M A R C H 1 7 ,2 0 1 2 V ol XLVII N o 11

E con om ic& P olitica lw E E K L Y

A SAMEEKSHA TRUST PUBLICATION W W W .epW .if1

EDITORIALS Eroding Civil Liberties

■ Messages and Non-Messages Through the NCTC the centre is seeking to expand
from Five Elections
its policing powers and use the Intelligence
■ Supreme Folly
Bureau as a police agency. What then of the rights
■ A Case for Proportional Representation?
of the citizen? page 12
MARGIN SPEAK
■ Gujarat 2002 and Modi's Misdeeds

COMMENTARY Reinventing th e Third World

■ The National Counter Terrorism Centre How does one reinvent the third world in a globalised
■ Those Enemies of Freedom system that has been dominated by a unipolar
■ Social Science Research in India hegemon? page 36
■ Tea Smallholdings in Assam
■ Emergence of the 'Surrogacy Industry'
■ A BRICS Initiative on Syria Global Reserve Currency
REVIEW ARTICLE There is renewed interest in the Special Drawing
■ The Oxford India Anthology Right as an international reserve currency; but even
o f Business History w ith all its defects the US dollar will remain the
PERSPECTIVES preferred currency, page 41
■ Reinventing the Third World

SPECIAL ARTICLES
■ Can the SDR become a Global Reserve
Private School Perform ance
Currency? An investigation of the linkage between the
■ Variation in Private School Performance: performance of private schools and the context w ithin
The Importance of Village Context which such schools operate, page 52
■ Why Publicly-Financed Health Insurance
Schemes Are Ineffective

DISCUSSION A BRICS Initiative on Syria

■ NCAER's Report on Goa: A Rejoinder
The situation in Syria presents a ripe moment for India,
CURRENT STATISTICS China, and Russia to mount a non-aligned initiative
■ Annual GDP Estimates for a peaceful transition, page 30

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 MARCH 17, 2012 | v o l xlvii n o 11 E conom ic& Politicalw E E K L Y
Gujarat 2002 and Modi's Misdeeds E D ITO R IA LS

10 There has never been any remorse on the part o f Gujarat Chief Minister Messages and Non-Messages from Five Elections..7
Narendra Modi over the 2002 genocide against Muslims in Gujarat. Where do Supreme Folly......................................8
we go from here? A Case for Proportional Representation?.........9

FR O M 50 YEARS A G O ....................................... 9
The Creation of the Indian Stasi
12 If the centre’ s attempt to expand the jurisdiction o f the Intelligence Bureau M ARG IN SPEAK
through the National Counter Terrorism Centre succeeds, it will be able to Gujarat 2002 and Modi’
s Misdeeds
violate civil liberties. —Anand Teltumbde............................... 10

Those Enemies of Freedom COM M EN TARY

17 Why does the political agency o f the Muslims and other so-called The National Counter Terrorism Centre:
marginalised groups so often end up being arrayed against the liberal values The Creation of the Indian Stasi
o f secularism, freedom o f speech and liberty? —South Asia Human Rights
Documentation Centre............................ 12
Social Science Research in India Those Enemies of Freedom
19 A conference organised by the Indian Council for Social Science Research — Saroj Giri........................................17
seem ed to achieve its unstated purpose to sensitise the government and other Social Science Research in India in
stakeholders to the relevance o f social science research in India. a Medium-term Perspective
—Ravi Srivastava................................. 19
Tea Smallholdings in Assam Tea Smallholdings in Assam:
23 The em erging tea smallholding pattern in Assam can be a bonus for Is There a Way Out?
India’s tea sector if it draws on the appropriate regulation on the lines o f the —Kalyan D a s ..................................... 23
Sri Lankan model.
Emergence of the ‘
Surrogacy Industry’
—Sneha Banerjee.................................27
Emergence of the 'Surrogacy Industry'
A BRICS Initiative on Syria
27 The w om en’ s movement must engage more with the adverse effects on
—M K Bhadrakumar............................. 30
w om en’s health that are inflicted by reproductive technologies, especially
com m ercial surrogacy. R EV IEW ARTICLE

The Oxford India Anthology of Business History-

A BRICS Initiative on Syria Insights into India’
s Business History
30 The forthcoming summit o f the brics with India in the chair in New Delhi —D N Ghosh.......................................33
offers an occasion to propose a non-aligned agenda for the resolution o f the
Syrian crisis. PER SP ECT IV ES

Reinventing the Third World

Reinventing the Third World —AswiniKRay ................................... 36
36 The third world could reinvent itself in a globalised world by rediscovering
SPECIA L A RTICLES
its identity as a conscience o f the system by representing the voices o f the
Can the SDR become a Global
disadvantaged sections o f the states.
Reserve Currency?
— CRangarajan,
Can the SDR become a Global Reserve Currency? Michael Debabrata Patra ......................... 41
41 For the time being the dollar must remain the international reserve currency.
Variation in Private School Performance:
The Special Drawing Right must await its moment o f reckoning.
The Importance of Village Context
—Amita Chudgar................................. 52
Private School Performance: Importance of Village Context
52 An investigation o f the linkage betw een private school performance and Why Publicly-Financed Health Insurance
Schemes Are Ineffective in Providing
the context within which these schools operate points to a robust research
Financial Risk Protection
agenda as we contemplate privatisation o f education in India and the
— Sakthivel Selvaraj, Anup K Karan .............60
developing world.
D ISCU SSIO N
Publicly-Financed Health Insurance Schemes NCAER’ s Report on Goa:
60 Several promises and commitments made to step up government investment A Rejoinder
in the public health system must be realised and India must avoid relying —R Venkatesan...................................69
on publicly-financed health schemes.
C U R R EN T S T A T IS T IC S ..................................... 73

Defending NCAER's Report on Goa

L E T T E R S ......................................................... 4
69 A response to the two sets o f criticisms o f the report o f the National Council
o f Applied Economic Research com paring benefits and costs o f m ining and SU B SCR IP TIO N RATES AN D
forest services in Goa. N O TES FO R C O N T R IB U T O R S ............................. 6

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Economic&PoliticalwEEKLY
i s s n 0012-9976
LETTERS

Ever since the first issue in 1966,

e p w has been India’
s premier journal for Land Acquisition by Coal would lose their fields and be displaced.
comment on current affairs
and research in the social sciences.
Companies in Jharkhand The latter were very apprehensive,
It succeeded Economic Weekly (1949-1965), because to date the company has not
which was launched and shepherded
untala Lahiri-Dutt and others (“ Land been able to say anything about its plans
by S a c h in C h a u d h u r i,
who was also the founder-editor of epw.
As editor for thirty-five years (1969-2004)
K Acquisition and Dispossession: Pri­
vate Coal Companies in Jharkhand” ,
for either their resettlement or liveli­
hood rehabilitation.
Kr is h n a R a j
gave epw th e reputation it n ow enjoys. epw , 11 February 2012), touch on several The administration set the venue as
important issues, but with a sophistica­ Hazaribagh Town Hall, 40 km from the
EDITOR
C RAM M AN OH AR REDDY tion which is expected from academics. affected site, not at a site convenient for
DEPUTY EDITOR
The piece, however, portrays only the the people, in contravention of the
BERN ARD D ’
MELLO tip of the iceberg; the grass-roots situa­ norms of public hearings. The press
WEB EDITOR tion is much more serious and tense. reported that the venue was like a police
SUBHASH RAI Land acquisition by privately-owned coal cantonment, gates open wide enough for
SENIOR ASSISTANT EDITORS mining companies has assumed very only for one person at a time, who had to
LINA MATHIAS sinister proportions. This letter is to stoop below a chest high bamboo staff to
AN IKET ALAM
SRINIVASAN RAMANI bring some more examples to the atten­ enter. The party in favour of the company
ASH IM A SO O D tion of e p w readers. came wearing white gamchas for clear
BHARATI BHARGAVA
Early this February Mohit Ram went recognition. They had spent the night
COPY EDITORS
to the District Record Room to get a copy before in a local hotel courtesy the com­
PRABHA PILLAI
JYOTI SHETTY of his land kathiyan. He was told there pany so that they would be on hand for
ASSISTANT EDITOR
that the papers of the old records had an early start. They were easily admit­
P S LEELA disintegrated, and that now nothing ted; those who came from the affected
PRODUCTION could be done to get them. Sometime villages arrived later, and a large number
U RAGHUNATHAN later he was approached by a local per­ were denied admission.
S LESLINE CO R E R A
SU NEETH I NAIR son, well known in the area, who showed Early in the proceedings, in the venue
CIRCULATION
him this, his very kathiyan, and offered hall, a scuffle broke out between the two
GAURAANG PRADHAN MANAGER to buy the land from him. This man, it parties, some went on to the stage and
B S SH ARM A
turned out on enquiry, had been given damaged the mike and furniture, there
ADVERTISEMENT MANAGER the document by the company, which was a police lathi charge, and some
KAMAL G FANIBANDA
wants to mine the Moitra coal block. Ap­ moments of chaos. The anti-displacement
GENERAL MANAGER & PUBLISHER
parently, this company had already pro­ group claim they did not recognise any
K VIJAYAKUMAR
cured from the same District Record of those doing this damage, and that it
EDITORIAL
edit@ ep w .in Room, at a price, all the kathiyans of the was a set-up by g o o n d a s b o o k e d for the
CIRCULATION area they wanted to mine, and had then occasion to discredit them. The superin­
circu la tion @ ep w .in
distributed them among various middle­ tendent o f police soon took control, and
ADVERTISING
men. These middlemen now track down after this violence the district commis­
advt@ epw .in
the owners of the land, and persuade the sioner (d c ), also present, took charge
E C O N O M IC A N D P O L IT IC A L W EEKLY
owners to sell to them. These middle­ and conducted the proceedings. A
320-321, A T O Z INDUSTRIAL ESTATE
GANPATRAO KADAM MARG, LOWER PAREL men then, in turn sell to the company private videographer whom the anti­
MUMBAI 4 0 0 013 and receive many hundred times more displacement people had engaged to video
phone: (022) 40 6 3 8282
f a x : (022) 2493 4515
than what they give the original owner. shoot the proceedings for them was
And the company gets their land. And challenged, and his video camera con­
E PW R E SE A R C H F O U N D A TIO N the administration? fiscated by the police. In a quieter atmos­
e p w Research Foundation, established in 1993, conducts
On 15 February a few days after the phere the d c asked various persons of
research on financial and macro-economic issues in India.
publication ofLahiri-Dutt’ s article, there his choice what they thought and if they
DIRECTOR
K KANAGASABAPATHY was a public hearing in Hazaribagh were in favour of or against the mines.
C 212, AKURLI INDUSTRIAL ESTATE Town Hall for environmental clearance Only one person suggested to the d c
KANDIVALI (EAST), MUMBAI 4 0 0 101
p h o n e s : (022) 2887 3038/41
of Tenughat-Empta Coal Mining, to mine that he was asking the wrong question,
f a x : (022) 2887 3038 Gondalpura and Badam coal blocks in that this was meant to be an environ­
epwrf@vsnl.com
Karanpura Valley of Hazaribagh district. mental enquiry.
Printed by K Vijayakumar at Modem Arts and Industries,
151, A-Z Industrial Estate, Ganpatrao Kadam Marg,
There were two parties, one, those who Environmental issues, as suggested in
Lower Parel, Mumbai-400013 and were ready to give their land, mainly Lahiri-Dutt’ s article, were not raised.
published by him on behalf of Sameeksha Dust
from 320-321, A-Z Industrial Estate,
landowners who had their residence After the hearing, the private video­
Ganpatrao Kadam Marg, Lower Parel, Mumbai-400013. outside the mining area, and, two, those grapher and his assistant, and about
Editor: C Rammanohar Reddy.
living in the to-be-mined area, who 12 other persons were charged under

m a r c h 17, 2012 v o l XLV ii n o 11 Q3S9 Economic & Political w e e k l y

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various sections of the Indian Penal
Code, bail having been refused at the
time of writing. The official videogra-
pher continued his work; his video will
be sent to the Ministry of Environment
and Forests as evidence of this impartial
and fruitful environmental hearing.
However, it is not the public hearings,
manipulated or not, which are the main
issue. Only in Karanpura Valley, we
have 23 coal mining blocks, given to a
variety of companies, both public sector
undertakings and privately-owned.
The key issue is that although given
out separately, these coal blocks are all
next to one another, even overlapping.
The core area of one is the buffer zone of
another. However, each company presents
its project as “this one only” , with a sep­
arate Environmental Impact Assesment
(eia ) and public hearing for each. At best,
this is misleading, at worst, deceitful, and
potentially courting disaster. The social
and environmental impact is compound­
ed by multiple projects. The local river
can carry the run-off from any one mine,
there is no way it can carry the run-off
from all the mines. This stream is the
source of water for bathing, for washing,
water for animals, water for agriculture
- for inhabitants all along its course,
downstream as well. Yet its destruction
as a viable source of water is not men­
tioned in any public hearing, or in any
one e ia . This combined impact is hid­
den, ultimately the people bear the cost.
The second important issue is that the
administration can resettle and rehabili­
tate the displaced of any one project,
there is no way they will be able to do so
for all those to be displaced in the 210
villages. There are tens of thousands of
people in the Karanpura Valley, maybe
many can be resettled in colonies on
0.05 ha of land, but there is no way they
can all be economically rehabilitated,
even with the best of good intentions,
even with the best of rehabilitation poli­
cies, and even with full implementation
(which is yet to be seen in any place).
The present policy is to give monetary
compensation, but that leaves large num­
bers of people without anything. Where
do they go?
As we write this, Hindustan Times
reports that the Border Security Force is
Economic & Political w e e k l y MARCH 17, 2012
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LETTERS
to raise four new battalions and is dilute the Nuclear Liability Act under
recruiting a further 1,200 for its training foreign pressure.
centre at Hazaribagh, this in order to The claim that all is well with our ex­
boost the centre’ s anti-Naxalite opera­ pansion-oriented nuclear power pro­
tions. In view of predictable future social gramme sounds hollow in the absence of
turmoil in the area, they will probably an independent, thorough, transparent
need many more than that. review by a broadly representative body,
Nirmal Mahato which includes non-Department of Atomic
HAZARIBAGH Energy personnel and civil society rep­
resentatives. Some of us called for this
Tarring the Koodankulam 10 months ago. But the government ig­
Movement nored our plea. Its attitude to nuclear
hazards is worrisome given its abysmal
W e are dismayed and pained at the and persistent failure to protect Indian
government’ s campaign of vilifi­ citizens’lives and rights in the Bhopal
cation of the sustained popular move­ gas disaster.
ment against the Koodankulam nuclear We urge the government to cease har­
plant, which has raised vital issues of assment and persecution of activists of
atomic safety. These issues have assumed the anti-nuclear movements in Koodan­
pivotal importance worldwide after the kulam and other sites, to drop concocted
Fukushima disaster, the world’ s first charges against them, and instead to
multiple-reactor meltdown. Prime Min­ resume dialogue. Until people’ s fears
ister Manmohan Singh has trivialised and concerns are allayed, all nuclear
the movement, and the five months- power plant construction must be halt­
long relay fast by thousands of people, ed. There must be no use of force - cate­
by attributing it to “ the foreign hand” , gorically, and regardless of the circum­
or western non-governmental organisa­ stances. Ramming nuclear plants down
tions, without citing even remotely the throats of unwilling people will
credible evidence. usher in a police state.
This is part of a growing, dangerous A Gopalakrishnan, Alaka Basu,
tendency to delegitimise dissent. If we Amar Jesani, Amit Bhaduri,
Amita Baviskar, Anuradha Chenoy,
reduce genuine differences and dis­
Arundhati Roy, Ashis Nandy,
agreements with official positions to Deepa Dhanraj, Deepak Nayyar,
mere plots of “ subversion”by “ the for­ Dipankar Gupta, EAS Sharma,
eign hand” , there can be no real engage­ Gabriele Dietrich, Harsh Mander,
ment with ideas, and no democratic de­ Justice B G Kolse-Patil, Justice H Suresh,
Kumkum Roy, Admiral L Ramdas,
bate through which divergences can be
Maj Gen S G Vombatkere, Mary John,
reconciled. Absence of debate on nuclear Mukul Kesavan, Mukul Sharma,
safety, itself a life-and-death matter, can Nandini Gooptu, Nirupam Sen, Nandini
only impoverish the public discourse Sundar, P M Bhargava, Prashant Bhushan,
and our democracy. The “ foreign hand” Ramchandra Guha, Romila Thapar,
S P Shukla, Shabnam Hashmi, Sumit Sarkar,
charge sounds especially bizarre because Uma V Chandru, Vineeta Bal,
the government has staked all on install­ Admiral Vishnu Bhagwat,
ing foreign-origin reactors and tried to Zoya Hasan and a number of others
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6 MARCH 17, 2012 v o l x lv ii n o li E3353 E con om ic & P olitical w e e k l y

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 ECOnOmie&PoliticalWEEKLY
M A R C H 17, 2012
M essages and N on-M essages from Five E lection s
The issues varied from state to state, but there are some common trends in the results.
C
ommentaries on the outcome of five state assembly elec­
tions exemplify the risk of over-interpretation attached
to any much awaited, intense and major event. The long
wait builds an expectation of momentous political and analytical
consequences. Hence, the usual analytical overdrive. The obvious
fact that this outcome is a huge setback to the Congress Party is
taken to be proof that it was caused by anti-Congressism of
the voters. The changing fortunes of parties in terms of seats
are taken to be an unambiguous indicator of public opinion
and popular will. And then there is the gross assumption that
Uttar Pradesh (up ) is India.
The five states that went to polls were bound together by noth­
ing except a coincidence of the electoral cycle. Therefore, it is
necessary to first understand each verdict in its specificity. The
first-ever return of an incumbent government in Punjab in the
last four decades is not necessarily the re-election of a popular
government. The Shiromani Akali Dal (sAD)-Bharatiya Janata
Party (bjp ) alliance scraped through and retained a comfortable
majority, though its lead over the Congress was reduced from 4 to
less than 2 percentage points. Widespread corruption, high­
handedness, Prakash Singh Badal’ s attempt to foist his son on the
party, the formation of the Punjab Peoples’Party (ppp) and the
anger of the Dera Sachcha Sauda were expected to and did go
against the ruling coalition. Yet a slew of popular measures like
the “ Atta-Dal”scheme, free electricity for dalit houses and a pro­
farmer image helped the sa d to neutralise all this and expand its
support among the dalits and the poor. The Akalis ran the cam­
paign and managed elections with a sense of purpose, while the
Congress was complacent and divided as ever. The Congress
almost managed to lose in Uttarakhand, despite having swept
the state in the 2009 Lok Sabha polls. The incumbent bjp nearly
succeeded in its last minute move to revive its electoral fortunes
by recalling B C Khanduri. While both the bjp and the Congress
matched each other in internecine wars, the b jp ’ s focus on
Khanduri’ s clean image served to neutralise the negative image
and experience of the previous bjp chief minister Ramesh
Pokhriyal Nishank. The regional divisions ensured that the
Congress has still finished one seat ahead of the bjp , which gives
it a first shot at forming the government.
Manipur and Goa saw more decisive verdicts. The Congress
lost Goa, for its government represented the rule of the mining
E con om ic& P olitica lw E E K L Y QB59 m a r c h 17, 2012 v o l x l v i i n o 11
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=
mafia and a few families who lorded it over the state, unmindful
of public opinion. In contrast, the bjp had a leader with a clean
image, had learnt its lessons in accommodating the religious
diversity of the state and had stitched an alliance with the
remainder of the Maharashtrawadi Gomantak Party (mgp ). The
election outcome in Manipur is historic - the Congress won a
two-thirds majority in a state that had never before seen any
party obtain a simple majority - but its message is ambiguous.
The incumbent chief minister, Ibobi Singh, managed to
side-step issues of poor governance, lack of development and
massive corruption and popular disapproval of the Armed
Forces (Special Powers) Act, by emerging as the saviour of
Manipur’ s territorial integrity, managing Naga dissent through
local manipulation and playing on peoples’ desire to be on the
right side of the central government.
The spectacular tally of the Samajwadi Party (sp ) in up , the
highest for any party since 1984, is the result of an accentuation
in the seats-votes skew and is much less impressive when seen
in terms of its vote share of 29.2%, just over 3 percentage points
ahead of its nearest rival, the Bahujan Samaj Party. Yet the ver­
dict is not just technical. It reflects on balance a negative ap­
praisal, cutting across the caste divide, of the first truly dalit-led
government in post-Independence India. It was appreciated for
improvement in law and order but its impressive growth rate
numbers did not translate into development that people could
relate to their own lives. The government was also disliked for
its corruption, inaccessibility and high-handedness. In this con­
text the sp emerged as the natural alternative, for unlike the
bjp and the Congress it was visible, proximate, active and viable
and was seen to have made amends for its past sins. The bjp had
nothing special to offer and was lucky that its loss of 2 percent­
age points in votes did not result in a bigger loss of seats. The
Congress’high voltage campaign led by Rahul Gandhi person­
ally had little to show by way of immediate results except the
gain of 3 percentage points in terms of votes. This failure has
brought out the marginality of a party that is without a local
face, regional agenda and a cadre rooted in the state.
These elections again underlined that state politics continues
to be an autonomous domain of contestation where the party
system, issues, social configuration and even the language of
politics varies dramatically across the states. Yet there are some
7
EDITORIALS
common trends. One, every state witnessed a reduction in the
polarisation of votes on social or ethnic lines: the Jat/dalit in
Punjab, Catholic/Hindu in Goa, Hills/Plains in Uttarakhand,
Metei/Naga in Manipur and the caste-based “ vote banks”in up .
Two, there is an uneven but unmistakable rise of a small slice of
floating voters which is neither pro- nor anti-incumbent but is
more discerning and demanding and which uses its vote as an
Supreme Folly
The higher judiciary should desist from the temptation to play god.
O
ver the past few decades, with the executive unable to
play its role properly and the legislature in a regular
logjam, the courts have come forward to grant relief to
the citizenry and order the government to carry out the tasks
which it had failed to. The judiciary has de facto come to exer­
cise some powers which ideally should have never been its
remit. Therefore, given the extra responsibility that has been
thrust on the courts due to the acts of omission and commission
of the other two legs of the republic, it is even more necessary
for the judiciary to act with caution and restraint.
However, it is distressing to find that in a number of cases the
judges of the higher courts have been slipping into policymaking
and implementation. In the latest disturbing act of overstepping
judicial boundaries, the Supreme Court has ordered the Govern­
ment of India to implement the river interlinking project. And to
ensure that the government does implement this order, the Court
has “ issue[d] a mandamus to the Central and the State Govern­
ments concerned to comply with the directions contained in this
judgment effectively and expeditiously and without default” . national panic each time a Chinese dam on the Bramhaputra is
Further, the Court has given the power of filing contempt of court
cases in the event of default or non-compliance of this order.
This order is a disaster, not only for the economy, the envi­
ronment, the tens of millions of people who will be displaced by
hundreds of projects, for interstate relations and federalism,
but more so and crucially, for the basic structure of our republic.
That the Supreme Court finds itself competent to order a project
of this scale, which will have such wide ramifications for
almost all aspects of the country’ s life, which goes against the
larger sense of both the union and state governments as well as
the various legislatures of the country, and which will have
serious international ramifications, shows the extent of judicial
over-reach in this matter.
For decades now, interlinking of rivers has been proposed by
starry-eyed engineers and bureaucrats who have despaired at
the parallel sight of drought and floods which afflict India every
few years. In post-Independence India this idea was mooted in
the form of a Ganga-Cauvery link canal which grew to become
the idea that various “ northern rivers”that are perennially fed
by the Himalayan snows could be tapped to send their “ excess”
water to the seasonal rivers of central and south India. Fortu­
nately, the sheer impracticality and impossibility of implementing
this idea has stalled previous attempts.
8 m a r c h 17, 2012
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instrument to hold the government accountable for the quality
of governance experienced by the citizens. Three, corruption
matters everywhere, more so after the Anna agitation, but it
becomes a decisive issue only when there is a viable alternative.
Finally, while citizens are becoming more sophisticated in exer­
cising their choices, the range of effective and meaningful
choices available to them is not expanding.
Proponents of this project claim that it will prevent floods in
the north and simultaneously provide relief to drought-prone
regions in the south and thereby improve irrigation and drink­
ing water supply. Even by the estimates acknowledged by the
Supreme Court order, the project’ s cost estimate is close to
Rs 5,00,000 crore at 2003-04 prices; at today’ s prices the cost
would be double this humongous amount. At what financial
cost are we attempting a certain kind of flood protection and
drought proofing? Are there not less environmentally damaging
and less expensive measures to achieve the same ends? Also, is
it for the courts of law to decide which measure suits which re­
gion and the political choice of people in different regions?
After all, how each region consumes and conserves water is a
political decision, dependent on a range of factors that are open
to a variety of possibilities. It cannot be stressed enough that the
basic assumption that the northern, Himalaya-fed rivers are
water surplus is dubious at best. Otherwise the Yamuna in Delhi
would not be a stinking sewer and we would not go into a
mentioned. There is also the m atter of having to build over 200
large dams to tap and transport the so-called surplus water over
the entire geography of the country. Will the Court fiat overrule
all matters of displacement, environment assessment and other
factors on which other benches of the same Court have often
upheld the rights of the people? Despite this massive infrastruc­
ture to store and divert water, the estimate prepared in 2003 by
the National Water Development Agency, which had been com­
missioned with implementing this scheme, was that only 1,500
cusecs, out of a total of 30,000 to 60,000 cusecs of water in the
northern rivers during floods, would be diverted. How is this
ever going to be a flood prevention measure? Finally, the rivers
which are proposed to be controlled and diverted are not known
to follow national boundaries or even the sentiments of India’ s
various states.
The learned justices of the Supreme Court have opened a
Pandora’ s Box by handing down such an order. It is necessary
for all estates of the republic and all its citizens to come
forward to oppose this directive. It is important first of all that
the Government of India immediately seek a review and revo­
cation of a judicial order which if implemented even in part
will occasion a social, economic and financial disaster across
the country.
v o l x lv ii n o ii Q B ZI Economic & Political w e e k l y
 EDITORIALS

A Case for Proportional Representation?

