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NCAER organised a conversation with Shanta Devarajan, Senior Director for Development Economics at the World Bank in Washington DC and Non-resident Senior Fellow, on what to do when markets and governments fail poor people in delivering services in health, education, infrastructure, the environment, and the rule of law.  This talk by Devarajan’s at NCAER was built on an earlier July 2017 discussion of these issues at the NCAER 2017 India Policy Forum in which Devarajan was also a panellist, along with Member of Parliament B J Panda and Karthik Muralidharan of the UC, San Diego, moderated by Pranab Bardhan of the UC, Berkeley. A video of the session is available here.

In many areas of public policy, governments carve out a role for themselves in effect to overcome what are perceived as widespread market failures. Examples abound across the world of governments intervening to correct negative externalities where there is a wedge between public purpose and private interest, and the outcomes are bad, particularly for poor people with the least means to cope with poor service delivery. In India, governments often turn to command and control approaches to solving serious problems of public policy, for example air quality, essentially because of a deep distrust of more market-based approaches.  Governments routinely intervene in pricing, usually on the grounds of helping the poor.

But in doing so, governments often themselves fall prey to government failure, because they do not have the capacity to implement, or they get captured, or they create vested interests (“the only thing worse than a private monopoly is a public monopoly”) and corruption, or a subsidy in one part of the economy does widespread and worse damage in another part of the economy.  Delhi’s air quality is a constant reminder of what happens when government failure meets market failure.  And yet, governments are essential to any well-functioning economy that both provides opportunity and protects the vulnerable.  In his very stimulating talk at NCAER, Devarajan concentrated on what to do in the face of both market and government failures to make services work for poor people.

Shantayanan Devarajan is the Senior Director for Development Economics at the World Bank.  He joined the Bank in 1991 as a Principal Economist and then Research Manager for Public Economics in the Bank’s Development Research Group. Over the past decade and a half, Devarajan has been the Bank’s Chief Economist for its Human Development Network, the South Asia Region, the Africa Region, and most recently the Middle East and North Africa Region. During 2002-03, he was the Staff Director of the 2004 World Development Report, Making Services Work for Poor People, one of the most widely cited WDRs in the Bank’s history. In his current role he heads and directs the Bank’s research complex. He was on the faculty of Harvard University’s Kennedy School of Government prior to 1991.

The author or co-author of over 100 publications, Devarajan’s research covers public economics, trade policy, natural resources and the environment, and general equilibrium modelling of developing countries. He received his BA in Mathematics from Princeton University and a PhD in Economics from the University of California, Berkeley.

A three-institution study of the modernization of land records in three Indian States was released at an event held at the India International Centre, today. The study recommends a number of reforms that could help to improve property records and services, enhance the impact of computerizing land records, and potentially reduce land related litigation in India. NCAER along with the Indira Gandhi Institute for Development Research (IGIDR, in Mumbai) and the National Institute of Public Finance and Policy (NIPFP, in New Delhi) have conducted impact assessment studies of the Government of India’s Digital India Land Records Modernization Programme in Himachal Pradesh (done by NCAER), Maharashtra (IGIDR) and Rajasthan (NIPFP).  NCAER, which coordinated this collaborative effort by three of India’s most prominent policy research institutes, also released its overall Synthesis Report based on the findings of the three State Reports.

Security of property rights and land titles are fundamental to well-functioning land markets, themselves essential for robust economic activity in agriculture, manufacturing and services.  Land-related disputes in India account for about 60 to 70 percent of all civil litigation, and as much as 90 percent of land parcels are subject to legal dispute.  It is estimated that land market distortions reduce annual economic growth by about 1.3 percent.  In 2017, India vastly improved its overall ranking in the World Bank’s Doing Business 2018 Index to 100th (out of 190 countries) from 130th in 2016.  Unfortunately, on the indicator for “registering property” (in this case urban property), India’s ranking in Doing Business 2018 has worsened from 138^th to 154^th.  The reports recommend actions to improve land records and registration services that could substantially help individuals, families and communities confirm and secure their property rights, reduce the cost of doing business, and reduce the huge litigation overhang that land holdings in India suffer from.

