Editorials For Students

Bank on the brink

There is much talk these days around consolidation[kun,s-li'deyshun(integration,)] in public sector banks (PSBs). There are good reasons for
fewer and bigger PSBs. Larger PSBs can support the corporate sector better in overseas
acquisitions, bigger banks are less susceptible[su'sep-tu-bul(sensitive, )] to
being taken over by outsiders (if government
everceded[seed(surrender, )] control) and large synergies are available in
mergers that could alleviate capital requirements. In India, moreover, there is a
certain jingoist[jing-gow-ist(extreme nationalist, )] thrill in being able
to say that we have a few banks that are globally significant.
But there could not be a worse time for this talk. When bank portfolios are
uniformly strained[streynd(tensed,)], as they are today, mergers
can accentuate[ak'sen-choo,eyt(emphasis, )] the strains. A bank merger is
never easy but when both banks have strained balance sheets, it can lead to a collapse.
Mergers eat up a lot of top management time IT systems, organisation structures, risk
systems, exposure limits, and product portfolios need to be aligned. Branches need to be
rationalised, customers need to be informed, brands need to be reestablished and people
have to be placed in jobs. At a time when PSBs need a razor focus on cleaning up credit
portfolios, mergers will be very distracting and will bring the sector to a halt.
In fact, Indian banking operates under three disparate[disp(u-)rut(different,)] regulatory policy regimes creating the PSB industry, the private
bank industry and the foreign bank industry. These industries have had different freedoms,
incentives and constraints in respect to branch licensing, compensation, regulatory
prescriptions, M&A and capital raising. PSBs are also overseen by thedreaded[dredid(fearsome,)] Central Vigilance Commission and the Central Bureau of
Investigation. The constraints that PSBs operate under, therefore, are well known and
require them to address three specific challenges recapitalisation (to deal with NPAs,
Basel requirements and for growth of their balance sheet), governance autonomy (from
Parliament for strategic moves like acquisition, the vigilance apparatus, and the ministry
for CEO and board appointments), and HR autonomy (in recruitment and compensation).
In the current structure, none of this works. The recent attempts to address their plight
(Indradhanush), while useful in themselves, have not come close to addressing the core
issues.
The current talk of consolidation provides an opportunity to address these issues once and
for all. The approach I suggest can clean up the mess, release capital, and create five large,
structurally unconstrained government-promoted banks that do not require any
parliamentary permissions. How?
I believe the government should promote five new banks under the RBI guidelines for new
private banks. The RBI guidelines stipulate that promoters can own no more than a 40 per
cent stake at the time of launch, which needs to come down to 15 per cent in 12 years. No

other shareholder can hold more than a 5 per cent stake. The government could even seek
an exception from the RBI and ask to be allowed not to reduce its stake below 26 per cent.
The five banks should be promoted in five different cities Chennai, Bangalore, Mumbai,
New Delhi and Kolkata. Consolidation would occur by getting all the public sector banks
located in the same city (in the case of Bangalore, the state) to transfer all their good assets
and liabilities to the single new bank promoted in that city over a period of three years. So,
for example, in Mumbai, the good assets and liabilities of Central Bank, Dena Bank, Union
Bank, Bank of Baroda, Bank of India and IDBI Bank across the country should be
transferred to the newly promoted Mumbai Bank and so on for each of the new banks.
However, government capital should not be transferred. An equitable scheme for minority
shareholders in the new banks would be required. Just the structure of the new banks
promoted by government would allow them a much higher price to book than the less than
0.5 per cent that PSBs currently enjoy. These five new banks would enjoy all the freedom of
the new private sector banks with the government just being the promoter of these banks.
They would have full HR autonomy, they would not be under the CBI or the CVC, and they
would each have independent boards akin[u'kin(similar, )] to say an Axis Bank.
They would raise capital from the market. They would start out on new technology and
would look to digitise bank operations from the start. They would have fewer branches and
would use partnerships and alternative channels (mobile) a lot more. The State Bank of
India (SBI) could be allowed to carry on as it is but at some point the government should
reduce its holding below 51 per cent to provide a similar freedom to its staff.
The existing PSBs could be provided the minimum additional capital necessary for basic
ongoing business and essentially to work out their impaired assets. It is not even important
to close these banks down after three years but they will become a small SUUTI type rump
(the impaired assets company of UTI) that will fade away. The big bulk of their senior
officers would retire in three years and their employees under 55 would get very favourable
consideration in the new bank, where the bank assets are transferred, on the new terms of
employment. We should recall that Axis Bank started with a bulk of their employees coming
from the SBI and SBBJ.
What a move like this does is that in three years time, we will have five large banks, with
government as the single-largest shareholder, but without any of the constraints of the
present PSBs. No permissions are required to do this, no debates in parliament and in one
stroke we clean up the entire sector, make the banks bigger and allow the rump to be
worked out over the next three to five years. The consolidation discussion provides the
required fillip. It will be a lasting legacy the Modi government could leave India
arobust[row'bst(strong,)], large and clean banking system.