A vote share o f less than 30% and a clear majority in Uttar Pradesh. Is it time for a change?

ven as the Samajwadi Party (sp) celebrates its spectacu­ gained support from the Muslims. Studies have shown that states

E lar return to power in Uttar Pradesh (up) by winning 224

out of 403 seats in the state assembly, it must be said that
in the multiparty contest that is now a feature of India’ s largest
state the first past the post (fptp) system has helped the party
record a tally hugely disproportionate to its vote share. The sp
won a majority of seats though it received only 29.2% of the
votes, and this was not much more than the 26% share of the
incumbent Bahujan Samaj Party (bsp). The sp stormed to victory
with a vote gain of only 3.2 percentage points over 2007, while
the bsp which recorded a decline in vote share by 4 percentage
points saw its seat tally plunge by as many as 126 seats. To be
fair to the sp, there was a similar pattern in the 2007 assembly
elections when the bsp benefited from the f p t p system and the
sp was the loser. The last time, the bsp collected only about 30%
of the vote and yet managed a tally of 206 seats.
up boasts a multiparty system in which each of a large number
of parties regularly receives a substantial percentage of the
votes. (In u p , the number of such “ effective”parties - as meas­
ured by the Laakso-Taagepera index - is very high (5.2 in the re­
cent elections).) A unique feature is that almost every constitu­
ency regularly witnesses a contest between four large parties -
the sp , b sp , the Bharatiya Janata Party (bjp ) and the Congress
Party (the last two are of course of lower strength than the first
two). This has meant that in the recent elections in no seat has
the winning candidate obtained a majority of the votes. The fptp
system therefore favours the political party that is able to record
the largest swing in vote share relative to its core base.
In the 2012 elections the sp has been able to easily overcome
the bsp in many constituencies with just a minimal swing in its
favour. This raises the question of whether the verdict of up 2012
has been truly representative. The question becomes important
because both the sp and the bsp have distinct social bases in the
state. Although detailed analyses of vote shares are not yet avail­
able, it can be assumed that the Jatav community and other dalits
once again voted overwhelmingly for the bsp while the sp
retained its vote share among the Other Backward Classes and
in India with a large number of effective parties tend to see selec­
tive and not universal delivery of public services since the party
that comes to power chooses to service only select social bases.
One could argue that this form of a disproportionate alloca­
tion of seats relative to the vote percentage in a highly contested
polity is perhaps a feature only of up as most other states now
see two cornered fights between alliances. Tamil Nadu, another
large state with a larger number of effective parties with large
social bases of their own, invariably sees a two-cornered fight
between fronts led by the two main Dravidian parties. The
results in u p could have been a truly representative verdict that
allocated seats proportional to vote shares if the voting system
was based on some form of proportional representation (pr) -
mixed p r , allowing for transferable votes, etc. It has been sug­
gested that the fptp system has run its course in India and it is
time the country adopted pr systems that would allow for truer
representation of minorities and smaller parties in the legisla­
tures. However, in the view of the proponents of the fp t p sys­
tem, a pr system is a recipe for instability as exemplified by the
current political deadlock in Nepal, a similar socially stratified
country that has adopted p r . It is also said in defence of the
fp t p system that it has not discouraged the growth of smaller
parties as seen in the gradual regionalisation and federalisation
of India’s polity. And that affirmative action in the form of reser­
vation of seats for marginalised groups such as the scheduled
castes and tribes as also the need to obtain support from diverse
sections of the population has ensured desirable outcomes in
terms of representation, without sacrificing too much on inher­
ent stability as compared to pr systems.
But as u p shows, there are glaring cases of skewed verdicts in
the fptp system, up has the largest legislature and it sends the
largest number of representatives to Parliament. If the electoral
trends in 2007 and 2012 are repeated regularly and the larger
parties remain oriented in their social outlook to a limited set of
castes and communities, the clamour for a shift to the pr system
will only grow.

FROM 50 YEARS AGO the finances of the Government for the cur­ appearance of new products on the market

She economic WeeWtj

9 Journal of Current economic and Political Affair*
VOL XIV, NO 11, MARCH 17,1962
EDITORIALS
Background to the Budget
A budget without tax proposals cannot be a
very exciting affair, but there is much to be
said for the system of presentation which has
been forced by the General Elections this year,
viz, placing before Parliament an account of
rent year and estimates of the expenditure
for the next year, along with the Explanatory
Memorandum and the Economic Survey.
This has the advantage of giving Parliament
and the public a preview of the situation
against which the tax proposals to be pre­
sented later will have to be considered...
If a rational economic criterion is fol­
lowed, the step up of new taxation will, of
course, be different and a closer correspond­
ence will have to be sought between the
growth of output and incomes on the one
hand and the taxes to siphon them off on the
other. Changes in the distribution of incomes,
and the composition of the output generally
would suggest the timing and the nature of
the taxes to be imposed, given the total ex­
pected returns.
It was to Shri Morarji’ s credit that he acted
boldly... These (tax measures) will take care
of nearly a third of the Rs 1,100 crores that the
Centre has to raise over the five-year period.
But even if last year’ s precedent is followed
and every year an additional Rs 60 crores of
fresh taxation is imposed, this five-year total
will not be reached. Hence this year the new
taxation will have to be of a larger magni­
tude, at least between Rs 80 and 100 crores...

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 M ARGIN SPEAK
Gujarat 2002
and M odi’s Misdeeds
ANAND TELTUMBDE____________________
Ten years after the killings in
Gujarat, Narendra Modi has
neither expressed regret nor has
he been held accountable for
those mass deaths. Where do we
go from here?
Anand Teltumbde (itanandraj@gmail.com) is a
writer and civil rights activist with the
Committee for the Protection of Democratic
Rights, Mumbai.
10
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tist thinking of it, a shiver runs
J down my spine. I had my own
brush with how the Hindutva gangs
carried out the abominable organised
killing of Muslims in Gujarat in 2002. It
was 4 March 2002, just five days after it all
began. like anybody else, disturbed by the
gory tales coming out from Gujarat, but
with the bravado of a civil rights activist,
I rushed to Ahmedabad, the city that I
had loved as a student of the Indian Insti­
tute of Management (iim) Ahmedabad.
The flight had just about 10% occu­
pancy. The airport did not show any sign
of untowardness but as I was driven into
the city, the scars of the previous three
days began appearing with increased
frequency. As planned, I took one of my
Muslim friends, well-bred and well-
placed, an aristocrat of sorts, to take me
to the disturbed areas. My driver did not
quite understand what I was up to and
spoke of his fears but maintained an
uneasy cool. On our very first round, we
were intercepted by a gang of some
20-odd people that hurled a volley of
questions. Mustering all my strength, I
managed not to show any nervousness
and asked them what they would do if I
was a Muslim. There was a little commo­
tion. My driver intervened and told them
in Gujarati that I was a high official coming
from Mumbai. They could have reacted
anyway they liked, they could have dam­
aged the car, they could have assaulted us
or even gone beyond. Somehow they let
us go with a warning to be careful.
The makeshift burial grounds which
had been loosely filled and sheltered
scores of corpses of innocent men,
women and children; the blank stares of
the onlookers who had escaped that
fate; the community camps with hun­
dreds of uprooted families who had lost
everything and lay there half-starving
with swarms of flies; the busy volunteers
MARCH 17, 2012
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managing the television anchors while
looking after the needs of inmates; and
half-burnt houses within sight that re­
minded them of their lost worlds. These
are the memories. Camp after camp, one
worse than the previous one with even
more gory stories made us almost sense­
less. The afternoon meeting at iim with
the students who were infused with a
humanitarian spirit and the meeting
with activists at Prashant where I got to
see some of the gory pictures like of a
heap of half-burnt bodies of children
that made me burst into tears. It was too
much to take. The evening meeting at
the Behavioural Science Centre enli­
vened the sagging spirit, seeing scores of
people daring all the odds and organis­
ing rehabilitation work. Chief Minister
Narendra Modi was providing palpable
proof of his being behind the genocide,
as everybody believed, by defiantly
keeping his government away from the
scenes of devastation. It was only after
the world began expressing its indigna­
tion at his misdemeanour that he began
the patch-up work.
No Shame, No Pain
Scores of fact-finding teams visited
Gujarat and brought out gory details of
the tragedy. All of them were unani­
mous in holding the state government
and Narendra Modi, personally, as being
responsible for this unprecedented human
tragedy. In May 2005, the government
informed the Rajya Sabha that 254
Hindus and 790 Muslims were killed in
Gujarat in the post-Godhra riots of 2002.
A total of 223 people were reported miss­
ing, 2,548 sustained injuries, 919 were
rendered widows and 606 children were
orphaned during the riots. Notwith­
standing the fact that these figures have
been vehemently disputed by the acti­
vists, the Hindu fatalities mostly per­
tained to the adivasis and dalits, who
were used as the foot soldiers in this car­
nage (which multiplies the crime of the
Hindutva forces), and the property des­
troyed mostly belonging to the Muslims.
If Modi had been a non-partisan chief
minister, as the Constitution mandates
him to be, he should have expressed
VOL XLVII NO 11 Economic & Political w e e k ly

genuine regret for having failed to arrest
such a wanton destruction of lives and
property. Instead he and his minions
kept repeating their nauseating linkage
between the organised carnage in the
state and mysterious burning of a coach
of the ill-fated Sabarmati train on 27
February 2002. The persistent orches­
tration of this irrationality, neither Modi
nor bjp realised, was exposing their guilt
instead of covering it up.
Even after facing several embarrass­
ments from official and unofficial en­
quiries, the courts and worldwide indig­
nation, Modi continues to justify the
genocide with his mischievous mech­
anics that it was a mere reaction to
the action in Godhra. The centrally-
appointed Banerjee Commission had
concluded that Godhra was an unfortu­
nate accident. The report, which was
promptly challenged by the state gov­
ernment, need not be taken at face value
but if one goes by who benefited from
the Godhra deaths, there remains scope
to suspect that it could even have been
planned by the Hindutva forces. After
all, it was the subsequent mass killings
of Muslims that won Modi landslide vic­
tories and brought him huge political
mileage so as to be projected as a future
prime ministerial candidate. Godhra thus
presents three equal possibilities: one, it
was an accident; two, it was a criminal
act of some Muslims; and three, it was
a conspiratorial plan of the Hindutva
forces themselves.
Lies of Vibrant Gujarat
Though unconnected to the 2002 kill­
ings, another lie that Modi has systemati­
cally built up over the past decade to
build a shield around him is that he made
Gujarat prosperous and vibrant. This
helped to castigate those who demand
justice for the 2002 victims as being
against the people of Gujarat and to
dodge the issue altogether by saying “ for­
get and move on” . Closing down relief
camps, abruptly Modi declared “ all clear”
and in 2003 launched the biannual
extravaganza called the Vibrant Gujarat
Summit. By offering investors all kinds of
things in a true nawab style, he got many
businessmen to shower praises on him
and project him as true prime minister
Economic & Political weekly MARCH 17, 2012
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candidate. Huge sums were publicised as
committed investments in the memo­
randa of understanding but as the right
to information queries by activists re­
vealed, the actual materialisation re­
mained at a paltry 25%, barely on par
with Maharashtra and Tamil Nadu. In
2003, Gujarat’ s 20 out of 25 districts fig­
ured in the list of 447 backward districts
identified by the Planning Commission,
the top place being Dangs of Gujarat.
The state contributed six districts to the
50 most backward districts in the coun­
try. Gujarat ranks 17th among the 18
larger states in terms of budgetary allo­
cation to the social sector despite its mis­
erable social development indices.
Modi unleashed a massive p r exercise
to project himself as the builder of
vibrant Gujarat. The fact remains that
Gujarat was already amongst the most
industrialised states. Two decades back,
the annual growth rate of Gujarat was
between 12% and 13%, almost double
the national average of 6% to 7%. Today,
it is 11%, marginally above the national
growth rate. By opening the coffers of
the state for industrialists to loot, it has
immensely contributed to the making of
the richest billionaires in the country
but has left the common man high and
dry. According to the India State Hunger
Index 2008 of the International Food Pol­
icy Research Institute, Gujarat is shock­
ingly ranked worse than Orissa at as low
as the 13th among 17 major states, just
above Chhattisgarh, Jharkhand, Bihar
and Madhya Pradesh. Anaemia in Gujarat
shows an alarming rise. The percentage
of women suffering from anaemia in
Gujarat has risen from 46.3% in 1999 to
55.5% in 2004 (Third round of National
Family Health Survey 2006) and that of
children from 74.5% to 80.1%. As state
Congress president Arjun Modhwadia
claimed, 16,000 Gujarati workforce inclu­
ding 9,829 workers, 5,447 farmers and
919 farm labourers committed suicide
during Modi’ s tenure.
Sadbhavana Salt
Without an iota of remorse, Modi
enacted his sadbhavana drama on the
eve of the 10th anniversary of the 2002
genocide without ever visiting any of its
victims. Oblivious to the ghettoisation of
VOL XLVII NO 11
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MARGIN SPEAK
Muslims in Ahmedabad that he cata­
lysed and people still reeling in fear of a
communal conflagration, he picked up
comprador elements from Muslims, dal-
its, Jains, Sikhs, Christians, etc, to road
show his “ communal harmony” . It was
nothing short of rubbing salt into the
wounds of thousands of victims, who
still crave for justice. It is inconceivable
that Modi will ever pay for his sins. We
have such a proven system that works
perfect for the class of moneyed and
powerful but still keeps the masses
hopeful. Ten years of legal battles have
thrown only specks of justice that have
been favourable to him. In a case filed by
Zakia Jafri, widow of slain Congress
former m p Ehsan Jafri, who was killed
along with 66 others in Gulberg Society,
the Supreme Court-appointed Special
Investigation Team (s it ) did not find any
evidence against 62 accused and their
mastermind Modi. So it will be else­
where, the testimony of the suspended
Indian Police Service officer Sanjiv Bhatt
notwithstanding. Modi’ s misdeeds go
beyond the 2002 genocide. There is the
case of Hiren Pandya, whose family has
raised questions about who the real
mastermind behind Hiren Pandya is.
There have been many encounters in
Gujarat of the alleged terrorists who
were out to kill Modi. In one such case in
which I was associated with a fact-find­
ing mission is widely believed to have
been stage-managed: the killing of
19-year-old student, Ishrat Jahan, along
with two others. The case stands opened
up and is being investigated by the s it
but the question is whether justice will
ultimately be done. One can surmise that
most of the so-called terrorist attacks
were also the fabrications, the plots that
served the strategy of Modi-like unscru­
pulous politicians.
The question is, where we go from here?
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The style sheet is posted on epw's web site at
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11
11
 COM M EN TARY
The National Counter
Terrorism Centre
The Creation of the Indian Stasi
SO U T H ASIA H U M AN R IG H T S D O CU M EN T A TIO N CEN TR E
The debate about the central
government’ s attempt to expand
the jurisdiction of the Intelligence
Bureau through the National
Counter Terrorism Centre giving
it policing power under the
Unlawful Activities (Prevention)
Act has focused on the violation
of the Constitution’ s division of
powers between the centre and
T are
the states. This is an important
criticism but the bigger picture
is of the centre taking step after
step to expand its policing powers fail to notice that the centre has been ers;8it permits the central government to
and of the use of the ib as a
police agency which together
risk eroding the civil liberties of
Indians. Parliamentarians, state
governments and civil society
need to pay closer attention to
legislative efforts undertaken in
the name of security lest they
allow a counterterrorism zeal to
wholly abrogate the fundamental
rights chapter of the Constitution. mental rights protections.
South Asia Human Rights Documentation
Centre (ravinairsahrdc@gmail.com) is based in
New Delhi.
12
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disseminate data, intelligence and assess­
ments on terrorists and terrorist threats
across India; to coordinate national and
state agencies for counterterrorism in­
telligence-gathering; and to plan and
coordinate counterterrorism operations.2
It will have three divisions: a collection
and dissemination of intelligence divi­
sion, an analysis division and an opera­
tions division.3The n c t c will be located
Experience should teach us to be most on our within the Intelligence Bureau (ib ),
guard to protect liberty when the govern­
which reports to the Union Ministry of
ment’ s purposes are beneficent. Men born to
freedom are naturally alert to repel invasion
Home Affairs.4 The order permits the
of their liberty by evil-minded rulers. The n c t c operations to begin on 1 March
greatest dangers to liberty lurk in insidious 2012,5 however, its opening is expected
encroachment by men of zeal, well-meaning to be delayed until after further consul­
but without understanding.
tations with the states.6
-Justice Louis Brandeis1
The executive order authorises the
he federalism debates surround­ n c t c to undertake searches, to seize
ing the creation of the National property, to demand information from
Counter Terrorism Centre (n ctc)
skirting the much bigger issue of
other law enforcement and intelligence
agencies, to make arrests, and to requisi­
whether the n c t c is part of a wider exe­ tion India’ s special forces to carry out its
cutive programme to extend the central tasks.7 Section 43A of the Unlawful
government’ s policing powers. While the Activities (Prevention) Act (uapa ), 1967
debates touch on important issues, they provides the legal basis for these pow­
expanding the police powers of many of order an officer of the designated author­
its major security forces, including the ity to arrest any person if s/he has “ rea­
Border Security Force (bsf), the Central son to believe”that person committed an
Reserve Police Force (crpf), the Sashas- unlawful act as defined by the uapa and/
tra Seema Bal (ssb) and the Railway or search any property believed to have
Protection Force (rpf), and has granted been acquired through activities ren­
itself police powers through the National dered illegal by the Act.9 According to
Investigation Agency (nia). Granting the union minister of home affairs, the
intelligence agencies policing powers is order’ s explicit reference to Section 43A
the next step in that process. If per­ implies seizure and arrest procedure laid
mitted, it exponentially increases the down under Section 43B.10 Under Sec­
power of the centre to police Indian tion 2(e), the designated authority can
citizens without constitutional funda­ be a member of the central government
with a rank of joint secretary or higher.11
The executive order establishing the The executive order appoints an officer
n c t c should serve as a wake-up call to of “ the rank of Additional Director”of
parliamentarians, state governments and the ib as the head of the n c t c and as the
civil society to pay closer attention to leg­ designated authority under uapa .12
islative efforts undertaken in the name of
security lest they allow counterterrorism Federalism and Public Order
zeal to wholly abrogate the fundamental The creation of the n c t c has met with
rights chapter of the Constitution. fierce opposition from as many as 10 chief
ministers. India’ s Constitution establishes
The National Counter a federalist structure in which power is
Terrorism Centre divided between the centre and the
The executive order established the states, with some areas of concurrent
n c t c to collect, integrate, analyse and power. One of the primary challenges to
MARCH 17, 2012 VOL XLVII NO 11 Economic & Political w e e k ly

the n c t c is that by giving this central
government body the powers to search,
seize and arrest, the executive over­
stepped its constitutional authority that
treats policing powers and public order
matters strictly as state concerns.13The
states are solely responsible for these
matters according to the Seventh Sched­
ule, List ii of the Constitution.14The cen­
tral government has defended against
these charges by claiming that the order
fits within its constitutional duty to pro­
tect internal security, making an oblique
reference to Article 355.15
The breadth of activities criminalised
by the u a p a as unlawful activities or as
terrorist acts stretches far beyond inter­
nal security threats to cover public order
violations, which means the n c t c ’ s criminalises political opinion without
jurisdiction violates the Constitution’ s the other two elements necessary to
division of powers between the centre
and the states. The Commission on
Centre-State Relations defined internal
security as:
security against threats faced by a country
within its national border, either caused
by inner political turmoil, or provoked,
prompted or proxied by an enemy country
...causing insurgency, terrorism or any other
subversive acts that target innocent citizens,
cause animosity...intended to cause or caus­
ing violence, destroy or attempt to destroy
public and private establishment.16
Based on this definition, a threat to in­
ternal security requires: (1) an intention,
(2) to cause terror, animosity leading to
violence, or the destruction of society or
the government, and (3) using insurgen­
cy, terrorism or other subversive acts.
Under the u a p a , any activity related
to promoting cession or secession, that
“disclaims, questions, disrupts...sover­
eignty and territorial integrity of India”
or that “cause [s] disaffection with India”
is unlawful regardless of any connection
to violence or terrorism.17 It simply tar­
gets unfavourable political beliefs, which
if peaceful should be legal, without re­
quiring an intention to commit insur­
gency, terrorism, incitement to violence
or the destruction of society or the gov­
ernment. For example, passing out
leaflets on behalf of a secessionist move­
ment could result in a u a p a conviction
as abetment to the commission of an
unlawful activity.18Even simply being a
member of an organisation that has
Economic & Political w e e k l y QBBI m a r c h 17, 2012
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been deemed unlawful for undertaking
such advocacy efforts, without any show­
ing that the individual took any steps
to cause violence, terrorism, insurgency
or governmental or societal destruc­
tion, is a punishable offence.19 The
breadth of activities labelled as unlaw­
ful by the u a p a means that the n c t c
would have police powers to investigate
ordinary law and order crimes, which
violates federalism.
Similarly, the u a p a ’
s definition of “ter­
rorist act”is so broad and vague that it
appears to cover any criminal activity as
long as the perpetrator uses a weapon
that could injure another, damage prop­
erty, or disrupt essential supplies or
services.20Whereas, “ unlawful activities”
qualify as a threat to internal security,
“terrorist act”criminalises armed vio­
lence without any requirement of an in­
tention to “ further an underlying politi­
cal or ideological goal” , a basic defining
feature of both terrorism21 and a threat
to internal security. By relying on the
u a p a for its legal basis, the executive
order impermissibly expands the central
government’ s jurisdiction beyond inter­
nal security into public order matters.
Federalism and Police Powers
Critics of the n c t c also complain that
the executive order permits the central
government to “ substitute” its police
powers for that of the states,22 although
the Constitution grants the states sole
jurisdiction over the police.23 As noted
earlier, the central government appears
to justify the n c t c ’
s police powers as
inherent in the executive’ s Article 355
internal security duties.24 n c t c suppor­
ters have argued that giving a central
government agency police powers is
necessary given past failures of state
governments to follow up on counter­
terrorism intelligence25 and fear that
the state police will slow down n c t c
operations.26
It is highly doubtful whether the
central government can ever grant itself
police powers,27 despite its responsibili­
ty for internal security. The Constitution
makes clear that the police are a state
responsibility and allows the central
IL XLVII NO 11
COMMENTARY
government to intervene in policing
only when it is necessary to “ aid civil
power” .28The language of this provision
suggests that the grant of such police
powers is intended to be temporary as
the central government forces only have
them “ while on...deployment” .29 The
Constitution’ s division of jurisdiction
over the railways lends further support
for the point that it intended to wholly
restrict the central government from
employing police powers other than
when a state’ s civil power is failing or
weak. Under the Entry 22 of List 1,
Schedule vn, the central government is
competent to legislate on railways;30yet.
Entry 2 of List 11 places railway police
under the state jurisdiction.31 This divi­
sion of power shows that the Constitu­
tion intended to deprive the central
government of police power even with
respect to matters that otherwise fall
primarily within its jurisdiction.
With respect to a similar debate
regarding the grant of police powers to
the n i a , the Ministry of Law concluded
“that ‘ police’is a State subject and its
functions cannot by a Parliamentary
Law be conferred on an existing or new
Central Police Force except under Article
249 or 252 of the Constitution” .32 In a
discussion with the director of the
Federal Bureau of Investigation (f b i ).
United States, about the n i a , the Union
Minister of Home Affairs P Chidam­
baram conceded:
that he was coming ‘ perilously close to
crossing constitutional limits’in empower­
ing the nia . He explained the concept of a
‘federal’crime does not exist in India, with
law and order the responsibility of the state
governments. Federal law enforcement
agencies, therefore, have to seek permission
of the states in order to become involved
in an investigation. He opined that the nia
law would be challenged in court because
it ascribes certain investigating powers
to the nia , which may be seen to conflict
with responsibility that is exclusively with
the states.33
The central government is attempting
to assuage the states’fears of the n c t c
encroaching on their jurisdiction by
declaring that the state police will be
informed when the n c t c employs its
police powers34 and that standard oper­
ating procedures (s o p s ) will be drafted
to ensure that the state police and n c t c
13
 National Institute of Advanced Studies
Indian Institute of Science Campus, Bangalore 560 012
Tel. 080-22185000, Fax: 080-2218 5028
URL: w w w .n ias.res.in

NIAS DOCTORAL PROGRAM ME

The National Institute of Advanced Studies (NIAS) is a unique Indian institution conducting multidisciplinary research
in areas that bridge the gap between the natural and engineering sciences, social sciences, humanities and the
arts. A limited number of research scholarships are available in the Institute for bright and committed postgraduate
students interested in pursuing independent research across disciplines towards a doctoral degree.

