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Overall the best way to keep prices competitive and inflation low in any economy is by ensuring efficient production structures resulting in low cost of production continuous innovation leveraging of scale economies better integration within domestic and with international markets and implementation of sustainable fiscal and monetary policies.

Inflation is making a comeback globally. A number of advanced countries are experiencing inflation rates that are higher than corresponding rates during the last several decades. As a result the monetary policy easing cycle seems to be mostly over. Last week the Reserve Bank of India (RBI) kept key interest rates unchanged for the eighth time in a row. Most central banks in emerging markets have paused lowering of their policy rates and some have started raising them. For example in the last couple of months Brazil Chile Mexico and Peru have raised their policy rates.

An important policy-relevant question in such a situation is whether inflation has become too high or too entrenched in India to warrant a change of course of monetary policy. Some commentators have highlighted the persistently high inflation rate and called for caution and vigilance in setting future monetary policy.

However the large swings in data due to varying intensity of Covid- 19 over time make it more difficult to interpret inflation numbers than is the case in normal times. To gain better understanding I have calculated the average consumer price index (CPI) inflation core inflation and food inflation during the 18 months following the onset of the Covid pandemic (March 2020-August 2021). I then compare these average rates with those prevailing prior to Covid and ask whether there are specific pockets of high inflation and whether the Indian inflation correlates with global counterparts.

This analysis yields three conclusions. First inflation in India has averaged 6% in the last 18 months. Seen this way it falls within the inflation target band of 2-6% (RBI’s Monetary Policy Committee or MPC notched it down to 5.3% last week). Of the headline inflation numbers the core inflation which excludes volatile food and fuel prices has averaged less than 6% a year. Conversely food inflation has been a tad higher.

Second and more surprisingly the average rate of inflation during 18- month Covid period has been similar to that during the two years preceding it. As such there is no structural break in inflation. The pre- and post-Covid inflation numbers are similar not just for headline or core inflation but also for most of the components of the inflation basket. The Covid period represents continuity rather than discontinuity.

Inflationary Decoupling

Third till date data do not give enough basis to conclude that higher inflation has become entrenched. Household inflation expectations in India remain notoriously sticky and decoupled from actual inflation rendering them an unreliable signal of future inflation. At the same time professional forecasters continue to exhibit expectation of moderate inflation.

So can India afford to be complacent? Given that disruptions in global supply chains labour scarcity-induced wage increases and generous stimulus packages have led to rising rates of inflation in some countries could India too become a victim of similar inflation in the forthcoming months? Could developed country inflation have a spillover effect on inflation in India?

To answer this question I conduct a simple exercise to assess how well inflation in India correlates with global inflation. The exercise reveals that during the last 18 months of Covid-19 inflation in this country does not correlate significantly with global inflation inflation in the US or that in emerging market economies. The answer remains unchanged if we focus on the pre-Covid period.

These findings mean the current inflation in India remains range-bound is not entrenched and is unlikely to be impacted significantly by higher inflation elsewhere. Consequently India need not change its current stance on monetary policy.

Another implication is that the flexibility provided by the inflation-targeting framework has been on full display both during Covid as well as during the economic slowdown in the pre-pandemic years. The framework has acquired sufficient credibility that inflation as well as inflationary expectations have remained anchored allowing monetary policy to respond to growth concerns by remaining appropriately accommodative. 

The assessment presented here may change in the coming months especially if the global supply chain issues start impacting India directly. The impending tapering of easy monetary policy in the US also has the potential to elevate inflation through a depreciation of the rupee.

Efficient and Economic

A typical response to the unwinding of the US Fed’s ultra-loose monetary policy for emerging markets such as India would be a matching increase in the policy rates. Should such an unwinding come to pass it will serve India well to keep its ammunition dry for now and use it when such a time comes.

Overall the best way to keep prices competitive and inflation low in any economy is by ensuring efficient production structures resulting in low cost of production continuous innovation leveraging of scale economies better integration within domestic and with international markets and implementation of sustainable fiscal and monetary policies. Given India’s current income levels and its growth aspirations in a macro sustainable way all of these are worthy avenues to pursue via continued structural reforms.

(The writer is the Director General at the National Council of Applied Economic Research NCAER. The views expressed are personal.)

Especially since the COVID-19 pandemic women have exhibited higher levels of depression and anxiety than men across nations and social classes

On the occasion of the World Mental Health Day on October 10 it’s time to put under the spotlight issues pertaining to gender and women’s mental welfare. With the theme this year being “Mental Health in an Unequal World” research shows that in the context of the influence of COVID-19 on people’s mental wellbeing women have exhibited higher levels of depression and anxiety than men across nations and social classes. Paradoxically though the fatality rate among COVID patients has reportedly been twice as high for men as that for women the latter have faced a more profound mental and physical impact of the pandemic both as frontline workers and at home. Apart from the patients themselves this impact has also been witnessed by victims of increased domestic violence and those facing the additional burden of household activities emanating from lockdowns and the ‘work from home’ mode.

