19 March 2018

Idhar, Udhar, Aadhaar

The hearing on the Constitutionality of Aadhaar has been going on in the Supreme Court of India since 17 January 2018 by a five-judge bench. The honourable judges will listen to both sides and then take a decision. The purpose of the current note is to visualise Aadhaar through Section 7 of the Aadhaar Act and its importance in the recent interim order of 13 March 2018  by the Supreme Court. It will also raise some concerns on democracy, sovereignty and republicanism.

Section 7 of Aadhaar
"The Central Government or, as the case may be, the State Government may, for the purpose of establishing identity of an individual as a condition for receipt of a subsidy, benefit or service for which the expenditure is incurred from, or the receipt therefrom forms part of, the Consolidated Fund of India, require that such individual undergo authentication, or furnish proof of possession of Aadhaar number or in the case of an individual to whom no Aadhaar number has been assigned, such individual makes an application for enrolment:
Provided that if an Aadhaar number is not assigned to an individual, the individual shall be offered alternate and viable means of identification for delivery of the subsidy, benefit or service."
Recent Interim Order
A recent interim order (13 March 2018) by the five-judge bench extends the relief provided in an earlier interim order (15 December 2017) on linking of Aadhaar to the receipt of entitlement and various service providers (banks account holders and mobile phone subscribers). The order also accepted a submission with regard to Section 7 of the Act. The relevant portions of the recent interim order read as follows:
"...On a query being made, Mr. K.K.Venugopal, learned Attorney General for India submitted that this Court may think of extending the interim order. However, the benefits, subsidies and services covered under Section 7 of the The Aadhaar (Targeted Delivery of Financial and other Subsidies, Benefits and Services) Act, 2016 should remain undisturbed. We accept the same.
Having heard learned counsel for the parties, we accept the submission made by the learned Attorney General. Subject to that, we direct that the interim order passed on 15.12.2017 shall stand extended till the matter is finally heard and the judgment is pronounced. That apart, the directions issued in the interim order shall apply as stated in paragraphs 11 to 13 in the said order. For the sake of clarity, we reproduce the said paragraphs which read as under:-
13. Consistent with the above directions, we also direct that the extension of the last date for Aadhar linkage to 31 March 2018 shall apply, besides the schemes of the Ministries/Departments of the Union government to all state governments in similar terms. As a consequence of the extension of the deadline to 31 March 2018, it is ordered accordingly.”
Two Possible Interpretations
There could be two possible interpretations of the recent interim order. One interpretation, based on paragraph 13 of the earlier interim order, implies that the Aadhaar linkage to recipients under various schemes gets extended till a final judgement is taken.

Another interpretation, based on the submission by the Attorney General that the benefits, subsidies and services under Section 7 of the Aadhaar Act should remain undisturbed, implies that the extension on Aadhaar linkage to recipient under various schemes is limited. This is so because almost all schemes draw their expenditure from the consolidated funds.

Decoding Section 7
A cursory reading of Section 7 of the Act may suggest that the use of Aadhaar is for identification of a recipient of a subsidy, benefit or service and if an individual does not possess Aadhaar than other alternate and viable methods should be offered. Now, if this is the case then there was no need for the Attorney General's submission requesting that "the benefits, subsidies and services covered under Section 7... should remain undisturbed." This calls for a greater scrutiny.

A careful reading of Section 7 of the Act points out that other alternate and viable methods of identification are perhaps available only to those who have applied for enrollment to Aadhaar. In effect, at the implementation stage this could likely be a one-time exemption only.

Furthermore, Section 7 is silent on denial of benefits, subsidies or services on account of failure of identity authentication. There have been instances where individuals have been denied their genuine entitlements that have been due under employment guarantee or food security or as pension among others. In fact, there have been instances when retired employees have not been able to withdraw their provident fund for want of a life certificate because of a failure in identity authentication through Aadhaar. One may point out that the withdrawal of provident fund may not be directly linked to Aadhaar, as it is part of public accounts and not drawn from consolidated funds. The fact of the the matter is that it also has been dependent on Aadhaar.

Now, a pertinent question is why did the Attorney General bring in Section 7.  One possible conjecture is to guard against inconvenience (and perhaps contempt of court) arising out of acts by implementing agencies that leads to denial of entitlements and also to facilitate business as usual. The executive should continue to do that they have been entrusted with. Another possible argument is to prevent misuse of public expenditure. Maybe, there are some other reasons. Whatever it may be, it does provide a long leash to the executive with an articulation that inclusion errors matter more than exclusion errors. Imposing a moral imperative, excluding a deserving person from her entitlement is more serious than including a non-deserving person.

