also has to be climate resilient. India is already experiencing severe consequences of frequent climatic disasters. Chennai, Uttarakhand and Ladakh floods, and intense rain spells in different parts of the country are evidence of the need to make resilient infrastructure. The cost of devastation and destruction of infrastructure eats away a chunk of the GDP. Thousands of crores are lost in this manner. This will get worse if new urban development ignores the environmental constraints. After the Chennai floods, it was reported that Chennai became more risk prone after filling up its water bodies, draining wetlands, etc. This has disrupted natural water flows. New plans will have to factor in the risks from natural disasters and extreme weather events due to global warming. Smart city development can create more diversified economic opportunities and foster innovation if planned well to reduce environmental risks. Only this, in the long run, can help to reduce environmental and public health risks in our cities.

Analysing Indo-German Economic Linkages

Sara Switala Karlsruhe Institute of Applied Sciences, Baden-Württemberg, Germany Germany and India share a long economic and political history. Their bilateral relations are the result of years of cooperation based on common values like democracy and are marked by trust and mutual respect. Germany, as India's most important trading country in the European Union, will also contribute a lot to the Indian economy. Germany and India have a significant relationship in bilateral trade and intellectual property sharing. Recent numbers revealed that Germany is amongst India's most important partners and investors in the global context and even the most important trading partner within the European Union with about 5% of Indian international trade accounting to €4.94 billion in total. In 2015, Indian exports to Germany were about 7% higher than in the year before. The Indian imports from Germany were even 10% higher than in 2014. There is a high demand for German machinery in India. At the second spot there are chemical products, followed by data processing, electronic and optical equipment sectors. On the other hand, Germany's imports from India mainly consist of textiles, followed by chemicals, electro-


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technology, metal and metal products, machinery, leather and agriculture. Another important economic sector to mention is the tourism branch in India as well as in Germany. German FDI in India was over US $1.14 billion in 2015. It is worth mentioning that Germany's total FDI in India from 2000 to March 2016 has been about US $8.64 billion meanwhile the value of bilateral trade reaches more than US $17 billion. Indeed the Indo-German Economic Relations had already begun in the 16th century, as the German merchant and banker Jakob Fugger financed the first voyage route ever from Germany to Goa. In the following centuries German investors have become interested in establishing their companies in India mainly to trade with Indian and the East Asian countries. India has benefited a lot from the economic relations with Germany after the German giant enterprise Siemens built the first telegraph connection between Kolkata (then Calcutta) and London via Berlin. It contributed to a wider infrastructure in India. Especially after the Second World War, India was one of the first countries with which Germany established economic ties. However trade with Germany remained low until the end of Cold War and Germany's reunification in 1990. The Indian reform policy in 1991 has led to a drastic change in Indo-German economic relations. Since the introduction of the Euro in Germany Indian exports have risen steadily over the years. Many German investors have discovered profitable opportunities for their establishments in India, primarily in the transportation industry, electric equipment, metallurgical industries, fuels, service sector, chemicals and construction activities. German automobile giants Daimler, Volkswagen, BMW and Audi have already established manufacturing facilities and assembly plants in India. Other German enterprises present in India are Siemens, Thysenkrupp, Bosch, Lufthansa, BASF, SAP, Bayer, etc. The most attractive destination for German investors is Maharashtra where about 57% of all investments have been done by German companies. Generally speaking the Southern states Tamil



