Spinning an electricity turnaround in Uttar Pradesh

An Economic Times (ET) report on 26 Apr credited the newly elected Bharatiya Janata Party government in Uttar Pradesh (UP) for a dramatic turnaround in the state’s electricity situation. The news report claimed that UP had “shed blackouts within a month of the BJP taking over the reins, moving from perennially running short of electricity to ‘zero-shortage’ in April”.

Soon enough, Power Minister Piyush Goyal shared the article with an approving tweet:

https://twitter.com/PiyushGoyal/status/858150103776931840

That’s a whopper.

It is certainly true that UP’s energy deficit (measured in million units) hit a record low in Mar 2017 of 0.2%, compared to a much bigger gap of 10.5% a year ago in Mar 2016. However, it would be ridiculous to give the new government credit for this improvement: the UP election results were declared on 11 Mar, and a new government sworn in on 19 Mar.

The ET article cited unpublished data from the National Load Despatch Centre, which oversees the national electricity grid, to show that this improvement continued into April, but we’ll have to wait for numbers from the Central Electricity Authority to get a clearer idea.

But regardless of how April turns out, the ET claim completely elides the fact that power shortages in UP, and indeed all over India, have strongly diminished over the past year, as this chart vividly shows:

Screen Shot 2017-04-29 at 12.53.50 PM

India’s energy deficit fell sharply in the first half of 2016, and particularly so in UP. UP’s deficit (shown here as a 3-month moving average) converged with north India’s around Sep 2016, and by Dec 2016 had fallen below that level. This was unanticipated: the Central Electricity Authority’s 2016-17 Load Generation Balance Report had anticipated that UP would have an energy deficit of 6.5%, but it turned out to be only 1.7%. Since the BJP ran the state only 13 of those 365 days, the decline in UP’s power shortage had little to do with it, Goyal’s celebration notwithstanding.

Even so, fewer blackouts and less load shedding can only be good news, right?

Yes and no. As much as India’s power capacity has risen in recent years, it is more weak growth in demand that accounts for the disappearance of India’s once-chronic electricity shortages (see chart below):

Screen Shot 2017-04-29 at 4.10.34 PM.png

The chart above shows a steady decline in the growth of energy demand since 2014-15, both in UP and in India. This doesn’t have to be a bad thing; many economies display lower energy intensity as they grow, and technological advances could also play a role. Consider the UJALA scheme to promote energy-efficient LED bulbs: government claims likely overstate the energy savings by a factor of two (see Why you shouldn’t be bedazzled by Modi’s LED claims), but their adoption probably shaved a percentage point off 2016-17 energy demand. However, if the decline in demand reflects industrial weakness, and the lingering effects of demonetization, that would be an unhealthy sign. And the rapid decline in the growth rate of energy demand in the past two years is worrying.

Either way, one thing is clear: the ending of UP’s power shortage is part of a broader structural story that has little to do with the new UP state government. And no amount of PR claims dressed up as news reports can change this reality.

(This article was originally published in The Quint.)

 

 

Why you shouldn’t be bedazzled by Modi’s LED claims

Prime Minister Narendra Modi is proud of the government’s scheme to distribute millions of low-cost, energy efficient LED bulbs. And why not: Modi told the Lok Sabha on 7 Feb that the distribution of 21 crore LED bulbs had helped households save ₹11,000 crore in electricity bills. Even the name bears his unmistakable imprint: “Unnat Jeevan by Affordable LED for All”, whose acronym is UJALA, Hindi for illumination.

Unfortunately, these numbers are mostly fiction.

First, a brief history.  As with many other schemes that Modi has hogged the credit for, UJALA was designed and piloted by the UPA under the much less catchy name DELP (standing for — I kid you not — “Demand Side Management-based Efficient Lighting Programme”). DELP followed in the footsteps of the semi-successful Bachat Lamp Yojana that had resulted in the sale of 2.9 crore CFL bulbs at a price of ₹15 each and, the government contends, boosted demand nationwide by driving market prices down. In 2013, the UPA decided to apply this strategy to pricier but even more energy-efficient LED bulbs; while the first scheme was subsidised by carbon credits, DELP would be paid for by power distribution utilities out of the savings generated by shifting from incandescent to LED bulbs.

