📰 Economics Nobel for Abhijit, two others
They were awarded “for their experimental approach to alleviating global poverty”
•The Royal Swedish Academy of Sciences has decided to award the 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, popularly called the Nobel Prize in Economics, to Abhijit Banerjee, Esther Duflo, and Michael Kremer “for their experimental approach to alleviating global poverty”.
•While Dr. Banerjee and Dr. Duflo are both affiliated with the Massachusetts Institute of Technology, Dr. Kremer is with Harvard University. The three will equally share the prize money of 9 million Swedish krona (about $916,798 and ₹6.53 crore).
•“The research conducted by this year’s laureates has considerably improved our ability to fight global poverty,” the Royal Swedish Academy of Sciences said in a release. “In just two decades, their new experiment-based approach has transformed development economics, which is now a flourishing field of research.”
Reliable answers
•The laureates have, since the mid-1990s, sought to introduce a new approach to obtaining reliable answers about the most effective ways to combat global poverty. Rather than focussing on big-picture questions, they divided the issue into smaller, more manageable and measurable questions.
•They then showed that these smaller questions could be best answered through carefully designed experiments among the people who are most affected. This thought process has resulted in what are called randomised control trials, previously used in the pure sciences and in clinical drug trials, to be deployed in the social sciences.
•“As a result, we now have a large number of concrete results on specific mechanisms behind poverty and specific interventions to alleviate it,” said the technical paper, accompanying the announcement. “For example, on schooling, strong evidence now shows that the employment of contract teachers is generally a cost-effective way to improve student learning, while the impact of reduced class size is mixed, at best.”
•“On health, poor people’s investment in preventive care has been shown to be very sensitive to the prices of health products or services, giving a strong argument for generous subsidies to such investments,” the paper added. “On credit, growing evidence indicates that micro-finance programmes do not have the development effects that many had thought when these programmes were introduced on a large scale.”
•Dr. Banerjee and Dr. Duflo, who are incidentally married to each other, have had a long history of conducting research together, often collaborating with Dr. Kremer as well.
•One of the major findings by Dr. Banerjee and Dr. Duflo was that, in developing countries, there is often a stark difference between the technology and practices used by companies within the same economy and sector. That is, in developing economies, some companies use the latest technology and practices, while others in the same country and sector use outdated production methods. This within-sector differences are less stark in developed economies, they found.
•“Banerjee and Duflo further argued that these misallocations can be traced back to various market imperfections and government failures,” the paper said. “Hence, a core step in understanding, and ultimately alleviating, poverty is to identify sources of the observed inefficiencies as well as policies that could address them.”
•Dr. Banerjee was born in 1961 in Mumbai, India. He completed his Ph.D in 1988 at Harvard University, having previously studied at the Jawaharlal Nehru University, New Delhi, and Presidency College, which was then affiliated with the University of Calcutta. He is currently the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology (MIT).
•The Supreme Court on Monday asked the Centre and state governments to file reply on a plea seeking direction to establish Right to Information (RTI) web portals in all states to enable citizens, especially those living abroad, to file RTI applications online.
•A bench headed by Justice NV Ramana asked them to file a reply in two weeks and the petitioner to file a rejoinder thereafter. It said that no further adjournment would be granted to the parties. The order was passed on a plea filed by Pravasi Legal Cell contending that none of the states, except Delhi and Maharashtra, have set up the online RTI portals.
•Under the RTI Act, any citizen of India may request information from a public authority which is required to reply within thirty days.
📰 Looking beyond the Rafale
Even as the Indian Air Force gets ready to welcome its new acquisitions, ad hocism should give way to strategic thinking
•On October 8, 2019, the first Rafale fighter aircraft for the Indian Air Force (IAF) was handed over to Defence Minister Rajnath Singh in France. This milestone is the latest in a series of much-needed yet perennially delayed steps to bolster the IAF’s combat capabilities. The IAF has historically been one of the best-equipped forces in the region, but has seen its advantage, particularly quantitative, against China and Pakistan narrow dramatically over the past two-odd decades. The IAF is today faced with the twin tasks of having to acquire technological superiority over its two adversaries, as well as mustering enough aircraft to head off any collusive misadventures.
•On the technological front, the Rafale jet brings to the table an unprecedented air-to-air capability in the form of the MBDA Meteor missile, as well as a new long-range precision strike capability with the MBDA’s SCALP air-launched cruise missile. The aircraft also finally provides the IAF with a combat platform that is more completely and tightly integrated by the original equipment manufacturer, rather than any number of modified and upgraded aircraft presently in service. The Indian government is paying top dollar to Dassault to not only modify and certify the aircraft to an exacting specification but also to stand by its reliability in service — something that has never been done with a fighter aircraft in Indian service to date.
