October 8, 2011

HAS GLOBALIZATION HELPED INDIA’S POOR?

Posted by The Himalayan Voice:
[Like the dog that didn’t bark, the study’s principal finding is a non-result: there is no systematic relationship between trade liberalization and inequality in India. Rather, a whopping 90 percent of inequality reflects differences at the level of individual households within states or within urban vs. rural areas, rather than between these groupings. And widening the lens from the household to the community, more than 60 percent of total inequality is found at the local level, within urban blocks and rural villages.]

By Vivek Dehejia

An artisan gives finishing touches to an idol of the Hindu 
Goddess Durga at a workshop in the northeastern Indian 
city of Siliguri September 20, 2008. The idols will be used 
during the Durga Puja festival, a popular religious event 
for Hindu Bengalis. In Hindu mythology, Durga symbolises 
power and the triumph of good over evil. 
Has freer trade decreased or increased poverty and inequality in India? The debate has persisted, almost from the very beginning of India’s embrace of the global economy in 1991.

Curiously, also exactly 20 years ago, Americans were engaged in a similar battle of ideas. Mapping its intellectual contours helps give us a fix on the current Indian situation.
Recall that then, just as may be unfolding now, the United States was gearing up for a presidential election which ultimately unseated an incumbent who had been hugely popular just a few years before.
At that time, the heated national debate was over the merits of freer international trade, and specifically whether it could be blamed for the stagnating wages of American workers. Voters wondered whether the proposed North American Free Trade Agreement (NAFTA), embraced by President George H.W. Bush, but initially shunned by then Gov. Bill Clinton, would hurt their job prospects.
Textbook  international trade theory provides the intellectual rationale for this view. The theory suggests that freer trade benefits the “abundant,” but harms the “scarce,” factors of production. In the United States, skilled workers and capital are relatively abundant, whereas in poorer countries it is unskilled workers who are in relatively abundant supply.
The  recent American experience fits the theory’s predictions rather well: the wages of skilled workers and profits to capital have risen, while unskilled workers’ wages have failed to keep pace, leading to a widening gap between rich and poor.
Often assumed, if not explicitly stated, in these early globalization debates was the idea that freer trade may be harmful for wages and inequality in rich countries such as the United States, but it would generally be beneficial for people in poorer countries such as Mexico or India.
Workers’ wages in poorer countries, the theory went, should rise as a result of the embrace of freer trade, and as a corollary proposition, income inequality should fall.
The potentially contrary impact of globalization on rich and poor countries was certainly a theme sounded in influential writings of the time, such as “The Lexus and the Olive Tree: Understanding Globalization,” by New York Times columnist Thomas L. Friedman.
But is that how things have played out?
Let’s fast forward, to the current debates in India, for some answers.
A recent study by economists Pravin Krishna and Guru Sethupathy is perhaps the first to investigate the impact of trade liberalization on inequality using rigorous statistical techniques.
As Mr. Krishna explained to me via e-mail: “The bottom line conclusion … is that while inequality appears to have gone up in the initial years following the start of the reforms (1994-2000), it has fallen again (between 2000-2005) to nearly the pre-reform levels.”
Like the dog that didn’t bark, the study’s principal finding is a non-result: there is no systematic relationship between trade liberalization and inequality in India. Rather, a whopping 90 percent of inequality reflects differences at the level of individual households within states or within urban vs. rural areas, rather than between these groupings. And widening the lens from the household to the community, more than 60 percent of total inequality is found at the local level, within urban blocks and rural villages.
These highly localized roots of inequality have little to do with inter-state or rural-urban differences, to say nothing of trade or other international factors. Rather, they stem from factors that labor economists have long understood to be the drivers of inequality: education, work experience, family background, and, crucially in the Indian case, caste and ethnic differences.
Trade is, at best, a footnote to the tale of inequality in India.
On poverty, by contrast, some contend that the Indian experience confirms the optimistic prediction.
The economist and investment adviser Surjit Bhalla has been one of the most outspoken proponents (PDF) of the view that, correctly measured, poverty has declined dramatically in India since 1991, and that much of the credit is due to the liberalization and globalization of the Indian economy.
By Mr. Bhalla’s reckoning, only 11 percent of Indians are now poor, much below conventional estimates that place the poverty rate around 37 percent. Even if this is overly sanguine, many analysts agree (PDF) that economic reform, of which integration into the global economy was a key element, has lifted millions of people out of poverty in India.
But the debate on the correct measure of poverty has flared up again recently in India, following a proposed cutoff for “below poverty line” households mooted by the country’s planning commission, that many critics have argued is well below subsistence, and therefore would underestimate the number of poor people.
A more realistic definition of poverty would, in turn, suggest a more muted, if still positive, impact of liberalization on poverty reduction.
On balance, trade has had a beneficial impact on reducing poverty, albeit probably not as much as ardent free marketeers would argue. Equally, there seems to be no relationship between trade and inequality. Yet, according to economic theory, trade was supposed to have been good for both.
Taken together, these equivocal findings could be read as optimistic, or not, depending on your point of view.
As with the American debate of 20 years ago, the realities in India today are often subtler, and less sure, than partisan conviction on one side or the other might suggest. The debate, no doubt, will rage on.
You can follow Vivek Dehejia on Twitter at http://twitter.com/vdehejia