We are admitting exceptional students interested in multidisciplinary research in the areas represented at NIAS,
especially in the following areas for the year 2012-2013:

• Agroecology
• Biosecurity
• Archaeology, Archaeological Science and Art History
• Conflict Studies - Identity Politics
• Consciousness, Self and Well-being Studies
• Economic and Social Issues
• Energy and Climate Policy
• International Strategic and Security Studies
• Urban Studies

Applicants may consult the NIAS website for information on faculty and their research interests (www.nias.res.in).

ELIGIBILITY
The scholarships are open to those who have completed / are completing a Master’s/M.Phil. degree in any relevant
subject in natural sciences, engineering, mathematics, social sciences, humanities or the arts, and with a consistently
proven academic record (minimum 55% marks). Some research and/or field experience in the concerned areas may
be preferred, but is not essential. Candidates who have passed the NET/ SET examinations or qualified for JRF/
DST/ CSIR/ ICSSR fellowships will be preferred.

FELLOWSHIP
Candidates admitted to the NIAS Doctoral Programme will be entitled to fellowships, which will be available for a
period of four years on a yearly renewable basis. The fellowship amount is fixed at Rs. 16,000/- per month for the
first two years and Rs. 18,000/- per month from the third year, with an additional 30% per month as House Rent
Allowance. Limited hostel seats are available on campus.

HOW TO APPLY
Applications should be made on plain paper, including a curriculum vitae, copies of mark sheets and degree
certificates (to be verified at the time of interview) and a clear statement of purpose detailing the research interests
of the candidate and explaining why she/he would like to join NIAS. Explicit mention must be made of the research
areas for which the application is being sent.

Application along with all other documents should be sent as one single PDF document on or before April 10, 2012, to:

Head-Administration
National Institute of Advanced Studies
Indian Institute of Science Campus
Bangalore 560 012, India
phdnias@nias.iisc.ernet.in, jnsandhya@gmail.com

The candidate’s email address, postal address and contact phone numbers (landline and cell) should be included
in the application.

SELECTION PROCEDURE
Short-listed candidates will be invited for a written test and an interview in June 2012. The dates will be informed
later by email.

For additional information, applicants may contact:

jnsandhya@gmail.com, admin@nias.iisc.ernet.in

14 MARCH 17, 2012 v o l x lv ii n o ii GEC9 E con om ic & Political w e e k l y

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will work together.35It also points to the
requirement in u a p a Article 43B that
arrested persons and seized property
must be brought to the nearest police
station to show that ultimately juris­
diction will be returned to the state
police.36 s o p s , assurance of mutual co­
operation and even procedure that even­
tually relinquishes jurisdiction to the
state police cannot save the executive
order if the central government’ s police
powers at all usurp the powers granted
solely to the states by the Constitution.
This last point also applies to the issue
of whether the executive order can be
saved through the consent of the state
governments. The chief ministers oppo­
sing the executive order bitterly com­
plain that the central government unila­
terally created the n c t c whose mandate
and functions encroach on state pow­
ers.37They argue that the n c t c needs to
be established with the consensus of the
states, suggesting that if they had been
consulted, they would not necessarily
oppose the n c t c .38 This argument mis­
understands constitutional supremacy -
states cannot consent to the central
government violating the Constitution.
The chief ministers, however, are
missing the bigger picture. Permitting
the n c t c police powers is part of a much
larger central government campaign to
expand its powers. As already discussed,
Parliament extended police powers to
the n i a , which is mandated to “ investi­
gate and prosecute offences affecting
the sovereignty, security and integrity of
India, security of State”among other
offences.39 Parliament is considering
legislation granting the b s f powers to
search, seize and arrest as part of the
central government’ s internal security
powers.40 The Ministry of Home Affairs
justifies the expansion of these powers
to the b s f in part on the fact that the
Indo-Tibetan Border Police Force and
the s s b , two other centrally adminis­
tered armed forces of the union, already
have them. The central government has
also reserved the authority to confer
policing powers on the c r p f .41 Another
bill has been tabled before Parliament to
grant these powers to the central
government’ s r p f .42 The expansion of
police powers to the n c t c cannot be
Economic & Political w e e k ly DBS3 m a r c h 17, 2012
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viewed in isolation or else one day the
states will wake up to a central govern­
ment armed with full police powers and
in a position akin to that of the chief
minister of Delhi who cannot order the
posting of a traffic constable.43
As a Matter of Policy
Even if granting the n c t c policing
powers is somehow construed as con­
sistent with federalism under the Consti­
tution, as a matter of policy, it must be
rejected. The executive order effectively
grants the i b these powers - powers it
currently does not have44 - despite the
threat they pose to the civil liberties of
all Indians. Traditionally, the role of
intelligence agencies is to gather and
analyse information, turning it into in­
telligence that can inform policy priori­
ties and decisions. India’ s i b is not a law
enforcement agency, which means it is
not governed by statutes that restrict
law enforcement actions to protect civil
liberties.45 In fact, it operates uncon­
strained by the rule of law as they are
not governed by any statute.46
Intelligence agencies everywhere
operate on secrecy and work on the
basis of suspicion. They operate using
cloak-and-dagger techniques, including
through monitoring and surveillance,
which, in India can be conducted by the
ib without any independent oversight or
even the need for official authorisation.
Granting the ib police powers raises the
fear that it will resort to the “ intrusive­
ness, harshness, and deceit”inherent in
intelligence collection to gather evi­
dence from criminal prosecution.47 If
the ib is permitted to operate without
the restrictions placed on the state
police, they are likely to regularly violate
civil liberties to guarantee terrorism
convictions.48 Knowing of the i b ’ s in­
vestigative freedom, it would be far too
easy for the state police to hand crimi­
nal investigations over to the n c t c to
avoid the restrictions placed on them.49
Thus, granting the ib policing powers,
through the n c t c , is likely to end in the
evisceration of civil liberties in the name
of internal security.
History supports the fears that arise
from merging intelligence and law en­
forcement powers, as such a merger has
v o l x l v i i n o 11
COMMENTARY
been linked to totalitarianism. The secret
nature of intelligence work can easily
permit the executive to use its intelligence
agencies to police its opposition into sub­
mission. India’ s intelligence agencies,
and the i b in particular, are already no­
torious for using their resources to moni­
tor political opposition leadership in
hopes of locating information that will
give the government of the day an ad­
vantage; police powers would only in­
crease this risk of abuse.50 The us refu­
sed its intelligence agencies domestic
law enforcement functions51 based pri­
marily on “ fears that a unified intelli­
gence, security, and police force would
tend towards abuses associated with the
Gestapo of Nazi Germany and the Soviet
Union’ s k g b ”.52 Parliamentarians, state
governments and civil society would do
well to heed these lessons from history
and follow the us example.
Conclusions
The central government’ s effort to expand
the jurisdiction of the ib through the
n c t c by permitting it policing power
under the u a p a not only violates the
Constitution’ s division of powers bet­
ween the centre and the states, but also
risks vastly eroding the civil liberties of
Indians. Parliamentarians, state govern­
ments and civil society need to remain
alert to the central government’ s ap­
parent agenda to expand its policing
powers at the expense of the state’ s
ju risd ictio n an d co re d e m ocra tic p rin ­
ciples and rights.
n o t e s ________________________________________
1 Dissenting, Olmstead vs United States, 277 US
438 (1928).
2 Order para 2.5 (on file with author).
3 Order para 2.4.
4 Order para 2.2 .
5 Order para 1.2.
6 “Blow to Anti-Terror Intelligence Hub: NCTC
Will Not Be Operational”from March i, PTI,
Times o f India, 27 February 2012.
7 Order paras 3.2 and 3.5.
8 Order paras 3.1 and 3.2 .
9 43A permits arrest if the officer “ know[s] o f a
design to commit any offence ...or has reason to
believe from personal knowledge or information
given by any person...or from any document...
or any other thing which may furnish evi­
dence”(emphasis added).
10 Vishwa Mohan, “ PC Sends 11-Point Note to CMs
to Allay NCTC Fears” Sunday Times o f India,
26 February 2012.
11 Order para 3.1 read with Unlawful Activities
(Prevention) Act, 1967, Sec 2(e).
15
COMMENTARY
12 Order paras 2.2 and 3.1. The order is sloppily
drafted as para 2.2 describes the “ Head”of the
NCTC, whereas para 3.1 names him/her
“Director” . easily be interpreted as incitement.
13 Text of the DO Letter dated 17 February 2012
addressed by Selvi J Jayalalithaa, the Chief
Minister o f Tamil Nadu to Manmohan Singh,
the Prime Minister o f India, Press Release
No 130, 17 February 2012; “ More CMs Join
Anti-NCTC Chorus” , PTI, Times o f India, 20
February 2012; “ More States Oppose NCTC,
Govt in Firefighting M ode” , TNN, Times of
India, 19 Februry 2012; “ Spies Shouldn’ t Police
Us” , editorial, The Hindu, 19 February 2012;
“What’ s the Fuss on NCTC” , The Sunday Guar­
dian, 17 February 2011.
14 Seventh Schedule, List II, 1and 2, Constitution
o f India.
15 See example, “ PC Defends NCTC” ,“Country’ s
Security Shared Responsibility” , Badu, The
Indian Express> 18 February 2012; “ NCTC Issue:
Mamata Banerjee Snubs P Chidambaram at
NSG” , The Economic Times, 19 February 2012.
Article 355 reads: Duty o f the Union to protect
States against external aggression and internal
disturbance - It shall be the duty of the Union
to protect every State against external aggres­
sion and internal disturbance and to ensure
that the government of every State is carried
on in accordance with the provisions o f this
Constitution.
16 Commission on Centre-State Relations, Report
Volume V, Internal Security, Criminal Justice
and Centre-State Cooperation (2010 para 1.3.02).
17 Section 2(0).
18 Section 13(b). There is some jurisprudence in
support of a requirement that political opin­
ions cannot be punished as criminal without
some connection to violence or incitement, but
even if this is the case, passing out leaflets on
something as sensitive as secession could too
19 Section 10. Courts are not allowed to convict
simply for association with an unlawful organ­
isation, but instead, require evidence that the
person “ resorted to acts o f violence or incited
people to imminent violence or does an act in­
tended to create disorder or disturbance o f
public peace by resort to imminent violence”
See Sri Indra Das vs State o f Assam, (2011)
3 SCC 380 para 7. Again, it is easy to locate
incitement from peaceful advocacy work as long
as talk o f secession is considered inflammatory.
20 The Unlawful Activities (Prevention) Act, 1967
Section 15. The definition appears to require
the armed person to either intend or do som e­
thing likely to cause terror or threaten the
“unity, integrity, security or sovereignty o f India”
Without any definition, terms such as unity,
integrity, security and sovereignty are so broad it
is hard to imagine a criminal activity that would
not be considered likely to harm one o f them.
Additionally, “ terror”could easily be interpreted
by its ordinary definition o f extreme fear; any
armed act is likely to cause extreme fear in any
person who happens to be a witness.
21 The Unlawful Activities (Prevention) Amend­
ment Act, 2008: Repeating the Mistakes o f the
Past, Asia Pacific Human Rights Network,
Human Rights Feature HRF/191/09, 22 Janu­
ary 2009 (citing the UN Special Rapporteur on
the Promotion and Protection o f Human Rights
while Countering Terrorism). See e g, defini­
tion o f “international terrorism”in the United
States Foreign Intelligence Surveillance Act 50
USC 1801(c).
22 “ Put NCTC Order in Abeyance: BJP” ,Asian Age,
22 February 2012.
23 Constitution o f India, Seventh Schedule, List
II (2).
24 “ Spies Shouldn’ t Police Us”, supra note 13.
25 Ibid.
26 “To Tackle Terror, Lets Get Mature” ,Asian Age,
20 February 2012.
27 The Central Bureau o f Investigation is permit­
. ted police powers only with the permission o f
the state government and following their
appointment into a state police station. Delhi
Special Police Establishment Act, 1946, Articles
5 and 6; Central Bureau o f Investigation, “ CBI
and It’ s Roles”, available at http://cbi.nic.in/
aboutus/cbiroles.php.
28 Schedule VII, List I (2A) and List II (2).
29 Schedule VII, List I (2A).
. 30 Schedule VII, List I (22).
31 Schedule VII, List II (2).
32 Commonwealth Human Rights Initiative, Issue
Paper on the National Investigation Agency
Act, 2008, Section B(i), available at www.hu-
manrightsinitiative.org/programmes/aj/police/
india/police-reforms/issues_paper_on_the_
national_investigation_agency_act_2008.pdf.
Neither article applies to the current Executive
order.
33 195165: Steven White, Charge d’ Affaires,
Chidambaram Pledges Counter-Terrorism Co­
operation, March 2009 para 12, available at
www.thehindulcom/news/the-india-cables/
the-cables/articlei55i529.ece.
34 Jayanta Gupta, “ War o f Nerves between Cen­
tre, Mamata Intensifies over NCTC” , Times o f
India, 18 February 2012.

First National Conference of the

Health Economics Association of India
The Health Economics Association of India (HEAI) and the Public Health Foundation of India (PHFI) will
co-host a two day conference on Universal Health Coverage (UHC, 11-12th April, 2012) followed by a one
day Post-Conference symposium (13th April, 2012) involving several technical sessions on health economics.

Several national and international experts, policy makers, civil society groups, academia and media would
participate in the three day deliberations. The conference is expected to deliberate and discuss the ways
and means of advancing the agenda and key challenges of achieving UHC.

Several plenary and panel discussions are planned to be organized during the conference. Some of the
broad themes of the conference would include: i) health financing, ii) health workforce, iii) access to medicines,
iv) governance and institutional capacities; v) social determinants of health, etc.

Efforts will be made to financially support participants for their travel, boarding and lodging. Students and
researchers will be reimbursed travel expenses for the shortest round trip (AC 3-tier) train fares. Other
participants will be reimbursed for shortest distance airfare (economy class). Due to limited funding availability,
participants are encouraged to contact us at the earliest.

Interested participants may contact us at healtheconindia@ gm ail.com for membership and registration
details. You may also visit our website www.heai.org.in for further details or contact us at 011-49566000
Ext. 6008 and Ext. 6055.

Dr. Gita Sen Dr. Sakthivel Selvaraj

President, HEAI General Secretary, HEAI

16 MARCH 17, 2012 v o l x l v h NO li OSSI Economic & Political w e b k ly

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35 Mohua Chatterjee and Vishwa Mohan, “ NCTC
Looks Uncertain, Mamata Says It’ s on Hold” ,
Times of India, 23 February 2012.
36 “Blow to Anti-Terror Intelligence Hub” , supra
note 6.
37 Text of the DO Letter, supra note 13; “More CMs
Join Anti-NCTC Chorus” , supra note 13.
38 Text of the DO Letter, supra note 13; “ Parlia­
mentary Panel Tells Government to Put NCTC
Plan on Hold” , The Hindustan Times, 21 Febru­
ary 2012.
39 See Preamble o f the National Investigation
Agency Act, 2008.
40 Para 1.1.1,154th Report on the Border Security
Force (Amendment) Bill (2011), November 2011,
Department-related Parliamentary Standing
Committee on Home Affairs, Rajya Sabha, Par­
liament of India.
41 154th Report on the BSF (Amendment) Bill
2011, Para 1.8.
42 “Railway Protection Force Bill to be Introduced
in Parliament” , PTI, The Hindu, 17 November
2011.
43 See, e g, “ No Statehood for Delhi: Dikshit”
TNN, Times of India, 3 August 2004.
44 Namrata Biji Ahuja, “ NCTC Can Arrest, Search,
Seek Info” ,Asian Age, 18 February 2011.
45 See Stewart A Baker, “ Should Spies Be Cops?” , 50 Federation of American Scientists “
97Foreign Policy, Winter 1994-95, at 40.
46 Manish Tewari recently proposed a private
member’ s bill to govern the IB, the Research &
Analysis Wing and the National Technical Re­
search Organisation ostensibly to place these
agencies under the rule of law. The bill does lit­
tle more than maintains the opacity of the in­
telligence agencies and consolidates the execu­
tive’s power over them. For a full commentary,
see South Asia Human Rights Documentation
Centre, “Not a Very Intelligent Attempt at Intel­
ligence Reform” , Economic & Political Weekly,
24 December 2011.
47 Baker, supra note 46 at 40.
48 Baker, supra note at 40. An alternative, of
course, is to require the intelligence agencies to
undertake its activities within the limits of due
process of the law. This may be unsatisfactory
given the different purpose of intelligence­
gathering. Criminal prosecutions demand hard
evidence, while intelligence gathering is often
impressionistic. Even when intelligence agen­
cies have that hard evidence, in order to follow
through with prosecutions, they may need to
, turn over sources that may be more valuable
for other purposes and will not want identified.
Baker, supra note At 42.
49 See Baker, supra note.
COMMENTARY
Intelligence
Bureaus” , available at http://www.globalsecu-
rity.org/intell/world/india/ib.htm; See also,
Swapan Dasgupta, “ The Indolent Giant - India
Must Modernise Its Intelligence Gathering
Machinery” , The Telegraph, 9 January 2009;
see also, Bibhuti Bhushan Nandy former addi­
tional secretary, cabinet secretariat, R&AW
and direct general (redt), Indo-Tibetan Border
Police, “ R&AW and die Cooked” , The Hindustan
Times, 21 June 2002 (“ the IB is unable to reach
its full potential because it wastes a great deal
o f its time, manpower and other resources in
political snooping” ); James Burch, “ A Domestic
Intelligence Agency for the United States? A
Comparative Analysis of Domestic Intelligence
Agencies and Their Implications for Homeland
Security” , Homeland Security Affairs: The Jour­
nal of the Naval Postgraduate School Centre for
Homeland Defense and Security, Vol 3, No 2,
June 2007, available from http://www.hsaj.
org/?fullarticle=3.2.2.
51 Baker, supra note 46 at 36.
52 Fred F Manget, “ Intelligence and the Criminal
Law System, Symposium Spies, Secrets, and
Security: The New Law of Intelligence Over­
sight of Intelligence” , 17 Stanford Law & Policy
Review, 415,416 (2006).

Those Enemies of Freedom conferencing with Rushdie had to be

cancelled due to protest by Muslim
groups), were questioning, almost grilling
(rightly so), Salim Engineer of the Jamaat-
SA RO J G IR I______________________________________ e-Islami who was opposing Rushdie.
They were saying that yes indeed the
Why does the political agency of eave out the vested interests and Muslim community has been at the
the Muslims and other so-called
marginalised groups, so often
end up arrayed against the liberal
L the self-styled spokespersons of receiving end in this country and are
the Muslim community, including mostly deprived, yes they need support.
the vote-bank politicians; also leave out But then they posed the question, depri­
the “sectarian attitude” ,“closed minds” vation is a concrete issue which you (like
values of secularism, freedom of and so on. Is there not something more the Jamaat-e-Islami) should be concen­
speech and liberty? This article than just this in the opposition by Mus­ trating on rather than raking up issues
lim groups to the freedom of expression that do not help the community. Is Islam
argues that the structure of
in the recent Salman Rushdie affair? In so vulnerable that the writings of one
politics in the Indian republic is other words, sectarian opposition by a man can undo its glory and greatness?
such that any marginalised group minority group might not always be “ yet Indeed, the enlightened and progres­
wanting to exercise autonomous another instance”of the “ atmosphere of sive liberals questioned, how will stop­
intolerance in society” , or of the suppres­ ping Rushdie help in solving the socio­
political agency beyond the
sion of dissent and artistic freedom and economic deprivation of Muslims in this
paternalistic reform allowed by other such generalities. It might instead country? Further, the panellists declared
the state, will end up appearing indicate something else. how some of them have been at the fore­
sectarian and illiberal. That it might have a different specifi­ front of the fight for the rights of Muslims,
city was already indicated by the nature that they are no Muslim-haters - but this
of some of the arguments defending free opposition to Rushdie and the under­
expression and supporting Rushdie’ s mining of artistic freedom cannot be
participation in the Jaipur Literature accepted and is totally irrational.
Festival (j l f ). At least one major defence So far, so good. But how come the
of this freedom was not really about debate over the pros and cons of free­
free speech as such but about socio­ dom of speech and expression ended up
economic deprivation. focusing on socio-economic deprivation
On the last day of the j l f , enlightened and rights? One can argue that this is very
Saroj Giri (saroj_giri@yahoo.com) teaches and progressive liberals, saddened and positive and points to a socially sensitive
political science at the University of Delhi.
angered by the turn of events (the video idea of freedom of expression. However,

Economic & Political w e e k ly BSQj m a r c h 17, 2012 v o l x l v i i n o 11 17

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COMMENTARY

these progressive liberal arguments are
actually structured fundamentally by a
pernicious division they uphold (all the
more worse because it is not subjectively
so intended): freedom of expression and
artistic freedom is the preserve of a select
few people, while socio-economic rights
are for the others. There is here an
apportioning of needs and desires, of
capacities and talents, of the high political
and the lowly socio-economic needs,
marking the asymmetries.
The realm of radical thinking, creative
expression and, in that sense, of politics
and freedom here somehow begins
beyond the socio-economic realm - so
that those in the latter category simply
cannot, and perhaps are not supposed to,
make it to the rarefied realms of “freedom” .
Freedom of expression becomes actually
the freedom of only those who are beyond
socio-economic need - hence not a uni­
versal value, as is claimed. Freedom here
applies only to a handful of people,
which often translates into a Hindu upper-
caste elite, mostly male. And yet it is
touted as a general and universal free­
dom of expression - and those opposing
as just “ enemies of freedom” . mentation of the rule of law, invoking
If this freedom is limited to a small
minority, hence a particular and not a
universal freedom, then opposition to it
must, in all likelihood, be more than just
what can be captured in generalities. In­
deed it turns out to possess a specificity
deriving from the status of Muslims as a
deprived and oppressed community.
And here socio-economic deprivation is,
as we saw, acknowledged but this is
done with an expectation that they will
only be passive beneficiaries of welfare
or quotas. In other words, what is fatally
overlooked is that they might not thus
remain passive but might, with all their
“ backwardness”and “ parochial attitudes”,
push themselves into the more rarefied
and higher realms like freedom of ex­
pression - giving you “ illiberalism” ,“end
of rational politics” and other such
and such like. But it is unwilling to
accept that this lame reformism of em­
powerment might now be short circuited
by the “ deprived”who now rush head­
long, sometimes with raw energy (fun­
damentalism?), towards participating in
(destroying?) the “ higher political realm”
of freedom, making politics irrational
and all that.
Empowerment then appears to have
actually been “ containment” . Breaking
this containment therefore has a positive
mass impulse in spite of being illiberal,
and regardless of the role of corrupt lead­
ers and politicians who are apparently
fomenting all this. This is not entirely dif­
ferent from dalit masses who want to
break out of this empowerment/contain-
ment syndrome notwithstanding their
deep involvement in quota politics. Maya­
wati might be corrupt and supposedly en­
couraging interest-based (and hence not
“ rational”) politics but she is riding on
this definite political impulse of the dalits.
Even when this empowerment of
Muslims is combined with something
like protection from the onslaught of
Hindu extremists (through strict imple­
constitutional provisions and so on), the
liberal-secular framework still does not
seem to suffice - so that some kind of
political activity from Muslims cannot
be con tain ed from sp illin g over. Liberal­
ism and secularism seem somehow de­
signed to arrest this spillover political
activity and subjective articulation of
Muslims. They however fail: so you have
the opposition to freedom of expression.
This failure can also have extreme conse­
quences as with certain terror groups that
declare that they are trying to fix what
they understand to be the predicament
JAMIA MILLIA ISLAMIA
Jamia Nuuar. New
ADVT. NO. 06/2011-12 DATED 24.02.2012
Applications on the prescribed forms are invited fo r teaching and non-teaching positions in Jamia Millia Islamia,
New Delhi-110025. The application form , advertisem ent and qualifications are available on Jam ia's website
of Muslims. At this level the state res­
ponds through security-centric measures,
including false encounters and extra­
judicial killings, against which the pro­
gressive approach can now claim to be
really progressive and hence to be de­
fended. Between these two - the pure
security-centric approach and the socio­
economic approach - it feels like there is
no other option.
Instead of fighting for basic amenities
the masses will now get all agitated over
issues and debates that in the liberal
framework apparently do not and perhaps
should not concern them - issues of free­
dom of expression and what is written in
books that they never will read. Indeed
which protesting Muslim would have read
Satanic Verses and verified that there
was indeed something “ blasphemous”-
enough material again to bemoan the
rise of uninformed debates and irrational
politics. So the insistence: “ Salim saab,
why don’ t you and your organisation
focus on the socio-economic upliftment
of the Muslims”and one may add, leave
the rest to us (or join the political realm
on our terms). It is against this demand,
this handing out of a role, this distribu­
tion of whose brief is the merely socio­
economic and whose is the wider realm
of politics and freedom - it is precisely
against this that the irrational opposi­
tion to freed om of exp ression seems to
be directed.
There seems to be some kind of a law
at work here: when those cut out for the
socio-economic role (the marginalised
as they are called) assume a properly
political agency, they somehow end up
being less-than-liberal, or less than dem­
ocratic or secular - and hence initiating
irrational politics. Muslims bring in
D elhi - 110025