A Nov 2013 pilot project in Puducherry led to the distribution of 6.5 lakh LED bulbs to 2.5 lakh households at a subsidised price of ₹10 each. The government’s bulk order of 6 lakh LED bulbs caused the price to fall from ₹800 per bulb in 2012 ₹Rs 310, proof that the concept worked. As the chart below shows, successive orders caused bigger and bigger price drops, falling most recently (and controversially) to ₹38.

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There’s no question that the Modi government has taken UJALA forward, scaling it up with sales of 23 crore LED bulbs (as on 21 Apr). But if you think this was in any way a brainchild of Modi’s, or that Power Minister Piyush Goyal did much more than implement a roadmap already laid out for him, think again.

Still, how does it matter who came up with the idea, as long as it benefits the nation, right? The problem is that the claim of financial and energy savings is based on dodgy maths.

The government’s claims are based on a Sep 2015 PricewaterhouseCoopers (PwC) study that it sponsored, that looked at LED usage during pilot projects in Puducherry and in four Andhra Pradesh districts. The report stated that, once you factor in defective and unused bulbs, each LED bulb would produce an average saving of 134 kilowatt hours a year. Which translates into the savings Modi claimed in the Lok Sabha.

Multiply this by 77 crore LED bulbs, the planned total under UJALA, and you have a saving of 20,100 megawatts of peak load demand, equivalent to five ultra-mega power projects costing US$15-20 billion (₹97,000-1,29,000 crore), for only ₹3-4,000 crore. What’s not to like?

The issue is, the PwC study made overly strong assumptions to attain these savings. It assumed that all 77 crore 7-watt LED bulbs would replace 60-watt incandescent bulbs (which is fine) and, more problematically, that each would be used for an average of 8 hours/day, 320 days in a year, equal to 2,560 hours/year. Now this is perfectly reasonable if you live in Leh, India’s northernmost district, and every day is the winter solstice when you get 10 hours of proper daylight, and everyone sleeps only six hours; then you might conceivably leave all your LED lights on for 8 hours. But, seriously?

Indeed, a 2008 World Bank study calculated that a light bulb will be used 913 hours/year. Even the state-owned Energy Efficiency Services Ltd (EESL) that actually runs UJALA assumes that a light bulb is used for 3.5 hours/day, 300 days/year, for a total of 1,050 hours. These more conservative figures translate into savings that are only 36-41% of what Modi claimed in the Lok Sabha.

More reason to take a dim view of the Modi government’s claims.

Update 25 Apr

The state-owned EESL, which oversees LED bulb distribution, took issue with this analysis in a lengthy rebuttal carried on BloombergQuint on 23 Apr. EESL disagreed that LED bulb usage should be taken as 3.5 hours/day rather than 8 hours/day, pointing out that the former figure was recommended by the United Nations Framework Convention on Climate Change for carbon credits when actual usage data are unavailable.

EESL stated that a nationwide survey of 35 DISCOMs, and a study by PwC in Andhra Pradesh, showed that LED bulbs are used for 5-6 hours/day, and that “a conservative estimate of 5 hours has been taken for calculation”. Furthermore, it said that an Andhra Pradesh government monitoring survey carried out by “two leading educational institutions” found that actual usage was even higher at 8 hours/day.

Since EESL has not provided copies of these reports, it is difficult to independently verify these claims. For one, it is erroneous for EESL to state that “5 hours has been taken for calculation” when the original PwC report cited, and available on the government’s UJALA website, clearly states on Table 24 that bulbs are assumed to be operating 8 hours/day, 320 days/year.

It was also widely reported on 21 Feb 2016 that the Andhra Pradesh government-sponsored study of the districts of Guntur, Anantapur, Srikakulam and West Godavari (the same ones covered by PwC), by Andhra University in Vishakhapatnam and the Hyderabad-based Engineering Staff College of India, found that the actual average energy saving per LED bulb was 73.7 kilowatt hours (kWh), considerably lower than the 133.6 kWh that PwC projected. Assuming that both reports used the same methodology, this suggests that the actual LED bulb savings are 55 percent of what the government claims.

After the original analysis was published, Twitter user Somnath Mukherjee pointed out that the PwC study assumed an electricity price of ₹3.50/kWh, which may have further inflated the projected financial savings from LED adoption.

