Column : Umpirings dirty secrets

Written by Surjit S Bhalla | Updated: Dec 15 2012, 05:42am hrs
In a pained appeal for a non-ideological approach to questions of growth and equity, Anil Padmanabhan, editor at a leading financial newspaper Mint, states: The good news is that increasingly the issues that the critics have sought to highlight are getting traction internationally and, hence, the attention of multilateral institutions such as the International Labour Organisation (ILO) and the World Bank. Given their third umpire status, the arguments are couched in reason and devoid of rhetoric and, hence, more acceptable. (Growthwallahs need to pause and reflect, Mint, December 10, 2012).

What Mr Padmanabhan emphasises, and correctly echoes, is that the economic debate in India is largely couched in patriotic fervour, us versus them, the left versus the right, etc. Reasoned arguments, like the invisible hand, are nowhere to be found. I could not agree morewhich is why my column has been titled No Proof Required for almost the last decade, and why the previous titles of my column were Looking for Logic, Beyond Logic, etc.

But do the international organisations qualify as umpires, let alone neutral umpires The short answer is, no. Indeed, let me state that organisations like the ILO and World Bank, along with the UN and OECD, are prime examples of organisations indulging in politically-correct rhetoric, non-logic and suspect evidence. You might consider this assertion a bit extreme if not wrong. But please see the evidence I cite before making your conclusion.

ILO Wage Report 2012-13: According to this popularly tweeted report, Indias real wages fell 1% between 2008 and 2011, while labour productivity grew 7.6% in the same period. The straightforward conclusionworkers were being heavily exploited in market-economy India. The decline in real wages must be news to many, especially the maker of monetary policy, RBI, which has been claiming that rural wages have been rising most rapidly during the populist period 2008-11. It turns out that RBI is quite right. Rural wages rose at a 7.5% annual rate during this period. The ILO report itself notes that all India workers (salaried and casual) nearly doubled their real wages between 2004-05 and 2009-10, NSS data (p.23, ILO report). So we have the ILO conclusion that real wages increased sharply at least for part of the period 2008-2011; we have the RBI data conclusion on real wages of rural agricultural workers increasing by more than 30%, and yet the final ILO conclusion is that real wages in India declined at an annual 1% pace. Ideology, anyone

UN Human Development Report 2011: Remember headlines that eight states in India had a higher population living in absolute poverty than the poorest 26 sub-Saharan countries combined (421 million versus 410 million). Seemed difficult to believe, especially with per capita income in India increasing by more than 7% per annum for the greater part of the last decade. But not difficult to believe for the ideologically correct Pied Piper experts at the UN and their faithful followers in India. This index was comprehensive and covered 10 different aspects of deprivation with the important health and education development each getting a one-third weight.

However, the UN chose to construct the education component of its index on the basis of a very questionable methodology. For child enrolment (16.7% of the total index, and half of the education index) the calculation was as follows: if even one child of school going age was not attending school, the index for the entire household was estimated as zero. A more reasonable method was to compute the index components on the basis of percentages, e.g. if there were three children of school going age, and one was not attending school, the index value should be two-thirds of 16.7 or 11.13 , not zero!

This makes a large difference to the results; instead of 25% education deprivation for India, it is only 14.5%. But this correct method of computation does not yield the much cited UN result for all India and sub-Saharan Africa noted above.

Worse, the NSS data does not yield the UN result even with the UN method. The UN claims that in 2005-06, 25% of the families had at least one school aged child not attending school; the NSS estimate for a year earlier, 2004-05, is a lower 21.4%.

OECD, Inequality, 2011: The OECD trumpeted its Divided We Stand (nice title!) study on world and emerging country inequality with this widely cited result: Inequality had doubled in India in the last 20 years. This was not lost on all the development experts who quickly compared the OECD result for India with inequality in China. Everyone had noted how inequality in China had increased in the last 30 years, years coincident with market-oriented policies. India undertook market oriented reforms in 1991, and look what it generateda doubling in inequality and higher than even China.

I had pointed out in my 2011 presentation for the World Bank, 2+2=3: The Orwellian record of Inclusive Growth in India, that something seemed to not be right with the OECD calculation of the increase in the ratio of incomes of the top 10% and the bottom 10%. The data source was the same, NSS, so the results should be close. The OECD contended that this ratio had increased (more than doubled) from 6.1 in 1993-94 to 12.3 in 2007-08. (My discussant had some convoluted argument as to how the OECD was correcthe clearly believed that NSS data showed that income inequality in India had doubled in a short period of market driven growth.)

My calculations showed that the ratio of the top 10% to bottom 10% (weekly earnings, age-group 15-59 years) had declined by 9%12.1 in 1993-94 and 11.1 in 2007-08. In a private communication, the OECD has admitted of a goof up in some of their calculations. So while both the NSS (our calculations) and the OECD are broadly in agreement for 2007-08, the figures for 1993-94 (12.1 for the ratio for us and 6.3 for OECD) are wildly off. Question remains: how come our calculations are reasonably close in 2007-08 and so wildly off in 1993-94 If the OECD were to revise its numbers for 1993-94, the deeply exaggerated increase in inequality between 1993-94 and 2007-08 may not hold. Is OECD going the same way as the ILO and UNDP

Yes, we do need non-ideological research. And we clearly need some vetting of conclusions, regardless of where they come from. And perhaps especially if the news comes from international agencies whose refereeing reminds one of the umpiring prevalent in cricket in days before neutral umpires.

Surjit S Bhalla is chairman of Oxus Investments, an emerging market advisory firm. Please visit www.oxusinvestments.com for an archive of articles etc; comments welcome at [email protected]