•Going by past operational experience and certain common factors in aircraft upgrade programmes and acquisitions such as the Rafale, some key aspects of IAF thinking are revealed. A preference for integrated and ideally self-contained electronic warfare suites, for example, along with a requirement for open architecture avionics are clear. The former is self-explanatory, while the latter would allow for integration of a range of imported and indigenous weaponry at a lower cost by doing the expensive flight trials in India itself.
Indigenous option
•Unfortunately, air power is an expensive business, and in a scenario where manpower and running costs consume the lion’s share of the budget, the principal impediment to a comprehensive renewal of the IAF is a financial one. As such, lower capital costs and lower sustainment costs have to go hand in hand — it is simply not enough to argue that expensive western aircraft make up for their high upfront costs over lifetime sustainment. Enter the indigenous option — HAL’s Tejas Light Combat Aircraft. Domestically produced and paid for mostly in rupees, it is not only fiscally attractive but also certainly good enough to replace the IAF’s ageing MiG-21 and MiG-27 fleet as it stands. However, non-compliance with a 1980s Air Staff Requirement and low production rates continue to raise questions about the type’s future. Notwithstanding these concerns, the IAF has committed to a large number of an upgraded evolution of the type incorporating a range of modern improvements such as an active array radar as well as fixes to problems identified early on, such as lack of a self-protection jammer. If this variant can be delivered cheaply and quickly, it will arrest the dramatic hollowing out of the IAF that is anticipated to take place around 2024-25, by which time some 100 aircraft could be withdrawn from service.
Budgetary support
•In the middle of the French import and the domestic LCA sits a fledgling tender for a third type of fighter — a foreign design to be made in India under the controversial Chapter 7 of the 2016 Defence Procurement Procedure (DPP). Where the budgetary support for a programme of 114 modern fighters, and indeed the ability of the country to establish and sustain two fighter manufacturers, will come from is not clear. Defence budgets have remained effectively flat for a long time, and with the economy flagging, an increase in capital outlay is not likely. Procurement funding will also necessarily have to compete with funding for research and development for upcoming domestic projects such as the redesigned LCA Mk.2 and fifth-generation Advanced Medium Combat Aircraft (AMCA).
•Finally, even if all near-term procurements proceed to plan, there is still a ‘ramp up’ period to contend with — the training of air and ground crew, building of infrastructure and actually operationalising new types will pose their own challenges that will slow the effective rate of force accretion.
📰 FASTags will work as Aadhaar to track vehicles, says Nitin Gadkari
Will reduce fuel loss at tolls: Gadkari
•Union Minister Nitin Gadkari on Monday called FASTags — a device to make automatic payments at toll booths — the equivalent of Aadhaar for vehicles, which will allow the government to track their movement across the country.
•The government has already announced that FASTags will be mandatory for all vehicles at all National Highways from December 1.
•On Monday, speaking at the One Nation-One FASTag conference, the Minister appealed to all States to adopt the technology so that the entire system can come under the National Toll Collection programme of the Ministry of Road Transport and Highways. Users of State Highways, too, can avoid long queues and benefit from seamless travel, he added.
•“Cameras at toll booths will take photos of passengers in a vehicle, which will be useful for the Ministry of Home Affairs as there will be a record of a vehicle’s movement,” Mr. Gadkari said, adding that it was an equivalent of Aadhaar.
•A FASTag uses Radio Frequency Identification (RFID) technology to make cashless payments through a prepaid account linked to it. The tag is fixed to the windscreen of a vehicle and an RFID antenna in the canopy of the toll gate scans the QR code and the tag identification number, following which the boom barrier lifts to allow a vehicle to pass through it without the need for a vehicle to stop.
•The Minister mentioned that cameras will capture the images of vehicles, but officials involved with the initiative explained that it is the FASTag that will help track vehicles.
•“A FASTag is linked to a bank account. When a vehicle passes through a toll, an SMS with date, time and place of transaction will be sent to the owner of the vehicle. The master data of all transactions will be with the concessionaire of the toll booth concerned, along with the bank with which the owner has registered the FASTag and the National Payments Corporation of India,” officials said.
•The Minister was quoted in a press statement saying that FASTags are “likely to reduce the nation’s GDP loss by bringing down loss of fuel while waiting at toll plazas.” FASTags are acceptable across 490 National Highways out of the total 527. These can also be used at nearly 39 State Highways. So far there are six million users in the country.
