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The great water paradox

India’s relatively wet climate offers hope even in today’s dire situation. What is needed is the enforcement of programmes aimed at conserving our most precious resource

Water water everywhere/ Nor any drop to drink.” These words from an evocative poem by the famous 18th century English poet Samuel Coleridge echo the helplessness of a harried sailor his ship stranded in the middle of the sea but with no water to drink as all supplies on it have been exhausted. The sailor’s desperate cry uttered over 300 years ago seems to ring an ominous bell in India today as the country battles extreme water scarcity in several regions alongside extensive flooding in many others. This ironical situation is the result of prolonged water mismanagement leading to depleted groundwater levels coupled with a waxing and waning monsoon.

The change in monsoon patterns across the country has been causing significant rain deficit in Uttar Pradesh Chhattisgarh Rajasthan Maharashtra and Delhi over the last decade as compared to historical rainfall averages. In other States like Assam Bihar and Kerala floods caused by an aggressive monsoon are leaving behind a trail of death and destruction. The first casualty of the disruption in rainfall is agriculture as an estimated 49 per cent of India’s farms depend solely on rain for irrigation. According to the Economic Survey 2017-18 farmers without access to irrigation lose nearly 14 per cent of their income because of rainfall shocks. And among those who are able to irrigate their fields 62 per cent rely exclusively on groundwater. Since groundwater is replenished only through rain seeping into the ground the vagaries of the monsoon lead to a vicious cycle of drought-ridden fields and rapidly depleting aquifers across the country with the depth of access to groundwater plunging from 7.5 m in 1998 to 9.2 m in 2018.

A 2012 World Bank report on groundwater exploitation in India asserted that the country recorded the highest dependence on water from aquifers globally. While 90 per cent of this groundwater is used for irrigation the remainder is used to supply drinking water. Highlighting over-exploitation of 29 per cent of groundwater blocks the report predicted a 60 per cent rise in this figure in 20 years with serious implications for agricultural sustainability food security and economic growth.

However the crisis is almost upon us much before the World Bank’s deadline. In June 2018 the NITI Aayog had predicted that the demand for potable water would completely outstrip supply by 2030 in the absence of any urgent action. Even more alarmingly 21 cities including Delhi Bengaluru Chennai and Hyderabadwould run out of groundwater as early as 2020 affecting 100 million people and leading to an estimated six per cent loss in GDP by 2050.

Another complication is the impact of excessive groundwater extraction on water quality as water collected from deeper underground is more likely to be contaminated with harmful chemicals like arsenic nitrate and fluoride. An even graver food crisis looms on the horizon because when irrigation wells go dry farmers use untreated wastewater laced with industrial chemicals and human sewage for watering their food crops which eventually find their way into our kitchens. It is obvious that India is sitting on a potential “water” bomb threatening public health by unleashing a spectre of diseases among its over-populated and under-resourced habitations.

How did India venerated as a land of rivers and holy waters since primordial times achieve this disconcerting status of a nation riddled with water deficiency and toxicity? “After 1990 cities in India have grown rapidly but without considering where the resources are coming from” says Samrat Basak Director of the World Resource Institution (WRI) India’s Urban Water Programme. Reflecting on the social impact of the water crisis VK Madhavan Chief Executive of the non-profit WaterAid India contends that soon young girls especially in rural areas might start dropping out of school en masse to help their families fetch water from increasingly remote water access points. This warning is corroborated by data from the India Human Development Survey (IHDS) a nationally representative survey covering 41554 households in 1503 villages and 971 urban neighbourhoods across India jointly conducted by the National Council of Applied Economic Research (NCAER) and University of Maryland the US in 2004-05 and 2011-12. IHDS found that only 44 per cent households had access to piped water with the figure going up by merely four per cent between 2004 and 2012. The IHDS findings also show a substantial decline in the duration of water availability — from 5.3 per cent in 2003-04 to 3.8 per cent in 2011-12 — for households with piped water in metro cities. Consequently households without indoor water sources spend precious time collecting water at an average of 80 minutes per day extending to even three hours for about 10 per cent of these households. How will the economy counter this time burden and huge opportunity cost?