Nadu and Karnataka are gaining popularity mainly because of the conducive investment environment there. The strong urban, social and educational infrastructure, high literacy rate among the population, the high number of potential labourers and the stable financial situation are only a few factors which contribute to the success of Tamil Nadu. One must not forget that there still exist borders in India for international investors, like the lack of information and complicated bureaucratic procedures that hinder economic cooperation and remain unsolved. Not only have India's protectionist economic policies and system of mixed economy contributed to a rising trade volume but so have several agreements and joint ventures. Up until today there are more than 1600 Indo-German collaborations and over 600 Indo-German Joint Ventures. Since then, German exports to India have increased remarkably in new investment and technical cooperation projects such as the S&T Cooperation Agreement in 1971 and in 1974 that guarantees a framework and a privileged forum to identify common interests, priorities, policy dialogue and the necessary tools for S&T collaboration. Furthermore, double taxation is avoided and investment secured. Another significant agreement is the Free Trade Agreement (FTA) between India and the European Union in general. This FTA covers the access to each other's markets for goods, services, and for the public procurement of contracts, the framework for investment, including investment protection, the rules that frame trade, such as intellectual property and competition, sustainable development, to ensure growth in trade is in tandem with the environment, social and labour rights, are important prerequisites. Germany became an important point for Indian Multinational Enterprises and even a target market for Indian investments in information technology (IT), automobile sector, pharmaceuticals, biotechnology and manufacturing. The State of Hesse has attracted the most Indian investors, followed by North-Rhein Westphalia, Bavaria and Baden-Württemberg. Indian investments in Germany are justified by proximity to customer, presence of industry clusters, modern infrastructure, highly educated and motivated workforce, lucrative subsidies by the government, treaties and agreements and reduced obstructions to investments on both sides. However Indian investments remain very low because of the higher costs in Germany. The potential for business cooperation exists in the field of IT as know-how of both countries is high in this space. Nowadays more than 200 Indian companies are placed in Germany, including software providers like Tata Consultancy Services (TCS), Infosys, Wipro, etc. Ranbaxy, Piramal, Samtel, Hexaware Technologies, NIIT, Hinduja Group, Biocon have either acquired German companies or started their own subsidiaries. India's prime trade facilitation organization, Electronic & Computer Software Export Promotion Council, participated at the CeBIT, held in March 2011 at Hannover. CeBIT is the best known international trade fair showcasing technological progress. The main groups represented with the aim of expanding their business globally are industry, banks, service sector, government agencies, science and technology. Moreover the Indo-German Chamber of Commerce (IGCC) developed into the largest foreign chamber of commerce and trade in India and in addition, into the largest German bi-national Chamber globally. Intergovernmental consultations between the two governments and dialogue favour the bilateral trade based on the cooperative relations between the two governments. Chancellor Angela Merkel and President Joachim Gauck visited India several times. On the other side Prime Minister Narendra Modi, External Affairs Minister Sushma Swaraj, and other Ministers of the Government of India have already been to Germany in favour of the political and intercultural interactions. Furthermore both governments cooperate closely on the issue of UNSC expansion and consult each other in the G-20 on global issues. Latest efforts to strengthen military cooperation and to deepen relations in the field of defence and security have added another component to the bilateral relations between India and Germany.



Twinning arrangements like the one between Mumbai and Stuttgart are just another role model for strengthening links by enabling communication and cultural exchange between the two countries. Partnerships with the Max Planck Society or the Fraunhofer Laboratories and universities help to provide educational and scientific exchange which prove very useful for innovative companies in both countries. Last but not least, an interest in Indian culture due to the film industry, cuisine and internships is becoming very prevalent in Germany. For the future, India and Germany have already taken responsibility to work on more issues related to development policy and environmental protection. The Indian space programme, IT and biotechnology already have a high reputation in Germany. It is certain that Germany will continue the economic and political cooperation with India as an innovative, creative and sustainable partner and that the bilateral trade will grow constantly over the next years. Germany as India's most important trading partner within the European Union will still play a valuable role for the economic success of India.