Consider the electricity tariffs offered by the Uttar Gujarat Vij Company Ltd in northern Gujarat. Depending on whether you are a rural, urban or “below poverty line” user, your first slab of 50 kWh/month of electricity costs somewhere between ₹1.50 and ₹3.50 per kWh; with nighttime usage between 10 pm and 6 am attracting a charge of ₹2.60/kWh. The true cost of the electricity used by LED bulbs, in northern Gujarat at least, is likely less than ₹3/kWh for the first slab in which the bulk of households will fall, rather than the assumed ₹3.50/kWh. This suggests that savings may in fact be inflated at two compounding levels: (1) the calculation of average use of a bulb and (2) the rupee savings per hour of usage.

To sum up, these inconsistencies need to be clarified, and I look forward to EESL releasing the methodology and findings of the various studies mentioned above. Until then, there is still reason to believe that the government’s projection of savings from LED bulb adoption is based on dodgy maths.

Long way to go for Make in India

A look at “Make in India”, published as an oped in the Hindustan Times:

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How does one judge Make in India? Recent news that foreign direct investment (FDI) flowing to defence in 2016-17 was an absurd trickle of 61,000 (or perhaps $61,000, the Ministry of Defence didn’t specify) seems to have not caused much of a ripple. Nor has the fact that FDI in defence in the past three years has been – this isn’t a typo either – $174,000, notwithstanding several liberalisation announcements.

Defence is just one, albeit telling, sector, with its own peculiarities such as the much-delayed “strategic partners” policy and a single buyer – the Ministry of Defence. But it is an exaggerated version of the story playing out across the high-profile Make in India campaign, which promises to generate millions of jobs in India by increasing the share of manufacturing to 25% of gross domestic product (GDP).

India has seen strong FDI flows in the last couple of years, but most of this is going to ride-sharing services like Uber and Ola and e-commerce providers like Amazon and Flipkart. FDI in manufacturing hit a high of US$9.6 billion in 2014-15 (slightly better than the previous 2011-12 record), but actually fell the next year to US$8.4 billion. A major pickup in 2016-17 seems unlikely.

Despite rising costs in China, India has made little headway into becoming a global manufacturing alternative, particularly at the low end that generates the most jobs. Textiles and clothing jobs from China are moving to Myanmar, Cambodia and, yes, Bangladesh, while Vietnam, Thailand and Indonesia are gaining in electronics production. India has become a global small-car hub over the last couple of decades, but this relatively high-end segment is not a massive job-creator.

Things are slowly changing. India has a large domestic market to leverage, and the two dedicated freight rail corridors it is now building (connecting Delhi with Mumbai and Kolkata) should contribute to a major reduction in logistics costs in a few years. But, for now, southeast Asia is eating India’s lunch.

There are limits to what a government can do. India’s can’t, and arguably shouldn’t, try to emulate China’s labour suppression that kept manufacturing costs down, which Myanmar, for instance, could. This government isn’t even pushing the smaller measures forcefully enough. The focus on “ease of doing business” reforms is commendable, but only four of 31 states have implemented meaningful labour reform in the last three years. Even if the opposition doesn’t want to cooperate, the BJP could certainly prod its 12 other states to follow suit.

And let’s not forget the self-goals. Demonetisation might have contributed to the BJP’s political victory in Uttar Pradesh, but it has shredded the informal sector. Large companies in sectors from automobiles to consumer goods have laid off thousands of workers, as have their suppliers. Demonetisation may have delayed the goals of Make in India by months, if not years.

It’s not a bad thing for India’s aspirations to exceed its political grasp, but a trending social media hashtag won’t generate jobs. India has always done its bit of manufacturing, and the true test of Make in India lies in whether its GDP share meaningfully rises, not in photo-ops.

The compelling logic of a Grand Alliance in UP

There’s nothing like the word Mahagathbandhan (Grand Alliance) to make even the most boosterish Bharatiya Janata Party (BJP) supporter sweat a little. And it’s not just because of what happened in Bihar in 2015, when an alliance of the Rashtriya Janata Dal, Janata Dal (United) and Indian National Congress (INC) inflicted a defeat on the BJP. Ever since 1977, dominant parties – the INC until the 1980s, the BJP now – have been vulnerable to a united opposition challenge. Which is why Nitish Kumar and Lalu Prasad Yadav have both urged the INC to engineer a national-level grand alliance to break the BJP’s current ascendance.