The moot point is that by accepting the submission by the Attorney General that Section 7 should remain undisturbed the paragraph 13 of the earlier order has lost bite and seemingly redundant. Given this and in view of possible denial of entitlements, the honourable five-judge bench may reconsider accepting the submission in its entirety.

Possible Affront
The denial of legitimate entitlements is serious. It is in this context that one raises a concern on the usage of the term 'benefit'. In a democratic polity by the people, for the people and of the people, the benefits and services rendered by the state either in cash or kind are entitlements. The usage of the term benefit (as also for services) seem to connote a largess. Seeking public health service or public education will no more be a matter of right; rather, it would be a charity by the state. This is an affront on democracy. What is more, this affront seems to have a legislative sanction.

Even the use of the term 'subsidy' may not be appropriate. First because entitlements ought to be facilitated through grants. Technically, all grants may be considered as subsidies, but in plain-speak a subsidy has a Fund-Bank connotation leading to a discussion on market distortions and inefficiencies. While not denying the relevance of markets, any discourse that implicitly or explicitly concedes that it is the only institution that matters is an affront on sovereignty.

As an aside, our concerns on the usage of the words would mean that in the title of the said Act "Targeted Delivery of Entitlements through Grants" should have been used instead of "Targeted Delivery of Financial and other Subsidies, Benefits and Services". This would perhaps also mean that the Act ought not to have come through as a Money Bill.

One may also mention that the World Trade Organisation also distinguishes subsidies as green, amber, blue and red boxes. Meeting entitlement through grants are those that fall under the green category. Articulating them to be 'subsidies' per se could attract them under amber, blue or red leading to a call to withdraw them in some not so distant future.  If that happens that would be an affront on the marginalised and the vulnerable, and in that sense an affront on the republic.

Concluding Remarks
Reading between the lines, a view through the prism of Section 7 of Aadhar Act gives a perspective that plays hide and seek - idhar, udhar, Aadhaar. In addition, we invoke a moral imperative indicating the seriousness of exclusion over inclusion errors and raise concerns on possible affront to democracy, sovereignty, and republicanism. We end with a call on caution. No more idhar, udhar, Aadhaar.

[The views expressed are that of the author and not that of the institutions/organisations that the author is associated with. Comments are welcome.]

12 March 2018

PK mode to India's Growth

India at 70 in a PK mode 
Recently, Rahul Gandhi of INC had an interaction on India at 70 discussing a number of issues at LKYSPP. An informed polity should be discussing the issues raised, but the larger discourse has been limited to a question by one PK (not the vintage PK, those interested for a Sunday tête-à-tête may have a peek here). While I should not be spending my Sunday in a PK mode, but got a bit carried away. Hence, if you find something incoherent, then you know whom to blame. In the same vein, and in all fairness, the credit to any coherence will have nothing to do with being reborn (Asian or otherwise).

An analysis of comparing India's growth with that of the world has already been done by Maitreesh Ghatak (of LSE) and Amitabh Dubey.  I thought of exploring the numbers further either because I had nothing else to do or because I wanted to avoid doing something else.  True, I wanted to play around with the numbers to give some benefit of doubt to PK. However, I unequivocally state that this has no conflict of interest because of being stuck in a PK mode on a Sunday. 

Benefit of Doubt
Having done some work on decomposing poverty change by bringing in population or because of the call for MANUSH in measuring HDI (see its IvU version), I had a feeling that the reference to growth or was it to PK (even if not of the vintage type) was perhaps in per capita terms. This is my first PK benefit of doubt.  

I resort to the data provided by the World Bank through World Development Indicators. I make  use of GDP per capita in constant 2010 US$ terms with data available  from 1960 to 2016 providing us with simple annual average growth rates. From the 56 years of GDP per capita growth rates, India has been having a growth greater than that of the World in 40 years and it has been doing so continuously since 2001.

While it is true that Rahul Gandhi's family has not been in the helm of powers (as Prime Minister of India) since 2001, but then there are phases when Inida has fared well when their family was in the helm of affairs than when others were at the helm of affairs. For instance, in Table 1 as per column Pr1 (proportion of years when per capita growth rate of GDP for India was greater than that for World) Jawaharlal Nehru (JN) and Indira Gandhi's first term (IG1) fare better than that of Lal Bahadur Shastri (LBS+) and this seems to hold even for the annual average per capita GDP growth rate for their respective periods (Gr1). This takes me to my second PK benefit of doubt.

