Arun Jaitley, Pranab Mukherjee: Spot the difference

With the Modi government having completed a year in office, its economic record is the debate du jour. Turns out that the United Progressive Alliance’s (UPA) corruption and policy paralysis are now history and all would be well if only the economy would notice and jump to it (will happen by 2016… okay, by 2017 latest).

Now it might seem unfair to pile into Finance Minister Arun Jaitley, as foreign investors, taxpayers, Arun ShourieSmriti Irani and the RSS-leaning social media have, but here goes anyway. One criticism made of the government is that, save some important initiatives such as state labour law reform and commercial coal mining, it’s spent most of its time building on existing UPA initiatives (check here).

And it is Jaitley, rather than Narendra Modi, who is presently bearing the brunt of right-wing disenchantment. For instance, Firstpost Editor R Jagannathan wrote:

For a man who was brought in to reverse the economic follies of the UPA, Jaitley has instead chosen to make NDA a pale copy of UPA. His first budget was a flop, being a cut-and-paste job from his predecessor’s proposals; the second one was much better, focused and reformist, but he cannot deliver on it without more luck and sharper execution abilities than he has displayed so far.

If the second budget was “focused and reformist”, then so was Jaitley’s much-derided predecessor (and current President) Pranab Mukherjee. That’s because several key tenets of Jaitley’s 2015 budget share the same vision as Mukherjee’s 2012 budget, and the budget is really the most concrete instantiation of economic policy intent. The continuity is quite obvious from the chart below:

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These similarities illustrate the reality of economic policymaking in India: there is a broad consensus on its direction that goes beyond the particular party in power.

What’s your beef, Mr Naqvi?

The Minister of State for Parliamentary Affairs Mukhtar Abbas Naqvi seems to have very specific views about Indians who wish to to eat beef.

His boss, Prime Minister Narendra Modi, famously criticised the United Progressive Alliance government for facilitating beef exports (which he termed a “pink revolution”), and repeatedly visited this theme during his 2014 election campaign.

When accused of practicing “dog whistle politics” against religious minorities, Modi insisted that his motivation was only to prevent farmers from being deprived of valuable livestock assets, because it is as much of a sin to deprive a farmer of cattle as it is to take away his land (no really — watch the interview here).

With farmers’ very futures at stake, the Modi government must have cracked down on beef exports, right? Wrong. Indian beef exports have grown apace since the BJP came to power and show no signs of slowing (data from the Ministry of Commerce, HS codes 0201 and 0202).

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In value terms too beef exports have grown despite an overall export slowdown in 2014-15.

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The government clearly feels that if you want to eat Indian beef, you should do it outside the country.

What are you smoking Mr Gadkari (and can I have some)?

Of all the topics covered in this blog, India’s highway construction programme attracts the most yawns from friends and family (and the least interest in social media). But apart from its intrinsic importance and the resonance that highway construction programmes have long had in discourses of modernity — think the New Deal and Hitler’s autobahns — it also offers a good advance indicator of a government’s project execution abilities. And the Modi model involves claims about effective execution, if nothing else.

Which may be why the Modi government persists in making patently false claims about its record in this area. In a 19 May Business Standard interview, the roads and shipping minister Nitin Gadkari claimed that road construction had been “going on at a pace of two km/day” and “Today, it is 12 km/day.” His observant interviewers pointed out that his ministry’s own figures showed that the pace of road construction in 2013-14, before the Bharatiya Janata Party (BJP) came to power, had been 11.7 km/day, and was mostly unchanged at 12.1 km/day in 2014-15 under the BJP.

These numbers relate to a variety of highway projects. But if you look specifically at national highways, which are the focus of private sector interest and for which data is more freely available, the numbers look even more dismal for the government:Screen Shot 2015-05-20 at 12.19.18 am

The pace of highway construction under the auspices of the National Highway Authority of India is the lowest in 2014-15, the first year of the Modi government. It would be perfectly reasonable for the government to argue that its policies will take time to deliver results on the ground, and that the current slowness in highway building is a legacy of decisions taken by the previous government. But that’s not what the government is saying: it is instead making false claims about its record that do not stand up to the most basic scrutiny. Do pass the chillum, Mr Gadkari.