INDIA AND BANGLADESH: SIBLINGS, LOVE AND RIVALRY

[While Bangladeshi people feel that they are being ignored and neglected from the foreign policies of India, wherein no much priority is being given to them, people in India own up a degree of fury over the fact that the real spirit of Bangladesh is being ignored. Due to this reason, even the summits, where the high level talks help to regain the lost rapport, are not fruitful.]


India and Bangladesh are the two closely related nations of the Indian sub-continent. These two nations have had a long proverbial cultural, economic, civilizational and political history. Be it the cultural heritage and linguistic ties or the passion for music, literature and arts, India and Bangladesh are, to most outsiders, indistinguishable.

In 1947, when Bangladesh got separated from India and became a part of Pakistan, a not-so-friendly relation wrapped these two nations. The blood-spattered Liberation War which broke open in 1971 helped Bangladesh to gain its independence and break out as a separate nation. East Pakistan became Bangladesh. This Liberation War helped not only the formation of a new nation but also paved way for establishing better relations with India.
For the past 40 years, the relationship between India and Bangladesh has passed through cycles of hiccups, fluctuating between the two extremes, friends and foes. Several reasons contribute to this flaky rapport. For centuries, natural resources have been a rationale of continual conflict between the nations. India and Bangladesh share 54 common rivers. Ganges that flows through both these countries has left the liaison to strain. Bangladesh condemned that the people suffer from lack of water supply during the drier seasons and flooding from excessive water during the monsoons. Things were made worse because of the mutual blame. Thanks to the Ganges Water Treaty, a common agreement was arrived at. But a solid solution has not been attained yet. Repeated meetings between the high authorities of both the nations are aiming at bringing a solution as soon as possible.
The next big thing that has influenced the bond between these two neighboring nations is bilateral trade. Bangladesh has always been an important trading partner for India. The main reason for this is the geographical proximity between them. But of late, there has been pressing concerns in Bangladesh on bilateral trade deficits with India. It has been blamed that, in order to avoid the Bangladeshi import duties, large volumes of goods were imported informally from other countries to India. This caused the Bangladesh’s bilateral trade with India to strain. The non-trade barriers playing a major role in this relationship fall-out are the packaging requirements, derisory facilities with respect to warehousing, shipping and packing and inadequate road construction.
The above mentioned reasons kindled the anger of Bangladesh. But the main reason why India is livid towards Bangladesh is cross-border insurgency. Rebels from India have been given refuge in Bangladesh. This has been a major annoyance over the years, from India’s point of view. Apart from this, the issue of illegal movement of people from Bangladesh has created a lot of tribulations. There is a perception in India that large numbers of illegal immigrants are residing in the North Eastern part of India, West Bengal and in far-off places like Mumbai and Delhi. Border problems and smuggling have added fuel to fire, making things far from worse. To top this all, there have been rumors that the Indian goods are sent to Bangladesh in exchange for their people.

While Bangladeshi people feel that they are being ignored and neglected from the foreign policies of India, wherein no much priority is being given to them, people in India own up a degree of fury over the fact that the real spirit of Bangladesh is being ignored. Due to this reason, even the summits, where the high level talks help to regain the lost rapport, are not fruitful.
As Andy Stalin rightly said, “Stop looking for solutions to problems and start looking for the right path”, its high time the issues are tackled, one-by-one. There is never a problem without a solution. Making up the lost cooperation between India and Bangladesh will not only prove fruitful in terms of trade and commerce but also in terms of regaining the lost glory of the culture and civilization that these two countries have had together


@ Youth Ki Awaaz