A short trip to the year 2000

I'm in Bhopal these days. Yesterday, I accompanied my father and younger brother on a short trip to Vidisha, one and a half hours away from Bhopal. I had lived in Vidisha from 1998 to 2000. Quite a long time back, then. It was therefore an opportunity to compare the image of Vidisha that I had in my memory from childhood with the actual. This was first such opportunity, because although I have stayed at many places in Madhya Pradesh (about 9), this was the first time I was going back to a place long time after I left it.

Right after we entered Vidisha, I was expecting to come across the railway over-bridge, the single most identifiable structure in the town (I would have almost considered calling it a city before yesterday). As we came round to it, it turned out to be much narrower than I thought. We were then on the road (the one in front of the SP and Collector residence) that I used everyday to go to school from my house. I often rode a bicycle to the school and was hoping to remember it the best. But the road that I was on right now was, again, much narrower, much more congested, and had less trees on both of its sides. I asked my father whether the roads didn't use to be better. He said they were almost the same.

Now there is no doubt that there would have been an increase in the population of the town in these 12 years. But the level of crowding on the streets was still surprising. While I was expecting a broad highway-sort of road through which I used to speed on my bicycle, I found a rather narrow street through which you couldn't drive without stopping every couple of feet.

In short, it was quite a perplexing experience. I wondered how much sanitized and idealized were my memories, in general, from my childhood. They were surely quite a lot more sanitized than I would have expected them to be, if at all. Another reason why the level of development in Vidisha appeared to be of tehsil-level is probably that I had rarely been to any big cities in my childhood, and the perception of the size of the over-bridge and the roads of the town in my memory didn't alter even after I did visit some cities a few years after leaving Vidisha.

Of course, the biggest horror of the experience was to wonder if the girls I had a crush on, in my class, were not as cute as I remember them to be.

Generic drugs under attack

Recently, in a hearing in the US Congress, Teresa Rea, Deputy Director of the U.S. Patent and Trademark Office (PTO), was outraging against the Indian government for approving the licensing of the generic version of the cancer drug Nexavar. (In India, Nexavar costs $5,000-per-month, while the generic version made by the Indian company would cost $157 per month.) She was 'dismayed and surprised' by the 'egregious violation of the World Trade Organisation (WTO) treaties' and said that she personally engaged various agencies in the Indian government to try to invalidate the license. Her enthusiastic lobbying for the multinational drug companies (German company Bayer, in this case) was, obviously, not tempered by the fact that the Trade Related Intellectual Property Rights (TRIPS) agreement of the WTO does allow such licenses under its clause of 'compulsory licensing'. That, being an officer that deals with patents, she wasn't aware of a famous clause, that has existed for ages, and that has even been invoked by the US government in the past (when Indian generic drugs saved the day for the US), speaks of the grip of the lobbying groups on her office.

Later, after being made aware of the clause, she conceded that it is indeed allowed under TRIPS, but that she would oppose it.

There are signs that India may face similar pressure under the EU-India Free Trade Agreement, which is being negotiated for a few years now, to give up its rights to issue compulsory licenses for critical generic medicines, in exchange for easier short-term access for Indian professionals to Europe (which actually is an obligation on Europe anyway, under mode 4 of the General Agreement on Trades and Services of the WTO).

Various agencies like Oxfam, Médecins Sans Frontières, UNITAID are warning that such a move will have massively grave consequences for the supply of essential life-saving generic medicines in poor countries around the world. ("Millions of people in sub-Saharan Africa would likely now be dead or dying if it had not been for the cut-price Aids drugs manufactured in India.")

The owner of Cipla has said that 95% of Western pharmaceutical firms’ profits come from developed markets like Japan, Europe, America, so these giants don't really lose out because of the compulsory licenses, in which they are entitled to only a set fee.

(On an unrelated note, GlaxoSmithKline was fined $3 billion, last week, for encouraging the prescription of unsuitable antidepressants to children by bribing the doctors, among other unethical acts.)

The firms reasonably claim that the research on drugs (besides bribing the doctors and various agencies around the world) needs large investments. Public funding of such research will thus become increasingly important to overcome the private monopolies on drug research, if the patent laws in India and around the world continue to be increasingly restrictive.

