No proof required: Blind men in search of inflation

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.For the last few years, the Technical Advisory Committee (TAC) has provided advice to the RBI on the setting of policy (repo) rates. Very soon, perhaps as soon as the October 4 meeting of the RBI, the Monetary Policy Committee (MPC) will be formed, and rather than an advisory role, it will make policy. In other words, rather than the governor taking in inputs from the TAC, and others, he will now be part of a six-member committee that takes decisions on policy rates.

Three of the six members of the MPC are to be chosen from outside the RBI. By definition, the five external members of the TAC are strong contenders for the three available slots in the MPC. But does the record of the TAC suggest that they are fit to take on MPC membership? Possibly not. (An important caveat(warning,चेतावनी): This is a summary conclusion. It might well be the case that some members of the TAC were not as thoughtless as the majority, the minutes of the TAC do not mention names.)

Monetary policy, with or without the MPC, is meant to be forward-looking and anticipatory. Unfortunately, the record of the TAC, as gleaned from their latest — and last — August 9 recommendation, is anything but forward-looking. What has also been noteworthy about the TAC is that it most likely echoed what it thought were the “wishes” of the RBI. To be sure, individual members may have differed from the majority, but the majority has been nothing but “His Masters Voice” (youngsters, look up what HMV was).

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A perusal(study,अध्ययन) of the TAC “recommendations” emphasises the fact that it has been broadly clueless about the determinants of inflation in India, and therefore, not well informed about the determinants of policy rates. Their summary statement for the August 9 policy meeting is informative (TAC Report on the RBI website, August 30, para 3, page 1). For example, the TAC concluded that:

“The monsoon has also been normal so far, although the targeted pulses production — pulses being a major driver of food inflation — will also likely be driven by higher minimum support prices in this sector.” (emphasis added).

The TAC contention(dispute,विवाद) that minimum support prices (MSP) for pulses will influence higher production is somewhat ill-informed. The MSP for pulses has been set approximately eight per cent higher for the 2016-17 agricultural season than the previous year — at a level of around Rs 55 per kg. The prevailing(popular,प्रचलित) retail market price for pulses, so far in 2016, has averaged almost four times this level (at Rs. 200/kg).

However, a good monsoon this year is likely to send the retail price tumbling to close this huge “hoarders” gap between the farm-gate and retail price. What should be of concern to the TAC is retail (CPI) inflation for pulses — and this is likely to be significantly lower than last year, that is, pulse prices will help reduce inflation in 2016, contrary to the belief of TAC that MSPs for pulses will be inflationary. In other words, the TAC is looking at the “wrong” side of the elephant.

TAC again: “Members felt that increased upside risks to the five per cent CPI inflation target in Q4 of 2016-17 remain, specifically, from rising consumption demand — both private (because of a consumption-led recovery) and public (one rank one pension, seventh CPC (Central Pay Commission ) — and cost-push shocks in the form of a steady rise in crude prices.”

This quote provides us with some clue to the thinking in the TAC. Worldwide, disinflation is the new phenomenon, and has been so for at least the last decade. Many economists and policymakers have realised that output gaps no longer explain inflation. If they did, then why did India have double digit inflation from 2008 to 2013 with ever slowing demand? So “rising consumption demand” will not be an important factor in future (or current) inflation. Just look at the lowest two years — there was accelerating GDP growth and declining inflation rates.

What about the contention of the TAC that the pay commission will lead to higher inflation? In the last decade we had the pay commission, and observed high inflation; in the previous decade, we had the pay commission and obtained low inflation. So? It would have been more honest if the TAC had said that we don’t know much about the determinants of inflation, and are too lazy to find out, rather than arrive at wrong conclusions from models that do not make sense now (if they ever did).

Undeterred, the TAC moves from one wrong conclusion to another. “Cost push shocks in the form of steady rise in crude prices”. One had hoped for a little bit of humility here — whoever the TAC might be, they are not oil price experts. On August 8, 2016, the oil price was around $44. A month later, it is exactly the same. More importantly, what evidence is there that a rise in crude prices leads to cost push inflation?

Perhaps the memory of TAC experts goes back to October 1973, when a quadrupling of oil prices ushered in worldwide inflation. But their memory stops at 1980. In the 1990s, the average price of crude was $20/barrel. In 1998, the average price was a low $14.4. Since then, oil prices went up ten-fold, reaching a peak level of $ 140 barrel in June 2008.

What happened to world inflation post-1998? It continuously fell. The new near 40-year-old reality of crude oil and world inflation is that there is virtually no relationship between the two. So can the TAC oil experts stop looking for one?