One of the critical findings of a recent research on COVID-19 points to extensively high rates of maternal and neonatal complications among pregnant women such as miscarriages pre-eclampsia Caesarean births and perinatal death all of which contributed to psychosomatic disorders among affected women. Further in the COVID-19 cohort women with previous psychiatric diagnosis or low income faced higher risk of experiencing distress and anxiety symptoms. For instance a study in Wuhan the epicentre of the pandemic in China found a high prevalence of post-traumatic stress syndrome and higher incidence of hyper-arousal among women as compared to men.

Another study on the impact of COVID-19 conducted in 2020 by the global humanitarian agency CARE International reveals that among its 10000 respondents as many as 27 per cent of the women faced mental illness challenges while the corresponding figure was only 10 per cent for men. The primary source of stress for the affected women was their worries about rebuilding livelihoods and accessing food and healthcare. This is no surprise considering that a large proportion of women across the world are employed in the sectors hardest hit by the pandemic including domestic work entertainment retail tourism and travel as well as in the informal economy and as migrant workers.

It is also argued that gender has always been a critical determinant of both mental health and mental illness and the pandemic has merely exacerbated the already prevailing challenge of rising female mental morbidities. Citing data from the India Human Development Survey (IHDS) a study undertaken by the non-profit Research Institute for Compassionate Economics in 2018 asserts that other traditional patriarchal practices like women having their meals after their male counterparts and lack of female autonomy in decision-making also cause poor mental health outcomes for women.

IHDS is a nationally representative panel survey of over 41000 rural and urban households jointly conducted by the National Council of Applied Economic Research (NCAER) and the University of Maryland in two rounds in 2004-05 and 2011-12. Along with questions on health education marriage household assets and poverty the IHDS also collected information on women’s social status and autonomy by asking ever-married women about their decision-making power in the household. The first quantification of the discriminatory practice of women eating after men comes from the 2004-05 IHDS when 36 per cent of the female respondents said that in their households women ate after men. Although this figure dropped to 25 per cent in the second round in 2011-12 it is still high enough to raise alarm bells.

The r.i.c.e. report also uses IHDS data to show that at all levels of per capita household consumption women in households where female members eat last are more likely to be underweight than their counterparts in households not following this practice. Undernutrition not only reduces physical energy levels but also results in lower immunity which is believed to be another cause for mental disorders.

A 2001 study by the World Health Organisation (WHO) averred that depressive disorders account for 41.9 per cent of the neuropsychiatric ailments among women as against 29.3 per cent among men. Moreover the leading mental health problems of the elderly are depression organic brain syndromes and dementia all of which again have disproportionately higher occurrence rates among women than men. So how can we combat the challenge of mental disorders and somatic complaints affecting women in particular?

The first step is to recognise that the mental health issues faced by women are primarily the result of various gender-based factors like low employment levels income inequality and higher burden of care work for women. The atrocities perpetrated on women including Intimate Partner Violence (IPV) sexual assaults and rape also lead to mental trauma. It is therefore obvious that women’s mental wellbeing is a quotient of the environment in which they live and work. Hence as we mark another Mental Health Day it is imperative to mitigate women’s mental distress by focusing on the broader socio-economic frameworks and community settings that contribute to overall gender discrimination.

(The writer is the editor at the National Council of Applied Economic Research NCAER. The views expressed are personal.)

Privatisation may not ensure redemption for the loss-making airline but it still is high time the government gets this done

The much-delayed privatisation of Air India has suffered from several false take offs. Since the interim Budget of 1991-92 India has followed a policy of disinvestment with regards to Central Public Sector Undertakings (CPSUs). The term ‘privatisation’ was first used in the Disinvestment Policy (1999-2000) formulated by the Atal Bihari Vajpayee government. While disinvestment need not result in change in state ownership privatisation implies government relinquishing its stakes completely. Over the last three decades only 10 CPSEs have been privatised.

There is a list of failed attempts to privatise; and Air India is one of them. Twenty years ago during the Vajpayee government when the first attempt to privatise the national carrier failed Arun Shourie the then minister of disinvestment clarified in Parliament that stiff opposition and slowdown in the international airline businesses were the prime reasons for the deal to fall apart.

Interestingly Air India’s privatisation seems to be inching towards finalisation at a time when the global aviation sector is in the throes of a crisis. If the current speculation that the Tatas might grab the deal comes true Air India would revert to its original owners in a strange reversal of history. Even otherwise if the deal goes through it would have three important significances. First it would mark the revival of privatisation in India. Second this would be the Modi government’s first successful strategic disinvestment deal in the last seven years when disinvestment has been merely confined to sale of some PSU shares to another PSU. Third recommendation of the Disinvestment Commission (given in 1998) to privatise Air India would be finally implemented.