Nostalgia: Why the Old One? Jyotsana Kala Kirori Mal College, University of Delhi, India Every time I watch a movie based on a book, I feel like the book was much better. Somehow the image of a scene or a character created by the mind overpowers the visual shown in the movie. Why do people buy outdated items? Plenty of people buy vintage clothes, even though they’re largely considered out of style by today’s standards. People stick to the older versions of games even though new versions come. The economics of nostalgia has a lot to answer for such seemingly strange decisions. Nostalgia is sentimentality for the past, typically for a particular period or place with some association or the other. Nostalgia combines the sadness of loss with the joy or satisfaction that the loss is never complete, nor can it ever be. It is a vehicle for travelling beyond the deadening confines of time and space. Nostalgia can lend us much-needed context, perspective and direction, reminding and reassuring us that our life is not as mundane as it might seem, that it is rooted in a narrative, and that there may have been, and will once again be, meaningful moments and experiences. On the other hand, nostalgia can also be seen as a form of self-deception as it involves the distortion and idealization of the past because the bad or boring bits fade from memory more quickly than the peak experiences. Colombia’s Nobel Laureate Gabriel García Márquez observes in the opening pages of the memoir of his life up to early manhood, “Vivir para contarla” (Living to tell the tale), “until adolescence, the memory is more interested in the future than the past, so my memories of the town were not yet idealized by nostalgia”. The town refers to Aracataca, situated in Colombia’s northern coastal plains, where the author spent the first eight years of his life in his grandparents’ house. But when time came to sell it, he just couldn’t. His visit to Aracataca was decisive in creating the idealized world in his imagination that so many of his readers have come to love. In economics, we expect people to be rational in their decisions when they buy goods or services. In theory as well as real life, people determine the choice of goods or services by a logical process; they buy the preferred option in order to maximize their utility or satisfaction. Now buying an outdated item seems inconsistent with this rational choice theory. In general, newer items come with more benefits and extras which should give more satisfaction to people. Such decisions are influenced by nostalgia. Our brain interprets the emotions and memories that can be


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rediscovered by doing something old, as having immense value. It seems that the memories and emotions that can be relived in old items are able to generate value to some people, enough for them to even purchase them. These qualities can also indirectly influence people to buy new items. People associate sequels of famous games and series with fond memories of watching the series for the first time, which provides value to them. They are motivated to buy these items because they believe that these new items will give them the same feel-good factor as the old items, if not more. It’s no wonder why there are still adults who play Pokémon, even though teenagers are the target market of the makers of Pokémon. The principles of the economics of nostalgia can also be found in the collectibles market, which includes stamps, coins, vintage cars and rare wines. At a glance, the rational person would accept the high values that these items command because of one important factor: scarcity. However, this does not make sense if we think about it more closely. What is the value of old stamps, or vintage cars to most people? Old stamps don’t have any functional value in today’s world, and the performance of vintage cars is inferior to the cars of today. Now, why do some people still buy these out of date items, often at extraordinary prices? This phenomenon can be explained by the subjective theory of value. This ideology explains that the value of a good is determined not by its intrinsic properties, nor by the amount of labor required to produce it, but by the importance that an individual places on the item. This theory would explain the actions of many buyers in the collectibles market. These people are compelled to buy old items, in which they see enormous value, even though there are better performing alternatives, often available at lower prices. However, we must also note that there are also investors in the collectibles market who purely chase profits. For example, many wine collectors purchase rare, vintage wines not for personal consumption. Instead, they sell them later for higher prices, often to collectors who follow the subjective theory of value. Furthermore, the economics of nostalgia is not only confined to goods or services; it can also be applied to certain experiences. A great way to explain the charm of old and outdated pieces of history is to study the market for heritage and nostalgic tourism. In this market, people travel to places that they have been to before, or go on a holiday to countries where they can discover ancient cultures. For example, an international student who studied in India may come back for a holiday to relive his youth, or a couple might visit Italy to see ancient buildings such as the Colosseum or the St. Peter’s Basilica in Vatican City. While nostalgic tourism is fuelled by the desire to relive past experiences, the demand for heritage tourism is fuelled by the desire to experience cultures and tradition that have survived to the present day. In the world that we live in today, we buy things to satisfy our needs and wants. It doesn’t always matter whether the items that we buy are new and shiny, or old and outdated. As long as an item is able to provide the value that we need to satiate our desires, it is good enough. It then becomes clear that the value that we personally attach to old items can explain our fascination with the relics of bygone eras.

Automation and the Future of Labour Mayank Jain Kirori Mal College, University of Delhi, India Anxieties over technology displacing human labour have existed ever since machines have been used for production. In popular imagination and in the minds of people who witness the advent of technology most closely, it is almost always a zero-sum situation, where technology is seen to be at direct odds with human workers and human interests. These anxieties have most famously manifested themselves in the Luddism movement in 19th century England, in protest against the increased use of labour-economizing machines for textile production. Humanity has come far from the early days of steam engines and spinning jennies to cloud-computing and Artificial Intelligence. As innovations spawned machines that made human labor more efficient, fast, and