Euthanasia

Mercy killing is the act of killing someone painlessly especially to relieve someone suffering
from an incurable illness. It is also known as Euthanasia . It came from the Greek words,
Eu (good) and Thanatopsis (death), but it relates to most painful and enigmatic question
for the terminally ill patients, be it Cancer, AIDS, accidental or traumatic coma, and
innumerable incurable diseases, waiting for the end to come but the end is not so easy its
quite painful. The quality of life, in such a serious critical conditions is
bleak, caregivers stress is also insurmountable, and the only prayer is that "DEATH"
should embrace the patient in good grace for an eternal peaceful abode. In such a situation,
if the death is not imminent but sure, the question arises why not the patient is artificially
induced for a death, of course medically. But currently there are cases of misuse of
euthanasia, for example in cases where the patient is pressured by family members to give
consent to the ending of their lives.
The legalisation of voluntary euthanasia provides an opportunity for safeguards against
just such a situation, and other instances of coercion and fraud. Mercy Killing is legally
punishable and religiously a sin however worst may be the condition of the patient. In
addition, doctors are afraid to openly discuss end-of-life decisions with patients due to
illegalities. This prevents an open and honest relationship between doctor and patient in
which the doctor can discover the patient's wishes regarding his/her own life and death.
That's why in every medical centre, there is statuary warning that the physicians
concerned will not reveal the gender to the patient. Because most of the Indian families said
to have a dislike for female child. A simple scan if reveals a viable female foetus and they
presumably run for abortion, with the medical aid or illegally with the help of quacks
to imperil both the lives.
The most important question is here whether the too terminally ill, with the pain which
cannot be described in words, should they live waiting for the death to grace or can
euthanasia be legally permitted for the embrace death with dignity. The government of
India is against bringing any laws on mercy killings. The Supreme Court bench however
had stated while writing the judgement -'If we leave it solely to the patient's relatives or to
the doctors or the next friend to decide whether to withdraw life support to an incompetent
person, there is always a risk in our country that this may be misused by some
unscrupulous persons who wish to inherit or otherwise grab the property of the patient.
Considering the low ethical levels prevailing in our society today and
the rampant commercialisation and corruption, we cannot rule out the possibility that
unscrupulous persons with the help of some unscrupulous doctors may fabricate material
to show that it is a terminal case with no chance of recovery.'