Uttar Pradesh (UP) is of course the lynchpin of the BJP’s national dominance, having contributed 71 of its 282 Lok Sabha seats in 2014. That is why its recent state election victory was such good news for the party, since it places the BJP on a strong footing for the 2019 election, only two years away now.

The best way to stop the BJP juggernaut, at this point, seems to be a Mahagathbandhan in UP. After the Emergency, an opposition alliance forced the INC’s Lok Sabha seats in UP down from 73 (of 85) in 1971 to exactly zero in 1977. Its state assembly tally fell from 215 in 1974 to 47 in 1977. Little more than a decade later, another grand alliance knocked the INC down from 83 Lok Sabha seats in 1984 to 15 in 1989. In the state assembly, the INC dropped from 269 seats in 1985 to 94 in 1989. Grand alliances in UP have proved effective in countering dominant political parties.

Like the previous instances, a UP grand alliance might not be more than a stopgap. The Bahujan Samaj Party (BSP) and Samajwadi Party (SP) have a history of animosity that won’t be easy to overcome, though the INC could play mediator between former rivals as it did in Bihar.

So what impact might a Mahagathbandhan have had on the just completed state elections? Here’s what the new UP state assembly looks like:

Screen Shot 2017-04-05 at 6.15.23 PM.png

A simple addition exercise shows that the BJP and its allies exceeded the combined vote share of the SP, BSP and INC in 115 state assembly seats. If we include the Rashtriya Lok Dal (RLD), this number drops to 101.

Screen Shot 2017-04-05 at 9.13.34 PM.png

What about the Lok Sabha? The BJP and its allies won more votes than a theoretical Mahagathbandhan in only 25 seats (24 if you include the RLD), compared with its 2014 tally of 73. The BJP would still have won the national election, but its Lok Sabha tally would have been down to (a still impressive) 236.

There are obvious caveats: it’s not clear that parties’s vote banks will seamlessly transfer to grand alliance partners. Some portion of BSP and SP voters who dislike the other party could instead vote for a third party, which could even be the BJP. Or party workers could be unenthusiastic for a candidate in their constituency from a different party. For instance, INC candidates on average won fewer votes in the 2017 UP election than did SP candidates, which political scientist Gilles Verniers sees as evidence that “SP supporters did not transfer their votes to Congress supporters to the same extent that Congress supporters did”.

On the other hand, a grand alliance that looks like a potential winner could gain votes purely on momentum. The Centre for the Study of Developing Societies’ 2014 National Election Study found strong evidence for such a bandwagon effect: 43% of voters said that they chose the party they thought was leading the race.

Either way, the compelling logic of a grand alliance in UP suggests that the parties the BJP defeated in 2017 will put in a serious effort to get one going. Whether it happens or not is the 80-seat question.

An upper hand in the Upper House

Now that the dust has settled on the Bharatiya Janata Party’s historic victory in Uttar Pradesh, let’s get down to the big question: how close does it get the ruling National Democratic Alliance to a Rajya Sabha majority, and when? The government’s minority status in the RS has slowed and even halted important elements of its legislative agenda, such as the GST and land acquisition amendments. An upper house majority would greatly strengthen its ability to pass bills, but it could also embolden the Sangh Parivar to push its core ideological issues such as a uniform civil code, eliminating Article 370 and perhaps even transforming India into a “Hindu Rashtra”.

Here’s what the Rajya Sabha currently looks like:

Screen Shot 2017-03-19 at 1.36.32 PM.png

UP is clearly the prize in the RS: it contributes 31 of the upper house’s 245 seats, of which ten will have elections in 2018 and another ten in 2020. With a supermajority in the UP state assembly, the BJP is likely to win seven new seats from UP in each round (it already has three RS MPs in UP).

Adding up all the states, the NDA will gain a total of 18 seats in 2017 and 2018 (including two grabbed from the Congress Party in Goa and Manipur), while the Congress Party and its allies’ tally will drop by a similar amount.