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cheap, workers have had to make room for machines in tasks that were earlier done solely by human effort and skill: from keeping business accounts and manufacturing goods to making food, creating art and producing culture. Besides a more or less peaceful co-habitation in some areas, there have also been spheres where human labor has been completely displaced by the arrival of technology that performed the job faster, more efficiently, and much more cheaply, without inconveniently unionizing, as compared to humans. An example of this is a large chunk of digital marketing and financial market analyses. Thus, we see that the historical tension between machines and humans has not ceased to exist, as machines, from the smallest ones that fit in our palms to the largest ones that need factories to operate, occupy an ever-greater importance in our lives, and continue to engage and battle with the amount of space and importance accorded to human labour within the realms of work and production. Most scholars and economists agree that this tension gets heightened during times of economic crisis, and we see symptoms of this tension in contemporary movements like Neo-Luddism, which is concerned with the unchecked expansion of technology and technological unemployment. Perhaps the best example to illustrate how technology has changed the very nature of work, production, and the way in which labor relates to the two is the Human-Cloud. Employers are starting to view the Human-Cloud as a new way of getting work done, wherein white-collar jobs are chopped into hundreds of discrete projects or tasks, then scattered into a virtual “cloud” of willing workers who could be anywhere in the world, so long as they have an internet connection. Some of these tasks are as simple as looking up phone numbers on the web, typing data into a spreadsheet or watching a video while a webcam tracks your eye movements. Others are as complex as writing a piece of code or completing a short-term consultancy project. Ventures like these are changing the notions we hold about the very nature of work itself. “Work” is now no longer defined by fixed hours, salaries, compensation, time, or even space. Advocates say that these new ways of organizing work are empowering for the worker as they allow him or her to seize control of the means of production, as one just needs an internet connection and one’s own skills to work. However, it is important to realize that these “new” workers are often compensated very poorly, often just a few cents apiece, or a few cents an hour, depending on the skill required for, and the nature of, the task. Further, because of the changed nature and fabric of work, the question of



whether these workers should be classified as employees or not remains largely unanswered. At present, Human-Cloud platforms usually classify workers as “self-employed”, which frees them up from paying minimum wage, employer taxes, and benefits like sick pay. The issue of whether this kind of work is dehumanizing workers, and preventing them from engaging in relatively more meaningful employment, and the issue of whether this kind of work serves as just a ruse to deviate attention from massive, large-scale involuntary unemployment kept aside, the argument that workers are seizing the means of production is simply misguided, as even if they were doing that, massive amounts of surplus value are still being extracted at their expense, that too on two levels- firstly at the level of the Human-Cloud platform, i.e the intermediary, and secondly at the level of the company that assigns tasks. That technology is changing and displacing jobs and their nature is not an unfamiliar idea. Its advancement through exponential increases in innovations over the past few decades has left a permanent change in jobs like manufacturing, where at least in the United States and China, the world’s manufacturing powerhouses, fewer people work in manufacturing today than in 1997, technology being at least partly responsible for this development. Jobs in analytics and many other white-collar jobs have had to bear similar changes. Eric Brynjolfsson, a professor at the MIT Sloan School of Management, and his collaborator Andrew McAfee point in their research to a divergence between labour productivity and total employment starting from the year 2000, which largely coincided or tracked each other for years after World War II. This means that earlier, increased productivity led to increased economic growth, which in turn created more jobs. However, starting from the year 2000, according to their data, productivity kept on increasing, but the resultant increased economic growth did not translate into higher employment. Their research also points to a continuously falling median wage for labor across most, if not all sectors, the reason for which is not limited to increased permeation of technology, as it is important to count factors like the financial crisis in the whole equation. From this, we see why our implicitly held and accepted notion of more education and skills being absolutely essential to earning a higher income and securing better employment in today’s economy becomes true. As technology keeps on changing and re-changing the nature and fabric of jobs, taking human labour in its stride while also simultaneously dwindling its necessity, it is reasonable to say that skilled labour will be much more valuable in the economy and societies of the future, even more so than today. However, we must also note that there exist huge disparities between classes in terms of access to, and levels and quality of education, which become a root cause of disparities in employment and earnings and an obstacle to social mobility. Even an undergraduate education doesn’t guarantee employment today, keeping aside the fact that obtaining an undergraduate education has become a huge financial burden in countries like the U.S, where we see massive amounts of student loan debts which even exceed credit card debts. Thus, there exists a pressing need for social reform and legislation aimed at making education more inclusive and accessible, with an improved quality of its delivery across classes, to hedge against a future of immense technological unemployment. Efforts must be made to divorce the positive, growth and innovation related aspects of technological advancements from their more destructive, and dehumanizing tendencies. Movements like the ones pushing for universal basic income, where every individual is entitled to an unconditional basic level of income must be given more thought and taken more seriously, as they hold the key to make sense of, and adapt to a future where the way in which humans and human labour relate to the very concept of work may be so radically different from today, that it becomes hard to form a coherent and clear picture of what might that entail and include. Technology and automation, without a shadow of a doubt, will play a significant role in how that picture is formed.