I have a queasy feeling that the comparison was not about the forefathers of Rahul Gandhi and those of others because that sounds inappropriate even in a PK mode. In fact, the other day, I overheard some people in a PK mode discussing among themselves that, at times, being in a PK mode may lead to some nuisance, but under no circumstances would they hit below the belt. And, pitting someone's forefathers with some others' forefathers is so below the belt. In any case, it does not prove any point to discuss the growth performance under Lal Bahadur Shastri when the country had to face a war and drought in that period and that too by pitting one Congress Prime Minister by another. One is of the opinion that the intention was perhaps to compare growth regimes between Congress and Non-Congress Prime Ministers.

Table 1
India's Growth Rate in comparison to that of the World under different Prime Ministers: 1961-2016
Notes: PMs denotes Prime Ministers, Pr1 denotes the proportion of years when the simple annual growth of  per capita Gross Domestic Product (GDP) for India was greater than that for the World for the period that the PMs have been in office; for years when more than one PM have been in charge, the results are shared pro-rata. Gr1 to Gr3 denote the annual average growth rate of per capita GDP for India (Gr1), World (Gr2), and low and middle income countries (Gr3), respectively, for the period that the PMs have been in office. JN refers to Jawaharlal Nehru from 01/01/61 to 27/05/64 (earlier years since 15/08/47 could not be included for data limitation). LBS+ refers to Lal Bahadur Shastri and two tenures of Gulzarilal Nanda as acting PM for 13 days each (the combined period is from 27/05/64 to 24/01/66). IG1 refers to Indira Gandhi's first term from 24/01/66 to 24/03/77. MD+ refers to Morarji Desai and Charan Singh (combined period is from 24/03/77 to 14/01/80). IG2 refers to Indira Gandhi's second term from 14/01/30 to 31/10/84. RG refers to Rajiv Gandhi's term from 31/10/84 to 02/12/89. VP+ refers to the terms of Vishwanath Pratap Singh and Chandra Shekhar (combined period is from 02/12/89 to 21/06/91). PV refers to PV Narasimha Rao's term from  21/06/91 to 16/05/96. IKG+ refers to the terms of Atal Bihari Vajpayee (first term of 16 days), HD Deve Gowda (324 days) and IK Gujral (332 days) and the combined period is from 16/05/96 to 19/03/98. ABV refers to Atal Bihari Vajpayee's second term from 19/03/98 to 22/05/04. MS refers to Manmohan Singh's term (from 22/05/04 to 26/05/14). NM refers to Narendra Modi's term from 26/05/14 to 31/12/16, that is, the period for which information is available.
Source: Calculated by author based on data from World Development Indicators, World Bank and Former Primer Ministers, Prime Ministor's Office, Government of India.

One observes from Table 1 that there have been some Congress regimes that have been doing relatively better than Non-Congress regimes. Note that Indira Gandhi's second term and also the term of Rajiv Gandhi fared better than the terms of MD+ (Morarji Desai and Charan Singh), VP+ (Vishwanath Pratap Singh and Chandra Shekhar) and IKG+ (Atal Bihari Vajpayee's first term, HD Deve Gowda, and Inder Kumar Gujral). The term of PV Narasimha Rao and also of Manmohan Singh fared better than that of Atal Bihari Vajpayee's second term. One also observes that the growth under the Prime Ministership of Narendra Modi in its initial years (for which we have data) has also done relatively better than the earlier regimes. While this is important, it is not the point of discussion in a PK mode.  This is my third PK benefit of doubt - the question on comparative growth in India at 70 was not about scoring a political brownie point. At times, self goals can happen in a PK mode, but that is another matter.

Comparing India's growth with the World that would have a greater base may be advantageous for India to show a relatively higher growth rate. Hence, I concede my final PK benefit of doubt and propose comparing with growth rates for low and middle income countries also. It is observed from Table 1 that the the annual average per capita growth rate of GDP for India (Gr1) when compared with that of the World (Gr2) and low and middle income countries (Gr3) under different regimes shows that India has fared better since 1980s, that is from Indira Gandhi's second term and thereafter. Another moot point that emerges is that prior to the 1980s India's growth rate was always relatively lower than that of the World, but fared better than the low and middle income countries under Jawaharlal Nehru.  Keeping that aside, a limited understanding of the data analysed indicates that a momentum or break from the past was initiated in the 1980s, the momentum continued in the 1990s (PV Narasimha Rao's liberalisation initiatives followed by Atal Bihari Vajpayee's India shining), and it gained further speed in the last fifteen years (Manmohan Singh in two Avataar's of United Progressive Alliance, and Narendra Modi's juggernaut). As the growth trajectory continues it will raise other concerns, particularly on the distributional front like the other juggernaut with farmers on their way from Nashik to Mumbai.