Screen Shot 2017-03-19 at 1.38.45 PM.png

Those are meaningful shifts in seats, but not enough to give the NDA control of the upper house, where it will remain short by about 30 seats (as this blog anticipated in 2014). It will continue to require the support of regional parties like the Trinamool Congress, AIADMK and Samajwadi Party to pass bills through the RS.

Things improve for the NDA in 2019 and 2020. If we assume no major changes in the state elections held in 2018 and 2019 (a strong but unavoidable assumption since we can’t predict the future), the NDA approaches an RS majority only in 2020.

Screen Shot 2017-03-19 at 1.40.10 PM.png

The ruling coalition will still fall a few seats short, but should be able to corral support from a wide selection of regional parties to pass bills. The good news, at least for people wary of the BJP’s Hindutva agenda, is that the BJP will lack the power to change India’s constitution. But it should be able to push economic reform bills through both houses if its allies are supportive.

The bad news: the BJP has every intention – as revealed by Adityanath’s anointment as UP chief minister – to push ahead with hardline Hindutva. And if the environment is polarized enough, there is no guarantee that the BJP’s allies won’t cave to an aggressive right-wing assertion. Assuming, of course, that 2019 is in the bag for the BJP.

Uttar Pradesh is the BJP’s to lose. Or is it?

As counting day on 11 March approaches, it seems as difficult as ever to gauge which way the political wind in Uttar Pradesh (UP) is blowing. Even before the campaign began, pre-election opinion polls offered little help, showing the Bharatiya Janata Party (BJP) and the Samajwadi Party (SP)-Congress alliance neck and neck, with the Bahujan Samaj Party (BSP) lagging.

Screen Shot 2017-03-06 at 6.32.02 PM.png

We know from elections in Delhi (2015), Bihar (2015) and West Bengal (2016) that a dead heat in pre-election polls is almost never a good predictor of the eventual outcome.

So what are the BJP’s chances of pulling off a win? If the starting point is the BJP’s historic 2014 victory, its lead seems unassailable. The BJP won 328 of 403 assembly segments, including 253 with more than 40% of the vote, and as Praveen Chakravarty states, for it to win fewer than 200 seats even if “two of the opposition parties get together, the BJP would still have to lose more than 10% of its voters”.

But if the baseline is the 2012 state election, the SP-Congress alliance begins to look formidable. As Karthik Sashidhar writes: “it will take a 7 percentage point swing from the 2012 elections to pull the Samajwadi Party-Congress alliance below the halfway mark”. While this sounds big, it is well within the realm of possibility: in 2014, the SP dropped seven percentage points from its 2012 tally, giving the BJP a sweep in that four-cornered contest.

So which is it? The opinion poll numbers suggest that 2014 is, in fact, the appropriate baseline: 33% represents a near doubling of the BJP vote in the past three state elections and a decisive break from UP’s two-party dominant system. Yet it is undeniable that the SP-Congress alliance has raised the threshold of votes any party needs to attain a majority, transforming the contest from a seeming BJP walkover to a tough fight.

One way to resolve this impasse is to look at UP by-elections. Since the 2014 general election, the state has had 18 assembly by-elections: 11 in 2014, two in 2015 and five in 2016. These constituencies are fairly representative of the state: they are distributed across UP, and their combined 2014 general election vote shares approximate how the whole state voted in 2014, albeit with a slight bias of 3-4 percentage points each towards the BJP and INC (see table below).

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And this is how those 18 constituencies’ votes moved, from 2012 to 2014 to the subsequent by-elections:

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Note that the BJP’s vote share fell about 11 percentage points in the by-elections, while that of the SP rose more than 24 percentage points. The BJP retained only three of the 14 assembly constituencies in which it had a lead in 2014, and lost 11 to the SP. That’s a sharp fall in votes compared with 2014.

There are two obvious caveats. One is that ruling parties tend to do very well in by-elections. Voters calculate that having a ruling party legislator is more beneficial for their constituency, and parties in power tend to win by-elections about 2/3rds of the time. The second is that the BSP does not generally contest by-elections, so the 2014-16 numbers aren’t strictly comparable to 2012 and 2014 when the BSP was in the fray.