“ problems” , including sometimes violence.
The liberal elite is willing to acknowl­
edge socio-economic deprivation (hence
its praise for the Sachar Committee find­
ings) but is loathe in accepting its auto­
nomous articulation or its political con­
http://jm i.ac.in. The application form may be downloaded and subm itted along w ith the application fee o f Rs. 100/-
(Rupees 50/- fo r SC/ST candidates and free fo r Disabled Person on producing the photocopy o f relevant certificate)
through Bank D raft/lPO drawn in favour of Jamia M illia Islam ia, New Delhi-110025. The application form complete in
all respect should reach on OR before 19.03.2012 in the O ffice o f the Assistant R egistrar (RPS), Room No. 202,
2nd Floor, Registrar's Office, Khayaban-e-Ajmal, Jamia M illia Islam ia, Jamia Nagar, New Delhi-110025, during
working days between 10:00 A.M. toO l :00 P.M. (Friday upto 12:00 Noon). Number o f vacancies, with nature indicated
in the advertisem ent may vary at the tim e of Selection Committee. (Prof s M s a jid )

sequences. It pushes for empowerment D ated: 24.02.2012 R e g istra r

18 MARCH 17, 2012 VOL XLVII NO 11 Economic & Political w e e k l y

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sectarianism, dalits bring in irrational,
interest-based politics, adivasis resisting
bring in violence, north-easterners bring
in insurgency, Kashmiris militancy and
so on. Long back, Muslims (but dalits too)
had refused to be mere beneficiaries of
secularism and had asked for separate
electorates for their unhindered political
development. They then came across as
sectarian and divisive vis-^-vis the Hindu
elite which could (always already) present
itself as liberal, democratic and secular. So
an otherwise modem and secular Jinnah
then somehow had to, one way or another,
end up being communal or sectarian. The
Social Science Research in India
in a Medium-term Perspective
RAVI SRIVASTAVA____________________________
A recent two-day international
conference organised by the
Indian Council for Social
Science Research saw extended
discussions by a host of social
scientists and institutional
representatives on the role and
challenges confronting Indian
social science. It was felt that
fiscal strengthening of social
science research needed to go
hand in hand with appropriate
institutional strategies and policy
reform. The announcement of a
series of new initiatives by the
Ministry of Human Resource
Development appeared to signal a
larger role for the social sciences
in India.
Ravi Srivastava (ravisriv@gma.il com) is
with the Centre for the Study of Regional
Development, Jawaharlal Nehru University,
New Delhi.
Economic & Political w e e k l y D3Q m a r c h 17, 2012
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most conservative and sectarian Hindu
Baniya leader did not have to come across
as just that - the field was laid out for him
to uphold secularism, liberal democracy
and so on. Hindu unity so nicely aligned
with Indian nationalism, while Muslim
unity could be easily maligned as com-
munalism - perhaps the most oppressive
equation afflicting Indian politics.
Similarly today whenever the Muslim
breaks out of his passive socio-economic
beneficiary role and gets active beyond
the liberal-secular framework, he almost
inevitably finds himself opposing “ freedom
of expression”and standing in favour of
he Indian Council for Social Sci­
T ence Research ( i c s s r ) organised
a two-day international confer­
ence on social science research in India
on 6 and 7 February 2012, focusing on
the challenges it faces and the role of
the i c s s r .
The background note to the confer­
ence focused on six main themes. Briefly,
these themes related to an assessment of
(i) the role, relevance and challenges
confronting the social sciences in the
emerging global scenario; (ii) Indian
social sciences vis-a-vis the state of so­
cial science research in other emerging
societies and economies of the world;
(iii) how social science research could
meet the emerging priorities of strength­
ening teaching and research in India;
(iv) the manner in which such research
could be linked to the policy concerns of
a diverse, democratic and developing
country like India; (v) the emerging con­
cerns of Indian social sciences in rela­
tion to funding, institution building, pri­
orities setting, knowledge perspectives
and building communities of scholars;
and (vi) the role of the i c s s r in the light
of relevant international experience.
The conference was held in the con­
text of the report of a committee set up
v o l x l v i i n o 11
COMMENTARY
closed minds and a sectarian attitude.
His opposition then gets reduced to a case
of general intolerance in society and
things like that. It is against this reduc­
tion and appropriation that we must
speak out for there is, I would argue, a
serious political dimension to this oppo­
sition, allowing Muslims to directly parti­
cipate in the political realm, in the realm
of higher values of freedom and creative
expression! And given their deprivation,
perhaps the only way they can partici­
pate is in this perverted form of stopping
your freedom, often through sectarianism
and violence.
by the Ministry of Human Resource
Development (m h r d ) and chaired by
Deepak Nayyar in 2011 (henceforth
Nayyar Committee), to review the func­
tioning of the i c s s r as well as the insti­
tutes supported by it, and to make rec­
ommendations so that the “ Council be­
comes a relevant catalyst towards im­
proving the quality of research in social
sciences”(p 1).1
It might be recalled that in the past,
the i c s s r itself had set up independent
committees to review its role, function­
ing and constraints. The last review
committee set up by the i c s s r , the
fourth such, and chaired by A Vaidya-
nathan, had submitted its report to the
council. These reports had gathered
dust since most of their recommenda­
tions were in the domain of the govern­
ment rather than the council. The Nay­
yar Committee, by contrast, was set up
by the government itself, suggesting
some change in attitude towards social
science research. Undoubtedly, one of
the motivations of the conference was to
refocus the attention of the government
and other stakeholders on the state of
the social sciences and on the corrective
measures that needed to be taken.
Quality of Social Science Research
The issue of quality of social science
research in India was posed at the very
outset of the conference by Pranab Bard-
han in his keynote address to stimulate
and provoke discussion on this subject.
Based on his survey of a few leading
international journals in economics and
19
 sociology, Bardhan argued that Indian
economists and sociologists contributed
to a very tiny proportion of papers in
these journals and this compared un­
favourably to papers, say, by Chinese so­
cial scientists. According to him, Indian
social science institutions tended to set­
tle at various levels of equilibrium with
virtually no movement over time from
lower to higher levels. The net result was
the well-known fact that none of the
Indian institutions figured in the top 200
institutions internationally. In contrast,
some of the best Chinese institutions
had been able to scale-up research and
had upgraded their international rank­
ing over time.
Inaugurating the conference after
Bardhan’ s keynote address, Union Min­
ister for Human Resource Development
Kapil Sibal departed from his prepared
text and argued that comparisons regard­
ing “ quality”were not meaningful when
void of context. He pointed to the vastly
different funding levels and infrastruc­
ture in India and the United States (us),
and the very different institutional strat­
egies pursued in China, many of which
were not feasible in India. There was not
much agreement on Bardhan’ s assess­
ment of the “ abysmal”quality of Indian
social science research. Partha Chatter-
jee and Jan Breman pointed out that
Indian research addressed a different
“ public” and was more engaged with
keep in mind. These were quality, mak­
ing a difference, independence, ethics
and transparency.
There was general agreement that,
whatever the parameters used, the
quality of research was uneven across
institutions, regions, and even cities. A
great deal of research was concentrated
in a few institutions and in a few loca­
tions in India. In this context, the issue
of promoting excellence through sup­
port to select well-performing institu­
tions came up in several presentations.
The German programme was outlined by
Axel Michaels of Heidelberg University.
Alsop pointed out that 50% of e s r c
research funding went to 12 universities
in the u k . He argued that a few big
world class performers were much to be
preferred to a large number of second-
rate institutions.
However, S K Thorat, chairman of
i c s s r and former chairman of the Uni­
versity Grants Commission ( u g c ) pointed
out that while in the west, a certain level
of quality could be presumed to exist
throughout the system, in India, the basic
ingredients of quality needed to be sup­
ported system-wide, while also support­
ing excellence through competitive peer
review processes. Srivastava suggested
Training Programme in
Statistical Software for
that research capacity was one of the
key determinants of quality and this ca­
pacity was very low when judged against
the size of the higher education sector.
There were many reasons for this, in­
cluding the quality of education at all
levels and the lack of a research culture
in higher education. Stating that nearly
half of the three lakh teachers in higher
education did not have a research degree
(PhD or even MPhil), he suggested that
the aim of the research system should
be to build adequate research capacity
throughout the system, while promoting
quality and excellence selectively.
Neglect of Teaching
Ghanshyam Shah and some other speak­
ers pointed out that the malaise of poor
research quality also lay in the neglect of
social science departments in the univer­
sities. Nearly 50% of teaching positions
in universities were vacant. The increa­
sed load of teaching an increasing
number of students was met by ad hoc
teaching faculty or by overburdening the
existing staff, not leaving time for them
to read and reflect. In the given milieu,
they do not have the time and aptitude to
grasp available research findings in their
disciplines, not to speak of undertaking

social reality than its counterpart in the
global North. This also influenced how
and where researchers chose to publish.
Several speakers underscored the fact
that citation indices had very poor
coverage of journals in India and in the
global South.
The general view was that Indian
social sciences needed to develop strong
and independent quality benchmarks.
Peer review systems, despite their limi­
tations, could form the bedrock of such
benchmarks. Adrian Alsop, director for
Research and International Strategy at
the United Kingdom’ s ( u k ) Economic
and Social Research Council ( e s r c )
pointed out that peer review systems
had emerged as an international bench­
mark for quality and excellence. Alsop
mentioned five features of research that
researchers and institutions needed to
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m a r c h 17, 2012 v o l x l v i i n o 11 GEES E con om ic & P olitical w e e k l y

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research. The processes of improving
quality of teaching and research needed
to be undertaken simultaneously, not
only in metropolitan cities but also in the
universities and colleges in taluka towns.
Other speakers, notably Yogendra
Yadav, said that attention needed to be
paid to social science teaching in regional
languages and to research in these lan­
guages. While it was not denied that re­
searchers would need to know and have
access to knowledge materials in Eng­
lish, there was also need to address re­
quirements of quality texts in regional
languages as well as encourage research
through these languages. Jayati Ghosh
pointed out that the increasing privatisa­
tion and corporatisation of research was
creating a distorted incentive structure
in research and a large proportion of
both internal (governmental) and exter­
nal funding compromised the integrity
and independence of research.
The Direction(s) of Research
A fair amount of attention in the confer­
ence was focused on the role and rele­
vance of social science research, chal­
lenges in the current context, and ap­
proaches. A general view that emerged
was that social reality was changing rap­
idly and in unforeseen ways and social
scientists needed to engage with it,
evolving suitable frameworks and meth­
ods for study.
Ghanshyam Shah felt that social sci­
ence theories developed in the 20th cen­
tury - whether social, economic, demo­
cratic system theories, formulated with
different perspectives - have at the most
limited explanatory capacity in the cur­
rent context. They need to be revisited
and their premises and postulates need
to be interrogated. Partha Chatterjee
and C P Chandrasekhar and various oth­
ers pointed to the tendency towards ho­
mogenisation of structures in teaching
and research originating from metro­
politan centres. Often these are adopted
without practical engagement. Chan­
drasekhar cautioned Indian social scien­
tists against importing methods and
analyses that have failed in their origi­
nal contexts.
Ashwani Saith, and several other
speakers, said that it was important to
Economic & Political w e e k l y QSS3 m a r c h 17, 2012
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All use subject to https://about.jstor.org/terms
encourage the social sciences to be criti­
cal and to counter hegemonic voices. Jan
Breman in his presentation was of the
view that there was tension in the devel­
opment of social science research from
its very beginnings. Was its role an in­
strument of policy or one that encour­
aged critical theorising and challenged
hegemonic assumptions? He felt that In­
dian social sciences could not be built on
western paradigms and assumptions;
neo-liberalism had disembedded the
economy from society at the global level
and the “ great transformation”from an
agrarian to an industrial society envis­
aged by Polanyi had been thwarted in
postcolonial societies, necessitating a
new development paradigm and new
modes of thinking.
Jan Breman also reflected on the ex­
tent to which disciplinary boundaries in
the social sciences were important and
argued for a historicised multidiscipli­
nary approach in which the different
social sciences disciplines could collabo­
rate closely. There was some debate on
whether, and to what extent, Indian
social sciences could be developed on
entirely fresh and non-western para­
digms but it was generally accepted that
Indian social sciences could be based
on pluralistic approaches and encourage
independence, tolerance, and rigour.
There was an extended discussion on
the current societal challenges which
social scientists needed to engage with,
and the nature of this engagement, in
the presentations by Pranab Bardhan,
Ghanshyam Shah, Sonalde Desai, Prabhat
Patnaik and Jayati Ghosh, among others.
Prabhat Patnaik argued that economists
and perhaps also other social scientists
should be engaged in analysing the
effects of the structural crisis of capital­
ism, which had manifested itself in the
food crisis in developing countries and
unemployment in the western world and
lately in the form of the economic crisis
of 2008 onwards.
Many of the speakers dwelt on the
relationship of social science research
with public policy. Social scientists were
constantly engaged with praxis, and
hence also policy. As Thorat pointed out,
the absence of sound research led to policy
formulation based on conjectures or
v o l x l v i i n o 11
COMMENTARY
ad hoc assumptions. But many speakers
spoke of the value of independent re­
search in relation to policy. Moreover,
Ghanshyam Shah, in his presentation,
argued that public policy could not be
reduced merely to state and government
policy for governance, though, this was
of course important. He argued that pub­
lic policy relates to society as a whole,
and involves cultural, social, economic,
and ecological aspects. Various dimen­
sions of policy originate and/or are de­
bated in the public sphere. Social science
research plays a catalysing role in the
process. A researcher should not be
accountable to the policymaker or the
sponsor for the nature of her/his findings.
But that did not mean that a researcher
was accountable to no one. Any research
required well-argued theoretical groun­
ding and methodological rigour and
openness to critical examination by the
fellow social scientists, more so when it
received support from public funds.
Financial Issues
and Institutional Strategies
At the current time, the two main insti­
tutions responsible for funding of social
science research in India were the u g c
and the i c s s r . The u g c ’
s mandate was
to provide plan funds to a class of uni­
versities and colleges which fulfilled
certain criteria and became eligible for
such funding (under 12(B) of the u g c
Act). Non-plan funds are also provided
to certain central institutions. Individu­
als in these institutions also became eli­
gible for funding. On the other hand, in­
dividuals working in a whole range of
university and non-university institu­
tions (even research n g o s fulfilling cer­
tain criteria) were eligible for i c s s r
grants, but the i c s s r extended institu­
tional support only to 26 research insti­
tutes, often called the i c s s r institutes.
However, in their case, i c s s r covered
only a portion of their salary and non­
salary budgets. Government depart­
ments in the centre and states, inter­
national agencies and donors, and the
private corporate sector have also been
funding such research.
Speakers referred to the limitations
and constraints on each of these sources
pointed out by the Fourth i c s s r Review
21
COMMENTARY == ■
: : ; = ;z z : =
Committee chaired by A Vaidyanathan
as well as by the Nayyar Committee. The
ugc and the icssr were the only apex
institutions undertaking measures both
for research promotion and capacity
building. But only a small proportion of
the ugc’ s budget supported social sci­
ence research. On the other hand, the
icssr ’
s small budget was mainly ab­
sorbed in meeting administrative costs
and funding the icssr institutes, leaving
very few resources available for building
capacity in the larger system, though
this was a core mandate of the council.
Unsurprisingly, there was a broad con­
sensus in the conference on the signifi­
cant underfunding of social science re­
search in India. Thorat outlined the con­
clusions of the Nayyar Committee, which
had felt that the budget of the council
needed to be stepped up 20 times to be in
line with science-based disciplines. Ravi
Srivastava said that the Nayyar Commit­
tee had derived resource requirements
normatively, i e, in comparison with the
level of funding for scientific research.
But a subgroup set up by the mhrd to
work out the financial requirements for
the three councils - the icssr , the Indian
Council of Historical Research (ichr)
and the Indian Council of Philosophical
Research (icpr) had derived the finan­
cial requirements for social science re­
search over the next five years from the
point of view of strengthening capacity
and improving quality. It had budgeted
for an expansion of doctoral and post­
doctoral support, research in both respon­
sive and strategic modes, a higher level of
international collaboration and a 100%
level of basic support to the icssr insti­
tutes, estimating the overall financial re­
quirements for supporting the research
“ software”to be about Rs 9,500 crore.
He said that while budgetary resources
could be galvanised by the icssr from
government departments and the Plan­
ning Commission through memoranda
of understanding (mous) establishing
arms-length relationships (a point also
made by Abhijit Sen of the Planning
Commission), its core budget needed to
expand to guarantee independent fund­
ing for capacity building and research
support. Bakul Dholakia (a member of
the Nayyar Committee) said that the
22
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ee
committee was strongly of the view that It was clear that in the views of the
the core salary and non-salary require­ speakers, fiscal strengthening of social
ments of the icssr institutes should be science research needed to go hand in
met by budgetary support from the icssr hand with learning from experience, de­
so that the institutes could devote great­ velopment of appropriate institutional
er attention to high value research. strategies and suitable policy reform to
There was considerable scope for invigorate social science research at a
learning from international experience countrywide level.
regarding institutional strategies, res­
ponses and processes, while dovetailing Concluding Notes
these to the requirements of Indian social The stated purpose of the conference
sciences. Alsop summarised the e s r c was for the icssr to use the discussions
and international institutional strategies for setting its own agenda over the
and challenges in terms of the following medium term. An unstated purpose ap­
objectives: deciding between respon­ peared to be to sensitise and influence
sive and strategic funding and on the government and other stakeholders to
degree of concentration and selectivity; the role and relevance of social science
transcending disciplinary boundaries; research in India and its constraints.
developing human capacity and deve­ To a great extent, the conference did
loping data resources. seem to have achieved these objectives.
Partha Chatterjee summed up the The participation was large and included
mood of the conference in his concluding more than 300 Indian social scientists of
valedictory address when he stated that different vintages, nearly a score o f par­
underfunding of social science research ticipants from abroad, almost all the ma­
and the i c s s r was indeed a key issue, but jor stakeholders and the principal actors
that addressing this by itself did not in the mhrd and central government,
guarantee a commensurate increase in and icssr ’ s counterpart agencies from
research capacity. He, and many other abroad. The discussions should provide
speakers, including Zoya Hasan and a rich agenda for developing an appro­
T S Papola, pointed out that the gulf priate institutional strategy.
between teaching and research needed An immediate concrete outcome of
to be bridged on both sides of the divide. this conference was the announcement
There needed to be debureaucratisation by Kapil Sibal, in his inaugural address,
of funding structures and a strengthen­ of several measures to support the
ing of the culture of research in institu­ strengthening of social science research
tions. Dholakia felt that the fragmenta­ and teaching, pending concrete follow­
tion of social science and humanities up of the recommendations of the
councils was unproductive. Nayyar Committee by his ministry.
E conom ic& P oliticalw E E K L Y
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MARCH 17, 2012 v o l XLVii NO l i CUES Economic & Political w e e k l y
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He announced the setting up of 10 na­
tional awards in the social sciences on
the lines of the S S Bhatnagar Award for
scientific research; a Teaching Capacity
Recharge Initiative with the objective of
bringing back social science scholars
from other countries, particularly those
who went abroad to study and have
completed their PhD in the recent past.
Other initiatives included a National
Programme for Capacity Building of
Teachers in Social Sciences, under which
Tea Smallholdings in Assam
Is There a Way Out?
KALYAN DAS
With the declining
competitiveness of tea estates,
smallholdings have emerged as a
major producer of tea in Assam.
Yet despite higher productivity
and lower outsourced labour
costs, and regardless of market
conditions, tea smallholdings
remain at the mercy of estate
processing factories in price
determination. The Sri Lankan
model of price fixation and
regulatory support can prove
useful in this sector,
but the current acreage definition
for smallholdings needs to
be lowered.
Kalyan Das (kalyanaugust@ yahoo.com ) is
w ith the O m eo Kumar Das Institute o f Social
C hange and Developm ent, Guwahati.
Economic & Political w e e k l y BOSS
publication and translation of good qual­
ity teaching material and “ readers”will
be supported and a virtual resource cen­
tre set up; setting up of a virtual Nation­
al Social Science Research Innovation
Centre under the i c s s r in order to make
advanced research resources available to
researchers, and promote training and
capacity building in new and frontier re­
search methodologies in the social sci­
ences, through strengthening of existing
institutions. Although there was not
mallholders producing tea in Assam
S are facing a crisis of anxiety and
uncertainty over prices they re­
ceive for supplying raw tea leaves to the
large estates and bought leaf tea
factories. The smallholders having no
processing factories of their own, and
hence depend entirely on the large es­
tates and bought leaf tea factories to sell
their output. The deceleration of the
price of raw tea leaves has been so rapid
in recent months that the price offered
by the large estates factories has come
down from Rs 21 per kg in August 2011
to Rs 4 in October 2011. This large dec­
line has brought issues of distributive
justice to the fore, creating uproar and
protest among the tea smallholders.
There have also been demands for state
intervention for a mechanism that
ensures a fair price for the raw leaves.1
The protest is so anguished that in one
single day on 15 October 2011, the small­
holders threw 10 lakh kg of tea leaves
on the highways.
This is not the first time that tea small­
holders are facing a crisis over uncertain
prices. The history can be traced back to
the year 2000, with periodic returns of
low prices, with no linkages to the coun­
try’s or region’ s tea market price.2 The
uncertain prices of raw tea leaves and
the dependence of smallholders on the
large estate factories raise questions of
m a r c h 17, 2012 v o l x l v i i n o 11
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All use subject to https://about.jstor.org/terms
COMMENTARY
much discussion at the conference of
these announcements, they appeared to
signal an acknowledgement of the larger
role for the social sciences and social sci­
ence research in India.
n o t e _____________________________________________
1 The other members were Bakul Dholakia and
Kirit Parikh. See “Report o f the Committee
Constituted by the Government of India to Re­
view the Functioning o f ICSSR”, New Delhi, 28
June 2011. Accessed on 1 March 2012: http://
mhrd.gov.in/sites/upload_files/mhrd/files/Fi-
nal-Report-ICSSR.pdf.
distributive justice and the sustainability
of tea smallholdings.
Space for Tea Smallholdings
Production and productivity trends in
some tea-producing regions in the world
show an encouraging picture. Tea culti­
vation in Kenya, based primarily on
smaller sized plantations with an aver­
age holding of about two acres, has
emerged as a major producer. The aver­
age productivity for Kenyan tea has now
reached 2,100 kg per hectare, much
higher than the average productivity in
India of around 1,700 kg.
In Sri Lanka, tea smallholdings, 97%
of which are less than two acres of land,
account for just 44% of the total tea
plantations area, but contribute 66% o f
the country’ s total production, accord­
ing to a census of tea smallholdings of Sri
Lanka in 2005. According to de Silva
(1982), there is no criterion stating that
the plantation has to be of a specific size.
He points out that estates are not larger
sized because of internal economics of
scale. Crop production technology allows
for divisibility, and is therefore more suit­
able for smallholdings. Instead, extensive
plantations were preferred in the colonial
economy because the agency houses had
to take over a wide range of tasks on
behalf of the British absentee owners.
These examples open up the case for
smallholdings in tea plantations. The tea
sector in Assam till the 1980s was entirely
dominated by the large estates. Tea small­
holdings are now mushrooming in Assam,
and we see a distinct shift in the produc­
tion structure with the decline in acreages
and production share in the otherwise
dominant estate sector. Smallholdings
23
COMMENTARY
now number 50,79s,3 and account for
22.7% of the total tea acreages of the
state (Government of Assam 2010) and
an estimated 1.4 lakh workers.
In the context of India or Assam, the
largest producer of tea in India, there
are few regulatory or institutional forces
in favour of consolidation of tea small­
holdings.4On the other hand, tea estates
have now started to lose competitive­
ness due to old plantations, negligence
in maintenance and failure to place tea
in upper-end markets. More than 50% of
tea acreage in India is more than 40
years old, awaiting replantation. Since
1991, no single year shows more than
0.4% replantation in tea acreage, as
against the prescribed annual norm of
2%. No doubt these old plantations lead
to lower productivity, and India has lost
the status of largest producer of tea to
China in 2006.
The challenges faced by the estate
sector of tea plantations arise because of
low productivity and associated high
labour costs.5 To a considerable extent,
this is now addressed by flexible out­
sourcing, or procurement of raw tea
leaves, from the unorganised tea small­
holdings. In the relatively new small­
holding plantations, productivity is
high, up to 3,500 kg/ha in some sampled
holdings (Das 2010). This has helped to
keep the labour costs low. Labour cost is
also low in tea smallholdings because of
the unorganised nature of work, which
does not come under the domain of the
Plantation Labour Act (p l a ), 1951. Out­
sourcing to the smallholdings by the
estate sector has two repercussions. On
one hand, it restricts opportunities for
work in the estate sector, and on the
other, limits the burden of providing to
workers the compulsory pecuniary and
non-pecuniary benefits set by the p l a .
We now see a clear advantage in the
tea sector for smallholdings. Area under
tea smallholdings (size class of less than
8.1 hectare) in 1991, according to the Tea
Board of India, was just 10,853 hectares
or 2.6% of the total tea acreage. These
smallholdings were concentrated mostly
in south India. Now smallholdings have
emerged in the areas dominated by
estates (Assam and West Bengal). In
2006, the area under tea smallholdings
24
This content downloaded from 192.190.180.53 on Tue, 06 Nov 2018 10:53:50 UTC
constituted 1,54,099 hectares or 27.2% remain disadvantaged. Tea smallhold­
of the total acreage of tea, with a size ings have just become a convenient
class of less than 10.1 hectares, according source for outsourcing by the estate sec­
to the Tea Board of India’ s revised crite­ tor, which sets the price of the raw tea
rion (2011a), accounting for 25.4% of to­ leaves in the process. The bargaining
tal production. On the other hand, the strength of tea smallholders with regard
acreage under tea estates declined from to this perishable item is at a bare mini­
4,09,684 hectares to 4,01,512 hectares, mum. Field interactions with smallholders
or about 1.99%, during 1991 to 2006. reveal that there is little logical reason
for the low price offered. Tea factories
The Operational Mode and simply return supplies, citing inferior
the Present Crisis quality, or compel smallholders to accept
Tea smallholdings are never expected to the unremunerative price.
assume the mode of dominant produc­ The present form of protest by the
ers. They are seen only as a means for smallholders highlights the wastage and
providing some additional earnings to missed opportunities in raising market
the peasantry, and thus absorbing rural share through the production boom led
surplus labour. The process of consolida­ by smallholdings. Considering the rising
tion, however, can have two stages. One demand of tea even in the context of the
is the dependent subcontractor mode, domestic market,6 there seems to be no
where the smallholders just supply justification for the abrupt fall in the price
leaves to the estate factories. A more co­ of tea leaves. However, there may be
herent mode is with the emergence of issues with the capacity of processing fac­
institutions ensuring real and regulatory tories on estates for accommodating ris­
services. It can be said that tea small­ ing field production and demand. There
holdings in Assam are still at stage one. is scope for an assessment of capacity.
Being placed in the situation of depen­ Higher productivity on tea smallholdings
dent subcontractors, tea smallholders provides a good opportunity for carving
Econom ic& Politicalw EEK LY
RELIGION AND CITIZENSHIP
January 7,2012
Plural Societies and Imperatives of Change: Interrogating
Religion and Development in South Asia - SurinderS Jodhka
Religions, Democracy and Governance: Spaces for
the Marginalised in Contemporary India - Gurpreet Mahajan, Surinder S Jodhka
Religious Transnationalism and Development Initiatives:
The Dera Sachkhand Ballan - Gurharpal Singh
Social Constructions of Religiosity and Corruption - Vinod Pavaraia, Kanchan KM alik
Buddhist Engagements with Social Justice:
A Comparison between Tibetan Exiled Buddhists in
Dharamsala and Dalit Buddhists of Pune - Zara Bhatewara, Tamsin Bradley
In the Name of Development: Mapping 'Faith-Based
Organisations' in Maharashtra - Surinder S Jodhka, PradyumnaBora
Welfare Work and Politics of Jama'at-i-lslami
in Pakistan and Bangladesh -M asoodaB ano
For copies write to:
Circulation Manager,
Economic and Political Weekly,
320-321, A to Z Industrial Estate, Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013.
email: circulation@epw.in
m a r c h 17, 2012 v o l x l v i i n o 11 13259 Economic & Political w e e k l y
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out a niche in a competitive market for
the decelerating tea sector of India.
The Example of Sri Lanka
India has a lot to learn from the Sri
Lankan experience with tea smallhold­
ings. In Sri Lanka, there are about 2.63
lakh smallholders, covering 2.31 lakh
acres of land. The average size of small­
holdings is just 0.88 acres (Ministry of
Plantation Industries 2008). Sri Lanka
has a dedicated authority, called the Tea
Small Holdings Development Authority
(t s h d a ) to ensure institutional and regu­
latory support for tea smallholders. The
t s h d a was established in 1975 under the
Parliamentary Act No 35, with primary
objective of supporting the development
of smallholdings that do not have their
own means of tea processing (Das 2010).
The t s h d a s role presently ranges
from helping smallholders gain the right
price of their leaves, to assisting deve­
lopment and maintenance of holdings
through subsidised incentives schemes
for replanting, new planting, and distri­
bution of fertilisers on credit. However,
the major activity of the t s h d a lies in
the extension services provided by its
personnel. These personnel are trained
in agriculture extension and give small­
holders guidance in soil conservation,
soil and nutrients analysis and fertiliser
applications, pruning and harvesting of
tea (Das 2010). The entire operational
fund for the t s h d a comes from the share
of the cess imposed on tea ex p orted
from Sri Lanka, which is Sri Lankan Rs 4
for one kg of tea at present. The t s h d a
receives 37 to 40% of the total cess col­
lected in a year.
In an effort to ensure that smallhold­
ers share the gains from the market, Sri
Lankan government operates a scheme
that makes it obligatory for processing
factories to pay the smallholders a price
not less than that calculated according
to a formula. The formula assumes that
to make one kg of dry tea requires 4.65
kg of green leaves; the cost component
for producing one kg of made tea in the
factories is 32% of the total costs of pro­
duction. The price that smallholders
receive is linked to the Colombo auction;
this helps to link benefits from any esca­
lations in tea price. Thus the price payable
Economic & Political w e e k l y 025! m arch
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for a kg of green leaves is net sale average
of processed tea at auction x (1/4.65) x
0.68 (the cost of production at field).
This formula serves as protection
against exploitation by processing facto­
ries, though proponents of deregulation
do not favour its continuation on the
grounds that it stands in the way of
smallholders improving leaf quality
standards. However, viewed in the wider
context of an uncertain and vulnerable
tea market, it appears that the system
has its merits (Sivaram 1996).
Tea smallholdings have now emerged
as a coherent mode of accumulation in
Sri Lanka, contributing 66% of Sri Lan­
ka's total tea production. Unlike India,
the surveillance system in Sri Lanka is
able to capture the quantum of tea leaves
procured by the estate sector from the
smallholdings. This figure shows a rising
trend over the years, going from 21.7%
in 1998 to 27.4% in 2007.
The emerging regime of smallholding
initiated by the peasantry could be con­
sidered a bonus for India's tea sector. As
in the Sri Lankan context, the regime
can be made mature, by introducing
appropriate regulation. A major issue,
however, revolves around the criterion
for defining the size of tea smallhold­
ings. Holdings are ideally called small if
they are about two acres in size, man­
ageable with two-three workers, and op­
erated with family labour. With such a
definition, regulation such as the adop­
tion of a formula for fixing the price of
tea leaf to ensure the right price to peas­
ants would suffice. However, the Tea
Board of India's recognition of small­
holding acreages of up to 10.1 hectares
could lead to the creation of a petty
bourgeoisie class using the labour pool
in flexible mode. These smallholdings
can take advantages of tax concessions
and other regulatory support, leaving
the workers engaged in an unregulated
and insecure environment.
n o t e s ____________________________________________
1 The Tea (Marketing) Control Order, 2003 of
the Ministry of Commerce and Industry, Gov­
ernment o f India has a clause on fixation o f a
price-sharing formula for raw tea leaves, which
states that every registered manufacturer en­
gaged in the purchase of green tea leaves shall
pay to the supplier a reasonable price accord­
ing to the price-sharing formula. This formula
17, 2012 v o l x lv ii n o 11
All use subject to https://about.jstor.org/terms
COMMENTARY
may be specified by the Registering Authority,
from time to time and implemented in a man­
ner as determined by the Registering Authori­
ty, with the prior approval of the central gov­
ernment. The reasonable price for the green
tea leaves according to the price-sharing for­
mula shall be determined taking into account
the sale proceeds received by the registered
manufacturer. This statement however ap­
pears to be a directive only; such individually
arranged modalities lack the legal force to take
a form of a universal mode. The entire process
in fact has never tested and applied in the state
of Assam.
2 Data on the auction price of tea in the Indian
market show a rising trend over the years, with
the exception o f 2005. The average price of dry
tea in the Indian auction market was Rs 48 in
1995. This had increased to Rs 105.6 in 2009.
Month-wise data for 2009 showed a low of Rs 80
in February and a high of Rs 119 in May.
3 Unofficial estimates of the All Assam Small Tea
Growers Association reveal the numbers of tea
smallholders at more than 70,000. It may be
noted that in upper Assam districts, the peas­
antry in recent time has gone for large-scale con­
versions of homestead land into tea plantations.
4 In 1978, the agriculture minister o f Assam
announced in the state assembly that the state
government would like to encourage the peas­
antry to take up tea plantations in their home­
stead and fallow land.
5 The estate sector plantations o f Assam follow
the system o f payment to workers that com ­
bines wage as well as output contracts. To get
the stipulated daily wage, a worker needs to
pluck a minimum quantum of 23 kg o f leaves.
Labour demand, as well as fulfilling the mini­
mum plucking task, require maintaining a cer­
tain level o f uniform productivity over the ex­
tent o f the plantation. This ensures optimum
work for the workers. Unlike contract jobs, in
the context o f regular deployment of workers
in the estate sector, low productivity leads to
underutilisation o f workers and higher costs of
production in this labour-intensive sector.
6 The tea sector o f India was able to cultivate a
domestic source of growth with huge internal
demand. Internal consumption o f tea in the
country has increased from 673 million kg in
2001 to 802 million kg in 2008, according to
the Tea Board o f India (2011b) statistics.
R EF ER EN CES____________________________________
Das, K (2010): “ The Smallholding Tea Plantations
of Sri Lanka and Assam”International Journal
o f Ethnic and Social Studies, 1(1)11-40.
de Silva, S B (1982): The Political Economy o f Under­
development (London: Routledge).
Government o f Assam (2010): Statistical Handbook
of Assam (Guwahati: Directorate o f Economics
and Statistics).
Ministry of Plantation Industries (2008): Planta­
tion Sector Statistical Pocket Book (Colombo:
Planning Division).
Sivaram, B (1996), “ Productivity Improvement and
Labour Relations in the Tea Industry in South
Asia” , Sectoral Activities Programme, Inter­
national Labour Organisation.
Tea Board of India (2011a): “ Growers and Area
under Tea” , Tea Statistics, Ministry of Commerce
and Industry, Government o f India, Kolkata.
Accessed 3 February 2012: http://www.tea-
board.gov.in/pdf/stat/Growers%2o&%2o
Area%2ounder%2oTea.pdf.
- (2011b): “ Estimates o f (Internal) Consumption
and Per Capita Consumption o f Tea in India” ,
Tea Statistics, Ministry of Commerce and
Industry, Government o f India, Kolkata. Ac­
cessed 3 February 2012: http://www.teaboard.
gov.in/pdf/stat/Consumption.pdf,
25
 Environment, T ech n ology and D ev elop m en t:
Critical and Subversive Essays
Essays from the Economic and Political Weekly
E dited By