Economic Impact of the Refugee Crisis: Humanitarianism versus Nationalism Rupsha Mitra Kirori Mal College, University of Delhi, India The global economic slump accompanied with the rise of economic fundamentalism has made the refugee crisis particularly severe. Estimates from the International Monetary Fund (IMF) indicate that 2017 will possibly be the sixth consecutive year in which the global growth in gross domestic product (GDP) would be below its long term average of 3.7% (1990-2007). Low growth and increasing inequality, especially in developed countries continues to hold back domestic demand resulting in a lack of investment opportunities and job prospects in the developed world. The bleak economic scenario witnessed in recent years has been the background against which the refugee crisis has occurred due to a rise of Islamic fundamentalism in the Middle East. The growing number of refugees that have reached Europe and the Western world has aggravated the already bleak job market and the overall economic scenario in these countries. This has raised a question about humanitarianism versus nationalism amongst countries and we shall in the following paragraphs try to see how the economic impact of the refugee crisis has brought about this divide between humanitarianism and nationalism. Genesis The rise of ISIS which has been the root cause of the refugee crisis started back in 2004 as Al Qaeda in Iraq. However two years later it was rebranded as ISIS. Like any other governing body, the ISIS also has a structure comprising a cabinet and governors to the financial and legislative bodies. But this governing structure is a far cry from being a democratic body. ISIS wants to be recognized as an Islamic State but no government in the world recognizes them as a state. ISIS came to the forefront when it overran Iraq’s second city of Mosul and started infiltrating through Iraq, threatening to eradicate the country’s ethnic and religious minorities. When ISIS reached its peak, according to the reports there were about 10 million people living under the territory controlled by the Islamic group. Due to the oppressive policies, propaganda and torture that ISIS unleashed in the region, citizens started leaving in large numbers. More than a million migrants and refugees crossed into Europe in 2015. Syrians comprise of 40% of the people seeking asylum in Europe, according to the reports of UNHCR. The rest of the migrants belong to Afghanistan, Iraq, Iran, Pakistan and Nigeria. This movement has been seen as the largest movement that the continent has witnessed since the Second World War. Such a massive influx of people into Europe has provoked debate and differences amongst the European nations over the policy of open borders. Along with fleeing away from conflict-ridden nations, another reason as to why migration is happening is due to the lack of jobs and poverty. Hence, people are leaving their countries to look for better livelihood opportunities elsewhere. This brings about a major policy challenge for the European leaders, as the former US Secretary of State John Kerry said: “The flood of desperate migrants has now spread well beyond the Middle East. Half of them now come from places other than Syria. Think about that – Pakistan, Bangladesh, Afghanistan” he told the Munich Security Conference. Response of the European Union The European Union (EU), in an emergency response, adopted a humanitarian policy to support the refugees in the following ways:



Providing emergency support within the EU In April 2016, the European Commission announced a humanitarian funding of €83 million for emergency support projects to assist refugees in Greece. The support measures include aid for basic necessities such as food, shelter and medicine.