India has presumptive land titling, the right over a property arising out of its occupation or possession with the ability to hold the property until the possession is obstructed. Since 2008, the Government of India has run the National Land Records Modernization Programme, a Centrally Sponsored Scheme under the Department of Land Resources, Ministry of Rural Development.  The scheme allocates funds to States to digitize their land records and move to modern land records management systems.  More recently the programme was renamed the Digital India Land Records Modernization Programme (DILRMP).  The key objective of the DILRMP is to move India to a conclusive land titling system with titles by a modern, comprehensive and transparent land records management system. DILRMP seeks to do this through computerization of land records, digitization of maps and integration of text and spatial data, survey and re-survey and updating of all survey and settlement records (including creating original cadastral records wherever necessary), computerization of registration and its integration with a land records maintenance system, development of core geospatial information systems, and capacity building in all these areas. Between 2008-09 and 2017-18, the Government has sanctioned some Rs 1,927 crores for the DILRMP, though much less has been utilized by the States.  As of 11/11/2017, the DILRMP website reported that the programme had covered some 5.65 lakh or 86% of all revenue villages in the country.

The three state studies and NCAER’s overview study released today are the first pilot studies to assess the actual impact on the ground of the DILRMP. The impact assessments show that while all three states have pursued the computerisation of land records and of the registration process, the emphasis has varied considerably. The computerisation of textual records has received the greatest attention in Himachal Pradesh, while Maharashtra has focused on automating the registration process. But in all three states, the contribution of the DILRMP to these efforts has been rather muted. As a result, the potential inherent in digitising land records and their registration has so far been realized only partially, and much more needs to be done. The state reports were presented by Ms Diya Uday, IGIDR, Mr Anirudh Burman, NIPFP and Prerna Prabhakar, NCAER. Mr Deepak Sanan, Senior Advisor, NCAER presented the overall Synthesis Report. Releasing the reports along with other dignitaries, Mr T Haque, Chairman, Land Policy Cell, Niti Aayog stated that there is a need to conduct such a scientific study for all states in the country.

This work of the three institutions was supported by the Omidyar Network as part of its global efforts to help people and communities confirm and secure their property rights. Mr Peter Rabley from Omidyar Network, who was also present for the release of the reports,  conveyed the pleasure of Omidyar Network  in supporting this study which they see as being critical to the development of the economy.

The work in the three states compared the on-the-ground situation with that shown in the land records on five dimensions—ownership, possession, land use, land area, and encumbrances. All three state reports highlighted large discrepancies between the land records and the on-the-ground situation. Professor Devendra B. Gupta, who led the study at NCAER said, “We need to strengthen systems for real time updating of land records if the national objective of a sustained availability of comprehensive and accurate land records is to be achieved.  This is absolutely essential for the better functioning of rural and urban land markets in India.” The NCAER synthesis report and the three state reports offer a number of key suggestions, including for better staff training and process flows to ensure comprehensive, accurate records that can be updated in near real time, linking disparate data bases, and technological innovations that were simply not possible just a few years back.  These and other design and deployment improvements suggested by this work have the potential to dramatically improve land record services to the public, and hopefully reduce property related litigation in India. Suggested changes in the DI-LRMP design can incentivise States to improve their land records: half the DILRMP funding from the Centre could be based on the inputs required for digitisation of land records while the other half could be based on the performance outcomes of States in computerising land records and ensuring their real time updating.  This would require the kind of field testing of outcomes that the three institutions did.

As explained in its synthesis report, NCAER is proposing to launch a NCAER Property Records and Services Index (N-PRECSI) to rank States and Union Territories on their progress on land records modernization. Mr Deepak Sanan, Senior Advisor at NCAER who guided the impact assessments, noted that “This approach would fit well with India’s current focus on competitive/cooperative federalism and could prove to be a significant step towards achieving the national goal of effective land record management and conclusive titling.”  Dr Shekhar Shah, Director-General, NCAER, said that, “the findings of this work by NCAER, IGIDR, and NIPFP hold tremendous significance for India’s rapid economic growth through the better functioning of rural land markets. These findings can help formulate state action plans to attain the goal of secure, assured land records that mirror ground realities and are generated by efficient titling services. This work can importantly help the Department of Land Resources make evidence-based design and implementation changes in the DILRMP that would encourage and support state efforts to bring about palpable improvements in their land recording services. NCAER’s proposed Property Records and Services Index for Indian States and Union Territories will also help.  The N-PRECSI may be further enhanced in time to reflect how land buyers and sellers perceive the quality of services they are getting.” Shah further added, “NCAER is also considering a study on land litigation in selected Indian High Courts to shed light on the extent to which inappropriate land records are the cause of land disputes and to develop a typology of different types of land record problems and relate them to corresponding types of land disputes. This should help point to the root causes of India’s burgeoning land litigation and suggest solutions.”

In a long standing partnership with the India International Centre, NCAER released its 2017-18 Mid-year Review (MYR) of the Indian Economy. The MYR presents the most comprehensive, independent assessment of the Indian economy. Dr Shekhar Shah opened the seminar with his welcome note, followed by Air Marshal (Retd.) Naresh Verma, Director, IIC. Dr Bimal Jalan, Former President NCAER and Chairman, Centre for Development Studies, who was invited to chair the Review, gave the opening remarks.