The TAC noise continues. Sample this — four of the five TAC members were of the view that “CPI and CPI-food inflation have seen a recent uptick and certain other price indicators continue to be sticky; elevated food inflation has second round effects on headline inflation if it is persistently(continuously,लगातार)  above double digits”.
When was food inflation last above double digits — how many months ago? In the last two years, the highest food inflation level was eight per cent (July 2016); the average (sustained) food price level has been nearly half the double-digit level (5.5 per cent). So can the TAC not confuse itself with second round effects if it can’t even observe the bare facts pertaining to the first round?

We all make mistakes, but so many mistakes in one TAC report is noteworthy and perturbing(worrisome,चिंताजनक). It is to be hoped that when the MPC is constituted, and meets, the new members are unlikely to lazily assess and forecast inflation as the TAC seems to have done.

courtesy:indian express
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Forced out by a funds squeeze

It isn’t the fever and chikungunya symptoms that perturb(anxious,चिंतित) Ompal Singh so much. Resting in his one-room flat in a nondescript colony in Mandoli, north-east Delhi, the 50-year-old agonises(worry,व्याकुल) more about his persistent(continuous,निरंतर) cough and weight loss. He has lost seven kilograms in just two months and his immunity levels are dropping — alarming given his condition.

Meanwhile, his wife, Anita Kumari (48), has become addicted to painkillers. She cannot straighten her back or stretch her arms. She knows it is the big lump on her back causing all the pain and doctors have advised her surgery. But the doctors keep referring her to other hospitals, she says.

Both Mr. Singh and Ms. Kumari tested HIV positive in 2006 — after she contracted(reduce,संकुचित) the virus during a premature delivery-linked blood transfusion — but it is now that they have started feeling its pinch. Especially with their jobs snatched away. “Our diet is not the same and even treatment is suffering,” rues Mr. Singh.

Disclosure and discrimination(unfair treatment,भेदभाव)

In 2008, when the National AIDS Control Organisation (NACO) launched the Prevention of Parent-to-Child Transmission Programme (PPCT), the husband-wife duo enlisted with an NGO as outreach workers for the HIV awareness initiative along with 13 others. Their job was to help HIV-positive pregnant women with their medication and monitor newborn babies. “We have seen discrimination in hospitals against HIV-positive women from such close quarters. Doctors would refuse to carry out C-section, nurses hurl abuses even while the woman is crying in pain,” says Ms. Kumari. “Our role was to help such women.”

However, in December last year, the scheme was abruptly(suddenly,अचानक) ended citing(mentioning,उल्लेखित) lack of funds, rendering(give,देना) the outreach workers jobless. This, when all 15 workers are themselves HIV-positive and on antiretroviral therapy. In order to effectively carry out their roles as outreach workers, these individuals were asked to disclose their condition to the community and their families at the risk of social marginalisation. With people around them knowing about their HIV status, these workers are now not only struggling to get alternative employment but have had to move house. “Earlier, we were staying in different colonies in east Delhi. But with no money and neighbours boycotting us, eight of us are now living in the same locality to help each other,” says Rajesh Kumari, another outreach worker, who has been working as a maid for the past three months.

In the lurch

The outreach workers have tried it all to have their voices heard — from writing letters to the Health Ministry to protesting at Jantar Mantar. The PPCT scheme was halted in Delhi, Himachal Pradesh and Punjab at the same time but Punjab restarted the scheme in June. “When Punjab can, why can’t Delhi and Himachal Pradesh,” asks Anjali Singh, showing a dossier of letters written to Ministers, officials and protest clippings.

“Budget cuts started in 2013 under the UPA (United Progressive Alliance) regime; the NDA (National Democratic Alliance) government may end it completely in their term. Whatever was achieved in all these years is being undone,” says Ganesh Acharya of Mumbai AIDS Forum.

On August 16, these workers met Delhi Commission for Women chief Swati Maliwal for help. The commission subsequently(after,बाद में) wrote to the Delhi State AIDS Control Society (DSACS) and was informed that the latter had no NACO funding to support these persons. “This forced me to write to Health Minister J.P Nadda about the issue,” says Ms. Maliwal. Mr. Nadda replied stating that he will personally look into the matter.

“He should do something, or else give us permission to kill ourselves,” says Kanhaiya Kumar, one of the affected. It’s fingers crossed for the group of 15, for now.

courtesy:the hindu

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For power to reach all, it will need a multi-pronged strategy, collaboration between Centre and states

That the government of India’s recent initiatives in the power sector have started bearing fruit is undeniable(unquestioned,निर्विवाद). It is for this reason that the ministry of power and renewable energy (RE) has been graded as one of the most performing ministries at the Centre.