Helping transit countries with humanitarian funding The Commission has extended support to refugees in Turkey who have migrated from both Syria and Iraq and live in camps. Since the Syrian crisis in 2011, the Commission has provided a total assistance of €455 million in Turkey, including humanitarian aid and longer-term assistance. In November 2015, a Refugee Facility for Turkey was set up by the EU and €240 million worth of projects have already been released to date. Putting the EU Civil Protection Mechanism at the disposal of Member States and neighbouring countries The EU Civil Protection Mechanism was activated to help cope with a rise in the refugee influx in 2015. Hungary, Serbia, Slovenia, Croatia and Greece have received material assistance such as winterised tents, beds and blankets to help them better organize the refugee relief. IMF Study on the Economic Challenges of the Influx of Refugees in Europe An IMF study on refugee influx in Europe describes the influx of refugees in Europe as a humanitarian problem with widespread ramifications across many countries in the Middle East, Europe, and beyond. The study views the economic problem as two-fold: 1) The fiscal impact of bearing the costs of rehabilitation and settlement of the refugees resulting in low GDP growth. This is due to lack of investable resources and income generation opportunities. 2) Influx of less skilled migrants from the Middle East which add to the workforce in Europe. This results in pressure on wages in the labour market and skill mismatch in the job market. While illuminating the two fold economic impact of the influx of refugees, the IMF study also highlights the flaws in the common asylum policy of the EU countries. It has raised questions about the EU’s ability to quickly integrate the newcomers in the economy and society. The study further shows that the impact of the refugee crisis would be more severe on countries like Austria, Germany, and Sweden which are the destination countries. The study has argued for an active labour market policy which comprises of the integration of the immigrants into the European labour market by giving them better skilling opportunities and providing credit facilities for self-employment. It also mentions the easing of restrictions on travel within Europe.



Recent US Policies on Immigration The recent policy of US President Donald Trump of temporarily barring entry for non-US citizens from seven Muslim majority countries can be largely seen as an outcome of the refugee crisis. According to the data available, the draft executive order published in the Washington Post mentions refugees from Syria would be indefinitely banned while the overall US refugee programme will be suspended for 120 days as the officials draw up a list of low-risk countries. Meanwhile all visa applications from countries which the US deems as terrorist threats, such as Iraq, Syria, Iran, Sudan, Libya, Somalia and Yemen will be halted for 30 days. Alongside this policy, the Pentagon will be given 90 days to draw up a plan to set up safe zones in or near Syria where refugees can take shelter. Response of the EU and Great Britain on US immigration policies The US executive order temporarily barring citizens of seven Muslim majority countries from obtaining visas has drawn criticism from countries like Iran, France and Germany. The Brexit development in Britain last year can also be seen as a fallout of the refugee crisis in Europe. The British Prime Minister, Theresa May, has not joined the chorus of criticism of the other European leaders. She has said: “The United Sates is responsible for the United States’ policy on refugees. The United Kingdom is responsible for the United Kingdom’s policy on refugees. And our policy on refugees is to have a number of voluntary schemes to bring Syrian refugees into the country, particularly those who are most vulnerable but also to provide significant financial contribution to support refugees in countries surrounding Syria”.

Brexit and its Impact on Infrastructure Investment in the UK Mehak Tyagi Kirori Mal College, University of Delhi, India The United Kingdom’s infrastructure has formed a major part of portfolios in the past few years, for a large number of domestic investors including pension funds and insurers. Infrastructure has always played a major role in the economic development of any country and therefore will be subject to the changes in economic and investment horizons that are expected to materialize post-Brexit referendum. Not only this, but it is also expected to play a crucial role in shaping the UK’s economy during and after the implementation of Brexit. Along with interest rates and with the increased uncertainty, the pound sterling has declined around 10% and 14% versus the US Dollar and the euro respectively, reaching a multi-decade low. With an increase in policy uncertainty, investment is expected to be subdued, which would dent economic growth in the short term. One of the major implications of the currency depreciation is expected to be an increase in inflation, fostered by an erosion of purchasing power. Implications: Most of the infrastructure assets are expected to preserve or increase value relative to other investments, for several reasons • Infrastructure services are usually seen as oligopolistic cases, with high levels of entry barriers, and cover basic household and business needs. These features are expected to make