Dr Bornali Bhandari, Fellow, NCAER presented the main findings of the Review. Besides a stocktaking of the economy’s performance, NCAER has expanded the focus of the Review over the years to include detailed discussions on key policy issues. In addition, Drs Soumya Bhadury and Sanjib Pohit presented the yet developing NCAER Nowcasting Model, which captures the movements of an economy on a dynamic basis.  The Review included two presentations; one on ‘GST Reform: Some Design Issues’  by Dr Pinaki Chakraborty, Professor, NIPFP  and the second one on ‘Some Select Issues in the Financial Markets’ by Mr Tushar Arora, Senior Economist, Treasury, HDFC Bank .

Key highlights of the NCAER’s 2017-18 Mid-Year Review of the Indian Economy are as follows:

NCAER forecasts growth of 6.2 per cent for 2017–18 for both GVA (Gross Value Added) at basic prices and Gross Domestic Product (GDP) at market prices. These forecasts at constant (2011–12) prices are based on NCAER’s annual GDP macro model.   Real agriculture GVA is forecast to grow at 3.0 per cent, real industry GVA at 4.5 per cent, and real services GVA at 7.6 per cent in 2017–18. The Wholesale Price Index (WPI) inflation is projected at 6.7 per cent for 2017–18. The growth rates in exports and imports, in dollar terms, are estimated at 10.7 per cent and 24.4 per cent, respectively, in 2017–18. The current account balance and central fiscal deficit, as percentages of GDP, are projected at –2.5 per cent and 3.4 per cent, respectively, for 2017–18. These estimates have been revised upwards from August 2017.

With the southwest monsoon being close to its normal distribution, and achieving satisfactory spatial and temporal distribution as compared to last year, the current year is expected to be a year of normal growth for the agricultural sector. The estimated output of kharif rice is expected to witness an increase of 2.1 per cent to 3.3 per cent due to a combination of good rainfall and its somewhat better distribution in the rice-growing regions. However, the output of kharif coarse cereals and pulses is likely to drop due to higher output being achieved last year and somewhat poor distribution of the monsoon rainfall in areas where these crops are cultivated. The output of kharif oilseeds has been estimated to remain at the same level as that of last year due to the below par performance of the monsoon rainfall in the main oilseed-growing regions. In the case of cotton, NCAER estimates suggest a marginal growth of 1.5 to 3.4 per cent over the preceding year’s output of 32.3 million bales. The projected output of sugarcane is also likely to be close to last year’s level of output. The current year’s storage, as on November 2, 2017, was 96 per cent of the live storage of the corresponding period last year and 96 per cent of the average storage of the last ten years. This augurs well for the current year’s rabi season.

As regards the industrial sector, the Index of Industrial Production (IIP) showed a year-on-year (y-o-y) growth of 2.2 per cent during the period April–August, 2017 versus 5.9 per cent during the corresponding period in 2016. The manufacturing IIP showed the most significant slowdown with 1.6 per cent growth in April–August 2017 versus 6.1 per cent in the corresponding period last year. The steep decline from 9.6 per cent in April–August 2016 to (–) 1.9 per cent in the corresponding period in 2017 in the capital goods sector reflects the low investment scenario in the economy. The intermediate and infrastructure sectors too noted a sizeable decline in their respective growth rates. As regards the consumer goods sector, the consumer durable segment experienced a steep decline from 6.2 per cent to (–) 0.9 per cent during this period. The core infrastructure industries registered a growth of 3.3 per cent during 2017–18: H1 as against 5.4 per cent recorded during the corresponding period of the previous year. Specifically, fertilisers and cement show a steep fall in the y-o-y growth rate in 2017–18: H1 as compared to 2016–17, consequently slipping into negative territory. Although crude oil production showed an improvement, its y-o-y growth rate in 2017–18: H1 was still negative at –0.2 per cent as compared to –3.3 per cent recorded during the corresponding period of the previous fiscal. However, both the Nikkei PMI Index and the SBI Composite Index showed renewed weakness in October 2017 after exhibiting signs of recovery in September 2017. Meanwhile, the Indian industrial sector is on a shaky recovery path due to the implementation challenges of the Goods and Services Tax and uneven demand. With greater emphasis on improving ease of doing business, attracting foreign inflows, recapitalising public sector banks and efforts to achieve continuous improvements on the GST front, the Indian industrial sector hopes to overcome its transition blues in 2018–19.

