HYDERABAD

THE HINDU

THURSDAY, DECEMBER 31, 2015

WORLD VIEW

After the storm, what

lies ahead for Britain?

PERSPECTIVE

Is the economy sick?

The Modi governments policy is choking domestic demand at a time when global
demand is also weak. This is hardly a recipe for double-digit growth

ANDREW WHITEHEAD

SALMAN ANEES SOZ

The New Years resolution required of all British political

pundits is... no more predictions. The past year has shown
commentators and opinion pollsters to have poorer forecasting skills than a pair of dice. The near universal view that last
Mays general election would lead to another hung Parliament
turned out to be well off the mark. David Cameron led the Conservative Party to its first clear-cut election victory since 1992, allowing him
to uncouple from his coalition partner and form a single-party government.

The title seems provocative. After all, for the last

several months, we have all
heard that India is now the
fastest growing large economy in the world. The Finance Minister keeps assuring us that the
countrys economic revival is on a firm
footing and that India is witnessing significant macroeconomic stability. The
Prime Ministers Make in India initiative,
the JAM (Jan Dhan, Aadhaar and Mobile)
trinity as well as the governments emphasis on ease of doing business are supposedly game changers. One gets the
feeling that the Indian economy is turbocharged and major progress is around
the corner. Yet, there are also reports of
many economists and analysts indicating
that economic growth doesnt feel that
robust. So, something doesnt feel right
and this feeling isnt going away. When
things dont feel right, perhaps we are
dealing with some sickness.
Before we proceed further with the diagnosis, let us understand the counterfactual. In other words, what does good
economic health look like? For this, let us
turn back the clock just a little bit. I reviewed data for 2005-06 to 2010-11, a sixyear period when economic growth averaged almost 9 per cent per year. By drawing a contrast with economic conditions
then with the current situation, we may
get a sense of what, if anything, is leading
us to feel that everything is not well
with the economy today.

2015, a year of surprises

The Conservatives overall majority in the House of Commons is slender
and (much as in India) they dont hold sway in the upper house of Parliament. That slightly tenuous hold on power has already prompted the government to backtrack on the more mean-minded of its planned tax and welfare reforms. But with opposition parties in wild disarray, Mr. Cameron can
more or less do as he pleases.
A still greater shock to conventional wisdom was the opposition Labour
Partys lurch to the left. It waved good bye to one unelectable, left-of-centre
leader, Ed Miliband, and chose in his place someone still more maverick and
to the left. Anyone who put a modest wager at the beginning of the campaign
on Jeremy Corbyn winning the Labour leadership would have had a very
merry Christmas indeed.
Mr. Corbyn has shown himself to be a resilient party leader. But he remains stuck in a time warp; he learnt his radicalism in the 1970s, and after
decades of enduring the derision of his fellow Labour MPs, hes finding it
difficult to lead the party rather than lecture it.
And then theres Scotland where the nationalists turned defeat in the
2014 independence referendum into a resounding triumph in the general election.
The Scottish National Party (SNP) held just
six of the 59 Scottish seats in the U.K.-wide
Westminster Parliament before May; it now
holds 56.
The SNPs personable leader, Nicola
Sturgeon the First Minister of Scotlands
devolved government (so, much like the
chief minister of an Indian state) shone
more brightly on the political stage in the
past year than any other British politician.
Shes too clever to call for another self-rule
referendum just yet but if the SNPs popularity endures, then a push for full independence cant be far away.
With so many surprises in 2015 you can
see why it would be rash to look ahead with any confidence to British politics in 2016. But in the certain belief that my predictions will be forgotten
long before they are proved wrong, let me put on the fortune tellers robes.

The Labour Party

will make much of
their opponents
putting up another
posh boy to lead
London, one of the
worlds most
diverse cities. I
expect the Labour
candidate to win