With the increasing availability of power in the country resulting in a fall in prices and the gradual easing of transmission constraints, it is clear that the milestone of 24×7 supply to all parts of the country is around the corner. The big question, however, is to ensure supply of power, even if it is not 24×7, to all and here, the objective of “power for all” set by policymakers comes under scrutiny(examine,जाँच).

Both Central and state governments have recently been applauding their rural electrification programme. As per government of India estimates, out of 5,87,464 villages in the country, only 18,542 were not electrified at the beginning 2015-16. Of these 14,813 were to be electrified through the grid while 3,639 were to be electrified off-grid through RE sources. Till March 2016, 6,479 villages have already been electrified and the rest are to be electrified by December.

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In the states, this figure stands between 95 to 100 per cent with the exceptions of Manipur and Arunachal Pradesh. States like Gujarat, Haryana, Kerala, Maharashtra, Punjab and Tamil Nadu are already claiming 100 per cent electrification. Even states like Bihar, UP and Rajasthan claim to be touching 99 per cent. The glaring issue in the light of these figures is that by the Centre’s own admission, the number of households without electricity in the country stands at a staggering seven to eight crore. In UP, this figure is about two crore.

This contradiction(opposition,विरोधाभाश) comes from the definition of electrified villages adopted by the government of India. According to the rural electrification policy guidelines of 2004, a village is classified as electrified if basic infrastructure like distribution transformers, poles and distribution lines are provided in the locality, including one “Dalit basti”, and if electricity is provided in one of the public places like schools, panchayat offices, health centres etc and the number of households electrified are 10 per cent of the total number of households in the village.

Prior to October1997, the definition was that a village should be classified as electrified if electricity is being used within its revenue area for any purpose. After October 1997 and till the arrival of the present policy in 2004, a village was deemed to be electrified if the electricity is used in any of the inhabited localities, within the revenue boundary of the village, for any purpose. Thus, even though a village may appear in the electrified list of villages, the actual number of households getting power may be a mere 10 per cent.

The recent controversy over whether Nagla Fatela village in Hathras district, now famous because of its mention by the prime minister in his Independence Day speech, was electrified in 1985 or 2015, is, in a way, an outcome of this bureaucratic juggling.

Further, as per the existing practices of the electricity supply code applicable in different states, all households within 40 metres of an electrical pole are supposed to take their connection from the pole. This leaves a colossal(large,बड़ा) chunk of the population located within the “electrified village” but outside this 40-metre limit. Coupled with this is the problem that even in electrified hamlets, not all the households within 40 meters of the distribution lines/poles, take the connection.

Thus there is a situation where people wanting to take connections cannot get it because they are situated more than 40 meters away and those within the area refuse to take connections and instead use what is commonly known as “katia” to take clandestine(illegal,अवैध) connections. This results in double the trouble: First, the revenue of discoms does not increase and second, the dissatisfaction among the villagers grows.

If you look into the numbers as per the census, there were 22.66 crore households in the country out of which only 16.58 crore had connections. Of these, 30-40 per cent are unmetered. Those with unmetered connections get electricity at very cheap or subsidised rates as they are billed either on a per connection basis or a per kilowatt basis. The discoms, it is widely believed, use this as an opportunity to load most of the stolen electricity into the consumption of this category. This is also the cause for the poor financial health of several discoms.

A three-pronged strategy is required to tackle this problem: One, people who fall within 40 metres of the poles should be persuaded to take the connections. Apart from persuasion(encouragement,प्रोत्साहन), a legislative approach could be to charge the households within the 40 meters an electricity cess, as is done in the case of water provided by the municipal corporations.

Two, power department officials should ensure that people within the 40 metres range take connections. One impediment(barrier,बाधा) to taking these connections is their cost, which should be reduced and charged in instalments, especially from low-income applicants. Three, an extensive assessment of how much investment is required to let the electricity network go up to all the households. This investment should be made on priority basis, as it would bring more revenue to the discoms and it may reduce the tariff burden on existing consumers.

If the investment on expanding the network to each household is too high, governments may consider encouraging private micro-grids and mini-grids. In several states, off-grid micro and mini-grids are a reality. In UP and Bihar, where the grid coverage is poor, 70-80 such projects have already come up. Many other states are following suit.

Simultaneously, the Central government has come up with a draft mini-grid policy which should give a big boost to them in the country. The need is to have a coordinated plan to extend the existing grid and to set up more mini-grids in remote villages. This would require not just coordination but active collaboration among the states and the Centre. Only this can turn the dream of “power for all” into a reality.

 courtesy:indian express

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