Is Education Economically Productive?

It depends.  In many low-income countries, learning assessments show that many young children and youth lack the most basic literacy and numeracy skills even after attending school.  And employers in many countries complain that workers lack technical and soft skills.  Therefore, for education to contribute to growth, other policies must be conducive to making education economically productive.

Progress and Pitfalls

India has shown extraordinary progress (Johnson, 2010). The economy grew at an average annual rate of 7.26 percent over the past five years. Between 2014 and 2015, the manufacturing sector grew by 8.4 percent, up from 4.4 percent a year ago. Between 2014 and 2015, the Indian manufacturing sector grew by a substantial 8.4 percent, up from 4.4 percent a year ago. India has also firmly established itself as a lucrative foreign investment destination, with foreign capital inflows of over US$ 31 billion in 2015 – surpassing the US and China. India’s dynamic services sector, second only to China in terms of growth rate, clocked an impressive double-digit growth rate of 10.6 percent in 2015, up from 9.1 percent in 2014 (UNDP, 2015).

However, a half-century after independence India still remains one of the world’s most inegalitarian societies (Weiner, 2001).  Even as the world’s largest democracy remained resilient in face of the global economic crisis, the country faces a critical challenge similar to several other BRICS counterparts – high growth has been accompanied by persistent inequality, reflected in the low human development attainments of the country’s most marginalized groups including scheduled castes, tribal and rural populations, women, transgenders, people living with HIV and migrants.  Gender inequality in India persists despite high rates of economic growth, and is particularly apparent among marginalized groups. Women participate in employment and decision making much less, than men (UNDP, 2015).

Indeed, the country’s Human Development Index value when adjusted for inequality loses 28 percent of its value (UNDP, 2015).

What India can do about this?

Before turning to the question of the distribution of public goods, it is first necessary to note that the persistence of poverty in India and elsewhere, is in large part a consequence of other issues.  Yes, poor economic performance, but also health outcomes, human security, environmental sustainability, and perceptions of well-being.  Indeed,  though rising per capita income is no guarantee that poverty will be eliminated or, for that matter, significantly reduced, a low per capita income assuredly means massive poverty and the persistence of other problems (Weiner, 2001).

The World Bank’s Chief Economist, Kaushik Basu this week announced plans to address one aspect of this wide debate.  According to Basu, the World Development Report (WDR) 2018— Realizing the Promise of Education for Development, will  take stock of what the development community has learned, and how it can strengthen the many economic challenges and expand education systems to drive significantly more development and growth.  India, along with most countries, is concerned with the future of the labor market and employability.  However, WDR will for the first time examine these issues at all levels of education, from early childhood to higher education, and will explore the roles of public, private, and civil society actors.

The report will focus on what countries can do and present evidence on how to improve learning with lessons on effective interventions—in areas like pedagogy, teacher training, and accountability, as well as the many benefits to early childhood development (ECD), and on the promise of new technologies.

Going to Scale

Significant changes have occurred over the past fifty years, and educational achievement has risen enormously, particularly over the past twenty-five years.  However, improving economic productivity  will require attention to many things, including emphasizing skill development in order to make school education more practically relevant.

Primary school enrollment in India has been a success story, largely due to various programs and drives to increase enrollment even in remote areas.  With enrollment reaching at least 96 percent since 2009, and girls making up 56 percent of new students between 2007 and 2013, it is clear that many problems of access to schooling have been addressed.  Improvements to infrastructure have been a priority to achieve this and India now has 1.4 million schools and 7.7 million teachers so that 98 percent of habitations have a primary schools within one kilometer, and 92 percent have an upper primary school within a three-kilometer walking distance (Brookings, 2015).

Despite these improvements, the quality of learning is a major issue and reports show that children are not achieving class-appropriate learning levels (Brookings, 2015).  According to Pratham’s Annual Status of Education 2013 report, close to 78 percent of children in Standard III and about 50 percent of children in Standard V cannot yet read Standard II texts.  Arithmetic is also a cause for concern as only 26 percent students in Standard V can do a division problem. Without immediate and urgent help, these children cannot effectively progress in the education system, and so improving the quality of learning in schools is the next big challenge for both the state and central governments.