Compelled to take cognisance of the water crisis the Government decided to prioritise water management in the latest Union Budget to ensure provision of potable water throughout the country by 2024 under the proposed “Har Ghar Jal” scheme. Union Finance Minister Nirmala Sitharaman also announced the formation of a new Ministry the Jal Shakti Ministry by merging the Ministries of Drinking Water and Water Resources and River Development and Ganga Rejuvenation for overseeing all water-related issues. The Government has identified 1592 blocks in 256 districts facing acute water scarcity and over-exploitation of groundwater as prospective locations for rainwater harvesting and water conservation in the first phase.

Other initiatives including renovation and re-use of traditional water bodies and watershed development are slated for the next phase. The Union Budget 2019-20 also allocated Rs 9150.36 crore for the National Rural Drinking Water Programme marking a massive increase of 69 per cent over the allocation of Rs 5391.32 crore in 2018-19.

Water conservationists and experts are however not impressed dismissing the Budget provisions as a “pipe dream”. Raman VR Head of Policy at the NGO WaterAidIndia posits that in 2017 the Ministry of Drinking Water and Sanitation itself estimated the need for Rs 500000 crore for providing piped drinking water to all households. Even if States contribute half this amount the annual requirement till 2024 would be over Rs 60000 crore to cover hardware human resources infrastructural operations and maintenance costs. Where will these funds come from?

“There is no evidence to suggest that merely enhanced spending will increase both water supply and the net area under irrigation” says Dr Biksham Gujja former head of water policy at WWF-International and founder of AgSri a private organisation promoting sustainable agriculture and water resources management. He argues that the Jal Shakti Ministry should instead focus on developing tools and technology for efficient hydrological management.

On an optimistic note India’s relatively wet climate even in the most arid regions offers hope even in today’s dire situation. What is needed is efficient and wider implementation of programmes for rainwater harvesting development of water storage bodies like ponds and reservoirs promotion of water re-use and recycling and better filtration techniques for de-contaminating potable water across the country. And these solutions need to be enforced now — the time for long-term planning has run out!

Coleridge’s hapless mariner survived the challenges at sea presumably finding clean water at the end of his ordeal. But will the rising tide of India’s population be equally fortunate?

(The writer Anupma Mehta is Editor at the National Council of Applied Economic Research. Views expressed are personal)

Economic Graffiti: What is to be done about growth

Arvind Subramanian’s paper ‘India’s GDP Mis-estimation’ published in June this year caused a lot of controversy. I was initially sceptical of his argument. But now having heard him at the India Policy Forum at NCAER on July 10 where he presented more data on India’s slowdown I am convinced about the significance of his research. The lessons I take away from his papers and new work are not exactly the ones he would emphasise but the general message is important for India and the nation’s policymakers.

What he showed was if you take 17 major items like electricity consumption and airline traffic that correlate well with India’s growth and track them you will see that their growth slows down after 2011-12 and drops substantially below levels consistent with the official GDP growth. This leads him to conclude that India’s recent GDP growth is slower by as much as 2.5 percentage points from what the official data suggest.

I do not think that India’s GDP computation has obvious flaws. What the divergence demonstrated by Subramanian reveals instead is underlying disturbances in the economy. India’s economy has many fundamental strengths and is capable of taking on this challenge but it requires skillful policy maneuvers. Before I go into this let me point to some evidence beyond that in Subramanian’s paper which are signals of an impending slowdown.

To start with a little history the first time India’s GDP growth rate crossed the 9 per cent mark was in 1975 the year of India’s Emergency. It is possible that the shock of the Emergency caused this growth spike. Before anyone jumps to the conclusion that authoritarianism is good for growth let me point out that the following year growth slumped to 1.2 per cent and by 1979-80 it had dropped to negative 5.2 per cent which is the lowest recorded growth in India since 1947. While it is true that there are some examples of authoritarian regimes leading to high growth (China being the most prominent) there is overwhelming evidence from history of dictatorial control leading to disaster.