Time magazine calls Manmohan Singh a 'loser' - well not quite, only 'underachiever'

As soon as I read the headline that said that the Time magazine has called Manmohan Singh an under-achiever, I suspected it was in line with the many events recently that seem to be attempting to influence the discourse on the direction of the Indian economy. One of the significant and visible events, recently, was the downgrading of the outlook of the Indian economy by S&P and Fitch. (And interestingly, not by Moody's [1]. They seem to have not got the memo.) Moody's spokesperson said that the slowdown in Indian economy was unlikely to be a permanent feature, that there was nothing very much unexpected about most of the recent adverse developments, and that the ratings already took into account the fact that any reforms would be slow to come by, given the nature of the Indian coalition government, and so there was no significant development specific to the Indian economy in a recession inflicted global economy, to warrant a threat of relegation of India to junk status. And the fact that India was still the second fastest growing economy globally. These were almost precisely my thoughts after S&P's downgrade announcement. And yes, that is in spite of the fact that the Indian economy took a hit in terms of rapid slowdown of the manufacturing sector, weakening of rupee and increased current account deficit. Many European economies doing much worse and on the brink of recession, had got better investment ratings. Many commentators in the Indian corporate sector voiced similar sentiments. The markets (sensex) also more or less ignored these signals by S&P and Fitch. 


The downgrade itself wasn't so interesting (and troubling). It was the explanation that was quite instructive. Apart from using colorful language ("India might be first fallen angel among the BRIC nations") that you wouldn't quite expect to hear from rating agencies who claim to be operating rationally on cold economic statistics and parameters, S&P and Fitch cited, other than the things mentioned above, corruption, weak political setting and lack of liberalization reforms.


Now, all the corruption scandals will make UPA pay politically (I hope). But, I don't quite understand how the exposing of all the scandals translates into a discernible signal of any kind to the potential investors. What exactly is the implication? Will it be increasingly difficult now for the companies to bribe the government? Or did these exposes cause moral outrage among companies who were going to invest in India, but realized that corruption permeates through all levels in India? (And I say this without trying to minimize the scale of all the recent shocking scandals.) I feel if there was a better explanation than that, the generally verbose rating agencies would have spelled it out. My feeling is that the word corruption was thrown in the mix only to get nodding heads, because everybody hates corruption in India. (Yeah.) The real agenda to push through and to influence popular opinion on, was the 'slowdown of liberalization reforms'. (An economic crisis is just the right moment to push through agendas. In Euro zone and the US, it's 'austerity' that is being pushed as the solution for high unemployment, flat growth and recession-like situations. Richard Koo, an economist with similar experiences in Japan, has this to say on that issue.)


So all the heat on the government due to corruption and its general incompetence was being brought to and expended on the issue of liberalization, in general, and on some other specific cases like the Vodafone tax issue, and GAAR, in addition to the usual demands of reducing subsidies, carrying out land acquisition reforms etc. There was intense lobbying pressure put on the Indian government by the UK [2] and the US [3] administration at the highest levels to backtrack on the retrospective taxation. Several pundits appeared on media (western, especially) to explain that the Vodafone tax issue had a big role to play in the rating downgrade. They were worried that India was projecting an image of lawlessness. One very common refrain was that the Indian government would use the amended IT act to tax transactions going back as far as 1961 - the year of passing of Income Tax Act, even though Pranab Mukherjee had clearly said that 'cases beyond six years will not be re-opened' [4], because the same act had such a provision too.


If I may digress once more, on the issue of perceived lack of rule of law in India, I was a bit amused by how these commentators seemed to define 'rule of law'. I wouldn't agree with the retrospective taxation policy, even though India is not the first country to employ such a policy, with China, US, UK and Australia setting the precedents [5]. It is clearly a bad policy that increases uncertainty, reduces trust in the government, and, generally speaking, should not be employed. (And Pranab Mukherjee accepted so.) But surely the real lawlessness in India is that due to Naxalites in one-third of the country, caused by policies like land acquisition (which the rating agencies say should be liberalized even more), rather than due to a law passed by the Parliament of the country? But that's just me being dramatic.  (Though I do feel and find it interesting that the problem of Naxalism in India, given its extensiveness, gets disproportionately low amount of attention in the western media. Not that I am really complaining though.) The lawlessness argument gets more interesting, when one notices that Vodafone paid zero (I mean zilch) corporation tax in the UK this year [6], in spite of soaring profits, causing much anger in the UK.