A calmer year ahead

I see a slightly calmer political year ahead, with all party leaders able to
claim some successes.
Scotland first where elections to the devolved parliament in the spring
will be an important indication of whether the nationalist surge has staying
power. I expect the SNP to win handsomely, but I also expect Labour to
bounce back from the drubbing it received in its former Scottish heartlands
last May and achieve a respectable vote.
On the same day, a new mayor of London will be elected, to replace the
outlandishly eccentric, and wildly popular, Boris Johnson, an Eton-educated
Conservative. The Conservatives have, bizarrely, chosen another old Etonian, Zac Goldsmith, as their candidate young, forward-looking, but
nothing like as wise and avuncular as Mr. Johnson. The Labour Party will
make much of their opponents putting up another posh boy to lead one of
the worlds most diverse cities. I expect the Labour candidate to win. Hes
Sadiq Khan, whose father, an immigrant from Pakistan, worked as a bus driver. The social contrast between the two candidates is about as stark as can
be, and Mr. Khan an experienced and effective politician is more in
tune with todays London. A Labour victory in this high-profile contest will
probably be enough to dissuade Mr. Corbyns critics in the party and that
includes most Labour MPs and shadow ministers from mounting a party
coup. I expect Mr. Corbyn still to be Labours leader in a years time.
The most absorbing election looming is the in-out referendum on continued membership of the European Union. David Cameron is hoping to
conclude talks about a new deal for Britain in the next few weeks and
while the referendum can be held at any time before the end of 2017, his clear
preference is a vote in the coming summer.
It could be bloody. The Conservative Party has for decades been deeply
split over Europe, and the euro meltdown and more recently the migrant crisis have sharpened the divisions. One prominent former minister, Liam Fox,
has already said he will campaign for an out vote; several serving cabinet
ministers are likely to do the same. If Mr. Cameron loses this referendum,
then his time as Prime Minister is over.
The Eurosceptics will have the support of the four million people who
voted in the general election for U.K. Independence Party, the right-wing
populists. The lets stay in campaign has the backing of the Liberal Democrats and Scottish nationalists and, more grudgingly, of the larger part of the
Labour Party.
And my prediction? However great the disdain for the EU, I believe most
British voters are even more worried about the prospect of political and economic isolation outside the European Union. I expect the referendum to decide that Britain stays in Europe and that David Cameron will still be
Prime Minister at the years end.
And a final prediction which I make with more confidence than the others
in the way of politics, not all the outcomes forecast here will come to pass.
(Andrew Whitehead is a former BBC Delhi correspondent and has also
reported for the BBC on British politics.)

FROM THE ARCHIVES

(dated December 31, 1965)

Development of
minor ports
The total expenditure on the
development of minor ports in
Madras State during 1966 has been
fixed at a little over Rs. 105 lakhs.
This includes carry-over schemes
worth about Rs. 48.90 lakhs for
Cuddalore and Nagapattinam
ports. The balance of Rs. 56.60
lakhs is being earmarked for new
schemes for Cuddalore
Nagapattinam, Ennore Port,
Kulasekarapattinam and Tuticorin
Port.

Govt. withdraws case

against Swarajya
The Government of Madras
to-day [December 30] withdrew
the prosecution under the
Defence of India Rules against Mr.
T. Sadasivam, Editor, Printer and
Publisher of Kalki and Mr. Pothan
Joseph, Editor of Swarajya. A
petition to withdraw the two
cases was presented to-day
[December 30] before Mr. V.
Balaramiah, Chief Presidency
Magistrate, by the Public
Prosecutor, Mr. V.P. Raman. The
request was granted. The
Magistrate noted that the cases
had been withdrawn. He passed
CM
YK

orders discharging the two

accused. The petition, which was
made under Section 494, Cr.P.C.,
and presented by the Public
Prosecutor, stated that on a
reconsideration of the position at
the instance of Mr. C.
Rajagopalachari, the Government
does not consider it necessary to
further proceed with the above
prosecution. I request that the
Court may be pleased to permit
me to withdraw both the above
cases.

War on poverty
Ethiopian Emperor Haile
Selassie opened the 15th annual
Pugwash conference here [Addis
Ababa] yesterday [December 29]
with a warning that poverty, fear,
ignorance and disease had not
been conquered by science,
especially in the under-developed
countries. These nations,
representing the greatest part of
the worlds peoples, need to have
their hopes and needs correctly
evaluated and understood, he
said. He praised the ideals of
peace and world brotherhood of
the Pugwash conference, named
after the small town in Nova
Scotia, Canada, where it was first
held.

| 11

Six years of sunshine

Lets get straight to the big numbers. In
that six-year period, India experienced
an average GDP growth rate of about 8.8
per cent. In four out of six years, GDP
growth exceeded 9 per cent. Only in
2008-09, a year associated with the global financial crisis, did growth fall below 8
per cent. These high growth years also
saw high savings and investment ratios.
The savings/GDP ratio averaged 34 per
cent and the investment ratio (gross capital formation/GDP) averaged 36 per
cent. In addition, exports grew at an annual rate of 21 per cent and imports grew
at an even higher rate of 23 per cent, reflecting robust demand both in the domestic and external markets. The fiscal
deficit averaged 4.5 per cent of GDP and
the current account deficit was about 1.9
per cent of GDP. This is roughly the same
time period in which India reduced the
number of people living in extreme pov-