India faces many economic challenges that could be tackled through the education system.  However, experience shows that going to scale is not as simple as taking a pilot intervention and implementing it widely.  The WDR will address part of the economic productivity issue in diagnosing the hurdles to implementation and the political economy forces that block system-wide improvements.  It will not highlight how to overcome all challenges, nor how to align all key stakeholders and institutions in the system toward work and employment, and economic productivity.  One of the most radical changes must be in the manner in which government seeks policy inputs –  from ensuring that the system innovates and draws lessons from experience to taking account of the social and political roles that education plays – rather than just the economic and technocratic roles in formulation and implementation.

Breaking Down the Climate Talks

logo-COPThe Paris Conference of Parties (COP), long viewed as the vehicle for crafting the next phase of global climate responses, both shed light on complications surrounding the history of climate change negotiations, as well as unpack a new landmark agreement to tackle climate change and reduce greenhouse gases.

History of Climate Negotiations

The international political response to climate change began at the Rio Earth Summit in 1992, where the ‘Rio Convention’ included the adoption of the UN Framework on Climate Change (UNFCCC).   The UNFCCC entered into force on 21 March 1994.  This convention set the framework for action aimed at stabilizing atmospheric concentrations of greenhouse gases (GHGs) to avoid “dangerous anthropogenic interference with the climate system.”

One of the main principles of climate negotiations is that countries have common but differentiated responsibilities when it comes to climate change, depending on their wealth in particular. The agreement establishes an obligation for industrialized countries to fund climate finance for poor countries, while developing countries are invited to contribute on a voluntary basis.  As regards transparency, a stronger system for tracking commitments, which allows developing countries a certain amount of flexibility, has also been set up in order to keep track of everyone’s efforts .

The main objective of the annual COP was and remain to review the Convention’s implementation. The first COP took place in Berlin in 1995 and significant meetings since then have included COP3 where the Kyoto Protocol was adopted, COP11 where the Montreal Action Plan was produced, COP15 in Copenhagen where an agreement to success Kyoto Protocol was unfortunately not realized and COP17 in Durban where the Green Climate Fund was created.

The COP Climate Deal, So Far

The Paris agreement marks a major change in direction.  In terms of global responsibilities, it confirms the global target of keeping the rise in temperature below 2°C.   Scientists believe that a greater increase in temperature would be very dangerous.  However, the agreement also establishes, for the first time, that we should be aiming for 1.5°C, to protect island states, which are the most threatened by the rise in sea levels.

By 12 December 2015, 186 countries had published their action plan; each of these plans sets out the way in which they intend to reduce their greenhouse gas emissions. The UN body that deals with climate change (the UNFCCC*) published an evaluation of these contributions on 1 November 2015. This study showed that despite the unprecedented mobilization shown by States, at this rate global warming would still be between 2.7°C and 3°C, i.e. above the threshold set by scientists.

Secondly, the agreement addresses climate finance.  The agreement acknowledges that $100 billion (in loans and donations) will need to be raised each year from 2020 to finance projects that enable countries to adapt to the impacts of climate change (rise in sea level, droughts, etc.) or reduce greenhouse gas emissions. The agreement specifies that this amount should increase. Some developing countries will also be able to become donors, on a voluntary basis, to help the poorest countries. This is a first. The agreement schedules an initial meeting in 2025, where further quantified commitments will be made regarding assistance to the poorest countries.

The agreement will be open for signing by the countries on 22 April in New York. The agreement can only enter into force once it has been ratified by 55 countries, representing at least 55% of emissions.  This of course, would be the real turning point.

Why Forest Policy Matters

Every dimension of forest-related decision-making, including rights of local communities, conversion of forests to non-forest uses and setting aside forests for wildlife conservation, has become the subject of intense scrutiny, debate and change.   Most notably, the involvement of multiple actors, from local communities to the Supreme Court, has shifted the discourse from forest management to forest governance.