India’s true transformation occurred after 1993 when growth became stably high and foreign exchange reserves rose exponentially. The economy’s most remarkable period was 2003 to 2011 when annual GDP growth was approximately 8.5 per cent. Within this the most significant stretch was from 2005 to 2008 when India grew by over 9 per cent each year.

The slowdown began in 2012 reversed in 2015 but over the last two years it has slowed again. The last official quarterly growth data pertaining to the first quarter of 2019 shows GDP growth to be at 5.8 per cent. The examination of micro data suggests a genuine risk of a further slowdown in the short run. It is time for policymakers to sit up.

Subramanian already pointed to the fact that from 2011-12 to 2017-18 India’s export growth was zero per cent. Six consecutive years of average zero per cent growth in exports does not augur well. For emerging economies raring to grow exports are important. During the same period Vietnam’s exports grew over 300 per cent.

Of as much concern since this is one of the big drivers of growth for developing countries is the performance of investment rates the percentage of GDP that consists of expenditure on items like infrastructure machines and technology. All the Asian super-performers had investment rates over 35 per cent. India crossed the 30 per cent line in 2004. This had never happened before and was quite a landmark for the nation. By 2007-8 India’s investment rate had reached 38.1 per cent putting India in the Asian super-performer league. Unfortunately it has fallen steadily and is now back to just above the 30 per cent line.

Turning to other micro data India’s automobile sector is stalling and the balance sheets of Indian corporations have worsened. Companies’ combined borrowings were up 13.2 per cent in FY19 but their net worth did not rise comparably. Another figure is the relationship between home prices and buyer incomes. According to the RBI house price to income ratio has risen from 56.1 in March 2015 to 61.5 in March this year. This in itself is not a problem but if home prices make a downward correction this can cause general demand to stall.

What should the government do to ward off short-run risk and strengthen long-run sustainable development? For the former it is time for some Keynesian demand boost. We should be prepared to make a measured increase in fiscal deficit for a year or two. This will boost demand for goods and be a much-needed shot-in-the-arm for India’s firms and farms. If the extra expenditure is directed at the poor and the agriculture sector that will help those who need it most. Another item on which the government can step up expenditure is on building infrastructure. This can simultaneously boost demand and raise investment.

Turning to more long-run matters we must continue to cut bureaucratic costs. It is true that important steps have been taken in the last three years such as the new Insolvency and Bankruptcy Code 2016. There are also improvements in the ease of doing business. However the latter was done mainly to appease the World Bank by taking steps exactly on indicators that the World Bank tracks. What is needed is to cut the culture of permissionism. There is a reason governments allow this to persist. If citizens and businesses do not have to repeatedly turn to the government for permission this clips the government’s power and most governments have a tendency to resist this.

Finally the long run belongs to nations that promote higher education creativity and scientific temper. Among developing nations India was an outstanding performer on these scores. This advantage has been eroding in recent years. I hope we will have the sagacity to reverse the trend.

The writer Kaushik Basu is C. Marks Professor at Cornell University and former Chief Economist and Senior Vice President World Bank.

An unimpressive budget after the massive electoral mandate

India had an opportunity to take major initiatives but what the bureaucracy gave us is just another incremental budget

The Bharatiya Janata Party’s massive electoral mandate provided a great opportunity for introducing major fiscal and other initiatives through the budget. Unfortunately that opportunity has been missed.

Following her meteoric political rise finance minister Nirmala Sitharaman had barely a few weeks to come to grips with her enormously complex portfolio before the budget was presented. Much of the detailed work on the budget had probably been completed by the time she took charge. Prime Minister Narendra Modi’s penchant for game-changing schemes notwithstanding that is not in the DNA of bureaucrats. Hence the North Block mandarins have given us a largely incremental and pedestrian budget. That said there are features of the budget that need discussion.

Regarding the fiscal stance most others and I had assumed that the government would go on a spending spree prior to elections and breach the 2018-19 fiscal deficit (FD) target. It was breached but only marginally at 3.4% of gross domestic product (GDP) as against the target of 3.3%. This was despite tax revenue growth (Centre’s share) of only 6% down from 12.8% in 2017-18. The deficit was mainly contained due to significant expenditure compression. Revenue expenditure in particular grew by 6.9% in 2018-19 down from 11.1% a year earlier quite remarkable for an election year. But it is also one of the factors that contributed to the growth slowdown in 2018-19.