Access to forests

A pioneering new book, Gender and Green governance, explores a central question: If women
had adequate representation in forestry institutions, would it make a difference to them their
communities and forests as a national resource? Interview with the author.
Why has access to forests been such a conflict-ridden issue?
This is not surprising. Forests constitute not just community and national wealth, but global
wealth. But for millions, forests are also critical for livelihoods and their daily lives.
Your first book, Cold Hearths and Barren Slopes (1986), was about forests. Is there an
evolution of argument here?
Yes indeed. In Cold Hearths and Barren Slopes, I had argued that social forestry, with its topdown implementation and focus on commercial species, was neither social nor forestry, and
would protect neither forests nor village livelihoods. The answer, I argued, lay in allowing forest
communities to manage local forests. Finally, in 1990, India launched the joint forest
management programme and Nepal also started community forestry. So, I decided to see for
myself how community forestry was actually doing.
Between 1995 and 1999, I travelled extensively across India and Nepal and found a paradox.
Forests were India becoming greener but womens problem of firewood shortages persisted and
in many cases had become more acute. Also, despite their high stakes in forests, women
continued to be largely excluded from forest management. I coined the term participatory
exclusions to describe this. However, the current book is less about womens exclusion. I ask:
What if women were present in forest governance? What difference would that make?
But has this question not been raised before?
Economists researching environmental collective action have paid little attention to gender.
Scholars from other disciplines focusing on gender and governance have been concerned mainly
with womens near absence from governance institutions. The presumption is that once women
are present all good things will follow. But can we assume this? No, rural womens relationship
with forests is complex.
On the one hand, their everyday dependence on forests for firewood, fodder, etc, creates a strong
stake in conservation. On the other, the same dependence can compel them to extract heavily
from forests. As one landless woman told me: Of course, it hurts me to cut a green branch but
what do I do if my children are hungry? Taking an agnostic position, I decided to test varied
propositions, controlling for other factors.
What did you find?
Flirts, womens greater presence enhances their effective voice in decision-making. And there is
a critical mass effect. If forest management group have 25-33 per cent female members in their
executive committees it significantly increases the likelihood of women attending meetings,
speaking up and holding office. However, the inclusion of landless women makes a particular
difference. When present in sufficient numbers they are more likely to attend meetings and voice
their concerns than landed women. So what matters is not just including more women, but more
poor women.
Second, and unexpectedly, groups with more women typically make stricter forest use rules.
Why is this case? Mainly because they receive poorer forests from the forest department. To
regenerate there, they have to sacrifice their immediate needs. Women from households with
some land have some fallback. But remarkably even in groups with more landless women,
although extraction is higher, they still balance self-interest with conservation goals, when placed
in decision-making positions. Third, groups with more women outperform other groups in
improving forest conditions, despite getting poorer forests. Involving women substantially

improves protection and conflict resolution, helps the use of their knowledge of local
biodiversity and raises childrens awareness about conservation.

No proof required- GDP debate: RIP

One does not often get a chance to say I told you so. As readers of this column know, I
have constantly reiterated[ree'i-tu,reyt(repeat,)] that the new GDP data are
authentic and correct, and there finally appears to be new data, which can put this debate to
rest. The controversy over the new GDP data has raged for over a year now, and each month
brings a new member of the Doubting Thomas tribe. Briefly, for those lying under a rock,
the Central Statistics Organisation (CSO) brought out, in January 2015, estimates of the
GDP from 2011-12 onwards using the new method of calculating GDP. Revision of GDP data
is a routine exercise, and has been conducted at least four times in the last 50 years. I am
sure you never heard of previous revisions and there is a political economy reason for this
(more on that below).
The fact remains that this new GDP data have been questioned by all and sundry[sndree(mixed,)] .
And the doubters are a list of whos who the RBI (including Governor Raghuram Rajan),
Chief Economic Advisor Arvind Subramanian, and many foreign investors and prestigious
publications (including The Economist, The Wall Street Journal and the Financial Times).
And the questioning has varied from polite to downright defamatory. The polite version
states that the new GDP data, showing a 1 to 2 percentage point increase in the growth rate
than previously estimated, is incorrect because it does not feel right.
The major difference between the old and new was that the new data made a significant
departure from previous methods by estimating industrial and manufacturing production
from balance sheet data of both unlisted and listed firms (ministry of corporate affairs,
MCA, database). These data are now available on the RBI website. And we infer that as the
RBI has published these data on its own website, the RBI believes in the accuracy of the
MCA data. So we need to strike the RBI off the list of Cassandras.
What the RBI website states is that the MCA data have been compiled based on audited
annual accounts of 2,37,398 NGNF private limited companies received from ministry of
corporate affairs (MCA), accounting for 23.3 per cent of population paid-up capital. In
addition, the results pertaining[pu'teyn(relevant, )] to 16,923 publicly listed
companies in the MCA database have also been posted by the RBI.
The MCA data show that the 58,256 unlisted firms in manufacturing, accounting for a third
of total manufacturing sales, have been registering close to double-digit growth, and a midteens average growth in value-added. The weighted average growth in value-added for both
listed and unlisted firms was a healthy 13.4 per cent in 2014-15. Using IIP data, nominal
growth in manufacturing is between 2 to 4 per cent, with the manufacturing price deflator