Firki remarks
The firki discussion above is from a PK mode. Those interested in a more serious and detailed discussion on episodes of growth along with a discussion of spaces earmarked for deals, rent and political should look up Sabyasachi Kar and Kunal Sen's The Political Economy of India's Growth Episodes (for a quick initiation to the book see this review).

Click on for an earlier note on PK and firki.

24 February 2018

Aadhaar: Privacy, National Security and Democracy

There is a view that the the recent deliberations on the Aadhaar case in the Supreme Court of India boils down to two broad issues - privacy and national security. It further makes a point that if the learned Judges are of the view that privacy is of paramount importance then the judgement will be in favour of Aadhaar and if they are of the view that National Security has an overriding concern then the judgement will be against Aadhaar. I will be making three-to-four submissions here.

First, Aadhaar can seriously compromise national security. This is so because all the potential defence and intelligence operatives (particularly, those who are to be hired for sensitive operations in the future) are likely to have their biometrics compromised.  

To wit, covert operations by these potential operatives are likely to be undermined. It is already being talked in hushed tones (not necessarily because of Aadhaar alone) that the entire security establishment is under close watch by our friends and foes. The fear that Aadhaar will compromise our national security is not unfounded.

Second, the articulation in favour of Aadhaar for facilitating national security is actually an argument in favour of state power. In particular, the arguments are that Aadhaar will facilitate surveillance and guard against wrong doings (an euphemism for corruption) through transparency and accountability. Doing away with wrongs is laudable, but to take a position that Aadhaar will help in this endeavour is to belittle the ingenuity of financial moguls/wizards. In fact, more often than not, they operate within the realms of law (what may be morally inappropriate need not be legally wrong). Neither the short arm, nor the long arm of law will have anything to do with them. 

The only time that the financial ingenuity become a botheration is when the market goes into a tizzy. Hear again, in the name of the economy it is the moguls that are to be bailed out. It is another matter that Aadhaar may create a perception that it is guarding against the moguls misdemeanour because each and every individual does experience it first hand that each and every step of theirs is under close watch and scrutiny. It is not for them to comprehend that the closed gates are for the ant and not for the elephant. 

Third, the clamour for state power (along with concerns for national security) is nothing specific to India. It is global. Furthermore, it questions the core of democracy by weakening the importance of separation of powers. It is beyond Arrow's impossibility. It may draw similarities from Kalecki's intermediate regimes (see KN Raj's take on intermediate regimes), but is also beyond that. It takes a form where the power of money (or market: note that the term market is not to provide space for exchange of goods and services through large number of players, but, rather one that talks of power through market share, and hence, implicitly does away with the large number of smaller players - small is no more beautiful) becomes pervasive.

Under such a scenario, the four pillars of democracy - the executive, the legislature and the judiciary as also a free press - could become subservient to money power. A possible outcome is that one of the pillars of democracy, while retaining its subservience to money power, gets an upper-hand over the other pillars. The global happenings indicate that it facilitates a supremacy of the executive over the other wings - a takeover by/for/of the executive. The over-empowering role of money calls for an emerging need for political economy and/or political theory to address these concerns.

As an aside, a fourth point is that the debate between privacy and security should not be seen in binary terms. No, I am not referring to the umpteen positions that came out in the deliberations in the Supreme Court and are undoubtedly important and could also impact the judgment. But, sticking to the two broad concerns there can also be the possibility of a middle-path between privacy and national security (nay, state power).

However, there can be pitfalls in the middle-path. There could be a judgment that supports the perception that allows the state to be vigilant against wrong-doers and at the same time gives space for privacy concerns for all those who can take recourse to the long-arm of law. Such a middle path could also lead to a tilt towards state power that gives supremacy to the state power through the executive. Only time will tell.

To conclude, Aadhaar, instead of facilitating national security, actually poses a serious problem against national security. Further, Aadhaar is not likely to have a major impact against so-called moral wrongs because, more often than not, these happen within the realms of law. Globally, one observes a trend where it is difficult to maintain separation of powers because of the overbearing role of money or market power. When it comes to the Aadhaar judgment, one can only anxiously wait.

Earlier blog posts on Aadhaar


[The views expressed are that of the author and not that of the institutions/organisations that the author is associated with. Comments are welcome.]

04 February 2018

Chimera of MSP as Cost plus 50 percent

The 2018-19 Budget for India presented on 1st February 2018 has, inter alia, mentioned about increasing the minimum support price (MSP) being given to farmers to cost plus 50 percent so as to ameliorate the distress of farmers' and facilitate an increase in farmers' income. This is a chimera. The decision-making authorities in the Government that decide the MSP represents the lioness-like head, the calculation of cost is the goat-like body, and crop production is the serpent-like tail.