For 2019-20 the FD target has been set at 3.3%. But tax revenue (Centre’s share) has been assumed to grow by 11.1% way higher than the 6% growth achieved in 2018-19. Hence the FD target is likely to be breached again. Not necessarily a bad thing when headline inflation is low there is a positive output gap with high unemployment and the yield on government securities has seen a sharp decline. Alternatively we could again have significant expenditure compression with a further adverse impact on growth.

On the receipts side non-tax revenues are budgeted to grow by over 27% similar to what was achieved in 2018-19. This includes a whopping 37% increase in dividends and profits from public institutions mainly the Reserve Bank of India (RBI). Hopefully it does not entail dipping into past RBI surpluses pending submission of the Jalan Committee report.

The target for capital receipts from public sector disinvestment is ₹1.05 trillion. This figure may be achievable given the successful disinvestment record of 2017-18 and 2018-19. But selling public sector assets to mostly finance current expenditure is like selling property to meet daily household expenses. The central government’s finances are surely not in such a parlous state.

Planned capital receipts will also include market borrowings of over ₹4.48 trillion of which about 10% is proposed to be raised as foreign currency loans. This is an unprecedented and bold move but also risky. I wonder why the government did not opt for rupee-denominated foreign borrowing or so called masala bonds which would have reduced domestic crowding-out without incurring any exchange rate risk.

Turning to tax receipts income tax and goods and services tax which account for about half of total tax revenue are projected to grow at modest rates of 7% to 8%. But the other half—mainly corporation tax customs duties and central excise—are expected to grow at much higher rates of between 14% and 20%. The basis of these asymmetric buoyancy assumptions is not clear.

One very disappointing aspect of the budget not much commented upon is the continuing reversal of hard-won tariff reforms and the return to discretionary annual tampering with tariff rates. Import duties have been changed for 45 different tariff lines along with further changes in export duties cesses etc.

On the expenditure side the structure of spending remains heavily skewed in favour of infrastructure (22%) as compared to social services (below 5%) and it is still thinly spread over a huge number of central and centrally sponsored schemes. The reform urgently required here is to strip it down to just a few high-priority schemes and fund them generously. In this regard the integration of all water-related departments including drinking water and sanitation in the Jal Shakti ministry is an excellent move. It enables a comprehensive policy response to India’s most urgent natural resource crisis namely water.

Another priority scheme is Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) now extended to all farmers with a budget allocation of ₹75000 crore. Though the income support per farmer-household is small at ₹6000 per year it is a very important beginning. In a paper presented at the National Council of Applied Economic Research (NCAER) India Policy Forum on 8 July Maitreesh Ghatak and Karthik Muralidharan argued that building on this programme India could move towards an unconditional universal income transfer scheme that would directly reduce poverty eliminate the administrative burden and high cost of targeting and plug leakages as well as errors of inclusion or exclusion among other benefits.

Proposing such a programme called the Inclusive Growth Dividend (IGD) programme they say it may be anchored at 1% of GDP. As such per capita income support would rise in a fiscally sustainable manner as the economy grows. Can India afford such a programme? As I had explained in an earlier column in this paper on 19 April unwarranted “non-merit” subsidies currently eat up nearly 6% of our GDP. Appendix 7 of this year’s receipts budget confirms that revenue forgone on tax exemptions and concessions eat up another 5% of GDP. Merely tweaking them would yield the 1% of GDP required for IGD.

Clearly there are no political administrative or fiscal constraints for expanding PM-Kisan into a flagship IGD programme which could set a global standard for welfare programmes in developing and emerging market economies.

Sudipto Mundle is a distinguished fellow at the National Council of Applied Economic Research

A demographic window of opportunity: on population and policy

In India investing in the laggard States will ensure their role as being the greatest contributors of the future

Last month the United Nations released the 26th revision of World Population Prospects and forecast that India will overtake China as the most populous country by 2027. The only surprise associated with this forecast is the way it was covered by the media. Is this good news or bad news? Is it news at all?