📰 Financial stability and the RBI
The slowing of the economy suggests that the central bank’s stance on inflation may have impacted growth
•The Reserve Bank of India (RBI) recently carried out its mandatory bi-monthly announcement on the future course of monetary policy. These announcements ostensibly offer ‘forward guidance’ to economic participants, so that they may plan their future. Arguably, though, the public would have perhaps been more interested in knowing how the RBI intends to respond to the unusually large number of instances of fraud that have surfaced in the financial sector of late. The RBI’s reputation as a regulator has been affected by these. What led the bank to this place needs understanding.
Role of a central bank
•Central banks command an important position in the market economies of the West today. How in a democracy so much power could be ceded to an unelected body must itself come as a surprise. It reflects two things: the political power of financial interests in the U.S. economy and the global intellectual influence of the American economic model. This model revolves around the goal of maximum creation of wealth by private individuals unimpeded by societal objectives. Leave alone the distribution of income, not even the objective of ensuring stability of the economy is allowed to come in the way of private individuals pursuing wealth enhancement.
•Public regulation, which sets limits to private activity, is rejected as an unnecessary interference in beneficial activity that maximises social gain, and is therefore to be avoided. When applied to finance, this model requires of the government only one action, namely, the control of inflation. Now, it is difficult to see why anticipated inflation, being an increase in all prices at the same rate, is harmful to production, the basis of an increase in wealth. After all, when prices rise together, no one individual is worse off if the inflation has been perfectly anticipated. It is unanticipated inflation that is the problem for producers, as it has the potential to derail their profit calculations. However, inflation, even when fully anticipated, can harm holders of financial assets yielding fixed incomes by eroding their wealth.
•Borrowers on the other hand are better off with inflation as the real value of their outstanding loans are now less. While the problem of inflation can in principle be tackled through inflation-indexation, the practice is not widespread. This leaves owners of financial wealth averse to inflation.
Inflation control
•As the volume of financial wealth in an economy increases so does the power of its owners over government. Now inflation control tends to take centrestage in economic policy formulation. When inflation control is implemented via monetary policy it results in higher interest rates. Managers of financial wealth lobby for such a policy on behalf of their clients. This lobbying is the origin of the policy of inflation targeting. Inflation targeting by the central bank involves use of the interest rate to keep inflation under control. As it targets inflation it must let go of the employment objective. Though ‘flexible inflation-targeting’ is meant to take care of this objection, inflation is retained as the target and the central bank is not accountable for unemployment. In fact, in situations where growth, employment and inflation are jointly determined, and mostly they are, inflation-targeting via the interest rate can lower inflation only by suppressing growth. This is the mechanism by which inflation-targeting inevitably lowers growth. Is this an argument for leaving inflation unchecked? No, it isn’t. On the other hand it points to other means of keeping inflation low, which, as has been demonstrated for India, would take the form of checking food-price inflation.
•If inflation-targeting is essentially a response to the concerns of the financial sector, it tends to go with the view that the sector needs no particular regulation. This view was ascendant in the United States and the United Kingdom before the ‘North Atlantic Financial Crisis’ of 2008, so dubbed by Rakesh Mohan and Partha Ray to convey that its provenance is related to the policies pursued in that geography. Following this crisis, however, there has been substantial re-thinking on inflation-targeting and the role of central banks. Essentially it was recognised that lulled into complacence by low inflation, the U.S. central bank had ignored the possibility of financial instability. Instability had progressed due to the complete violation of the norms of prudence by U.S. investment banks and housing societies in a climate of relatively lax regulation. Alan Greenspan, the chairman of the U.S. Federal Reserve for 19 years, an arrangement seriously questionable in a democracy, was to acknowledge to a congressional committee that everything he had believed in regarding the functioning of the economy turned out to be false.
India’s hawkish stand
•In a monumental failure of the imagination, India’s policymakers adopted inflation-targeting as the defining function of its central bank, even as the rest of the world was reassessing its credibility. Though the switch was effected by legislation only in 2015, a hawkish inflation stance had emerged at the RBI some two years prior to that. The real interest rate swung upward by over 5 percentage points. Inflation did come down, but that it continued to decline even as the real interest did not do so commensurately belies the possibility that inflation-targeting alone is responsible for it. Commodity prices, both of oil and domestic agricultural goods, have grown slower since. Oil prices have actually been declining in certain phases, and would surely have had a direct impact on inflation. But the slowing of the economy after 2016, which we are still experiencing, suggests that inflation-targeting may have had an impact on growth. This would not be surprising at all.