The budget speech conveying cost plus 50 percent was the head spitting fire to douse discontentment among farmers' (relying on the dictum that a product of two negatives will be positive). The idea for a cost plus 50 per cent is not new. This was indicated by the National Commission on Farmers(Chair: MS Swaminathan) that submitted its final report in October 2006, which has now been resurrected after more than a decade to address a rural constituency.

It needs to be mentioned that MSP is declared for only 23 crops, but effective for two crops - paddy and wheat. Even for these two crops, after allowing for double counting, a January 2015  Report of the High Level Committee on Reorienting the Role and Restructuring of Food Corporation of India (Chair: Shanta Kumar) using 70th round National Sample Survey data for July 2012-June 2013 indicates that less than 6 percent of agricultural households sold to procurement agencies who buy at MSP and these households sold only 27 percent of their produce to these procurement agencies. In short, cost plus 50 percent will have limited impact.

A calculation of the cost of production has many layers. First, it is an average of averages and that too from selected states. Under this, states that are major producers of the crop collect detailed data from sample farmers (the selection bias is likely to be there for those farmers who have some output and exclude those with no output and thereby underestimating costs). The data sent by states are again averaged at the all India level by the Commission for Agricultural Costs and Prices (CACP). Even if there is no selection bias, any average will have a distribution with some states and some farmers having a greater cost than the average. The greater costs are likely to be more for those whose output has been less for various agro-climatic and socio-economic reasons. Whatever may be the reason, a single cost will not have the same ameliorating effect across all farmers and across all states.

Second, and more importantly, to address the spirit of the recommendation by the National Commission on Farmers it is only appropriate that all costs (paid out and imputed) should be taken into consideration. This is complicated by the fact that there a number of variations, as per the terminology used by CACP. They are as indicated in Appendix 1. The contention being raised is that MSP is fixed based on A2+FL costs, which when one compared with C2 costs excludes interest on value of owned fixed capital assets (excluding land) and rental value of owned land (net of land revenue). Furthermore, C2 costs, when compared with C3 costs, is not adjusted for appropriate valuation of human labour and also excludes imputed value of management input. The MSP declared for Rabi 2018, as claimed by the Finance Minister's Budget speech of 2018, is already above cost plus 50 percent if one considers A2+FL costs. But, falls short if one takes C2 costs and far away from C3 costs.

Crop production is a risk-taking enterprise. This is particularly so in large parts of rainfed India that is exposed to the vagaries of weather as also market shocks (both for inputs as also produce).

In a recent exercise, one observed that the real income growth for farmers between 2002-03 and 2012-13 was only 1 percent. This was at a time when real income growth for the economy remained in the range of 7-8 percent. These does call for interventions in agriculture leading to reduction in costs, lowering of risks, increase in net returns, and assurance for better livelihood of farmers.

Concluding remarks
One wonders, which is the constituency that will be addressed even if cost plus 50 percent is effective. To be effective, efforts should not only be made to increase its reach. Furthermore, it should also not be a lip service by taking A2+FL costs; rather, C3 costs should be taken into consideration. What is more, these efforts should be part of a larger exercise in agriculture that reduce costs, lower risks, increase returns and assure better livelihood of farmers. In its current form, one is not sure whether the fire spat will douse discontent or add to the farmers' woes. In other words, two negatives when added becomes a greater negative force. Chimera is a chimera.

Appendix 1: Cost concepts and their components
Includes (i) value of hired human labour, (ii) value of hired bullock labour, (iii) value of owned bullock labour, (iv) value of owned machinery labour, (v) hired machinery charges, (vi) value of seed (both farm produced and purchased), (vii) value of insecticide and pesticide, (viii) value of manures (owned and purchased), (ix) value of fertilisers, (x) depreciation on implements and farm buildings, (xi) irrigation charges, (xii) land revenue, cesses and other taxes (xiii) interest on working capital, and (xiv) miscellaneous expenses (artisans et cetra).
Includes  cost A1 plus rent paid for leased-in land.
Includes  cost A2 plus imputed value of family labour.
Includes  cost A1 plus interest on value of owned fixed capital assets (excluding land).
Includes  cost B1 plus rental value of owned land (net of land revenue) and rent paid for leased-in land.
Includes  cost B1 plus imputed value of family labour.
Includes cost B2 plus imputed value of family labour.
Includes cost C2 adjusted to take into account valuation of human labour at market rate or statutory minimum wage rate whichever is higher.
Includes cost C2* plus value of management input at 10 percent of C2*.