erty by almost 130 million. Those six likely to be around 4 per cent with the
years were terrific. India was doing ex- current account deficit around 1.3 per
ceptionally well and, along with China, cent of GDP. Without lower crude prices,
provided support for the global economy these twin deficits would be higher, as
would inflation.
in the aftermath of the 2008 crisis.
With numbers such as these, it is no
Fast forward to the present. Since the
government revised GDP data, there is wonder that many are expressing conincreasing talk of Indias emergence as cerns about the state of the economy.
the fastest growing economy. In a sea of This is not all. There are reports of widespread rural disglobal economic
tress, mixed perweakness, India is
The
government
is
formance of the
apparently a buoycomplacent and seems to
industrial sector,
ant force. But there
are murmurs that
have a vision deficit that is continued probin the banking
the economy is not
bound to add to the feeling lems
sector and low prias strong as the
that things are not well
vate sector investgovernment would
ments due to marhave us believe.
Whats going on? Lets again go straight ket uncertainty and stressed corporate
to the big numbers. While growth rate balance sheets. With all of these factors
was 7.3 per cent in 2014-15, various official forming the foundation of the economy,
estimates point to a growth rate of 7-8 per it is easy to see why something doesnt
cent in 2015-16. But savings and invest- feel right. In order for the economy to
ment ratios have dropped sharply to match its performance in the six years
around 30 per cent. Export growth has described earlier, a lot has to go right at a
declined sharply. From April to Novem- time when very few things appear to be
ber 2015, exports have dropped by over 18 going right.
per cent. If this trend continues, 2015-16
will see the worst export performance A bridge too far
for over 15 years. Import growth has also
One of the things highlighted by the
declined by double digits indicating lack government as a success is fiscal consoliof demand (and also falling prices of dation. That is a fancy term for lower fiscrude). The average fiscal deficit for the cal deficits. The governments fiscal deffirst two years of the Modi government is icit target for 2015-16 is 3.9 per cent of

GDP (slightly higher than the earlier estimate of 3.6 per cent). Some economists
believe that the government must continue on this fiscal consolidation path to
give confidence to investors that macroeconomic stability is of utmost importance. This would be all very well if private investors were stepping in to invest
and create jobs. However, as I have mentioned earlier, they are not doing that. So,
the government is trying to increase public investment as a way of boosting the
economy. This is excellent but not the
full picture. The governments own midterm review concludes that the positive
contribution from greater public investment is offset by a combination of lower
other expenditures and higher tax receipts. This is in the context of lower
minimum support prices, lower NREGA
disbursements and a host of cuts in social
sector expenditures. The review suggest
that fiscal policy will be contractionary
in 2015-16 compared to 2014-15 and has
floated the idea of relaxing the fiscal deficit target.
In effect, government policy is choking
domestic demand at a time when global
demand is also weak. This is hardly a recipe for growing at double digits. The only
thing that will grow in double digits is the
frustration for millions of young Indians
who wont have the promised job opportunities. At a time when India should be
aggressively going after a greater share of
the global economic pie, we are seeking
comfort in fiscal management. At a time
when we should be promoting big investments in our food supply chain, we are
choking off rural demand. At a time when
we should be providing major incentives
for our small and medium enterprises to
modernise and compete globally and
employ young people, we are adding to
the tax burden of the common man who
could become a source of demand for
these companies. Our major corporations should be encouraged to invest at a
time of global weaknesses so that when
demand picks up, they are ready to take a
bigger share.
But our government appears to have a
vision deficit and a surplus of complacency that is bound to add to the feeling that things are not well. Having said
this, I dont believe the economy is sick. It
is in a funk. It is the government that appears sick and in need of a fiscal deficit
fever reducer.
(Salman Anees Soz, formerly with the
World Bank, is a spokesperson of the
Indian National Congress. Views
expressed are personal.)

The difference alumni can make

India should study the U.S. experience to foster alumni participation and corporate
support, and lower the cost of higher education and make it relevant
PRABHUDEV KONANA

Back in the late 1990s, responding to a call from my

alma mater, the University
of Arizona, I reluctantly
made a $100 gift to the university. To my surprise, the
dean of the business school left a voice
message the next day thanking me, saying
my gift quadrupled with corporate matching. He suggested that the gift be used to
support students and improve the quality
of education. That reluctant relationship
blossomed every year after that, I created a small endowment at the University of
Arizona to support a needy student.
There are two important issues in the
above example: alumni engagement and
corporate support in higher education,
both important for Indian colleges going
forward. They can lower the cost of education and fundamentally transform the
educational experience for students.
Let us look at the cost side. The cost of
attending higher education institutions in
India is moving in the direction of the U.S.
universities. Despite public outcry, tuition fees in most U.S. universities continue to increase each year. Among the state
universities, one of the reasons for this is
the declining government funding as a
percentage of the university budgets. At
my university, the state of Texas funded 85
per cent of all educational costs in 1970.
Today, the state pays around 13 per cent.
The Indian government subsidised
higher education in government institutions to the tune of 90 per cent in the
1990s, but has recently asked various institutions to become self-reliant. This is
leading to dramatic increases in tuition
fees at premier institutions and is expected to worsen. To offset this higher tuition
fees, new educational loan programmes
have been instituted through banks.
These actions look a lot similar to those in
the U.S.
Today, in the U.S., over 43 million students have borrowed a staggering $1.3 trillion. Since 2006, the total debt has increased 300 per cent. The availability of
student loans has unintended consequences. Access to loans makes it easy for
colleges to increase tuition fees since students do not have much of a choice. That
is why loan availability correlates heavily
with higher tuition fees.
Mitch Daniels, the president of Purdue
University, argues that there are broader
societal consequences. Home buying,
marriage, child-rearing and even moving
out of the family house are all now commonly delayed because of student debt,
he says. He argues that potential innovators seek traditional pay cheques to pay
off loans rather than to pursue entrepreneurial lifestyle.
Before the situation gets out of control,