between minus 1 and 3 per cent. Now you decide is the feel of growth provided by
balance sheet data of over 2,50,000 firms better or worse than the IIP data covering, on the
basis of a survey, the production of a few hundred odd firms? The difference in the feel is a
10 percentage point difference in manufacturing growth.
What is curious is why these experts (and expert journalists) never once investigated
whether the IIP data were correct. The IIP data are based on the Indian economy as of
2004-05; in that year, textiles had a weight of 6.2 per cent in the total value of industrial
production, and motor vehicles had only two-thirds of the weight of cars, that is, 4 per cent.
I could not find a category for mobile phones, but the classification office, accounting and
computing machinery has a total weight of only 0.3 per cent! The MCA database, by
definition, has the correct weights in production because they are based on balance sheet
data.
Textile volumes have grown at a much lower rate (6 per cent per annum since 2004-05)
compared to a 10 per cent-plus rate for the volume of cars and two-wheelers produced in
India. The bottom line is that if the IIP data were updated to a 2011-12 base, just the
correction for motor vehicles and textiles would add 0.3 percentage points to annual IIP
growth.
There is yet another indicator even the old, outdated IIP data are showing a marked
acceleration over the last five fiscal years. In 2011-12, the IIP grew at 2.9 per cent. The next
two years, IIP growth averaged 0.5 per cent; in 2014 and 2015, IIP has averaged 2.7 per
cent. Given that industry is 30 per cent of GDP, this implies that GDP growth in 2014-15 and
2015-16 would be 0.6 percentage points above that of 2012-13 and 2013-14, simply on
account of higher IIP growth.
When you point out that one indicator of feel volume of auto sales grew at 7 per cent
in FY16, the highest in the last five years, the doubters just shrug their already drooping
shoulders.
So now for a political economy explanation for why the doubters rose en masse. Let me
make it unambiguous[n,am'bi-gyoo-us(clear,)] this explanation does not
apply to all serious analysts, just a very large majority. The GDP controversy was ignited by
the sharp upward revision to GDP growth for 2013-14 almost a 2 percentage point
increase from 4.7 to 6.6 per cent.
The ruling Congress had suffered a mortifying[mor-ti,fIing(humiliating,)] defeat in the 2014 general election. The common belief or
conventional wisdom was that the Congress lost the 2014 election because of two years of
the slowest GDP growth in more than a decade 4.5 and 4.7 per cent in 2012-13 and 201314, respectively. Now suddenly, the CSO was reporting that these two years averaged 6.1 per
cent growth (5.6 and 6.6 per cent in 2012-13 and 2013-14). That represented very good GDP
growth so why did the Congress lose so badly?
However, there is an alternative interpretation for the election loss of the Congress while
GDP growth was a factor, I believe that the overwhelming reason Narendra Modis BJP won
a majority in the Lok Sabha was because of high corruption and even higher inflation under

Congress-UPA rule. The Congress inherited an average inflation rate of only 4.4 per cent
(1998-2004). The Congress left office with an average inflation rate of 7.9 per cent. And the
average inflation rate for UPA 2 was 9.8 per cent.
By creating doubts about the GDP data, the hawa-makers hoped to capitalise on the
structural change in methodology and prove to all concerned that if only the new GDP data
had been released prior to May 2014, the UPA would still be in the saddle. Given that it was
not, it must be that the new data are wrong! And the feel-gooders argument goes, the new
Modi government was not providing any extra GDP growth. Doubter estimates of GDP
growth in 2015-16 according to the old GDP method place it around 4.5 to 5 per cent,
that is, the same that was registered by the Congress in 2012-13 and 2013-14.
A lot of astute[u'styoot(smart,)] people bought this snake oil explanation over the
last year. Given overwhelming evidence to the contrary, and now with the RBI good
ousekeeping seal of approval, perhaps the time has come for the Cassandras to get real.