The first quarter of the current fiscal witnessed strong growth in two major services sectors including trade, hotels, transport, communication and services related to broadcasting; and financial, real estate and professional services. The lead indicators from the services sectors indicate a mixed outlook. While the aviation sector continues to exhibit a strong growth momentum, tourist arrivals, and revenue earning goods traffic are the other segments showing higher growth in the first half of the current fiscal as compared to the previous one. International cargo traffic, which accounts for 64.5 per cent of the total cargo traffic, notably exhibited a y-o-y growth of 19.2 per cent in during April–August 2017 as compared to 8.1 per cent achieved during the corresponding period in the previous fiscal. While the impact of the GST on the services sector is uncertain, the Nikkei PMI services indicates a positive outlook.

Merchandise trade Exports in dollar terms, showed a y-o-y growth of 12.1 per cent in 2017–18: H1 versus –18.6 per cent in 2016–17: H1. In dollar terms, merchandise imports showed a y-o-y growth of 25.1 per cent in 2017–18: H1 versus a negative growth of –18.2 per cent in 2016–17: H1. However, the jump in exports does not reflect the lack of a clear trend in recovery of exports since the beginning of 2017–18. Interestingly, an acceleration may be noted in the post-GST months of August and September 2017 on a y-o-y basis. Sustained momentum from this acceleration may lead to further growth. Likewise, growth in imports showed a slowdown during the period May–July 2017 but picked up pace in August and September 2017. The effect of costlier domestic currency is being felt through a slowdown in the growth in exports during the period April–July 2017.  The merchandise trade deficit has widened significantly during the first half of the current fiscal. Further, monthly data on services show wide fluctuations, especially reflected in the y-o-y decline in service receipts during the months of October 2016, December 2016, and April 2017. A general slowdown has been observed in monthly payments for services over the past year. A consecutive decline was also observed during the period May–July 2017. The net foreign institutional investment inflows have shown negative growth for four out of six months. The y-o-y growth of FDI equity inflows has been more sustainable during the first half of the current fiscal except in September 2017.

While WPI inflation was higher at 2.4 per cent in 2017–18: H1 as compared to a corresponding figure of 0.2 per cent in 2016–17: H1, all the retail inflation indicators in 2017–18: H1 have been moderate as compared to 2016–17: H1. However, the price of crude oil (Brent) showed a spike in September and October 2017.

The Sensex showed a double-digit y-o-y growth of 14.6 per cent in 2017–18: H1 versus a significantly lower figure of 0.3 per cent in 2016–17: H1. Bank credit to the commercial sector (BCC) increased at a sluggish pace of 6.4 per cent on a y-o-y basis, as of 2017-18: Q2. In contrast, the y-o-y growth in BCC was 11.7 per cent during the corresponding period of the previous year. The sectoral share of loans indicates that the y-o-y growth in credit for industry continued to be negative at –0.44 per cent for Q2 though the corresponding y-o-y credit growth in Q2 for the micro and small industries was is positive at 1.65 per cent. The credit offtake for the medium industries, however, continued to suffer the most amongst all the sectors, registering a y-o-y decline of 8 per cent, as of Q2.

As regards the fiscal scenario, income tax collection has shown positive and persistent growth in the post-demonetisation period. Additionally, there has also been an increase in the usage of digital mode of payments in the economy. The contribution of GST has been approximately 22.7 per cent in the total revenue collection and 55.7 per cent in the indirect tax collection in 2017-18: Q2. The deficit front has exhibited favourable signals with a decline in the fiscal deficit, surplus on revenue account, and primary surplus in 2017–18: Q2. The higher revenue growth along with a decline in the total expenditure has led to a decline in the fiscal deficit.

Besides an independent stocktaking of the Indian economy’s performance, this year’s Mid-Year Review by NCAER includes two special presentations. The first of these is on ‘GST Reform: Some Design Issues’.  It stressed on the importance of the GST the discussed key issues on design. One specific recommendation is that the GST should have two tax rates and not six that exists now.  The second paper is titled ‘Some Select Issues in Financial Markets’.  It assesses the pros and cons of the recent policy announcement about recapitalisation of public sector banks, issues of credit growth, and the impact of demonetisation on digitisation.

About the Mid-Year Review of the Economy

The Mid-Year Review of the Indian Economy was started at the India International Centre (IIC) in 1976 by Dr Malcolm S. Adiseshiah, one of India’s most distinguished economists and educationists, Life Trustee of IIC, recipient of the Padma Bhushan, founder of the Madras Institute of Development Studies, and one of the key architects of UNESCO’s work on education and technical assistance. Now conducted in collaboration with the Malcolm and Elizabeth Adiseshiah Trust, Chennai, the Review has been presented by many distinguished Indian economists since Dr Adiseshiah’ s passing away and remains an apex event on IIC’s programme schedule.