Is this news? Not really. We have known for a long time that India is destined to be the most populous country in the world. Population projections are developed using existing population and by adjusting for expected births deaths and migration. For short-term projections the biggest impact comes from an existing population particularly women in childbearing ages. Having instituted a one-child policy in 1979 China’s female population in peak reproductive ages (between 15 and 39 years) is estimated at 235 million (2019) compared to 253 million for India. Thus even if India could institute a policy that reduces its fertility rate to the Chinese level India will overtake China as the most populous country.

The element of surprise comes from the date by which this momentous event is expected. The UN revises its population projections every two years. In 2015 it was predicted that India would overtake China in 2022 but in the 2019 projections it is 2027. The UN has revised India’s expected population size in 2050 downward from 1705 million in 2015 projections to 1639 million in 2019 projections. This is due to faster than expected fertility decline which is good news by all counts.

Like it or not India will reign as the most populous country throughout most of the 21st century. Whether we adjust to this demographic destiny in a way that contributes to the long-term welfare of the nation or not depends on how we deal with three critical issues.

Population control

First do we need to adopt stringent population control policies? History tells us that unless the Indian state can and chooses to act with the ruthlessness of China the government has few weapons in its arsenal. Almost all weapons that can be used in a democratic nation have already been deployed. These include restriction of maternity leave and other maternity benefits for first two births only and disqualification from panchayat elections for people with more than two children in some States along with minor incentives for sterilisation.

As demographer Judith Blake noted people have children not birth rates and few incentives or disincentives are powerful enough to overcome the desire for children. Ground-level research by former Chief Secretary of Madhya Pradesh Nirmala Buch found that individuals who wanted larger families either circumvented the restrictions or went ahead regardless of the consequences. As one of her informants noted “The sarpanch’s post is not going to support me during my old age but my son will. It does not really matter if I lose the post of sarpanch.”

Second if punitive actions won’t work we must encourage people to have smaller families voluntarily. There are sharp differences in fertility among different socio-economic groups. Total Fertility Rate (TFR) for the poorest women was 3.2 compared to only 1.5 for the richest quintile in 2015-16. To get to TFR of 1.5 a substantial proportion of the population among the top 40% must stop at one child.

In western societies low fertility is associated with the conflict that working women face between work and child rearing and the individual’s desire to enjoy a child-free life. Not so for Indian couples. In India couples with one child do not consume more nor are women in these families more likely to work. My research with demographer Alaka Basu from Cornell University shows that it is a desire to invest in their children’s education and future prospects that seems to drive people to stop at one child. Richer individuals see greater potential for ensuring admission to good colleges and better jobs for their children inspiring them to limit their family size. Thus improving education and ensuring that access to good jobs is open to all may also spur even poorer households into having fewer children and investing their hopes in the success of their only daughter or son. Provision of safe and easily accessible contraceptive services will complete this virtuous cycle.

Population and policy

Third we must change our mindset about how population is incorporated in broader development policies.

Population growth in the north and central parts of India is far greater than that in south India. What should we do about the old policies aimed at not rewarding States that fail to control population growth? These policies include using the 1971 population to allocate seats for the Lok Sabha and for Centre-State allocation under various Finance Commissions. In a departure from this practice the 15th Finance Commission is expected to use the 2011 Census for making its recommendations. This has led to vociferous protests from the southern States as the feeling is that they are being penalised for better performance in reducing fertility.

There is reason for their concern. Between the 1971 and 2011 Censuses the population of Kerala grew by 56% compared to about 140% growth for Bihar Uttar Pradesh and Madhya Pradesh. A move to use the 2011 Census for funds allocation will favour the north-central States compared to Kerala and Tamil Nadu.

However continuing to stay with a 1971 Census-based allocation would be a mistake. Cross-State subsidies come in many forms; Centre-State transfers is but one. Incomes generated by workers in one State may also provide the tax revenues that support residents in another State. The varying pace of onset and end of demographic transition creates intricate links between workers in Haryana today and retirees in Kerala and between future workers in Uttar Pradesh and children in Tamil Nadu.