Coming back to the Time magazine, the word 'under-achiever' is again very instructive, aside from the fact that the magazine bothered judging the performance of the Indian PM at all, given that there are many more crucial global economic actors in the spotlight currently across EU and in the US. The Time says that Manmohan Singh is 'unwilling to stick his neck out for reforms'. 'UPA has been burning through its boom-time chests, spending on subsidies and social benefits. But business-friendly laws that could spur growth to offset that spending are languishing, and industry is struggling'.


S&P had said something similar. "It would be ironic if a government under the economist who spurred much of the liberalization of India's economy and helped unleash such gains were to preside over their potential erosion."


The only real message that I see there, is that the world expects Manmohan Singh to do more of what he is famous for. Opening up the economy. And the 'under-achievement' tag has nothing to do with anything else the magazine has mentioned, including the corruption scandals. It is only meant to impress upon him and the people the need to rush through aggressive liberalization to solve the current crisis. There are people who wish that the crisis in India deepened, which would make imposing of their ideology from the outside easier.


The 1991 reforms have brought India its economic growth. But there is such thing as indiscriminate liberalization, which can destroy local economy and cause much pain, especially to the small players, who are in huge numbers in India. It is thus an extremely sensitive balancing act, with huge political, economic and social repercussions. It is only fair that such reforms are brought cautiously. Governments in India indulge in populism. But if a policy has the potential to disrupt the lives of a sizable portion of the population, it is democracy in action if that gets reflected politically in the actions of the government. Populism may be bad. Crony capitalism that rejects popular demands isn't much good either. (Yet that is not to say that there are not reforms that demand immediate attention and scrutiny. Before it was done for petrol, the reform I thought of as most reasonable and quite needed was the deregulation of oil prices; given that sooner or later we need to reconcile our oil demand with international oil price, by either reducing our oil consumption or by making it more efficient. Liberalizing FDI in retail, in steps, starting from metropolitan cities, as Kaushik Basu has suggested, is another that seems to have the potential, among other things, of improving the back-end infrastructure, storage facilities and making available better prices for farmers' produce. I digress.)


All of it may be paranoid talk. But it hard to ignore what seem to be serious and sustained efforts to disguise and aggressively push neo-liberal policies as 'reforms' and panacea for all economic ills. There are a host of agencies that eat into the sovereign space of policy debate. And it is a bit disconcerting, especially noticing the effect of their methods, like in UK, which under Tories has imposed austerity on itself by convincing its people as the way out of their current economic problems, leading to slashing of housing benefits for their young, slashing of benefits to the handicapped and attempts to cut down their well functional National Health Service [7].


It is impossible for anyone to prescribe the rate at which reforms need to be brought and their quantum, if at all they should be brought, but I would like to think that there are sufficient pulls within Indian political system to bring them about at a rate, if at all, that will be in the best interests of most of the stakeholders.




[1] http://articles.economictimes.indiatimes.com/2012-04-26/news/31410584_1_outlook-revision-s-p-credit-analyst-moodys
[2] http://www.businessweek.com/news/2012-04-01/u-dot-s-dot-u-dot-k-dot-business-groups-protest-india-retrospective-tax-move
[3] http://articles.economictimes.indiatimes.com/2012-04-28/news/31453518_1_foreign-investment-investment-climate-pranab-mukherjee
[4] http://www.indianexpress.com/news/pranab-defence-retrospective-changes-should-not-be-done-but.../925452/0
[5] http://www.businessworld.in/businessworld/businessworld/content/Following-Precedents.html
[6] http://www.guardian.co.uk/business/2012/jun/26/vodafone-faces-tax-payment-row
[7] http://ht.ly/aTM7Z