with alumni also have an easier time placing their students. Engaging alumni early
on will help students find internships, and
firms can identify promising talent. Furthermore, alumni can help with mock interviews to prepare students to do well in
the process of searching for jobs.

Capital campaigns from universities raise large amount of funds to support

scholarship, faculty research, buildings, and so on. Picture shows Harvard alumni.
PHOTO: BY SPECIAL ARRANGEMENT

the government and various institutions

need to explore ways to contain the cost of
education and proactively engage alumni
and corporations to avoid societal costs.
Alumni engagement
Most U.S. universities now focus on engaging alumni both to raise funds and to
improve the educational experience for
students.
At the University of Texas at Austin, the
alumni association called Texas Exes gave
$3.45 million in scholarship to 641 students in 2015-16. This does not include
alumni support to individual colleges on
campus. The U.S. universities nurture the
culture of pride and loyalty to their institutions. Alumni are emotionally committed to the success of their alma mater.
There are both intrinsic and extrinsic motivations and rewards in supporting
universities.
We frequently hear of capital campaigns from numerous universities to
raise large amount of funds to support
scholarship, faculty research, buildings,
and so on. These funds are required to attract bright students, and advance knowledge, innovation, and teaching. The University of Texas just raised $3.12 billion in
its campaign. Other major capital campaigns include Harvard University at $6.5
billion, Stanford University at $6.2 billion,
Cornell University at $4.75 billion, and
Yale University at $3.9 billion. Indian col-

There are both intrinsic

and extrinsic motivations
and rewards for alumni
in supporting
universities
leges may have to think similarly to advance opportunities and knowledge.
We are beginning to see college rankings include alumni giving-rate as one of
the factors. This is an indirect way to measure how institutions are engaging their
alumni and leveraging successes of those
students to enhance their own educational mission. Alumni bring context and
practical relevance to what is being taught
in the classroom. An incoming student is
more likely to be influenced by a recent
graduate than a professor on the relevance of topics to his or her career. Midcareer alumni can reinforce the aspects of
schooling that impact their day-to-day
life. Often they can relate to the students
better than the faculty does.
Universities increasingly rely on industry projects or capstone classes to provide
experiential learning. Often it is the alumni who help arrange projects for professors and assume a mentoring role.
Alumni are a great resource during the
recruiting process. They are brand ambassadors and advocates for students.
Colleges that have a deeper engagement

Corporate engagement
Corporate engagement not only brings
financial resources, but also helps with
recruitment efforts, change, and innovation in universities. The executives who
represent corporations bring credibility
and act as brand ambassadors. In the U.S.,
it is a matter of pride for executives to be
part of universities and various programmes. Corporations have equal responsibility as, or even more than, the
government in developing talent that benefits them and society. Corporations
know their needs for talent and skills better than the government. Corporations
must play a significant role in developing
talent rather than just being consumers of
the talent. They have to invest in the
future.
Heres a case in point. I proposed a Masters programme in business analytics
where there is significant shortage of talent in the U.S. A major retailer, whose
chief financial officer is an alumnus of
McCombs School of Business and a member of the McCombs Advisory Board,
committed $3,00,000 as seed money to
jumpstart this programme. We were
quickly able to assemble ten companies
from different industries with similar
need for talent to support our initiative.
Many of these companies sponsored capstone projects where students apply their
learning to solving real problems and gain
practical experience in how to communicate with executives. As faculty, we were
able to understand the need for different
skills and types of problems industry is
trying to solve. Industry has opportunities to seek advanced knowledge from faculty research.
Corporations can engage in allowing
their employees to teach specialised
classes. We have senior managers from
Google and Dell teaching in our programmes. They bring practical knowledge and academic rigour to students that
supplement the learning process.
If universities and colleges in India
need to prepare students for the 21st century, they have to engage their alumni and
corporations actively. This engagement is
a partnership that benefits all
stakeholders.
(Prabhudev Konana is Distinguished
Teaching Professor and William H.
Seay Centennial Professor of
Information Management, Department
of Information, Risk & Operations
Management, McCombs School of
Business, Austin, Texas.)
HY-TG