Why doubling farmers income by 2022 is possible

Prime Minister Narendra Modis desire to double the income of farmers by the year 2022,
that he expressed while addressing a farmers rally in Bareilly, Uttar Pradesh, on February
28, 2016, has evoked strong responses from various analysts, experts and the media. The
goal has been dubbed as impossible and kafkaesque[kaf-ku'esk(unrealistic,)]. On
the very next day, the finance minister repeated...
Read More

Lessons for unifying agricultural markets

The government of India launched the National Agricultural Market Scheme in July 2015 in
585 markets and has, since April 14, started e-trading on the platform. This is in line with
the Union Budgets target to double farmers incomes in six years. To be sure, a doubling of

incomes by 2022 would require them to grow at an annual average rate of just over 12 per
cent. Achieving such a high rate of growth would require multi-faceted reforms in the
agriculture sector.
Agricultural and allied sector in India grew at an annual average rate of 1.7 per cent per
annum between 2012-13 and 2015-16 (at 2011-12 prices). The gross value added at factor
cost in the agricultural and allied sector, which is a first approximation to the income
generated in the sector, has shown a growth rate in excess of 10 per cent only in four years
between 1950-51 and 2011-12 (measured in constant 2004-05 prices). All these supra-10 per
cent growth rates came on the back of negative growth rates ranging from minus 1.1 per cent
(1987-88) to minus 11.1 per cent (1979-80).
It is important to note that growth rate of agriculture and allied sectors in India has
historically tracked the movement of the overall income growth in the country quite closely.
The task of improving growth rates in the agricultural sector in a growing economy is easier
than in a stagnant one. As such, this imperative for anunprecedented[n'pre-si,dentid(new,)] growth rate will require reforms covering all facets[fasit(aspect, )] of the agricultural sector, such as irrigation, soil health, traditional
farming, fertilisers, and extension services among others.
In this context, the e-trading initiative attempts to improve the marketing aspect of the
agriculture sector. Reforming agricultural markets in the country is a project that requires
serious effort andconcerted[kun'sur-tid(joint,)] action. As the Economic
Survey 2014-15 pointed out, India has 2,477 principal regulated primary agricultural
markets in the country. These markets governed by APMC Acts create segmentation and
lead to inefficiencies in price discovery. There are often complaints of vested[vestid(unconditional, )] interests of commission agents (arhatiyas) and other middlemen driving a wedge between the farmers and the traders (who are the buyers of the crops).
A similar experiment, called the Rashtriya electronic Market Scheme (ReMS), was launched
in Karnataka in February 2014. By December 2015, 100 principal markets were unified by
this e-platform. The reforms in the state have succeeded to the extent that an autonomous
body the ReMS Private Limited is in charge of the entire process of unification and is
proceeding according to a definite plan.
But the gains to farmers have remained muted. The software that is used for trading has a
provision for including quality parameters of the traded commodities. To actualise this,
plans are afoot to start assaying facilities in mandis. Since marketing of agricultural produce
affects farmers, commission agents, traders, the APMCs and the government, introduction
of these facilities without allaying the concerns of all these stakeholders may not have its
impact.
For example, the commission agents in these markets fear that unification will affect them
adversely. The farmers can directly enter the details of their commodities in the e-platform
and sell to the highest bid-der without any mediation from the commission agents. This
creates a very potent impediment[im'pe-du-munt(obstruction,)] against the
forward movement of reforms and a standalone[standu'lown(automatic,)] e-product may not have the full desired impact. In some

mandis though the assaying facilities were present, they remained in disuse because of
apprehensions of loss of income felt by farmers.
Commission agents are the pet whipping boys[wi-ping boy(scapegoat,
)] for agricultural economists searching for efficiency and unified prices. However,
these middle-men provide real and substantive services such as credit facilities and crop
loans to farmers in a timely manner. The farmers dependence on arhatiyas is mutually
beneficial to a degree but may not be without elements of rent extraction. Like all things in
life, we hit a grey area even in agricultural marketing.
The experience of Karnataka has a few pointers. It succeeded to the extent that an
independent body outside the government (ReMSL) tasked with unification generated
sufficient revenues and created a positive momentum. However, in the absence of an
involvement of all stakeholders the gains are slow and minimal.
Reforms that rely only on technical solutions may not give the desired effect. If
implementing unification within a state is a slow affair with frequent stoppages, one can
only imagine the difficulties that unification can cause for an inter-state reform measure.