Forest Management

The reality is that India’s forests are witnessing a battle between the competing paradigms of the Indian Forest Act of 1927 and the 2006 Forest Rights Act.  British-era regulations sought to gain control over forests via the forest department, to enable the colonial state to meet its needs for timber and revenue in the project of empire-building. The 2006 law looked to rectify the ‘historical injustice’ of treating India’s forest-dwelling communities as encroachers in landscapes they have lived in for generations, and to recognize their traditional usage rights through forest right titles (Choudhury, 2015)

Essar Energy, a fully integrated oil and gas company, is positioned to capitalize on India’s rapidly growing energy demand.   The company has strong presence across the hydrocarbon value chain from exploration, and assets worth US$12 billion across the power and oil and gas industries (Essar, 2015).

According to Sushil Maroo, the company’s Chief Executive Officer, “One has to balance ecological concerns with India’s need for commodities and economic development.”  Essar Energy serves retail customers in India through a modern, country-wide network of 2,000 operational and under-construction retail fuel outlets.  “One way is for the government to look at the country as a whole, and say where mining can or cannot take place. Another way would be reforestation,” he continued (see Choudhury, 2015).

Forest Governance

There is no simple or broadly accepted definition of “governance,” even though the term is widely used across many disciplines.  Good governance is often associated with principles such as transparency, participation, and accountability.  In the context of international development, the notion of good governance is commonly seen as a critical foundation for achieving positive social, environmental, and economic outcomes.  Conversely, weak governance is often blamed for poor development outcomes, such as poverty and unsustainable levels of natural resource depletion.  In the context of forests, a lack of transparency and accountability is often associated with problems such as illegal logging and corruption.  Similarly, a lack of open and inclusive decision-making often contributes to the marginalization and impoverishment of forest-dependent communities and indigenous peoples.

Taken together, since decisions about forests are shaped by a wide range of public and private actors, forest governance necessarily has to do with the process of how decisions are made about forests, as opposed to focusing exclusively on what decisions are made or the outcomes of those decisions (WRI, 2013).

Why Forest Policy Matters

The forest sector in India is currently going through never before seen change.  For example, India needs coal but coal mining and subsequent usages of coal has adverse impact on climate which may risk various forest types.  Therefore forests are highly sensitive to climate change, and this has been shown by observations from the past, experimental studies and simulation models.

“Clear and secure rights to forest land are a critical enabling condition for promoting resource management decisions that value social and environmental dimensions of forests alongside economic interests.”               – Wold Resource Institute, 2013

Perhaps now, more than ever, forest policy matters.  Central to the discourse are substantive questions on forest rights, responsibilities, regulatory structures, transparency and accountability, in other words practical questions about policy and governance.

For more discussions on Environment, Forest and Rural India, follow Chitrangada Choudhury @

Will India Play Constructive Role in Climate Talks?

IPCC Climate Change 2015 Synthesis ReportThe Intergovernmental Panel on Climate Change (IPCC) published its Fifth Assessment in 2014, summarizing the work of thousands of scientists across the world.  The message was, in the panel’s own words, “unequivocal”.   Climate change will exacerbate poverty in most developing countries.  This is due to a complex range of factors, but particularly food price increases.  It notes that, in the years since its previous report in 2007, there have been rapid food price increases, following climate extremes in key producing systems.

A similar picture emerges on health.  A study, by The Lancet and University College London, stated that climate change is the biggest global health threat of the 21st century.  Climate change influences disease patterns, food, water, sanitation, extreme events, shelter and human settlements, which in turn affect health outcomes. Infant mortality is closely linked to under nutrition and food insecurity, both affected by climate change.

Reducing carbon emissions will help to mitigate these effects; meanwhile, there are economic, health and social opportunities in low carbon development pathways.   Decentralized low carbon energy, for example, such as solar and wind, can provide electricity for the 70 per cent of sub-Saharan Africans who currently have no access.  Growth in off grid solar has given 2.5 million households in Kenya access to energy.

Paris 2015 COP21 CMP11The Paris Summit in December 2015 provides a crucial opportunity for India to lead, aligning development goals with action on climate change, and given the discussions around the Sustainable Development Goals.   196 countries will meet to sign a new climate change agreement, which needs to acknowledge the importance of climate change mitigation to development and the necessity of finance, both to adapt to climate change and to invest in low carbon economic pathways.  But how likely is it that it will be meaningful and make a difference to climate action on the ground?

Is India Open For Business?