Rohan D'S ouza

I Environment, Technology

Many political battles, policy initiatives, academic debates and our understanding of the world in general
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How have they developed over time and what are its varied meaning? This volume brings together
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The essays see the progress of technology in its political context and in relation to the social and environmental consequences it
engenders. They show how technology is meshed with politics as is environment with development, and how agriculture is woven
with ecology.The transfer of resources from the marginalised to the empowered groups and the crucial issue of spatial politics where
space is constituted, assembled and forged by the economically powerful are also discussed. This volume will provoke, educate,
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Authors include
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• P P Nikhil Raj • M V Ramana • C H Hanumantha Rao • Amulya Kumar N Reddy • Sunali Rohra • Vandana Shiva • Nigel Singh
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Emergence of the
‘
Surrogacy Industry’
SNEHA BANERJEE
Assisted Reproductive
Technologies of which
commercial surrogacy is a
significant part are highly popular
with all those who cannot have
a biological child of their own
and can afford this expensive
method. However, there are
a number of issues which this
“
industry”raises. It feeds upon
the patriarchal stigmatisation
of childlessness and the
socio-economic vulnerabilities of
women who rent their wombs.
The w om en’
s movement must
engage more with these issues.
The author would like to thank Nivedita
Menon, Bijayalaxmi Nanda and her
supervisor Jayati Srivastava for their
comments and inputs.
Sneha Banerjee (snehabanerji@gmail.conO is a
research scholar at the School of International
Studies, Jawaharlal Nehru University,
New Delhi.
Economic & Political weekly MUM m arch
This content downloaded from 192.190.180.53 on Tue, 06 Nov 2018 10:53:53 UTC
W
hen Bollywood directors/
actors Aamir Khan and Kiran
Rao brought home their son
through commercial surrogacy using In
Vitro Fertilisation (iv f) in early December
2011, almost all the major t v news chan­
nels and newspapers heralded the poten­
tial of surrogacy as an acceptable way for
Indian childless couples to reproduce.
The total cost of a surrogacy arrange­
ment in India is roughly in the range of
Rs 4-12 lakh depending on the i v f clinic
and is thus around one-third of what it
costs in the us or other western coun­
tries where it is legal (Taneja 2008;
Gentleman 2008; Kohli 2011).
A fundamental question is why “ infer­
tility”is such a big issue that it drives
people to spend an insane amount of
money to have a “ biological”child, while
adoption is rendered an unfortunate op­
tion of last resort or as no option at all? A
tentative answer is as follows: Within pa­
triarchy, family and kinship is dependent
on the purity of bloodline and people
have various incentives to perpetuate
such a system - like property and inher­
itance, apart from security in old age and
of course, the enigmatic and fragile
“honour” . When the continuity of a pure
bloodline is threatened, individuals are
likely to lose out on the incentives and
since purity of bloodline is linked to
wom en’ s sexuality and reproductive
functions, they are the ones who face the
greatest stigmatisation, discrimination,
trauma and exclusion due to their “ infer­
tility”. Significantly, since it is women
who have a greater role in human repro­
duction and are stigmatised variously for
their role, does infertility treatment by
surrogacy in a market situation improve
the lives of women - for those who seek
surrogacy services and those who pro­
vide it? Moreover, against the backdrop
of the fact that reproduction - biological
as well as social - has been conven­
tionally a part of wom en’ s unpaid labour,
17, 2012 v o l x l v ii n o 11
All use subject to https://about.jstor.org/terms
how does one understand the emergence
of an industry which involves reproduc­
tion in a market scenario?
The emergence of commercial surro­
gacy as an industry, which involves
heightened medicalisation of reproduc­
tion and the instrumental use of the
womb of a woman, merits engagement
to understand the complexity around
the politics of reproduction. This article
seeks to contextualise the emergence of
surrogacy industry, highlight its multi­
dimensional implications for women’ s re­
productive, health and livelihood issues
and emphasise the need for greater en­
gagement by the wom en’ s movement.
Surrogacy, or more appropriately ges­
tational surrogacy, is touted as a boon
for infertility patients as it enables them
to have a child of their “ own”with the
help of i v f , a part of Assisted Reproduc­
tive Technologies (a r t s ).
The a r t industry in India is worth
over Rs 25,000 crore and is most notable
for its so-called reproductive tourism
sector. According to a recent report in
the Hindustan Times, the “ industry of re­
productive outsourcing” , referring par­
ticularly to commercial gestational sur­
rogacy in India, is “ estimated to be worth
over [Rupees] 2,000 crore”(Kohli 2011).
Importantly, this industry has a some­
what quasi-legal status in India since
there is no law regulating it but only
some non-binding guidelines, drafted in
2002 and finalised in 2005 by the Indian
Council of Medical Research (i c m r ),
namely, the National Guidelines for Accre­
ditation, Supervision and Regulation of
a r t Clinics in India (henceforth, the
guidelines). In cases of surrogacy that
have gone to Indian courts, the practice
has not been rendered illegal despite
some judges raising ethical questions
around it. The i c m r under the Ministry of
Health and Family Welfare has also pre­
pared the draft Assisted Reproductive
Technologies (Regulation) Bill and Rules
2010 (henceforth, draft a r t Bill), a modi­
fied version of its 2008 predecessor.
Legal Engagement
A cornerstone of legal engagement
with surrogacy in India is the uncritical
acceptance of infertility as a medical
problem, the so-called right to have a
27
COMMENTARY

biological child of one’ s own and a r t s as child as her own in spite of the fact that
the panacea. It is important to make she was not the biological mother. With
sense of legal engagement with this technological innovations to deal with
issue in a situation in which constantly infertility, there came techniques like
evolving new reproductive technologies artificial insemination which in the case
are sought to be regulated by state of surrogacy helped mitigate the moral
machinery thereby attempting fixity issues to a great extent since the woman
or standardisation. The Indian state’ s acting as the surrogate could now get
attempt to regulate a r t s is particularly pregnant without having sex with the
noteworthy since it is not in tandem father of the child. However, even with
with its general approach to engage with artificial insemination the surrogate still
biological reproduction by its popula­ was the biological mother of the child.
tion. For the State, the fertility of its pop­ Irrespective of whether the surrogate
ulation has arguably been a “ problem ” , mother was related or unrelated to the
where it strived to “ control”it and later social family of the child, or whether she
to stabilise it. Given its concentrated took money from the child’ s social par­
North have stringent regulations around
commercial surrogacy since the 1980s
owing to apprehensions about com­
modification of children and wom en’ s
reproductive abilities thus giving rise to
outsourcing. India has witnessed an
emerging trend of “ reproductive tour­
ism”for a r t s especially for the services
of commercial gestational surrogates.
Arguably, there are at least three rea­
sons for this - high quality low-cost a r t
services provided by largely English-
speaking doctors; cheap availability of
women willing to be surrogates; and,
permissive laws, thus giving rise to the
a r t industry of which commercial ges­

approach towards tackling the popula­
tion issue, whether through coercion or
through a policy of incentives-disincen-
tives, it is surprising that it looks posi­
tively towards a r t s (John and Qadeer
2009). Why does it legally engage with
technologies that seek to assist in repro­
duction since it is not to ban these tech­
nologies but in fact to facilitate their pro­
liferation? In spite of infertility and a r t s
not being a high priority health issue for
much of the Indian population, the draft
bill seeks to regulate it in the wake of
mushrooming a r t clinics with a sub­
stantive transnational clientele. Though
not stated explicitly, the bill embodies
the implicit recognition by the State that
a r t s in India are largely being used in
a transnational context with rising
medical/reproductive tourism.
Surrogacy per se is not a new way of
human reproduction and a surrogate
mother used to be a woman who substi­
tuted the wife and bore a child for the
couple either consensually or coercively
with or without a commercial transac­
tion. Surrogacy traditionally involved
sex outside marriage that evoked vari­
ous moral apprehensions and hence sur­
rogacy remained clandestine just like
many other practices which are generally
considered “ immoral”but flourish none­
theless like pornography, prostitution,
incest (abusive or consensual) and paedo­
philia. However, the case of surrogacy is
slightly different from the other exam­
ples cited above since it involved repro­
duction where the child is regarded
a legitimate biological offspring of the
father and the social mother accepts the
28
ents - she remained the biological mother
whose genes were carried by the child
despite the fact that the “ seed”was that
of the father.
There was every possibility that the
surrogate mother would feel attached to
the child she bore, would refuse to hand
over the child to the father and worse
still, might stake a claim on the custody
of the child. In other words, commercial
surrogacy without artificial insemina­
tion would effectively make the woman
acting as a surrogate a “ prostitute”as
well as a “ baby-seller”; but if it involves
artificial insemination, she becomes
only a “ baby-seller”. Naturally, in a patri­
archal setting such a practice would be
abhorrent, but nonetheless would con­
tinue to happen clandestinely even if on
a very small scale, since there would
always be women who would choose, or
be forced to act as surrogate mothers be­
cause of their circumstances and there
would always be couples willing to go to
any length to have their “ own”child.
Infertility Treatment Market
Once human reproduction is compart­
mentalised into egg and/or sperm dona­
tion, conception in laboratory, and ges­
tation in a surrogate womb, it is possible
also to geographically separate each
component which are potentially trans-
nationally commodifiable. This has
given rise to an emerging market of in­
fertility treatment with potential in­
come for a r t clinics, egg/sperm donors
and women who agree to become com­
mercial gestational surrogates. Signi­
ficantly, most countries in the global
MARCH 17, 2012
tational surrogacy is a part (Law Com­
mission of India 2009).
With globalisation and heightened
marketisation various previously non­
economic activities have become com­
modified (Peterson 2003) and transna-
tionalised. It is in this context that com­
mercial surrogacy can be seen as an
issue of political economy where the act
of giving birth is construed as a relation of
exchange in the market under particular
circumstances and arguably assumes
the form of an industry. Whether the
milieu of transnational commercial sur­
rogacy arrangements should be seen as
an industry is a contested area with a
prominent objection raised by Supreme
Court judges on usage of the term indus­
try for commercial surrogacy in the Law
Commission report (Rajagopal 2009).
However, as is evident from a prelimi­
nary survey of how these arrangements
take place, they notionally do fit the pic­
ture painted by an indicative definition
of industry as contained in the Industrial
Disputes Act, 1948.1
There are very few voices that seek to
know more about the most indispensa­
ble stakeholder in the issue - the woman
who acted as the commercial gestational
surrogate. To suggest probing about that
woman is certainly not to demand flout­
ing of confidentiality regarding her iden­
tity. It is to know more about the nature
of the arrangement - the payment she
received, the pre- and post-childbirth
healthcare she is getting, and her caste-
class-religion-ethnicity profile. Many
leading a r t clinics also run hostels for
women acting as surrogates for the course
VOL XLVII NO 11 Economic & Political w e e k l y