But that’s also the bad news for the BJP. One reason it did very well in the general election is that many BSP voters – including Dalits and MBCs – preferred Modi in 2014. But in the subsequent by-elections, the BSP’s vote appears to have gravitated towards the SP rather than to the BJP. It’s possible that incumbent advantage, including control of the state’s law-and-order machinery, contributed to this shift, but the BJP will have to fight to retain its 2014 voting bloc.

Such big drops in vote share are not unheard of in the wake of “wave” elections, such as in 1984. In November that year, the INC won 51% of votes in Uttar Pradesh, only to slip three months later to 39% in the state election that followed. Even bigger dips have occurred: in 1987, the INC won 29% in Haryana, a sharp drop from the 55% it received in 1984.

Now 1984 was a long time ago, and the obvious counter-argument is that UP has seen many big political events since the by-elections that could put wind beneath the BJP’s wings. These include the army raid across the Line-of-Control, demonetisation, the civil war in the SP and the high-pitched election campaign in which the BJP has brought out its big guns. And voters could decide that the BJP deserves a chance to run UP after successive BSP and SP governments.

But the reality is that the BJP’s vote share has dropped substantially since its 2014 victory, and the SP-Congress alliance has built a vote chest that makes it imperative for the BJP to outperform. As it happens, in the 2015 Bihar election, by-election vote shifts overstated the ruling alliance’s vote share but captured the drop in the vote share of the BJP and its allies. The BJP should hope that it won’t be the same story in UP.

India’s economic freedom plunge

For a government so devoted to rankings and ratings, India dropping 20 places to 143 in the 2017 Index of Economic Freedom must have been a bummer. If Prime Minister Narendra Modi felt it worthwhile to approvingly cite India’s 19-place improvement in the World Bank’s Logistics Performance Index, surely such a dramatic fall in economic freedom should send alarm bells ringing?

Compiled by the conservative Washington DC-based Heritage Foundation, the Index of Economic Freedom has an unambiguous free-market tilt. It ranks countries based on 12 factors:

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And on the face of it, India seems to have taken quite a hit:

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But the jittery libertarians can relax. India’s dip in the index is the result of a methodological change, not a big deterioration in economic freedom. Low scores in two new variables – “judicial effectiveness” and “fiscal health” – pushed India’s 2017 ranking down the list. If we compare 2017 with previous years on a like-for-like basis, India stands at 121, pretty much the same. The bad news? India has shown no improvement either, so Acche Din are as distant as ever.

Now you might say that these indices are arbitrary, opaque or irrelevant, and you would have a point. Heritage doesn’t tell us how individual scores are calculated, and only five of the 12 variables are drawn from concrete data, as opposed to more subjective surveys by the World Economic Forum, the World Bank, Transparency International etc. The way the index is calculated, modest changes in one or two variables can send a country up or down five to 10 places.

Since many of these appear to be subjective measures (e.g. “property rights”, “judicial effectiveness”, “government integrity”), small rank changes could simply reflect random measurement error. Furthermore, it’s debatable whether saying that India ranks three spots higher than Brazil under “property rights” is truly meaningful.

There are conceptual issues too. If you give Sudan, Sierra Leone and the Democratic Republic of Congo top billing under “government spending” and code the welfare states of Finland, France and Denmark as low in this case, are you not implausibly suggesting that weak government capacity produces prosperity?

More broadly, a 2012 paper by economists Aleksander Kešeljević and Rok Spruk finds that country rankings can change once you account for endogeneity – the fact that richer countries will already tend to be freer economically – as well as for how various components of the index affect prosperity differently (e.g. fiscal and monetary variables have a bigger impact than rule-of-law variables).

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The point is, there’s no need to get hung up on such indices. They can be a periodic reminder of how far there is to go to liberalise the Indian economy, but they are also constrained by a specific ideological perspective. No one in India seriously disputes that it’s desirable to make it easier for firms to do business, but reasonable people can disgree whether the Mahatma Gandhi National Rural Employment Guarantee Act enhances or limits economic freedom.

And think about demonetisation. If it were to reduce corruption in a sustainable way (count me as a sceptic), it would certainly contribute to economic freedom. But it has also imposed a tax on all holders of currency (i.e. everyone), devastated India’s informal sector and facilitated Raid Raj by all-powerful income tax authorities. The irony is that India may be holding its position as far as the Heritage Foundation is concerned, but its economic freedom is moving in reverse gear.