WTO logoThe Sixth Review of the Trade Policies and Practices of India offered an excellent opportunity to learn about the development of the trade, economic, and investment policies of India since its previous WTO Review in 2011, and its overall readiness for business.

WTO members commended India’s accelerating economic growth during the review period, particularly in the services sector, and the milder inflation in recent years.   However, members also recognized India’s need and willingness to overcome its structural bottlenecks, including fiscal deficit, shortfalls in infrastructure such as education, health care, transportation, and power supply, delays in project approval, difficulties in land acquisition, low manufacturing base and agricultural productivity, and cumbersome labor market regulations. In this respect, WTO urged India to pursue further tax reforms, which may increase government revenues, as well as to increase investment in infrastructure.

In terms of trade policy challenges, India’s share of world trade continues to be small, with only a slight increase from 1.3 percent in 2009 to 1.7 percent of global merchandise exports in 2013.  Further, given uncertainties in the international economic environment in general and within India’s major trading partners in particular, the country may experience future challenges in its trade sector. Moreover, domestic factors like weak infrastructure, rising wages and scarcity of skilled labor in the case of services are inhibiting growth of trade and related activities (WTO, 2015)

Finally, the rising incidence of non-tariff barriers, in the form of sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT), remain a major trade concern.  While tariffs have been going down globally (also as a concomitant to rising number of FTAs), the use of technical regulations/mandatory standards as barriers has grown, along with the growth of a variety of conformity assessment procedures.  The resultant increased transaction costs arising from complying with such regulatory requirements adds to the costs of India’s exports and erodes price competitiveness (WTO, 2015).

Women, Poverty and Economics

Macro-economic policies such as trade agreements, national development plans and poverty reduction strategies need to reflect the differences between men and women.  This includes policies that advance land and inheritance rights for women and legal protections for migrant and domestic workers in origin and destination countries to reduce the potential for exploitation and abuse.

I am (wo)man is a digital media campaign calling on women and men from all over the world to share, through a photo and personal story, what women’s economic empowerment means to them.   The purpose of I am (wo)man is to spread awareness of and encourage action for women’s economic empowerment through digital and social media.

economic_empowerment“When the land is in my husband’s name, I’m only a worker.   When it is in my name, I have some position in society and my children and my husband respect me so my responsibility is much greater to my own land and I take care of my fields like my children” – A farming woman in Maharashtra

Why Modi Matters

Time Magazine Cover Why Modi MattersIn his first year as Prime Minister, Narendra Modi has seized the global spotlight with global media coverage.  Two authoritative weekly newspaper articles published in the past week, Time Magazine and The Economist respectively, offer two important reasons why the world needs both India and the prime minister to step up as a confident global power.

Economic Reforms (Fast and Far)  

First, the outlook for the Indian economy has improved over the past year, though that’s not entirely due to Modi’s efforts.  Modi’s “pro-business orientation” is unlike its predecessor.  The government has taken steps to further liberalize India’s economy by, for example, opening up key sectors of the country’s economy and pushing through long standing proposals to increase foreign direct investment.  On whether economic reforms have gone far and fast enough, Modi told TIME editor Nancy Gibbs, “This time last year, nothing seemed to be happening in the government.  There seemed to be a complete policy paralysis. …There was no leadership.  My government’s coming to power should be viewed in the contexts of the developments of the 10 years of the last government vs. 10 months of my government (Time, May 18, 2015).”

Modi’s Pledges 

Modi's Many Tasks The Economist Special Report May 23 2015Second, Modi is a superb taskmaster.  The Economists has compiled a list of 30-odd official pledges announced in the past year to outline the government’s ambitions (see left).   Around half the tasks are means to be completed by the next election, 2019.   The article(s) were published in Time magazine, May 18, 2015; The Economists May 23-29, 2015 (US Edition).




Emerging Markets Need to Prepare in Advance to Deal with Uncertainty

Managing Director of the International Monetary Fund Christine Lagarde speaks as Governor of Reserve Bank of India Raghuram Rajan looks on during an event at the RBI headquarters in Mumbai March 17 2015.Unconventional monetary policies, which include large purchases of government debt, has been used to provide policy accommodation in advanced economies since the 2007 global financial crisis.  However, these policies have had both positive and negative spillovers.