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of their pregnancy under the supervision
of the doctors and technicians (Pande
2010). While the express reason is to en­
sure good care and a healthy diet for
them, the implicit reason is to keep these
“ poor”women under surveillance so as
to put apprehensions of any kind of
breach of contract, at bay and one won­
ders at the degree of coercion that can
possibly be involved in such arrange­
ments of physical confinement.
These are important issues to critique
the range of livelihood choices available
for women in globalised India since act­
ing as a commercial gestational surro­
gate is a choice that women mostly make
in the face of economic hardship. How­
ever, a wom an’ s volunteering to act as a
commercial gestational surrogate is
often followed by a rigorous regime of
medical tests to determine her “ fitness”
to act as a gestational surrogate. To clear
these medical tests, women must not
have any medical history of complica­
tions during previous pregnancies and
must be generally healthy. Even though
no supporting data or statistics are avail­
able, these criteria can arguably explain
why women from the poorest of the poor
sections of the society may not qualify
for gestational surrogacy owing to the
high chances of their being anaemic and
generally malnourished.
Pregnancy takes a toll on wom en’ s dian a r t s industry caters to demand
health more so when it is technologically
induced and sustained through adminis­
tration of hormonal injections and medi­
cines to prepare the wom an’ s body as in
the case of a surrogate. Also given that
i v f success rates are anything between
25% and 40%, a successful gestational
pregnancy often results after a few
failed attempts. Deciding how many
failed i v f cycles are reasonable for a
woman to beget a pregnancy often rests
with the doctor and the guidelines do
not go a long way in protecting women
from such a health risk. Another impor­
tant issue regarding i v f is the high prob­
ability of multiple births, and women
acting as surrogates often undergo foe­
tal-reduction. Furthermore, there is no
standardisation of compensation for
these women. There is no existing mech­
anism that holds commissioning couples
and a r t clinics liable for her well-being
Economic & Political w e e k l y B$B8 m a r c h 17, 2012
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and all the arrangements happen in
mere good faith.
Conclusions
In order to critically engage with this
“industry”that cashes in on the patriar­
chal stigmatisation of childlessness and
the socio-economic vulnerabilities of
women, the voices of such women need
to be recovered. In order to understand
whether infertility treatments including
the phenomenon of surrogacy in a mar­
ket situation improve the lives of women
whether as buyers or sellers of reproduc­
tive services, it is important that femi­
nists and the wom en’ s movement en­
gage with the issue on at least two
fronts. First, advocacy related to the
draft a r t Bill where an important point
of engagement should be to critique how
the surrogate and her rights are ad­
dressed by it. Is it even appropriate to
include her as merely a part of a chapter
in a legislation that seeks to regulate
a r t s ? (Shah 2010). As a woman she is
much more than her womb! Second,
there is a pressing need for critical re­
thinking about the relationship of tech­
nology to the body intertwined with the
question of “ choice” .
While a r t s can be hailed as a boon for
non-heterosexual people who can now
have children through surrogacy, the In­
only from foreigner homosexual couples
while in India homosexuality is not
legally recognised. This shows discrimi­
nation in terms of who can access these
technologies. However, queer people
accessing a r t s and taking recourse to
surrogacy forecloses the subversive poten­
tial of building families and relation­
ships beyond heteronormativity. The
movement has engaged with the adverse
effects on wom en’ s health inflicted by
reproductive technologies. Sama Re­
source Group for Women and Health
and Saheli are wom en’ s rights collec­
tives that have raised the infertility
question and commercial surrogacy.
The woman who acts as the surrogate
arguably makes a “ choice”and her cho­
sen method of earning remuneration for
her reproductive services may be identi­
fied as a form of subversive “ work”
which blurs the production-reproduction
L XLVII NO 11
dichotomy. However, whether women
make an informed choice regarding
what gestational surrogacy means for
their overall health and well-being
needs to be understood. Of course,
there are scholars and researchers who
have identified probable directions for
an engagement with these issues by
the movement but a lot still remains to
be explored.
n o t e _____________________________________________
1 According to the Clause 2(j) of this Act, an “
in­
dustry” means “ any business, trade, under­
taking, manufacture or calling o f employers
and includes any calling, service, employment,
handicrafts or industrial occupation or avoca­
tion of workmen”
R EF ER EN CES____________________________________
Gentleman, Amelia (2008): “ India Nurtures Busi­
ness o f Surrogate M otherhood” , NY Times, 10
March, viewed on 29 December 2011 (http://
www.nytimes.c0m/2008/03/10/w0rld/asia/
iosurrogate.html?_r=i&pagewanted=print).
John, Mary E and Imrana Qadeer (2009): “ Delivery
Service” , The Hindu Business Line, 2 January,
viewed on 30 December 2011 (http://www.the-
hindubusinessline.in/life/2009/01/02/sto-
ries/20090i0250ii0400.htm).
Kohli, Namita (2011): “ Moms on the Market” , The
Hindustan Times, 13 March.
Law Commission o f India (2009): “ Need for Legis­
lation to Regulate Assisted Reproductive Tech­
nology Clinics as well as Rights and Obliga­
tions o f Parties to a Surrogacy Contract” , Re­
port No 228, New Delhi.
Pande, Amrita (2010): “ Commercial Surrogacy in
India: Manufacturing a Perfect Mother-Work­
er” , Signs, 35(4): 969-92.
Peterson, V Spike (2003): A Critical Rewriting of
Global Political Economy: Integrating Reproduc­
tive, Productive and Virtual Economies (Lon­
don: Routledge), reprinted 2005.
Rajagopal, Krishnadas (2009): “ SC Enters Surro­
gacy Debate, Asks If an Indian Baby Is a ‘ Com­
modity’ ”, The Indian Express, 16 December.
Shah, Chayanika (2010): “ Regulate Technology,
Not Lives” , Infochange News & Features, Decem­
ber, viewed on 30 December 2011 (http://info-
changeindia.org/index2.php?option=com _
content&do_pdf=i&id=8622).
Taneja, Poonam (2008): “ Baby Tourism” , A 30
Minute Radio Report, Asian Network Report,
BBC, 13 October, viewed on 29 December 2011
(http://www.bbc.co.uk/asiannetwork/docu-
mentaries/babytourism.shtml).
Economic&PoliticalwEEKLY
available at
Altermedia-Bookshop Ecoshop
M G Road
Thrissur 680 001
Kerala
Ph: 2422974
29
COMMENTARY
A BRICS Initiative on Syria
M K BH A DRA K U M A R___________________________
The situation in Syria presents
a ripe moment for India,
China, and Russia to mount
a non-aligned initiative for a
peaceful transition through
the aegis of the b r ics forum.
Unfortunately, there has been
no such initiative so far. While
Russia and China are increasingly
coordinating their stance over
Syria, they are overwhelmingly
on their own on the diplomatic
plane. India, as chairman of the
b r ics grouping, needs to take
the lead, as it transits from a
us-centric foreign policy
out of compulsion.
M K Bhadrakumar (mkbhadrakumar. orf@
gmail.com) is a former diplomat.
30
This content downloaded from 192.190.180.53 on Tue, 06 Nov 2018 10:53:55 UTC
The heart of the matter is that non-
alignment is not only a doctrine but also
a frame of mind. It is this fascinating
quality of the mind - of being creative
and innovative while being reflective -
that differentiates it from mundane neu­
ecent media reports suggest the trality or passivity. Is the Indian establish­
R intriguing possibility that non- ment in a frame of mind to be creative?
,alignment is likely to be gaining After nearly a decade of harmonising
currency once again as the core tenet of Indian policies with American global
India’ s foreign policy. Life is taking a strategies, the capacity for new thinking
full circle after almost six or seven has diminished in New Delhi. A kind of
years from when the former United Pavlovian reflex took over. Second, a
States Secretary of State Condoleezza gnawing hope lingers in the Indian mind
Rice exhorted Indian pundits to purge that maybe the American ship might be
from their thinking the last trace of the pulling into the harbour for some minor
doctrine of “ non-alignment”associated repair and may resume its global voy­
with the world of Jawaharlal Nehru age. (Washington, of course, will do all
and Indira Gandhi. She sought that it can to reinforce that naive hope.)
Indians should instead trust the u s’ Third and most importantly, New
determination to make their country a Delhi finds to its dismay that the non-
truly global player. aligned camp has also transformed itself
Thus, in the period that followed, while it was consorting with the us
Chanakya (circa 3rd century b c ) who is superpower. Funnily, China entered the
credited with authorship of the ancient tent that Nehru erected on the global
Indian political treatise called Artha- commons and India needs to be a new
shastra, was brought out of the w ood­ team player and incrementally prove its
work to replace Nehru and Indira Gan­ leadership qualities.
dhi as the “ new game in town”in New China is no cakewalk, either. It is a
Delhi. The “ Hindu Machiavelli”who was seasoned practitioner of international
forgotten for some two millennia as a diplomacy and possesses the native gen­
relic of the archaic past and of little rele­ ius to think situations through in the
vance to the modern-day world, provid­ long term and craft policies and strate­
ed the “ civilisational alibi”for the Indian gies riveted on apparently value-based
establishment to bring about a paradigm principles, which help it optimally navi­
shift in its foreign policy - under the gate its specific, hard-nosed national
garb of “ national interests”- attuned to interests as well.
its “unipolar predicament”in the post­
cold war era. Creative Non-Alignment
But then, trouble ensued. To the The crisis in Syria shows that Russia and
astonishment of the Indian crew, by the China are creatively adapting the tenets
time their ship changed course, the of non-alignment to the prevailing world
world financial crisis erupted and the order. This has brought the two countries
engine of the American ship began to closer together than at any other time in
splutter. The Indians are used to sailing modem history. They share a common
ships in far greater disrepair and they aversion towards the cold war era bloc
kept wondering as to what all the fuss mentality. Neither is prescriptive as to how
about the dysfunctional American ship others should order their national life.
was, but in the event reason began They share an abhorrence of the use
to prevail. of force to settle differences. Both are
Suffice to say, taking shelter behind an staunchly wedded to international law
inchoate welter of “ national interests”is and the United Nations Charter - and,
now no longer tenable and a postmodern indeed, the primacy of the u n itself - as
rediscovery of non-alignment suitable for the guiding principles in the conduct of
the digital age has become necessary - interstate relations involving countries
“Non-Alignment 2” . big and small.
m a r c h 17, 2012 v o l x l v i i n o 11 Economic & Political w e e k l y
All use subject to https://about.jstor.org/terms
 COMMENTARY

Neither China nor Russia seeks an al­
liance system to further national inter­
ests. Nor do they even remotely contem­
plate a confrontation with the us-led
alliance cold war era trans-Atlantic mili­
tary alliance system that still exists in
the international system.
Syria, thus, becomes an engrossing
test case where the west and its hangers-
on would find themselves pitted against
the doctrine of non-alignment for the
first time in a post-cold war setting.
What happens in Syria is going to deter­
mine the fate and character of the
multipolar world order in the coming
decades. The fundamental issue is
whether reform and democratisation of
a society is possible through dialogue
and discussion.
An Arab Narrative
The non-aligned countries have a big
role to play in making a peaceful transi­
tion possible in Syria. If India joins
hands with Russia and China in an en­
deavour in search of peace and reconcil­
iation, the prospects of success will
remarkably improve. Other influential
voices in the world community - the
silent majority - will also feel encour­
aged to express their deep disquiet about
what is happening in Syria so soon after
the w est’ s bloody war in Libya.
The Syrian situation has all the pre­
requisites of mediation by an entity of
and Lebanon. Their intentions towards
the Arab peoples have never been hege­
monic, historically speaking. In sum,
they enjoy the perfect credentials to help
the region harness the impulses of the
Arab Spring and transform them crea­
tively as a genuinely Arab narrative.
What Syria acutely needs is an Arab
narrative - not a road map prepared by
Nicolas Sarkozy or David Cameron. And,
on the contrary, what is happening is
that in the absence of an authentic Arab
narrative, imposters have appeared
from outside the Arab world with their
own formulae, which have been drawn
up essentially from the point of their
vested interests. The native genius of the
Arab nation is fully capable of finding a
path of regeneration of Arab societies,
provided an international climate is cre­
ated for it to happen. Today, there is no
unified voice striving to define that
space for the Arab nation. Oil and geo­
politics have surged to the fore as the
principal narratives. Even “ Islamism”is
being carefully tempered to suit the de­
mands of geopolitics!
This is a ripe moment to mount a non-
aligned initiative on Syria. Unfortunate­
ly, there has been so far no initiative
TATA INSTITUTE OF SOCIAL SCIENCES
V.N. PURAV MARG, DEONAR, MUMBAI - 400 088.
(A Deemed University under Section 3 of the UGC Act, 1956)
ANNOUNCEMENT
from Moscow, Beijing or New Delhi in
this regard. While Moscow and Beijing
are increasingly coordinating their stance
over Syria, the fact is they are over­
whelmingly on their own on the diplo­
matic plane. The forthcoming summit of
the b r i c s on 28-29 March in New Delhi
offers an occasion to propose a non-
aligned agenda for the resolution of the
Syrian crisis. Perhaps b r i c s could con­
stitute a working group. India, as the
chairman of the b r i c s grouping for the
coming year, should take the lead.
As for India, it has taken an incompre­
hensible decision to identify itself with
the “ Friends of Libya”grouping by at­
tending its gathering in Tunis on 24 Feb­
ruary this year. Hopefully, the Tunis
meet was a wake-up call for the. Indian
foreign policy establishment. The fash­
ion in which Saudi Arabian Foreign Min­
ister Saud bin Faisal staged a brusque
“walk-out”from the Tunis meet - and
the issues of war and peace over which
he bluntly differed with his American
counterpart Hillary Clinton - would
have been a case study on the complexi­
ties of the west Asian situation for the
Indian official present at the venue. Sim­
ply put, India did not belong there.

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Insights in to In d ia ’
s B usiness H istory

D N GHOSH

M
arket organisations, central to REVIEW ARTICLE sector. This had its support in the cur­
the functioning of economies, rency and the banking policy of the
are driven by entrepreneurs in The Oxford India Anthology of Business History colonial government.1If we are to under­
their insatiable urge to generate surpluses edited by Medha M Kudaisya (Delhi: Oxford University stand the perpetuation of this duality as
through myriad economic activities. This Press), 2011; pp 492+ xxviii, Rs 1,295. the structural characteristic of the mar­
anthology of business history under re­ ket organisation of the 19th century and
view focuses on the profiles of firms and economy, the outflow of agricultural pro­ a good part of the 20th century, we have
entrepreneurs in India in the 19th and duce and the inflow of manufactured to ask ourselves: How and why did the
20th centuries. A variety of complex and goods, precious metals and hard cash. gap between the organised and unor­
interrelated factors had an impact on Two supplements to Ray’ s article provide ganised sector widen? What is it that
their profiles: formal and informal rules some deep insight into certain aspects of prevented these indigenous entrepre­
regulating property rights, governance the market: one by L C Jain on the hundi, neurs from setting up institutions as
structures and rules of exchange, and and the other by Timberg and Aiyar on competitors to the presidency banks?
equally, if not more importantly, forms informal markets and systems. These Was it a reflection of their entrepreneur­
of intervention of the ruling political re­ market instruments played an impor­ ial short-sightedness? It would have
gime and its ability to intervene. Medha tant role in the urban economy by pro­ been nice if these issues had been ad­
Kudaisya has carefully chosen a collec­ viding credit to wholesale and small- dressed in this section.
tion of 41 articles that give us an insight scale business units, before modern
into the forces and circumstances - socio­ banks started entering the area. Market Communities
economic and cultural - that have, over The picture that Ray has portrayed is The second and third sections are on the
a period of time, moulded the profiles of one of a seamless web of credit and ex­ merchant communities: their organisa­
our merchant communities; and their change by means of transactional devices tions and way of life and how these shaped
evolution and development that lie at that helped move money rapidly and the market structure. There are writings
the core of our business history. regularly across the length and breadth on several mercantile communities: the
The anthology is divided into five sec­ of India. He draws the conclusion that Marwaris, Parsis, Nattukottai Chettiars,
tions. Section one looks at the gamut of the “economy of India in the late colonial Sindhis, and Bohras. The theme essay by
transactional aspects of business. The period was not a dual economy, cleaved C A Bayly is on the Benares group of
second section takes us through the between capitalist international enclaves merchants: a broad overview of their
stories of the dominant mercantile com­ on the one hand, and a primitive, pre­ levels o f trading and com m ercial activi­
munities, followed, in the next section, capitalist peddling sector on the other” ties and the nature of solidarity among
by the structure of their organisations (p 43)- True, the indigenous sector was them, driven and moulded more by busi­
and the decision-making processes. The not in any sense a trivival sector; it was ness considerations than caste leanings.
fourth section covers how the shift from highly organised and integrated in its Three articles deserve special mention.
trade to industry took place for some of own way, providing critical support to the The article on the Marwaris by Dwijendra
the leading business groups. We come in East India Company during their phase Tripathi is focused primarily on themes
the end to the early 1990s in the final of territorial and economic consolidation of assimilation and integration associated
section - the post-reforms era. of the subcontinent. However, from the with Marwari migration. The range of
beginning of the first decade of the 19th activities of the Nattukottai Chettiars and
Market Structure century, the colonial power started their links with the colonial regime are
The first section titled “ The Bazaar” establishing, one by one, its own banks discussed at length in Christine Dobbin’ s
starts with a seminal essay by Rajat Ray in Bengal, Bombay and Madras to man­ article. Ashok Desai’ s piece on Parsis
on the structural characteristics of the age its finances, cater substantially to its brings out their entrepreneurial dyna­
Indian market in the pre-Independence remittance needs, and ensure stability mism, while emphasising at the same
period. It was a market with an inte­ in the market prices of the Company’ s time the benefits they drew from the
grated credit-and-agency nexus connec­ securities. The market network that British patronage.
ting 1,718 market towns with 12 nodal these three banks started creating, in While recognising the importance of
points: a long distance network that fa­ association with the overseas exchange the cultural aspects, as brought out in
cilitated the essential flows of the Indian banks, became the core of the organised most of the writings in these two sections,

Economic & Political w e e k l y QBSi m a r c h 17, 2012 v o l x l v i i n o 11 33

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REVIEW ARTICLE
we should not overlook how the inter­
relationships between trade and politics
shaped the profiles of the mercantile
communities in the 18th century. A fla­
vour from the past - the conjuncture of
circumstances that influenced the pro­
files of the mercantile communities start­
ing from the peak of the Mughal period at
the close of the 17th century, followed by
its disintegration and finally the intru­
sion of European powers - would have
enriched our understanding further.
Historical Perspective
The political governance in Mughal
India extended over territories that were
more or less coextensive with what later
came to be known as British India, in­
cluding the princely states. Trade flour­
ished along the routes that connected
the two coasts with the imperial cities of
Delhi and Agra, with links to central
Asia via Lahore and Kabul. The most im­
portant trading area in the Mughal em­
pire was the subah of Gujarat with its
chief port of Surat, the principal outlet
for the whole axis connecting Gujarat
with the imperial cities and the link of
the oceanic, inter-regional trade of Asia
with the coastal and subcontinental
trade of India. Merchants from all over
northern, central, and north-western
India were to be found in Surat, with the
Multanis, Kashmiris and northern Kha-
tris forming major groups among the
local mercantile communities. This was
the period when the Khojas and Bohras,
the indigenous communities who had
converted to Islam, came into promi­
nence in trade. The most numerous
among merchants were the Banias of Gu­
jarat and Rajasthan conducting the busi­
ness of trading in money as well, ex­
changing different currencies and re­
mitting from one place to another. Busi­
ness dealings were generally untouched
by religious considerations. This does
not however mean they were not regu­
lated by certain principles, but that these
principles were more or less secular and
were recognised by all merchants as
equally valid.2
The mercantile communities in the
trading regions in the Mughal period
had flourished in an ambience of auto­
nomy. This was a tradition that had
34
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continued from the earlier centuries. continuous quest for revenue led to the
The links between merchants and rulers decline of the leading mercantile families
were generally through a levy of taxes. one after the other. The entry of the
Merchants paid taxes routinely. Unlike English and the Dutch and their quarrels
European guilds, the local governments with the Portuguese in the waters of
exercised no control or restrictions over north-western India and southern
them. They were generally left free to Arabia unsettled trade and swept the
regulate their own matters. There was a Indian merchants into the middle of the
kind of “ continental aloofness”in their conflict. They had to perform a balanc­
attitude to commerce. Mughal aristo­ ing act between these powers. When it
cratic participation in trade was spas­ became clear that the Dutch and the
modic and limited; it never presented a English were the new naval powers of
problem to the merchant communities. the Indian Ocean, the Indian merchants
Local officials taking an interest in trade quickly adjusted themselves and accepted
might have created occasional problems, their protection.5 The trading structure
but such embarrassments were never a that grew under English dispensation
permanent problem. The structure of lacked the kind of freedom the Mughal
medieval trade always left enough administration had preserved in the
margin for merchants to make their 17th century. Muslim ship-owners of
fortunes. At the end of the 17th century, Surat, Calicut, Masulipatnam and Hoog-
Abdul Ghafur of the Bohra community hly were completely swept out. There
was the richest merchant in Surat, if not was a gradual erosion of the independ­
in the whole of India.3 The structure of ent merchant.
which Ghafur was a part appears to have
existed essentially throughout the period Colonial Patronage
1500 to 1800. What changed were the In the completely altered political con­
routes, the cities and the communities of text the merchant communities started
merchants who lived by trade.4 looking for new business opportunities,
Under conditions of a dissolving Mughal and, gradually, the relations between the
structure in the early 18th century, ad­ foreign powers and the indigenous mer­
ministrative instability became a serious chant communities grew to be mutually
and insurmountable problem for Indian beneficial. Colonial trade and the colonial
merchants. The oppression of merchants government were vulnerable in the early
by the Mughal administrators in their years and Indian mercantile communities
CENTRE FOR RESEARCH
IN RURAL AND INDUSTRIAL
DEVELOPMENT (CRRID)
The CRRID invites applications for
ASSISTANT PROFESSOR (POST 11
for Reserve Bank of India Chair at CRRID
UGC pay scale of Rs. 15600-39100+AGP-Rs. 6000
Qualifications and Experience:
Post Graduate in Economics with minimum 55% marks and UGC-NET or Ph.D.
as per UGC rules. Preference shall be given to Ph.D. candidates specialized in
Money and Finance and having computing skills. The selected candidate will
assist the Chair in carrying out research work undertaken by the Chair. The
appointment will be made initially for one year with six months probation
period. Please apply within 15 days of the publication of this advertisement
addressed to Secretary-cum Establishment Officer, CRRID, Plot No. 2-A,
Sector 19-A, Madhya Marg, Chandigarh-160 019.
JH
MARCH 17, 2012 VOL XLVII NO 11 Economic & Political w e e k l y
All use subject to https://about.jstor.org/terms