Demographic dividend provided by the increasing share of working age adults is a temporary phase during which child dependency ratio is falling and old-age dependency ratio is still low. But this opportunity only lasts for 20 to 30 years. For States such as Kerala and Tamil Nadu which experienced fertility decline early this window of opportunity is already past.

As the United Nations Population Fund estimates over the next 20 years the window of opportunity will be open for moderate achievers such as Karnataka Haryana and Jammu & Kashmir. As the demographic window of opportunity closes for these States it will open for Uttar Pradesh Bihar and other States that are the last to enter fertility transition. This suggests that workers of Bihar will be supporting the ageing population of Kerala in 20 years.

The focus areas

In order to maximise the demographic dividend we must invest in the education and health of the workforce particularly in States whose demographic window of opportunity is still more than a decade away. Staying fixated on the notion that revising State allocation of Central resources based on current population rather than population from 1971 punishes States with successful population policies is shortsighted. This is because current laggards will be the greatest contributors of the future for everyone particularly for ageing populations of early achievers. Enhancing their productivity will benefit everyone.

It is time for India to accept the fact that being the most populous nation is its destiny. It must work towards enhancing the lives of its current and future citizens.

Sonalde Desai is Professor of Sociology University of Maryland and Professor and Centre Director NCAER-National Data Innovation Centre. The views expressed are personal

Dr G C Manna, Senior Adviser NCAER appointed to the National Statistical Commission

New Delhi (Wednesday July 10 2019):  Dr Gurucharan Manna Senior Adviser at NCAER and former Director General of CSO and NSSO Government of India has been appointed a member of the National Statistical Commission.  Dr Manna has nearly 40 years of specialized experience in sample design estimation procedures for household and establishment surveys and the design of survey questionnaires and related documents for fieldwork and data validation.

More details…

Dr Manna is a member of the Ministry of Statistics Standing Committee on Labour Force Statistics the Working Groups of the NSS 75th and 76th Rounds the NSSO’s Standing Committee on Labour Force Statistics and the Labour Bureau’s Expert Group on the Quarterly Employment Survey.

As it so happens Dr Manna was a featured panellist today at the NCAER’s 16th India Policy Forum 2019 for a session on “An Employment Data Strategy of India” presented by Radhicka Kapoor of ICRIER.  On this NCAER panel chaired by Mr Pravin Srivastava Secretary MoSPI Dr Manna highlighted the need to retain the practice of administering a detailed questionnaire for the Employment-Unemployment Survey along with the Periodic Labour Force Survey (PLFS) on a regular basis.  Dr Manna also spoke about the importance of taking concrete steps for improving the quality for population estimates by collecting aggregates of population estimates in the surveys. 

Chairing this session on the closing day of NCAER’s three-day India Policy Forum 2019 Mr Pravin Srivastava Secretary MoSPI said “Data is a public good and the Ministry needs the cooperation of all stakeholders as well as the research community to ensure its widespread and efficient use.” He added that the Ministry is taking a number of steps towards revamping the system and creating a division on data quality assurance to help resolve all data-related issues in the next few years. The data is now available free of charge despite the huge cost involved in the process and urged the research community to cooperate in helping MoSPI strengthen the institutional framework of data collection. 

NCAER is delighted that one of its Senior Advisers will be part of the National Statistical Commission and will continue to contribute to official statistics on this apex policymaking body. 

NCAER is hosting it’s 16th India Policy Forum (IPF) from Monday July 8 through Wednesday July 10 2019 at its new T2 Auditorium at the NCAER India Centre in New Delhi.  It is facilitating lively debate and discussion of the key economic challenges facing the nation all based on rigorous research by some of the best economists worldwide working on India. Over 35 presenters and discussants are deliberating on five IPF research papers selected and reviewed by the IPF Editors. 

The IPF will conclude this  evening with a panel discussion on Validating India’s GDP Growth Estimates moderated by T. N. Ninan of the Business Standard and featuring Arvind Subramanian (Kennedy School) Pronab Sen (former Chief Statistician of India) and Sebastian Morris (IIM-Ahmedabad).

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