Jumla is the new black

It’s hard to tell whether demonetisation will turn out to be a bold hit or a costly miss, but it appears to many that the government has taken the black money bull by the horns. Announcing the withdrawal of ₹500 and ₹1,000 notes, Prime Minister Narendra Modi listed several steps that his government had taken so far in its war on black money:

Looks impressive, what’s not to like? Just that, once you discount the hype, it’s not very different from what’s been done by past governments, whether the United Progressive Alliance (UPA) or the United Front (UF).

Show me the money

Consider the figure of ₹1,25,000 crore collected over two-and-a-half years. The government hasn’t provided a break-up, but based on Finance Ministry replies to parliamentary questions, it includes the following:

  1. ₹65,250 ₹67,382 crore declared under the 2016 Income Disclosure Scheme (of which 45% will flow in as actual taxes)
  2. ₹21,354 crore of undisclosed income seized from individuals and businesses (under Section 132(4) of the Income Tax Act)
  3. ₹22,475 of additional income assessed from taxpayers by surveys (carried out under Section 133A of the Income Tax Act)
  4. ₹8,186 crore of undisclosed income held by Indians in accounts with HSBC Geneva, revealed by the French government in 2011
  5. Around ₹5,000 crore of offshore holdings by Indians that an International Consortium of Investigative Journalists investigation exposed in April 2013

All of which adds up to ₹1,22,265  ₹1,24,397 crore, close enough to our headline figure. But how remarkable is this effort?

The income disclosure scheme is a one-off (more about that later), but what about the black money brought into the open via searches, seizures and surveys? The chart below shows the record in previous years (source here):

Screen Shot 2016-12-09 at 11.59.37 PM.pngIsn’t that interesting. Using the same definitions used by the Modi government, it turns out that the quantum of black money exposed in the last two years of the UPA was more than ₹1,30,800 crore. That’s right – the UPA tracked down more black money than the Modi government did, and in a shorter time frame.

As always, there are caveats. Not all the money assessed under Section 133A should be strictly considered “black”; some of it consisted of income that taxpayers felt was not taxable for whatever reason, but the authorities disagreed. Still, if the Modi government wants to count all those funds under its “black money” haul, it cannot deny the UPA credit for a bigger haul.

Bring back the money

That’s fine, you might say, but hasn’t the Modi government adoped a much more comprehensive approach to black money than the scam-tainted UPA? It’s passed bills to bring back black money, succeeded with its income disclosure scheme and, as Modi himself stated, reached agreements with many foreign countries to provide tax information.

Let’s take these one-by-one.

The Modi government has indeed passed bills that raise the penalties for the concealment of foreign income and beef up the handling of benami properties, and we have to see what effect they have. But it’s not clear that income disclosure schemes even work, leaving aside the obvious unfairness of giving tax criminals a break while the rest of us cough up our cash. A similar scheme in 1997 resulted in close to half a million persons declaring ₹33,695 crores of previously undisclosed income, equal to ₹85,153 crore in current rupees and a third quarter higher than the Modi government’s bounty. I think we can all agree that it didn’t make much of a dent in India’s black money problem.

What about black money transferred outside of India, which the Washington DC-based Global Financial Integrity estimates averaged US$51 billion per year between 2004 and 2013 (some of which likely returned as foreign investment via “round tripping”)? In his demonetisation announcement, Modi referred to “agreements with many countries, including the USA…  to add provisions for sharing banking information” that could help make international tax evasion more difficult.

A process has been underway since the 2009 G20 summits in London and Pittsburgh to improve transparency in international financial transactions. This has translated into an effort to include banking information in both existing and proposed Double Taxation Avoidance Agreements (DTAA) that India has (currently with 95 countries), and to reach Tax Information Exchange Agreements with countries that India doesn’t have a DTAA with, mostly tax havens such as the Bahamas, British Virgin Islands etc.

The table below shows that the UPA accounts for much of the progress so far, although this could change over time; the Modi government is currently negotiating another 53 DTAAs.