fully exploited the opportunities arising
from such vulnerability. The guarantee
of credit and the support of local groups
were a basic ingredient in the territorial
and business expansion of the colonial
power. The funding of military activities
in the heyday of expansion during the
times of Cornwallis and Wellesley was
done through the issue of Company
securities, which used to be liberally
subscribed to by the indigenous busi­
ness houses. The Jagath Seths of Mur-
shidabad, the house of Kashmiri Mai
in Oudh, the firm of Hari Bhakti in
Baroda, the Poddars of Ramgarh, and
the Hyderabad Sahukars were conspic­
uous examples.*16
5
4
3
2 Dwijendra Tripathi and Jyoti Jumani
The emergence of the Marwari com­
munity as a pan-Indian network during
this period is an interesting story.7 The
process started around 1810-20, coincid­
ing with the final thrust of British con­
quest in the third Maratha war. Supply­
ing provisions to the armies of the Com­
pany offered a vast field of endeavour to
various contractors and merchants in
which the Marwaris from the dry zone
occupying most of the north-west of the
subcontinent appeared to have figured
prominently. Also, the opportunities for
smuggling opium on a big scale to China
using the ports of Portuguese India, in
open defiance of the Company's monopoly,
were cleverly exploited, apart from the
Marwari traders, by many merchant
groups from Kutch, Kathiawar, Shikar-
pur and H yderabad in Sind. B om bay
Parsis and Ahmedabad merchants also
had a significant role in this activity.
These merchant communities had thus
amassed large capital and forged political
connections with the rulers of various
native states of central India in whose
territories poppy cultivation took place.
The wealth accumulated went later to
other branches of trade, in particular,
cotton and grain.8 In eastern India,
large-scale production of export com­
modities such as indigo, jute and tea
attracted British capital on a significant
scale and the Marwaris gradually emerged
as the privileged intermediaries between
the British exporting firms and the peasant
proprietors or salaried employees in the
regions of production. They also acquired
a prominent position in the import trade
Economic & Political w e e k l y B353 m a r c h 17, 2012
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in cotton textiles from Lancashire and
dominated the distribution network of
Manchester cloth all over eastern India,
which was the major market in India for
British textiles. The Marwaris and Guja­
ratis, with the prominence they acquired
in the vast areas of western, northern,
and central India and the Deccan, rose
to the status of merchant princes. One
banking house of “ migrant”origin that
rose to prominence in the first half of the
19th century in northern and central In­
dia was that of the “Mathura Seths” . The
founder was a Gujarati brahmin, Gokul
Das, who became the treasurer to the
Gwalior durbar.
Trade to Industry:
Role of the State
Building upon the trading profits that
the Indian merchant communities had
generated in the earlier decades, the
various mercantile groups branched out
into industry. This is the burden of sec­
tion iv. The theme essay by Tirthankar
Roy brings out the milestones of Indian
industry since the mid-i9th century.
Omkar Goswami highlights how during
1918-57 the Marwari community suc­
ceeded in taking control of the British-
owned enterprises in eastern India. In
western India, middlemen and brokers
from the mercantile communities of Parsis,
Gujaratis, Sindhis, and Cutchi Memons
started pioneering industrial growth.
The aspirations and innovativeness of
the Tatas is told in absorbin g detail by
Dwijendra Tripathi and Makrand Mehta.
It is a story of their being a bridge, as they
say, “ between the colonisers and the
colonised” . We cannot skip the story of
Sdndia Shipping, which prospered despite
the subde and overt manoeuvring of the
various British shipping interests. Much
of the industrial ventures of the 19th and
20th centuries occurred in the twin cities
of Bombay and Calcutta; the story of
their dual dominance is narrated by
Claude Markovits. The interwar period
was especially significant in that several
industrial houses became dominant in
this era. These were the houses of Sing-
hanias, Jamnalal Bajaj, Ramkrishna
Dalmia, and Karamchand Thapar. An
informative story of their gradual matu­
rity is told by Dwijendra Tripathi.
v o l x l v i i n o 11
REVIEW ARTICLE
In the post-Independence era, a differ­
ent set of factors comes into play. The
State takes upon itself a positive and
leading part in a development strategy
intended to guide industrial growth in a
direction desired by it. A fallout of this
strategy was that it cut at the roots of
flexibility and innovativeness - the soul
of entrepreneurship. The 1990s have
changed that, clearing the decks for the
emergence of entrepreneurs who were
not heard of even a few years ago. Today
if we look at the top 25 firms on an asset
basis, we find that only a very few of the
old vintage have survived. The article on
post-liberalisation business successes by
provides us with an excellent overview
of the transition post-1991.
An anthology is not intended to answer
all the questions that readers may have.
The great merit of this book is that some
of the key research findings in the area
of business history have been brought
together at one place, highlighting what
we have known so far and what remains
to be researched. Thoughtfully, for those
who wish to pursue any specific areas,
the editor has, in her masterly introduc­
tion, appended a fairly comprehensive
bibliography and so have most of the
contributors. Considering the fact that
the canvas chosen is wide, the editor has
done an admirable job.
D N Ghosh (dnghoshi@ dataone.iri) is the
chairm an o f ICRA.
N O T E S ___________ ____________________________________
1 D N Ghosh, Banking Policy in India,An Evaluation,
Chapter 1, “Currency and Banking Policy in the
Colonial Period”(Delhi: Allied Publishers), 1979.
2 Ashin Das Gupta, The World o f the Indian Ocean
Merchant, 1500-1800, Chapter 5, p 105 (Delhi:
OUP), 2001.
3 Ashin Das Gupta, Indian Merchants and the
Decline of Surat c 1700-1800, Franz Steiner
Verlag. Wiesbaden, 1979, Chapter 2, Mulla
Abdul Ghafur.
4 Ibid, Chapter 4, p 101.
5 S Arasaratnam, “ India and the Indian Ocean in
the Seventeenth Century” in India and the
Indian Ocean 1500-1800, edited by Ashin Das-
gupta and M N Pearson (Calcutta: OUP), 1987.
6 Lakshmi Subramaniam, Bania and the British,
The role of indigenous credit in the process of
imperial expansion in western India in the sec­
ond half of the 18th century, in Modern Asian
Studies, Vol 21, No 3,1987, pp 473-74.
7 Claude Markovits, Merchants, Traders and Entre­
preneurs,Indian Business in the Colonial Era,
Chapter 8 (Ranikhet: Permanent Black), 2008.
8 Ibid: 198.
35
 P E R S P E C T IV E S
Reinventing the Third World
ASWINI K RAY
How does one reinvent the third
world in a globalised system that
has been dominated by a unipolar
hegemon post the cold war? The
only meaningful inspiration for
such a reinvention in the current
phase of globalisation could be for
the third world to rediscover its
identity as a conscience of the
system. This could be done in the
same way that the non-aligned
movement in its heyday
represented the voices of the
disadvantaged sections of
the states and people of the
global system.
A sw ini K Ray Cray_asw inda@ hotm ail.com )
taught at the Centre for Political Studies,
S ch ool o f Social Sciences, Jawaharlal Nehru
University, N ew Delhi.
36
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T
he “ third world” as a concept,
emerged in international rela­
tions as an incidental by-product
of the cold war and, according to many,
collapsed along with it. Reinventing it so
long after the end of its original inspira­
tion, and in the present era of intensive
and extensive globalisation of the erst­
while third world needs some justifi­
cation. But before that, a brief recapitu­
lation of its origin and role may help con­
textualise our analysis.
The global system of the cold war era,
as conceived by its architects in the us
and Europe as victors of the preceding
war, had its core area around their ideo­
logical divide between the “ first”and
the “ second” ; the residual segment of the
global space, consisting of a majority of
the states as actors of the system, and
also of its people, was referred to by its
architects as the “ third world” . But soon,
the concept, and international politics
based on the taxonomy, became part of
both global diplomacy and mainstream
scholarship on the subject, paradoxical­
ly, also within what since then came to
be known as the third world.
This brief recapitulation of the easily-
forgotten history of its origin may help
us to underscore some of the structural
characteristics of the third world, to be
able to assess its relevance, if any, in the
post-cold war era to warrant the need
for its reinvention. And, if so needed, its
new composition and agenda.
The Concept o f the Third World
First, the concept did not originate in the
region which came to comprise it, and
encompassed the disparate states and
multicultural people of Asia, Africa and,
arguably, South America. Consequently,
while the architects of the global system
in its core area have found their taxono­
my convenient, the states and people in
the region constituting its periphery
have explored with alternative concepts
m a r c h 17, 2012
All use subject to https://about.jstor.org/terms
for classifying their location within the
wide-ranging structure of global diversi­
ties, like “ oppressed people” , “Afro-
Asian” ,“ tri-continental”,“ non-aligned” ,
and later “ south” , and “
g -77”, each with
more focused concerns beyond its sim­
plistic spatial content, and correspond­
ing composition. But within the rigid
bipolarity of the early cold war era, all
such indigenous attempts to forge soli­
darity among the people and states in
the periphery of the global system was
viewed with suspicion by both the
superpowers, despite their ideological
rivalry, arguably, because of it.
Consequently, most such countries
were sucked within the security umbrella
of one or the other, except for the initi­
ally few non-aligned states pioneered by
India. Incidentally, even the temporal
space has been abidingly appropriated
by the dominant few of the era to be im­
mortalised in universal historiography
as the post-war era, rather than the post­
colonial era of the marginalised majority.
This appropriation of the universal by
the dominant, to be interpreted on its
terms and conditions has its lessons for
us in our quest for reinventing the third
world in the post-cold war phase of the
process of globalisation.
Second, this taxonomy of classifying
the disparately diverse states of the
global system into the first, second, and
third world does not appear to be an
innocent sequential happenstance; but
from all evidence of its impact, clearly
value-loaded in terms of indicating the
pecking order of normative concerns
like democracy, economic justice, and
even security within the structure of the
system. It is not entirely insignificant
that through the long cold war era,
while there has been no significant case
of actual use of military force among or
between the first and the second world
- which was a sharp reversal of these
two regions’entire historical trajectory
- there was not a single day without a
war in one or other of the third world
states, often as proxy wars between
the two superpowers. Yet, as already
noted, this period has been immortal­
ised in world history as the post-war
v o l x l v i i n o 11 ES2E3 Economic & Political w e e k l y

era, paradoxically, even in the textbooks
prescribed in the third world.
Not only wars; all military and/or
civilian dictatorships, and feudal oligar­
chies, as client-regimes of the cold war­
riors were spawned in the third world,
while democracies were nursed back
within the countries of the first world
soon after their Nazi and fascist rule;
so were secular states nursed back in
Europe in the immediate aftermath of
the holocausts while religious fanati­
cism was stoked within the third world
as an instrument of the cold war. Conse­
quently, the predictable balance sheet of
the cold war global system was relative
security with actual absence of war,
economic prosperity, and political stability
within the ideologically divided core
area at the cost of wars, economic dep­
rivation, political instability, dictatorial
repression, and religious revivalism
within the third world perpetrated by
the regimes underwritten by one or the
other cold warriors of the core area. This
inequitable balance sheet was among
the structural imperatives of the global
system and its pecking order of norma­
tive concerns as designed by its archi­
tects. It is possible to interpret this peck­
ing order even in ethnocentric terms.
If not by design, the global system
could surely be faulted for its insensitive
default. For, to begin with, there was a
sharp historically inherited asymmetry
in both the power structure and devel­
opmental priorities between the industr­
ialised nation states of the first and second
worlds on the one hand, and the third
world: the former were faced with the
priorities of their post-war reconstruc­
tion, while the latter were on the eve of
their postcolonial nation-building agenda
involving economic development with a
built-in component for social engineer­
ing to promote bonding among its diverse
social groups to qualify as nation states.
This latter agenda, as a logical legacy of
its historical inheritance, was hardly
compatible with the cold war paradigm
of national security based on military
alliances, and its developmental corre­
lates. But within the rigid bipolarity of
the early cold war era, most countries of
the third world were sucked within the
overarching cold war paradigm geared
Economic & Political w e e k l y (3353 m a r c h 17, 2012
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PERSPECTIVES
to the specifics of post-war reconstruc­ This indigenous concept of the n a m as
tion at the cost of their own nation­ the third world has had considerable
building agenda, with irreversible con­ legitimacy since then in the entire cold
sequences within their developmental war era through some of its undoubted
priorities in the long run, as Pakistan’s impact within the global system. For a
and even Bangladesh’ s case in India’s start, facilitated by the first thaw in the
neighbourhoods would forcefully dem­ rigidity of the global bipolarity, it helped
onstrate. The militarily allied states of to loosen it further in a dialectical process,
the third world soon became the “ Trojan thus widening both the foreign policy
Horses”of the cold warriors for their options and developmental imperatives,
proxy-wars in the periphery of the glo­ with India as the role model for secular,
bal system. Soon, they also played their democratic, nation-building in this part
role in dividing the third world between of the third world. This was in sharp
the aligned and the non-aligned. These contrast with the developmental agenda
appear to be part of the design. of “ modernisation” , with the military
and/or the bureaucracy as its “ vehicle” ,
Non-Alignment and Its Adherents as promoted by the global funding agen­
For the non-aligned states of the third cies and imposed within the western
world, like India, Indonesia, later military allies in the periphery of the
Nasser’ s Egypt, and much later, Tito’ s global system contesting the appropria­
Yugoslavia, the early cold war era was tion of the third world label by the n a m .
particularly harsh, being part of the In the process this reinforced n a m ’ s
world capitalist market but outside its appeal within the newly-liberating coun­
military alliances - some of them even tries of Africa, n a m ’ s role in promoting
hostile to the idea - made them some the anti-colonial liberation struggle in
sort of pariahs to both the superpowers Asia, Africa, and Latin America, and
in the fields of global diplomacy as also against racial discrimination in Africa
for purposes of crucial economic aid for and apartheid in South Africa also
development. It was not until the mid- helped its moral legitimacy, and attract­
1950s, when the balance-of-terror bet­ ed new converts to the movement like
ween the superpowers helped in loosen­ Ghana, Tanzania, Zambia, Senegal, and
ing the rigidity of the bipolar structure, later Cuba. The communist renegade
that non-alignment as a foreign policy Tito’ s Yugoslavia in Europe could also be
option within the third world gained counted among them.
some salience. But it was not till the early Together, they came to constitute a
1960s of the Cuban missile crisis that major global diplomatic bloc in many
once for all eliminated the possibility of global fora, including the u n institu­
any open military confrontation bet­ tions, in which, helped by the Soviet
ween the superpowers, leading to their bloc, the n a m group of the third world
confidence-building measures, that the asserted their political strength by help­
non-aligned movement (n a m ) appropri­ ing to create institutions like the United
ated the third world label for itself as a Nations Conference on Trade and Devel­
badge of honour representing the aspira­ opment and United Nations Industrial
tions of the disadvantaged states and Development Organisation geared to
people within the global system as the their specific needs, and also united to
“wretched of the earth” . As the con­ push through a majority resolution in
science of the anomic cold war global the u n general assembly to create a New
system, it assumed considerable political International Economic and Information
and moral legitimacy both among its Order. Later, the Brandt Commission too
protagonists and also within the liberal came into existence to ensure develop­
sections of the global civil societies. mental assistance for the countries of the
More important for its viability, it came “ South”from the “ North” . Almost on all
to be acknowledged by both the super­ these issues, the n a m group was helped
powers as a potential “ honest broker”in by the Soviet bloc, and found themselves
their many diplomatic “ zero-sum-games” pitted against the us and some of its
of the era. western allies, which certainly did not
v o l x l v i i n o 11 37
P E R S P E C T IV E S

help to popularise the latter’ s allies with
the people in the third world. The col­
lapse of the Soviet Union eliminated this
major crutch for n a m ’s role in global di­
plomacy as the mouthpiece for the third
world, as also their domestic develop­
mental options. They had little cause to
celebrate it as the “end of history” , while
some feared their region to have inherited
a fertile social and political base to
become again the theatre of operations
for the ensuing “ clash of civilisations”
after the end of the cold war, in fact, as
its structural inheritance.
Unipolar Hegemony
The collapse of the cold war global sys­
tem has spawned a hegemonic system
with one ideology, one market, and one
idea of good life across the world, and
the us has emerged as the archetypical
global role model as the ultimate super­
achiever in the idea and indices of good
life. The global talent across the world in
almost all fields of human aspirations are
divided between those with the “ green
card”and others aspiring to have it; and
those outside the contest are creating
their caricatured hybrid versions with
fusions of American lifestyle in malls,
fast foods, music, films and architecture.
It is in this sense that the us has emerged
from the cold war as the dominant eco­
nomic and military power at its begin­
ning to the status of the hegemonic pow­
er at its end; and the global system has
evolved from the rigidly bipolar, to the
loose bipolar, briefly to the multipolar
during the thaw of the confidence-building
phase, finally to the hierarchical global
system of the Morton-Kaplan model, but
with the us as the hegemonic power in
the Gramscian sense.
The concept of hegemony, rooted in
the social sciences, and within the frame­
work of sovereign states, when extra­
polated to the domain of International Re­
lations, mercifully still without a legitimate
global sovereign, involves some creative
imagination. But within such limita­
tions, it offers better insights into the us’
status within the post-cold war global
system, and the structure of the system
itself, rather than simply as a dominant
power within a unipolar system. It is the
dominant player in most of the post-cold
war instruments of global order, like the
Bretton Woods institutions of the World
Bank/International Monetary Fund, and
now the post-Uruguay World Trade Orga­
nisation, the International Atomic Ener­
gy Agency. And with its veto powers in
the u n Security Council enabling it to
pursue its unilateral diplomacy, inclu­
ding declaration of war, when necessary
- as in case of the second Iraq war - or
collectively with the other g - 8 countries,
as in Afghanistan or the first Iraq war, it
certainly remains the global system’ s
dominant military and economic power.
It is, arguably, more powerful after the
collapse of the Soviet Union as its only
superpower adversary. But it is the sedu­
ctive charms of its lifestyle as the global
role model that has catapulted the us to
the status of the global hegemonic power,
distinguishing it from the other g - 8
countries which are also influenced by
its business ethics and lifestyles. This is
closest to Gramsci’ s conceptualisation of
hegemony: the values, ideas, and insti­
tutions that represented the “ collective
consciousness of the epoch” , as represent­
ed by the bourgeoisie in the capitalist

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38 march 17, 2012 v ol xlvii n o u iaaM E con om ic & P olitical we e kl y

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state, and the feudal lord in feudal socie­
ties, and arguably, the brahmins in
India’ s “Sanskritisation”process of the
Vedic era. This is a unique phenomenon
in international relations with one hege­
monic power within a global system,
now encompassing the entire planet
made possible by new technology; and,
this is what has affected on the nature of
globalisation within the system, and the
policy options for the actors within its
structural hierarchy.
The nature of the post-cold war proc­
ess of globalisation is crucial to our
present concern around the need to re­
invent the third world, and its new com­
position and agenda. For, while globali­
sation is an ongoing process from the
beginning of civilisation, through ad­
venture, conquest, proselytisation, colo­
nialism, trade, commerce, and allian­
ces, it has historically been on the terms
and conditions of the dominant power,
and tempered by the latter’ s technologi­
cal, managerial, and cultural resources.
This could explain the global diversity
in lifestyle of the colonial era between
the British, French, Dutch, Portuguese
and Spanish colonies; or in the cold war
era between the countries of the Soviet
bloc, and the western bloc; as also be­
tween them and their allies in the third
world, whether militarily aligned or
non-aligned.
For the first time, after the collapse of
the Soviet Union and, with it, the ideo­
logical appeal o f both the socialist utopia
and non-aligned options, the uniquely
integrated global system has spawned
one hegemonic power, and fuelled by
new technology, is in pursuit of its glo­
balisation agenda on its terms and con­
ditions, thus unleashing an unique pro­
cess of homogenisation across the globe.
So that the uniqueness of the new pro­
cess of globalisation involving the inter­
weaving of the factors of production,
consumption, along with the ideas and
indices of good life across the territorial
boundaries of sovereign states, is not the
process per se but its pace, scale, and
reach. It has new opportunities on a
vastly extended scale for the historically
dominant and the powerful across the
global system of sovereign states, and
also sectors and groups within each of
Economic & Political w e e k l y MARCH 17, 2012
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them, in the process, spawning new
winners and losers.
The more sensational components
among the losers are those afflicted with
famines, civil wars, and recurrent natu­
ral calamities, including some so-called
“ failed states”as the “ new international
protectorates” . But there are victims of
ecological disasters, killer diseases like
a i d s , terrorism, and drug addiction;
there are also the abidingly marginal­
ised communities of tribal people, forest-
dwellers, aboriginals, and victims of land
eviction to accommodate the new indus­
trialisation process of giant multination­
als in the erstwhile third world, the refu­
gees across the world in search of secu­
rity, food and shelter, and many more,
constituting the “ wretched of the earth”
within the new process of globalisation.
For the erstwhile third world, the col­
lapse of the cold war global system has
not been a cause for unmitigated
celebrations, despite the structural ineq­
uity of the collapsed system; for, most of
the states in this part of the world, par­
ticularly its non-aligned part, had man­
aged to diversify their dependence
among the various components of the
two power blocs to incrementally widen
their policy options.
The successor hegemonic global sys­
tem eliminated such options. The third
world emerged from the cold war as a
metaphor of economic deprivation, po­
litical instability, social revivalism, and
hum an misery, all o f w h ich w ere co n sid ­
erably a part of the structural inherit­
ance of the anomic global system. This
provided the ideal social base to fuel
global terrorism and religious funda­
mentalism within the new system; and
after 9/11, as the social base of “ inter­
national terrorism”and “ Islamic funda­
mentalism”and as the global fault line
in the new “ clash of civilisations”after
the “end of ideologies” .
Reinventing the Third World
Within this macro-level scenario of the
global system what could be the com­
pulsions, and options, to reinvent the
third world? Obviously, within the in­
tensively globalised, hierarchical, hege­
monic, post-cold war global system,
there is little scope for a third world;
VOL XLVII NO 11
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PERSPECTIVES
and, with the Soviet bloc as the second
pole eliminated from the scene, non-
alignment as being coterminous with
the third world is also a non-starter; be­
sides, a purely spatial bloc like the widely
disparate Afro-Asia, with or without
South America, may at best represent
the ethnically opposites of Europe and
North America, but itself constitutes a
range of diversities that are unlikely to
be easily reconciled for meaningful
bonding around critical global issues.
The only meaningful inspiration for
such a reinvention within the present
phase of globalisation could be for the
third world to rediscover its identity as
the conscience of the system in the
sense that the n a m in its heydays repre­
sented the voice and aspirations of the
disadvantaged sections of the states and
people of the global system. We have
already identified some of those con­
cerns and the new victims of the global
system in search of human security with
dignity and justice. Such an agenda can­
not be the monopoly of any state or
group of states; in fact, no state could be
adequately motivated, or even qualified,
to objectively play such a role as actors in
the international arena. This role can
only be played by a global network of
civil society institutions, and motivated
individuals across the world replicating
the role model of the “ Conference of the
Oppressed People and Nationalities”in
Brussels in 1928, or the more recent
rounds of W orld S ocial Forum.
It may of course require considerable
creative imagination to identify the
agenda, or its protagonists, as the third
world except in the sense of distinguish­
ing these normative concerns and their
activists as the “ outsiders”in the sense
of the French existentialists like Sartre
and Camus. Within this global taxo­
nomy, the sick, power-realist, consumer
societies of the hegemonic power and its
g - 8 counterparts would constitute the
first world; its deceived apparitions
across the world, but still ensnared by
the seductive charms of the hegemonic
role model would be the second; while
the new third world would consist of
the victims of the inegalitarian system
committed to justice within it, how­
soever incrementally.
39
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40 m a r c h 17, 2012 v o l x lv ii n o li E3B59 Economic & Political w e e k l y

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SPECIAL ARTICLE
Can the SDR becom e a Global Reserve Currency?
C RANGARAJAN, MICHAEL DEBABRATA PATRA______________________
Global economic prospects are worsening rapidly. This
has revived the debate on the evolving international
monetary system and the international reserve currency
that will underpin it. Since the 1940s, the us dollar
remains the world's dom inant reserve currency.
Developments since 2008 have challenged the
pre-eminence o f the us dollar. The euro appeared to
have provided an alternative during 2000-08, but has
come underfire since early 2010. Prospects for
internationalisation o f emerging economy currencies are
still limited. The global crisis o f 2008-09 has resurrected
interest in the special drawing right as an international
reserve currency. In this paper, we argue that the sdr fails
to meet the main attributes o f an international reserve
currency - deep and liquid markets, supported by
currency convertibility; wide use internationally;
macroeconomic and political stability in the issuing
country. At this juncture, the critical mass o f political will
to invest the International Monetary Fund w ith these
responsibilities simply does not exist and/or w ill take a
long tim e to form. Despite shocks and sometimes acute
differences in views on the us dollar, the current system
has been resilient over decades, and is likely to remain so
for some more years.
C Rangarajan (csangarajan@nic.in) is chairman. Economic Advisory
Council to the Prime Minister, and Michael Debabrata Patra (MPatra@
imf.org) is with the Reserve Bank of India and currently at
the International Monetary Fund, Washington.
Economic & Political w e e k l y DSQ m a r c h 17, 2012 v o l x l v i i n o 11
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1 Introduction
O
ver recent months and weeks, global economic pros­
pects have worsened rapidly. A large loss of confidence
hangs over the outlook for advanced economies. This
portends a high risk of the global economy slipping back into
recession at a time when policymakers have demonstrated that
they may be ill-equipped to fight it. Growth across close to half
of the global economy comprising the European Union (eu), the
us and Japan has stalled or turned down. A dangerous dynamic
is taking hold - the debt crisis in Europe is creating new risks for
the us economy; the possibility of another us recession wors­
ening the European fiscal crisis even further. In the emerging
and developing world, overheating pressures have necessitated
countervailing policy action that is causing growth to slow.
In sharp contrast to previous crises, this time around it is
sovereigns that are threatened with solvency questions. The
euro area sovereign crisis has been the greatest shock in recent
months with every attempt to close divisive ranks colliding
with unconvinced markets. The senseless us debt crisis has re­
sulted in a first-ever rating downgrade, and left permanent
scars on investor psyche. All this has revived the debate on the
evolving international monetary system and the international
reserve currency(ies) that will underpin it.
The global crisis of 2008-09 had resurrected interest in the
special drawing right ( s d r ) as an international reserve cur­
rency, after it being assigned to oblivion for nearly three
decades since its creation in 1969. The general proposition is
attributed to P eop le’
s Bank o f China G overn or Zh ou X iaoch uan
on the eve of the G-20 summit in London in April 2009. Support
was expressed by the presidents of Russia and Brazil in the
run-up to the Brazil-Russia-India-China ( b r ic ) summit in
Yekatrinberg in June 2009. Broader advocacy emerged in the
context of concerns about disorderly diversification out of
dollars, with suggestions about asset allocation rules stipulat­
ing a gradual rebalancing of portfolios (Bergsten 2009).
The idea itself is not new. Similar plans were devised in the
late 1970s, when fears about the us dollar’ s value were running
high. It involved the International Monetary Fund (i m f ) set­
ting up a so-called substitution account to allow central banks
to swap dollar assets for s d r s . The proposal did not materialise
due to disagreement among i m f member-countries about cost
sharing. There was also an underlying faith in the intrinsic
strength of the us dollar which was proved correct in subse­
quent years. It was also argued that the very basis of allocation
of s d r s , i e, in proportion to member-countries’i m f quotas is
flawed, driven by expediency in facilitating its acceptance
by advanced economies and their ratification (Hawkins and
41
SPECIAL ARTICLE
Rangarajan 1970). The basis of quota distribution has always
been loaded by factors, including political and other special
ones, that ensure a higher proportion going to advanced econo­
mies. Accordingly, s d r allocation in proportion to quotas is
inherently disadvantageous to developing countries. These
arguments remain as valid today. The small correction in the
bias that is expected out of the 14th general review o f i m f
quotas agreed upon in November 2010 remains to be tested.
More recently, a series of papers emanating from the i m f have
attempted to resurrect the s d r ’
s claim to reserve currency status
(i m f 2009, 2010a). Taking the cue from the diversification
argument, these papers attempt to situate the advocacy for the
s d r in the broader context of the i m f ’s responsibility of over­
sight of the international monetary system.
In this paper, we argue that the s d r fails to make the grade
as an international reserve currency on several counts. In fact,
these are well-known preconditions or prerequisites that are
associated with currencies that qualify in the real world today.
In the case of the s d r , the onus to create these enabling condi­
tions rests with the i m f and therein lies the problem. At this
juncture, the critical mass of political will to invest the i m f
with this responsibility simply does not exist and/or will take a
long time to form.
The rest of this paper is divided into six sections. Section 2
sets out the main attributes of a reserve currency, drawing
from historical precedent and practical usage. Section 3 dis­
cusses the experience with the us dollar as the dominant
reserve currency since the second world war, its strengths
and pitfalls, especially in the light of the recent experience.
Section 4 presents some stylised facts, followed by Section 5
which evaluates some alternatives to the us dollar-centric system.
Section 6 examines the arguments being made in support of
the s d r as an international reserve currency, the practical issues
surrounding the subject, and why the s d r could be a long way
off from becoming the Holy Grail. The last section brings it all
together and concludes on a pragmatic note on what could
endure the test of time, at least in the foreseeable future.
2 A ttributes o f a Reserve Currency:
Blending the Desirable and the Feasible
A reserve currency is quite simply a national currency that serves
an international role. Its fulfils the domestic functions of money
- a numeraire for establishing prices, a means of payment, and
a store of value, but on a cross-border plane (Cohen 1970;
Kenen 1983). An international currency must garner demand
beyond its national borders by invoicing imports and exports,
by anchoring the exchange rate of currencies pegged to it, by
effectuating cross-border payments, and by denominating
international assets and liabilities. In addition, just as domestic
money serves as an alternative to bartering, an international
currency can serve as a “ vehicle currency”for trading between
pairs of currencies. Such uses are mutually reinforcing.
2.1 A Short Digression through History
The story of the international monetary system is synchronous
with the rise and fall of reserve currencies.1 The silver
42
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drachma, issued by ancient Athens in the fifth century b c
could have been the first reserve currency that circulated
widely beyond Athens. It was followed by the gold aureus and
silver denarius coins issued by Rome. Inflation led to a contin­
uous devaluation of the Roman-issued currency from the first
century a d through the early fourth century, causing it to give
ground to the Byzantine Empire’ s heavy gold solidus coin by
the sixth century. By the seventh century the Arabian dinar had
partially replaced the solidus. By the end of the 10th century,
large fiscal costs also led to a gradual devaluation of the
Arabian dinar: By the 13th century, the fiorino, issued by Florence,
was widely used in the Mediterranean region for commercial
transactions. It was supplanted by the ducato of Venice in the
15th century. In the 17th and 18th centuries, the dominant in­
ternational currency was issued by the Netherlands, reflecting
that country’ s role as a leading financial and commercial power
at the time. At that point, paper bills began replacing coins as
the international currency of circulation, even though they
were not backed by the Dutch government or any other sover­
eign entity. Beginning in the 19th century, bills and interest-
bearing deposit claims that could be substituted for gold also
began to be held as reserves. This development coincided with
the rise o f Great Britain as the w orld’s leading trading nation.
Between the 1860s and the outbreak of the first world war in
1914, about 60% of the w orld’ s trade was invoiced in British
pound sterling. As u k banks expanded their overseas business,
propelled by innovations in communications technology such
as the telegraph, the British pound sterling became the domi­
nant international currency. This role for the pound sterling
was further enhanced by London’ s emergence as the w orld’ s
leading shipper and insurer o f traded goods and as a centre for
organised commodities markets. Growing British foreign
investment largely took the form of long-term securities
denominated in pound sterling.
At the beginning of the 20th century, however, the com po­
sition of foreign exchange holdings by the w orld’ s monetary
authorities began to shift - the sterlin g’ s share declined
and the shares of the French franc and the German mark
increased. However, it is the first world war in 1914 that
is widely viewed as signalling the end of Great Britain’ s lead­
ing role in the international economy. The us dollar’ s use in­
ternationally as a unit of account and means of payment in­
creased during the interwar period. Following the second
world war, under the Bretton Woods system of fixed exchange
rates, the dollar formally took on the mantle of dominant
international reserve currency. As the following section will
show, this role has been faced with testing challenges right up
to the present.
2.2 The M ain A ttributes o f a Reserve Currency
What are the desirable properties of an international reserve
currency? International demand for a currency is related to its
ability to satisfy the role of international money with low
transaction costs, while maintaining the confidence of private
and official users in its value. A key property of financial markets
is that the more the currency is used, the lower the transaction
m a r c h 17, 2012 v o l x l v i i n o 11 13253 Economic & Political w e e k l y