Background

In the 1950s when India started experiments in socialism under Jawaharlal Nehru one of the targets of the nationalisation drive was the airways owned by JRD Tata. In 1953 the Air Corporations Act was enacted which nationalised the airline industry and created two corporate bodies: Indian Airlines (for domestic routes) and Air India International (for foreign routes). While the government became the owner JRD Tata continued as the chairperson. Given the limited experience of the government in running an airline the private sector was engaged in an operational role. However this was opposed as privatisation of the management.

When an impending economic crisis compelled India to embrace liberalisation in 1991 Parliament passed the Air Corporations (Transfer of Undertaking and Repeal) Act 1994 which allowed private players to operate the passenger airlines segment. With increasing competition and bureaucracy the public sector airlines steadily lost market share between 1991 and 1993. Over the next few years the airlines faced losses (approximately Rs 300 crore annually) old aircraft high maintenance costs and employee to aircraft ratio. In 1998 for the first time the Disinvestment Commission recommended privatisation of Air India. The commission recommended the government to infuse equity of Rs 1000 crore and bring down its shareholding to 40 percent. But it was not implemented.

First attempt: NDA government

Often recalled as the privatisation era the Vajpayee-led government decided in May 2000 to pursue strategic sale of Air India with a cap of 26 per cent on foreign shareholding. While four parties expressed their interests the bid carried a stipulation for foreign bidders to have a JV with an Indian company. As a result two out of three bidders failed to meet the criteria. Not surprisingly the attempt triggered a political furore including from the members of the ruling coalition and the civil aviation minister himself. More controversy surfaced when the managing director (MP Mascarenhas) who supported the deal was suspended for alleged corruption. Faced with stiff opposition and public outcry even the Indian bidders i.e. Tata-Singapore Airlines consortium and the Hinduja group exited from the process. The first attempt to privatise Air India ended in failure.

Merger and restructuring: UPA I and II

With the defeat of the NDA government all attempts to privatise PSUs came to a grinding halt. During 10 years of UPA I and UPA II not a single firm was privatised. However in 2007 the UPA government decided to merge Air India and Indian Airlines into one entity—National Aviation Co. of India Limited with the hope that combined financials and expertise could redeem the firms. On the contrary several HR and operational issues surfaced which contributed to more losses. So much so that a separate committee headed by Justice Dharmadhikari was set up to resolve the HR issues. In 2011 the CAG called the merger ill-timed and ill-prepared. Despite the challenges measures were taken to revive the airline. For instance in 2012 a turnaround plan was approved which required equity infusion of Rs 30231 crore over a period of 10 years. Till the end of FY 2017 the government had already released Rs 26545 crore however the total loans of Air India stood at Rs 48477 crore.

Attempt to revive privatisation: Modi I and II

When the Narendra Modi government came to power a popular speculation was that it would revive the legacy of the Vajpayee-led privatisation era. One of the firms on the block was Air India. In May 2017 NITI Aayog proposed Air India and its five subsidiaries for strategic sale. Soon Cabinet approval was granted which led to the constitution of a special body the Air India Specific Alternative Mechanism to hive-off the surplus assets to a shell company before privatisation.

In March 2018 after a lull of almost two decades the second attempt was made to privatise Air India. Not a single bidder showed up to buy the debt-laden company. Faced with embarrassment the government was quick to respond to the market sentiments. Substantial changes were made to sweeten the deal. For example transfer of half of the losses to a newly created SPV namely Air India Assets Holding Ltd change in valuation norms to freeze the debt at Rs 23286.5 crore offer of 100 percent equity (earlier offer was 76 percent) promise to indemnify buyer against contingent liabilities and payment of certain contentious employee dues before closure of the transaction.

With such massive changes in place a confident third announcement was made in January 2020. But the outbreak of the pandemic wiped out the entire year. After multiple extensions the deal spilled over to the next fiscal year (2021-22). In the meantime Cairns had sued Air India (as an agent of the Indian government) to enforce an arbitral award in a separate tax dispute against India. It was only after the government’s assurance to settle the claims that Cairns obtained a stay on the proceedings.

Going forward

Given the chequered track record Indian private airlines have privatisation of Air India may not ensure its redemption. But that does not justify the government running a business or keeping a bleeding firm alive forever causing huge losses to the exchequer. When the government has limited resources and state capacity it must cautiously allocate both of them. Lack of such prioritisation may lead to cases like Air India. In the last two decades an avalanche of political economy and red-tape has often hijacked the attempts to privatise Air India. Perhaps this time if the deal takes off economic sanity would prevail.

The writer is a public policy consultant at NCAER a Delhi-based think tank. Views expressed are personal.

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