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That doesn’t mean that the Modi government has been lagging: in May 2016 it finalised an important DTAA renegotiation with Mauritius, the island nation that has been the source of a third of all FDI inflows since April 2000, and is believed to be the main gateway for round-tripping. India will impose a capital gains tax of half the Indian rate on investments from Mauritius starting from April 2017, and the full rate from April 2019. A similar agreement with Singapore, the second largest source of FDI into India (16% of the total), is in the pipeline. The idea is to remove one incentive for round-tripping: saving on capital gains tax.

There is also a broader multilateral effort under the OECD umbrella to facilitate the automatic sharing of taxation-related information. It began with the Convention on Mutual Administrative Assistance in Tax Matters, that India joined in 2012 and now covers 106 countries and jurisdictions. India (under the UPA) became one of 47 countries to sign the Declaration on Automatic Exchange of Information in Tax Matters in May 2014, which led to the establishment of the OECD-led Global Forum on Transparency and Exchange of Information for Tax Purposes that is now at the core of international data sharing. In June 2015, the Modi government took another step forward by signing the Multilateral Competent Authority Agreement on Automatic Exchange of Information, under which 54 countries including India will start automatically sharing financial data from September 2017.

In summary, there has been a robust G20-supported process underway for several years to bring transparency to international financial information, which Modi certainly didn’t start, and had little choice but to go along with.

The bottomline: Modi’s demonetisation drive marks an ambitious break from past practice. But his claim that previous BJP policies have brought in an unprecedented amount of money is just a jumla.

Rank exaggeration

A look at India’s rapid rise in the World Economic Forum’s Global Competitiveness Index, first published as an oped in the Hindustan Times:

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It’s clear that the Modi government can’t get enough of comparative rankings and indicators. And this is understandable: despite a solid reform push and favourable (if controversial) official statistics, many feel that the economy is performing well short of its potential. The latest piece of bad news was that unemployment – the Modi government’s most pressing challenge – is at a five-year high.

It makes sense, then, that the government tom-tommed India’s climb from 55th to 39th place in the World Economic Forum’s Global Competitiveness Index 2016-17, after a comparable jump the previous year from 71st. So is this finally evidence that the government’s reforms are paying off?

Not quite. There’s an important qualification that much of the news reporting missed: 81 of the 112 variables that determine a country’s competitiveness score arise from a survey of corporate executives that asks respondents to rank items on a scale of 1 to 7. In other words, each country’s score is predominantly the aggregation of subjective corporate judgments. The correct interpretation of India’s ranking progression is that India’s competitiveness has greatly improved in the past two years in the opinion of many corporate executives. Corporate opinion is undoubtedly important, but it’s not the same as objective reality.

The increase in India’ ranking is also an artefact of how different countries stack up. India’s raw score went from 4.2 in 2014-15 to 4.5 in 2016-17, causing its ranking to jump from 71st to 39th place. This was in part because there were 36 middle-income countries clustered above it, converting a 0.3-point increase into a big rise up the ladder. With the same increase in absolute points, Israel went only from 27th to 24th and Iceland from 30th to 27th. That said, 0.3 points is nothing to sneeze at, only Albania, Iceland and Israel had an equivalent increase in their scores.

So what drove India’s rise, other than the artefacts analysed above? The categories that contributed the most were “institutions”, “innovation” and “infrastructure”. The institutions score includes perceptions of corruption and due process, and the BJP government – at least at the Centre – has been free of scandals. But recall that even the UPA was substantially free of such controversies in its initial years, and the big scams came home to roost in the second term.

The innovation score includes private sector R&D, research institutions and so on, and is likely driven by the explosion of startups in the technology and services arena. The infrastructure score is presumably being driven by activity in roads, rail and power, sectors in which corporate executives hold the ministers in high regard. Critics, including myself at the blog Chunauti.org, have pointed out that many of their claims are exaggerated, but the corporate consensus here appears positive.

There is no doubt that the government is trying to kickstart the Indian economy, be it with attempts to ease the business environment, speeding up the building of infrastructure or by loosening labour laws. But with results hard to come by in a difficult global environment, the government’s PR machinery is in overdrive, seeking signs of progress wherever they might be found, or even constructed. And it’s the media’s job to separate the wheat from the spin.