•After the adoption of inflation-targeting in India, besides the slowing growth, we see the repetition of a pattern observed in the U.S. We have seen the appearance of stress in the financial sector. Following the rising non-performing assets, or NPAs, of public sector banks, we now see the emergence of instability in the private segment of the financial sector. The most prominent case is that of non-banking financial company, ILFS. While some part of the burden this company faced before it was rescued by the government of India may have been due to a slowing economy, there was evidence of malfeasance, which went undetected also in the cases of Punjab National Bank and the Punjab and Maharashtra Co-operative Bank (PMC Bank). Improper conduct was also evident in the cases of Yes Bank and ICICI Bank. Scenes of agitated depositors outside the PMC Bank’s office in Mumbai must have sent shivers down the backs of millions of Indians who have trustingly entrusted their hard-earned money to India’s banks, only to find their trust violated with impunity in pursuit of private gain. The latter would be unacceptable even if the act is not risky, which in the case of PMC Bank was extraordinarily so.
Financial instability
•The emergence of financial instability in India following the institution of inflation-targeting is in line with what we have seen in the Anglo-American economic area. In India, the virtual redefinition of the central bank’s functions appears to have encouraged the RBI to consider its work done once inflation is within target. Televised monetary policy statements every two months would be no more than a charade, if inflation slows for extraneous reasons, and a smokescreen, if financial stability has been compromised due to lax regulation of the financial sector.
•Even as the TV screens gurgle with news of some microscopic cut in the repo rate I see hapless vendors at Delhi’s swanky new airport scrambling for change. In the new India, the buck, it seems, stops nowhere.
📰 Framing laws for outer space
It is imperative that India’s legal prowess be applied to the situational complexities of space exploration
•Recently it was reported that the “world’s first space crime” may have been committed by a NASA astronaut, Anne McClain. She is suspected of signing into the personal bank account of her estranged spouse from a computer aboard the International Space Station (ISS). The law which is applicable to the case is the International Space Station Inter-Governmental Agreement (IGA). The drafters of this agreement had made provisions to meet such a contingency. Article 22 of the Agreement concerns itself with criminal jurisdiction and states that countries which are mentioned in the agreement may exercise criminal jurisdiction over personnel in flights who are their respective nationals. Hence, the laws of the U.S. will be applicable in this situation concerning the first space crime.
Questions remain
•On this occasion, the scientific and legal communities appear to have successfully evaded jurisdictional and procedural ambiguities. Nevertheless, a few questions remain. What will happen when legal issues that are beyond the foresight of existing agreements arise? What will happen when crimes take place on commercial space vehicles sent by private corporations, third-party nations, and jurisdictions not already covered?
•NASA executives recently announced that parts of the ISS will be opened up for more commercial opportunities. Such steps could provide a fillip to filming movies or commercials in space, space tourism, sending astronauts of space-ambitious countries into space, and much more.
•Although there are legal documents that govern space, such as the Outer Space Treaty, the Moon Agreement, the Registration Convention, the Rescue Agreement, and the Liability Convention, none of them comprehends a detailed framework to cater to criminal disputes that might arise on commercial space vessels, which will have personnel and space tourists from different jurisdictions. Space ambitions could lead to an increasing number of autonomous space stations established by countries such as India and China. Consider India’s space exploration ambition – ISRO is expected to become capable of sending Indians to the ISS owing to missions such as Mission Gaganyaan.
Framing visionary laws
•Are humans from different cultural, political and economic settings likely to stop committing crimes in space? In such a scenario, far-sighted laws are essential to cater to every situation of potential criminality that might occur.
•Consequently, it is not inconceivable that India then might have to become party to the IGA or contemplate a perceptive treaty with ISS nations to meet legal contingencies to dock its space vehicle there. If so, India will have to include provisions relating to offences in space in the Indian Penal Code, as that could be material in situations involving outer space, Indian citizens, and space equipment. India might also need to formulate new international agreements on space, or sign MOUs to that effect.
•The same national pride that emerged out of India’s ambitious plan to reach Mars on its first attempt must be blended with the formulation of visionary laws, clear of legal ambiguities, which cater directly to the needs of rapidly evolving space science. It is imperative, therefore, that India’s legal prowess is therefore applied urgently and rigorously to the situational complexities of space exploration. Only by keeping apace with the explosive growth in space technology can India hope to remain at the forefront of scientific development in this exciting field.