Selection bias and land acquisition data

What proportion of industrial projects are being held up by land acquisition challenges? A somewhat abstruse debate entered the mainstream after Rahul Gandhi cited Centre for Monitoring Indian Economy (CMIE) data (provided by the Finance Ministry) in a 12 May Lok Sabha speech:

Although I have argued elsewhere that the 8% figure may be an exaggeration in the context of Narendra Modi’s land amendments, the more common view is that it understates the extent to which land acquisition difficulties inhibit manufacturing in India, as Maitreesh Ghatak has explained most clearly in Quartz:

“It’s a classic underreporting problem,” said Maitreesh Ghatak, a professor at the London School of Economics who has studied land acquisition law in India. “There may be projects that never got started because they anticipated these problems. Also, the ones that did get started are likely to have been selected because the risk of land acquisition problems was low for them for whatever reason.”

This is a perfectly fair point, but it doesn’t necessarily follow that the 8% number is an understatement. Imagine a businessperson who is contemplating setting up a plant to manufacture wickets. One could easily imagine her investigating the feasibility of setting up such a plant, but giving up because she failed to procure land.

But one could also imagine her giving up because she couldn’t get a large enough bank loan, or a sufficient supply of workers, or even permission to cut trees to manufacture the wickets. To use Ghatak’s language, she may have chosen not to start because she anticipated any, or several of these problems. One simply does not have enough information about the universe of projects that were contemplated but not started, which doesn’t justify throwing out the data about projects that were started but subsequently ran into trouble. Because the ones that got started are also likely to have been selected (into the CMIE sample (pdf) of 804 projects) because the risk of labour, capital or market problems was low for whatever reason.

But let’s assume for argument’s sake that the number of unobserved projects delayed by land acquisition issues is in fact significantly high. It doesn’t follow that Modi’s land amendments will have any impact on their viability. The original 1894 land act was in operation until 31 December 2013, until which time the government was able to compulsorily purchase land for private companies without landowner consent or carrying out a social impact assessment, just as in the amended law. Yet land acquisition problems abounded. It would be ludicrous to argue that a law that was in operation for a single year — and excluded nuclear energy, mining, railways, national highways and petroleum pipelines from its purview — was responsible to delaying land acquisition in the prior decade.

Modi’s land amendment would do very little for stalled projects

Thanks to a Right to Information request to the Ministry of Finance by Venkatesh Nayak of the Commonwealth Human Rights Initiative, we have more detail regarding how many industrial projects are being held up by land acquisition difficulties. The data were collected by the Centre for Monitoring Indian Economy (CMIE) and analysed in Chapter 4 (PDF) in the first volume of the 2014-15 Economic Survey.

As low as the headline number of 8% appears, it may be an overstatement in the context of the government’s land acquisition amendments, since it includes government projects that do not fall under their purview. Remember that the hotly-debated consent clauses of the 2013 Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act applied only to land acquisition by the state on behalf of private companies (whether directly or via public-private partnerships). This means that the amendments will do nothing for public sector projects.

The 8% headline number comes from the list of 66 (of 804) projects that the CMIE has identified as held up by land acquisition difficulties, but 27 of these happen to be government-owned projects that will be unaffected by the land acquisition ordinance. Therefore the proportion of projects that stands to benefit from the Modi government’s land acquisition amendments is in fact 39 of 804, or 5% of the total.

If we take a stricter view and filter out real estate projects (townships, malls etc.), then the number of private industrial projects held up by land acquisition problems drops further to 26, around 3% of the total.

Now there is a view that the the observed number of projects could understate the effect of land acquisition difficulties on investment, since many projects will have been considered and dismissed without actually being launched. But this holds true of all factors of production (labour, capital, etc.), so it’s pretty hard to come up with a comprehensive and correctly weighted counterfactual.

So far as the current land act amendments are concerned, a quick scan of the list of 804 projects shows that many of them date back a decade (such as POSCO’s Paradip steel plant and Tata Steel’s Jharkhand plant). The 2013 land act came into force on 1 January 2014, which means that the consent and social impact assessment clauses can’t be really be blamed for the observed delays.