Kirori Mal College, University of Delhi 35 Mehak Tyagi

the demand for infrastructure services such as energy, communications, and transportation, etc. quite stable during the periods of economic slowdown. • The overall inflationary pressures are expected to strengthen the case for infrastructure operators competing in the domestic markets as they may increase their fees. • Furthermore, for ports, airports and other energy operations competing at the international level, the currency depreciations boost their competitiveness. • Since most of the infrastructure projects are usually based on borrowed funds, a fall in the interest rates may also be seen as a positive statement. Basically, it may be said that existing infrastructure projects should be able to withstand the economic slowdown and uncertainty scenarios. However, these may not be the only effects of Brexit on the infrastructural projects. There are expected to be negative effects too. Infrastructure often requires importing materials and specialized technology. The UK’s trade deficit has been a sign of dependence, especially on imports of basic materials, semi-manufactured, intermediate and capital goods. It is difficult to replace these goods with domestic goods swiftly because either they do not presently exist in the country or developing the expertise to manufacture them would take years. Hence, this dependence would continue to exist and the currency depreciation would increase the cost. Although the post-Brexit policies are yet to be revealed, a large number of investors have decided to postpone their upcoming infrastructure projects, particularly the foreign investors, as the regulatory changes are expected to affect their fixed capital investments in the UK. Capital supply for infrastructure from the public sector is also likely to become increasingly available as the UK government might wish to continue with its infrastructure plans according to the policies laid down under the former leadership of Prime Minister David Cameron, which were to make infrastructural projects as one of the priorities.


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The high degree of uncertainty that Brexit has created has had both positive and negative effects. Positive effects would majorly show up as effects on valuations of existing infrastructure. It will most likely have a negative effect on the expected returns of future projects, as well as investment dynamics. This creates an even more challenging environment for the investors as they have to get returns from an asset class that is expected to be fundamentally less yielding.

Decoding Trump’s Oil Policy Pratyush Shah Kirori Mal College, University of Delhi, India

America’s new president Donald Trump has a vision for “America’s new energy plan” which includes developing new oil fields in the U.S and promoting natural gas over coal to tackle carbon emissions. Also on the list are “America to be energy independent” and “total independence from OPEC or nations hostile to their interest.” Taking off US’s demand from global energy market would cause a huge hit and affect the whole world. But, it is confusing whether what is promised or conveyed would actually be achieved or even implemented. The US is already producing its own energy, that too at an increasing rate. In 2013, it surpassed Saudi Arabia and Russia to become the largest producer of petroleum products and now, only a quarter of its total oil needs is imported. Trump’s concerns, though, are not new, previous presidents and administrations have worried about the country’s dependency on oil imports. Along with recent technology, fracking partly explains why production is at its highest level in decades. Currently, US imports crude oil and petroleum products from 88 different countries but Trump is explicitly targeting OPEC - the 14-member cartel which collectively holds 81% of proven oil reserves. Around 31% of US imports come from OPEC. Canada (41%) and Mexico (8%) are the other biggest sources of oil imports, but neither are members of OPEC. Over the past years, imports from OPEC have fallen consecutively. America’s complicated relations with Saudi Arabia has roots in geopolitics and foreign policy. But Saudi Arabia has been a key ally of the US in the Middle East and it is unclear how Trump will approach the realignment of the nature of American engagement with the country.


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With such low relative imports from OPEC it could be assumed that ending imports from them would be simple; however, the type of oil they supply is equally important. Most US-produced oil is "sweet" crude which is less energy intensive but cheaper and easier to refine and on the other hand, what comes from imports is "sour" crude oil which is highly energy intensive compared to its sweet counterpart. But the US can further increase imports of Canadian crude oil and for this the then President Barack Obama had already vetoed a congressional bill approving the construction of 1179 miles pipeline which can add more capacity for Canadian oilfields to supply to US oil refineries. Higher Canadian imports may reduce OPEC imports but OPEC still retains a role of price setter in the industry. The growth in US oil production has already hit OPEC hard. Oil prices have fallen to $50 per barrel from over $100 per barrel, two years ago. More interesting is that that this drop has hit US oil producers too. A price war between OPEC and US producers has forced the price down and pressured some US companies into halting producers. OPEC had recently met for Environment and Green consumption but the real aim was to decide whether members should cut oil production to support prices, which is why oil prices have started recovering in the last two months. If the US continues to pump oil at near-record levels and companies continue to lower their operational costs, it could cut OPEC imports and challenge its dominant price setting role. But a quarter of US oil is still being imported, and until domestic demand is reduced, Trump's vision of energy independence from OPEC and others, will remain unattainable. But, even if this is achieved, many oil producing countries and industries all over the world are going to suffer – adding to the ongoing economic slowdown.