During a recent visit to India, International Monetary Fund (IMF) Chief Christine Lagarde, cautioned that “the unconventional monetary policies have had strong positive spillovers for the global economy, and by implication for India and other emerging markets.”  However, “it is also true that these policies led to a build-up of risks.” 

Between 2009 and the end of 2012, emerging markets received about US$ 4½ trillion of gross capital inflows, representing roughly one half of global capital flows.  Such inflows were concentrated in a group of large countries, including India, which received about US$ 470 billion (IMF, 2015).  As a consequence, bond and equity prices rallied, currencies strengthened, and spillovers to asset prices and capital flows were even greater than from earlier conventional policies (IMF, 2015).  “The danger is that vulnerabilities that build up during a period of very accommodative monetary policy can unwind suddenly when such policy is reversed, creating substantial market volatility,” she told Raghuram Rajan, Governor of Reserve Bank of India (RBI) and audience at the headquarters in Mumbai, March 17.

I agree the next move for emerging markets is to prepare in advance to deal with this uncertainty.  The reality is that as economic conditions improve in at least some advanced economies, portfolio rebalancing out of emerging market economies can be expected, and some volatility cannot be ruled out.  Remember the surprise indiscriminate capital outflows from India mid-2013?  With all eyes on US Federal Reserve change in posture, the timing of interest rate lift-off and the pace of subsequent rate increases can still surprise markets.

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The Superior Financial Powers of Modi’s Fiscal Roadmap

One of the key features of the Modi administration’s fiscal roadmap is the move to increase disinvestments to include both disinvestments in loss making units, and some broader strategic disinvestments.  The government plans to raise 695 billion rupees ($11.2 billion) in the year starting April 1, an amount crucial to its efforts to narrow the budget deficit.

The sale target includes stakes in central public sector enterprises, holdings in non-government companies, strategic disinvestment and Specified Undertaking of the Unit Trust of India (SUUTI).  In an interview with Bloomberg News (March 3), Disinvestment Secretary Aradhana Johri  reported India’s divestment receipts in the current year ending March 2015 was at 254 billion rupees.  The government is looking to raise 285 billion rupees through sale of its holdings in SUUTI, Bharat Aluminium Co and Hindustan Zinc Ltd.

The scaling up of disinvestments is ambitious, and highlights an important characteristic of Indian federalism: Central government possesses superior financial powers.

Part of the revenue levied at the Central government is of course redistributed among states, on the basis of advice of the organizationally independent Finance Commission or through the National Institution for Transforming India (NITI Aayog), and constitutes a significant source of income for them.  However, the impression that is thus created is one of profligate states, and a more careful and sophisticated Central financial management (Mitra/Pehl, 2012).

Since the liberalization of economic policies and the decentralization of policymaking to states from the early 1990s onwards (and even before then), states have been able to exercise some autonomy in regulating their own development trajectory (Mitra/Pehl, 2012).  However, the picture today is one of differentiation among India’s states in terms of their fiscal capabilities as well as their developmental potential, and a need for reform of inter-state mechanisms of coordination and equalization (an issue NITI Aayog promises to address).

The government is firm on achieving a fiscal deficit target of 3% in 3 years.  The fiscal deficit targets are 3.9%, 3.5%  and 3.0% in FY 2015-16, 2016-17, and 2017-2018  respectively.  But that journey has to take account of the need to increase public investment.

Budget Proposes Game-Changing and Revenue Significant Reforms

There are several specific proposals in the Budget 2015-16 to recalibrate India’s tax effort so that fiscal consolidation may be achieved in the short and medium term.  The game-changing and revenue significant proposals include:  Goods and Service Tax (GST) and Jan Dhan, Aadhar and Mobile (JAM) – to implement direct benefit transfer.   “GST will put in place a state-of-the-art indirect tax system by April 1, 2016.  The JAM Trinity will allow us to transfer benefits in a leakage-proof, well-targeted and cashless manner,” said Finance Minister Arun Jaitley during the budget speech on February 28.

In preparation for the introduction of the GST, the Government has been taking consistent policy steps to expand the scope and reach of service tax.  The shift is monumental in terms of changes in the mode of implementation and will undoubtedly require a transition phase.