Report: Lecture by Prof Praveen K Jha, JNU On the Refugee Crisis and its Economic Impact Manik Aggarwal Kirori Mal College, University of Delhi, India The Economics Society of Kirori Mal College organized its first academic speaker session in October 2016. The Guest Speaker, Dr Praveen Kumar Jha, Professor, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University (JNU), and a former Visiting Senior Research Economist at the International Labour Organization (ILO), Geneva, Switzerland, addressed the students on the economic impact of the refugee crises. The seminar, which was followed by a very interactive discussion, started with the findings of the Office of the United Nations High Commissioner for Refugees (UNHRC) report, that Europe is facing a maritime refugee crisis. The chief cause for this exodus is the war in Syria which is a consequence of the politics of oil between the Gulf countries and the USA. Economically, one of the major fears of this situation is that immigrants will compete for work and drag down wages. Another is that they will pinch the public purse. The report says the newcomers will have a "relatively small" economic impact in the medium term, with GDP rising between 0.2% and 0.3% above the baseline by 2020. For the Member States with an aging population and shrinking workforce, migration can alter the age distribution in a way that may strengthen fiscal sustainability— yet, if the human potential is not used optimally, the inflow can also weaken fiscal sustainability. Prof Jha also highlighted the ongoing conflicts in countries such as Iraq, Libya, Syria, and Yemen, in addition to the tragic loss of life and physical destruction, that have caused deep recessions, driven up inflation, worsened fiscal and financial positions, and damaged institutions. In addition, the harmful effects of the turmoil have spilled over into neighbouring countries such as Lebanon,


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L-R: Bhanu Sharma (President, Economics Society, KMC), Guest Speaker Prof Praveen K Jha (JNU), Ajay Ranjan Singh (Associate Professor, KMC), Ujjwal Krishna (Editor-in-Chief, Oikos Annual Journal of

Economics, KMC), Samir Kumar Singh (Assistant Professor, KMC)

Jordan, Tunisia, and Turkey, the broader Middle East and North Africa, and even other regions, notably Europe. To varying degrees, these countries face large numbers of refugees, weak public confidence and security, and declining social cohesion that undermines the quality of institutions and the ability to undertake much-needed economic reforms. In Iraq and Afghanistan, inflation peaked at more than 30% during the mid-2000s and in Yemen and Libya at more than 15% in 2011, on the back of a collapse in the supply of critical goods and services, combined with a strong recourse to monetary financing of the budget. Syria is an even more extreme case, where consumer prices rose by more than 300% between March 2011 and May 2015. Such inflation dynamics are usually accompanied by strong depreciation pressures on local currencies, which the authorities may try to resist by heavy intervention and regulation of cross-border flows. On the question of the role of the home country in this situation, Prof Jha commented that many refugees would likely choose to return home, where they would contribute to their country's growth potential and to a successful transition from war to peace. The home country will have a particular interest in attracting skilled workers who left during the conflict. But re-integrating refugees is challenging: issues may involve a lack of security and economic opportunities in resettlement areas, significant gender imbalances and uncertainty over property rights. To minimize the harmful impact of such issues, initiatives to facilitate the return of refugees should ideally become part of a broader strategy for development and post-conflict reconstruction. He also added that although integration of refugees may be the first and best option from an economic perspective, the specific circumstances of host countries determine the design and the pace of policy implementation. In particular, the needs of local populations, and poor labour market outcomes should be addressed at the same time as expanding access for refugees. The seminar ended with Prof Jha demonstrating how tools such as on-the-job training, temporary wage subsidies, and effective job intermediation can help refugees improve their skills and integration into local labour markets. Ensuring that refugee status does not halt human capital formation would improve the long-term well-being of refugees, both within their host countries and, if they return, in their home countries. This would require sustained, and drastically improved access to skill development, vocational training, education, and health services.


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