costs and the greater the liquidity associated with that currency.
Thus, there is a positive externality that tends to produce
equilibria with only one or a few currencies in widespread
international use (Hartmann 1998). Moreover, as illustrated in
the foregoing, this externality can produce multiple equilibria
due to its interaction with the circumstances of history. Gener­
ally, it has been observed that currency use is reinforced by
economies of scale or “ network externalities”(Kiyotaki and
Wright 1989). Once a currency is widely used, it retains incum­
bency advantages that make it hard to displace.
The supply of international currencies is influenced by the
actions of governments to allow international use. This is
closely linked to the provision of institutional and policy
underpinnings that encourage the development of financial
markets and produce macroeconomic stability (Tavlas 1991).
Without the existence of markets in various financial instru­
ments and a reasonable amount of investor confidence in
accessing them, the currency’ s usefulness in the international
realm is limited. If those underpinnings exist, the supply of
international currencies can be considered to be close to
perfectly elastic: demand can be satisfied through facilities
offered by banks and by issuance of domestic and foreign
securities denominated in the currency. Conversely, attempts
to stimulate international use of a particular currency will be
unsuccessful in the absence of demand.
Thus, drawing from history and practical usage in financial
markets, the key characteristics of a reserve currency, can be
summarised as the following:
• Deep and liquid financial and foreign exchange markets,
facilitating the conduct of foreign exchange policies, manag­
ing foreign exchange reserves, managing currency risks effec­
tively, as also supporting financial asset transactions denomi­
nated in the reserve currency.
Prerequisites: currency convertibility and a credible com­
mitment to an open capital account to facilitate financial
flows with minimal transactions costs (Galbis 1996); liquidity
(narrow bid offer spreads in normal and stress times); a full
yield curve (to be able to manage duration and curve position­
ing); depth - offering a range of products across different
credit qualities (to achieve the desired level of credit risk).
• Wide use in private sector transactions: a currency with a
large share in world g d p , trade, and finance attracts more
users and establishes network externalities - by being a large
exporter and importer, the country issuing the reserve cur­
rency could have a bargaining power to impose use of its cur­
rency; the more trading partners such a country has, the more
familiar its currency becomes (Iwami 1994). Also, such an
economy typically enhances the breadth and depth of domestic
financial markets.
Caveat: A number of convertible currencies (e g, Swiss franc,
or the Swedish krona) are eligible reserve assets, but are not
used globally, partly reflecting the constraints for their
governments to support transactions at a systemic scale
(Eichengreen 2009a).
• Macroeconomic and political stability: Policymaking insti­
tutions with credibility and a track record of maintaining price
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SPECIAL ARTICLE
stability are a critical ingredient to sustain confidence in the
currency’ s long-term purchasing power.
Corollary: To the extent that a flexible exchange rate regime
can help maintain macroeconomic stability by facilitating do­
mestic price adjustment, this may also be crucial.
The attractiveness of a currency on an international plane
depends on both its ability to retain its value in terms of other
currencies and its purchasing power. In addition, it must be
usable with low transaction costs. Thus, the various character­
istics of a truly international reserve currency are interde­
pendent and reinforcing. Wider political considerations (in­
cluding military alliances and security) also play a role.
3 The Rise and Fall (?)of the US Dollar's Role
as Reserve Currency
Since the 1940s, the us dollar remains the w orld’ s dominant
reserve currency (see Section 4). In fact, the share of the us
dollar in global reserve assets far exceeds the share of the us in
the global economy.
3.1 The Road to International Currency Status
It is useful to trace and evaluate the performance of the us dollar
as an international reserve currency to draw lessons for
assessing the case for internationalisation of the s d r . At the end
of the second world war, the us was the only strong economy
left in the world. Europe and the u k , in particular, had lost its
economic and financial power which ended its role as a global
hegemon. The us accounted for 60% of global output, owned
60% of the w orld’ s gold reserves, had modest import require­
ments and was able to produce much o f what the rest o f the
world needed to resume economic growth (D’ Arista 2009). It
is, therefore, no surprise that the Bretton Woods system recog­
nised the us dollar as the international reserve currency in
1 9 4 4 -4 5 . Thus, the gold exchange standard that came into
being was in practice “ a solar system in which the us dollar
was the sun”(Dam 1982).
The ability to issue a currency that is used internationally
confers obvious benefits to the issuing country. First, the
acquisition of us dollars in currency form is, in effect, an interest-
free loan to the us government. In addition, because foreign
governments acquire interest-earning us dollar assets in the
form of reserves, they lower the interest rate faced by us
borrowers. In recent years, the seigniorage revenue of the us
from having an international currency has totalled roughly
$90 billion per year (World Bank 2011). Second, it is easier for
American companies to engage in international activities be­
cause it reduces their forex risk. The growth of international
trade automatically boosts demand for dollars. Foreign inves­
tors and central banks asking for more dollars can help com­
pensate the us current account deficit. By the same token, at­
tracting capital from abroad at low interest rates can compen­
sate capital account deficits. Third, a potential advantage,
though much more difficult to quantify, is the ability of the us
to avoid the painful adjustment of macroeconomic policies - in
fact, to run structural current account deficits without the us
dollar depreciating. Yet, as time would tell, this advantage
43
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also carries costs. It required the us to subordinate fiscal and
monetary policy to the objective of exchange rate stability, an
objective that no country could meet over time (Gisselquist 1981).
Allowing financial imbalances to build up sows the seeds of a
more serious crisis down the road.
Turning back to the evolution of the us dollar as the dominant
reserve currency, the first dollar crisis erupted in i960 with
speculative sales of us dollars for other currencies and some
official demand for gold in expectation of devaluation. The
us authorities attempted to counter pressure on the dollar
through “ Operation Twist”(buying long-term securities to de­
press their yields and raising the yields on short-term securi­
ties so as to shift the slope of the yield curve) in 1961. This was
followed by a series of capital controls (such as the interest
equalisation tax on as us residents' holdings of foreign securi­
ties issued in the us) as the decade progressed.
The second run on the us dollar occurred in 1967, prompt­
ing the Fed to raise interest rates to attract foreign funds and
dampen the economy. As rates declined, us banks ignored the
voluntary restraint programme and moved funds back to the
Euromarket - a move that prompted the next dollar crisis in 1969
-a“ monetary jolt”as the French franc devalued by 10% and
speculative flows pushed up the value of the deutschmark by
10%. The countries of the European Economic Community (e e c )
responded to the renewed turmoil by imposing capital controls
and recommending a revival of the credit system for settling
balances under the 1950s Payments Union (Kindleberger 1984).
As the unsustainability of the us dollar/gold exchange rate
system became increasingly obvious in the 1960s, the credibi­
lity of the us dollar as the key reserve currency was increas­
ingly called into question (Triffin i960).2 Strident calls for a
post-Bretton Woods system led to the Rio Agreement in 1967,
authorising the i m p to create and issue s d r s .
In 1971, the us dollar came under pressure from actions by
Germany and France and the Bank of England to convert us
dollar balances into gold to alleviate pressure on their curren­
cies. Foreseeing a run on the dollar, President Nixon closed the
gold window in August. This effectively ended us dollar con­
vertibility and potentially undermined its role as the global reserve
currency since it was technically tantamount to a default by
the us. At a meeting of the g -i o nations at the Smithsonian
Institution in December, the us announced a devaluation of
the dollar to $38 to an ounce of gold, imposed a 10% tariff
surcharge on Japanese imports and negotiated upward revalu­
ations of the deutschmark, the yen and the Swiss franc. It also
negotiated smaller revaluations of the Belgian franc and the
Dutch guilder and even smaller revaluations of the pound, the
Italian lira and the Swedish krone. The Smithsonian Agreement
was short-lived. Another, much larger run against the dollar
took place in February 1973, prompting $10 billion of interven­
tion by central banks in an attempt to stabilise foreign ex­
change markets. Exchange markets were closed in March and
the us took unilateral action, devaluing the dollar to $42.50
for an ounce of gold, letting its currency float and, in 1974,
ended capital controls. Those who had argued that the market
should set the price of the dollar had prevailed (Dam 1982).
44
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The 1970s also saw the advent o f a number o f so-called
reserve currencies which formed the s d r basket, based on the
criterion of “
free usability”defined by the i m f .3 The us dollar's
hegemony as reserve currency was being tested.
3.2 The Tumultuous Decades: 1980-2000
The next two decades would witness a roller coaster ride for
the us dollar and numerous other currencies. After falling pre­
cipitously through the 1970s, the us dollar regained strength
in the 1980s following the election of the Reagan administra­
tion. This phase ended in 1985 with the Plaza Accord as the
strong us dollar was causing structural imbalances with the
growing us twin deficits - fiscal and current account. In less
than two years thereafter, the us dollar lost half its value. The
1990s was the decade of currency crises - the u k pound sterling
(1992); the Mexican peso (1994); the Asian crisis (1997-98);
the collapse of the Russian ruble and Long-Term Capital Man­
agement (1998); and to a lesser degree, the Turkish lira crisis
(2000-01), the Brazilian real (2002) and Argentina. By 1994,
the world was mired in a global recession with Japan almost
in an outright depression. From 1995-2000 the stated goal of
the Clinton administration was a strong dollar. During each
and every currency crisis, the Federal Reserve stepped in and
either cut interest rates and/or provided massive doses of
liquidity to the banking system, including and particularly
during Y2K (1999) and 11 September 2001. With liquidity
growing faster than the rate of economic growth coupled
with a debt boom, the excess liquidity found its way into the
stock market, eventually leading up to the dotcom bubble and
bust (1995-2000).
In the interregnum, a challenger to the throne was being
born. European economists issued a manifesto on 1November
1975, calling for monetary union in Europe. An e e c study group
report issued in 1977 supported the commitment to resolving
monetary instability by the leaders of Germany (Helmut
Schmidt) and France (Giscard d'Estaing).4 The next step was
the formation of the European Monetary System (e m s ) in
December 1978 and the introduction of a new unit of account
- the European Currency Unit (e c u ) - based on a basket of cur­
rencies. Twenty years elapsed between the introduction of the
e m s and the full monetary integration - with the e r m crisis5in
between - that occurred at the end of the millennium with the
adoption of a single currency by a majority of the states in the
e u . The single currency appeared to have provided stability
within the euro area during 2000-08. However, by no means
did it shelter it from effects of monetary developments outside
the eurozone, or as the recent sovereign debt crisis has shown,
from the lack of unified fiscal policy within.
3.3 The Euro under Fire
Since early 2010, when the modern tragedy of Greece started
to unfold, financial markets have battered the edifice on which
the euro came into existence. The ability of the eurozone
economies to mount a credible rescue is being severely tested
even as we write. A long shadow now clouds the future of the
Euro as an international reserve currency. At one time or
m a r c h 17, 2012 v o l x lv ii n o ii DBSI Economic & Political w e e k l y
 SPECIAL ARTICLE

another, every country in the eurozone has broken fiscal rules is a mere 4% of g d p . Capital inflows from the rest of the world
intended to ensure that no country takes advantage of mone­ have financed these deficits. Foreign investors account for
tary union for national purposes. Indeed, they were enabled to more than 50% of new subscriptions to us government bonds.
do so because the founding agreement of monetary union This makes the us by far the most highly indebted country in
included no enforceable mechanism for harmonising fiscal the world. Reducing these imbalances will take many years
policy. Yet, the lack of fiscal union is not a mere question of and will require a highly cautious political strategy if shocks
governance or institutional design. It is a basic problem of are to be avoided. Any disruption of confidence in the sustain­
legitimacy. It reflects very real differences of culture, language ability of the us economy would make it impossible for the
and history across Europe, as well as citizens’real, if loosely dollar to play its role as international reserve currency.
articulated, concerns about surrendering control over their
The g row in g sen se around m uch o f the w orld is that w e have lost b oth
pocketbooks to a distant bureaucracy. relative e co n om ic strength and m ore important, w e have lost a coher­
Even if Europe overcomes the political obstacles, the costs, ent successfu l govern in g m od el to b e em ulated by the rest o f the
economic and political, are steep - higher taxes and interest world. Instead, w e ’ re faced w ith broken financial markets, under­
rates in rich nations such as Germany; seemingly endless perform ance o f ou r eco n om y and a fractious politica l clim ate...
The qu estion is w hether the exceptional role o f the dollar can b e m ain­
austerity in less-rich nations such as Greece. A new sense of
tained (Volcker 2010).
realism about the goals of European unity is needed along
with the means of achieving them. So far, the only widely dis­ Like in the 1970s, the Triffin dilemma is back to haunt us
cussed approach, especially by non-Europeans, has been to again. The world is in a sense hostage to the reserve issuer’ s
launch a far bigger bailout - the only way to stop a financial ability to preserve its currency’ s value. Reserves concentration
crisis is to overwhelm it. However, there is a fear that the in the government debt of one country introduces idiosyn­
measures announced by euro leaders recently may prove in­ cratic risks to the international monetary and financial system
adequate and underfunded. Investor concerns have also now stemming from conditions and policy in that country. Policies
turned to Italy, the euro area’ s third largest (the w orld’s designed to meet domestic concerns typically do not consider
seventh largest) economy. The fire power of the European effects on the wider world (e g, a loose monetary policy may be
Financial Stability Fund is very much in question. All of these warranted for domestic stability purposes, and yet induce
have implications for euro as a currency. There is already a unwanted demand at the global level). Moreover, the system is
talk of some member-countries leaving euro. left vulnerable to policy mistakes as the us debt ceiling grid­
lock showed.6The run-up to the crisis showed that i m p surveil­
3.4 Back to the US Dollar? lance is a very weak substitute, if at all. In fact, the lesson of
While the emergence of the euro has resulted in a small the crisis is that the i m p like others failed to see it coming, as
decline in the role of the us dollar over the past decade, the was evident in glowing Article iv staff reports for the us and
latter has maintained its dominance. Over time, the ease the u k in 2007.
and security involved with investing in us markets has led the Finally, the challenge of organising international reserve
rest of the world to take on massive levels of financial expo­ currencies does not stop with the dollar and the euro. There
sure to the us. The value of foreign residents’investments in are new economic giants on the horizon. China’ s impact on
us companies, real estate, capital markets, and government world markets is already one of the biggest political challenges
debt w as nearly h alf o f non-us g lob a l gdp as o f end-2008. facin g the international com m unity. China, India, Brazil and
Changes in us monetary policy and financial conditions have Russia together outstrip Europe in terms of share in global g d p
had a direct wealth impact on foreign residents, influencing in purchasing power parity terms. As their growth rates are at
their expenditures, and posing a difficult dilemma for foreign least double that of the us, together they will soon overtake
investors. Individually, foreign investors have an incentive the us in size. How likely is it that China, which is set to
to diversify their portfolios as a matter of prudent risk man­ become the w orld’ s biggest economy over the next few dec­
agement. Collectively, however, foreign investors have a ades, will continue to accept the supremacy of the dollar or
strong incentive to maintain their holdings of dollar assets to the euro as international reserve currencies? Financial mar­
avoid the risk of dollar depreciation that could undermine kets are already anticipating this future event. Although the
their investments. shares of emerging economy currencies in global currency
Developments since 2008 have challenged the international markets are still limited relative to the us dollar and the euro,
financial architecture and the pre-eminence of the us dollar. prospects for internationalisation of these currencies are
In the aftermath of the global financial crisis of 2008-09, con­ being increasingly recognised. Currency internationalisation
fidence in the us economy has been shaken by its persisting in respect of key emerging economy currencies has added a
structural imbalances. The us current account has been nega­ whole new dimension to the ongoing debate on the future of
tive for the past 20 years, reaching 5% of g d p before the global the w orld’s reserve currencies. This is, however, a nascent
crisis before declining to 3.1% in 2010. The budget deficit and evolving process currently, and outside the scope of this
stands at more than 9% of g d p and will be difficult to reduce. paper. Nevertheless, it may be noted that the claim o f any
These deficits are not offset by sufficient levels of domestic emerging market currency to evolve as a reserve currency
saving. On the contrary, the savings rate of private households will require in the first place that the country dismantles all

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 capital controls and allow the currency to be determined by outstrip those of other reserve currencies such as the yen and
market forces. euro. More widely, the depth of us capital markets, offering a
large variety of products and high volumes of trading, can
4 Some Stylised Facts reduce diversification and portfolio management costs.
In recent years, international reserve accumulation has accel­ By end-2010, the top reserve holders were mostly emerging
erated rapidly. At $9,695 billion at end-March 2011, the global and developing countries, the largest being China’ s, larger than
level of reserves recorded a sixfold increase over 11 years the next five reserve holders - Japan, Saudi Arabia, Russia,
measured from March 2000 (Table 1). By contrast, this level Taiwan and the euro area - taken together (see Charts 2a and 2b).
Table 1: International Reserves: Important Facts Ten of the top 18 reserve holders are from Asia
End-March 2011 Currency Composition (%)# - an obvious response to the i m f ’s failed re­
($ billion) $ £ Yen Swiss Franc Euro Other
sponse to the Asian financial crisis of the late
Global foreign exchange reserves 9,694.47 60.7 4.1 3.8 0.1 26.6 4.7
1990s. Five top reserve holders are also major
ofwhich:
Advanced economies 3,161.94 63.4 2.6 4.7 0.1 25.4 3.8 oil exporters. An interesting fact that emerges
Emerging and developing economies 6,532.53 57.8 5.7 2.9 0.1 27.8 5.8 is that almost all of the top reserve holders
End-March 2000 run current account surpluses, the only excep­
Global foreign exchange reserves 1,808.71 71.5 2.9 6.3 0.3 17.5 1.5 tions being the euro area (this is set to change
ofwhich: as fiscal consolidation begins), India, the us
Advanced economies 1,132.18 70.7 2.9 7.2 0.3 17.2 1.7
and Mexico. Traditionally, reserves have been
Emerging and developing economies 676.53 73.5 2.9 3.9 0.3 18.3 1 .2
# Relates to reserves that could be allocated by currency comprising 63% in 2011 and 90% in 2000 for advanced
held with a view to ensure financing of the
countries and 39% in 2011 and 56% in 2000 for emerging and developing countries. current account deficit or specifically, im­
Source: COFER Database, IMF.7
ports. Accordingly, the standard norm for ad­
rose only 1.7 times over the 1990s. Emerging and developing judging adequacy of reserves was equivalent of three months of
countries have driven this accumulation. Their reserve levels import cover. As countries Chart 2a: International Reserves
have gone up more than ninefold between March 2000 and globalised and progressively in $ Billion (2010)
0 1000 2000 3000
2011, as against less than threefold for advanced economies. opened up their economies to
China
The currency composition of reserves has remained concen­ international trade to smooth Japan
trated in us dollars, although over the last decade, the share of domestic consumption and Saudi Arabia
Russia
the us dollar has actually declined by 10.8 percentage points, investment, reserve adequacy
Taiwan
almost matched by a 9.1 percentage points gain in the share of became larger and a level Euro area
the euro. The yen has lost ground by about 2.5 percentage equivalent to 12 months of South Korea
points, while the pound sterling has gained 1.2 percentage imports was considered pre­ Brazil
India
points in share. Interestingly, the switch out of the us dollar is cautionary. Yet, the fact that Hong Kong
largely by the Emerging Markets and Developing Countries the major reserve holders Singapore
(emdcs) with a 15.7percentage points decline in the us dollar’ s have current account sur­ Switzerland
Thailand
share in their reserves and a 9.5 percentage points gain in the pluses suggests that these
Algeria
share of the euro. For advanced economies, the shedding of us holdings could be non- US
dollar is about 7.3 percentage points with a 8.2 percentage precautionary - the desire Mexico

point gain in the euro’ s share. to boost public savings to Malaysia

Indonesia
Chart 1: The Dollar in International Finance (2010, %of World Totals) ensure intergenerational eq­
Foreign exchange transactions J uity in the context of even­ Chart 2b: Current Account Balance/
GDP (2010) c n
tual depletion of oil reserves 10 15 20
Bank notes held overseas
for oil exporters, and the China
Japan
International reserves counterpart to an export-led
Eurozone
growth strategy in the case Russia
Cross-border deposits
of some Asian economies Taiwan

Cross-border bank loans (Subramanian 2009). Alter­ Saudi Arabia

India
natively, reserves are being Korea
Debt securities
held for other purposes - the Brazil

US GDP most obvious being the cush­ Hong Kong

Switzerland
ion against sudden stops or
Singapore
Source: Adapted from IMF (2010a). reversals of the surges of cap­ Thailand
The dollar’ s continued preponderance reflects its central ital flows that emerging and Algeria

role as an international unit of account and medium of exchange developing economies have US
Mexico
for cross-border trade and financial transactions with extremely been subject since the 1980s.
Malaysia
desirable characteristics of the dollar in terms of liquidity, Reserves also fulfil the need Iran
safety and yield (Chart 1). The us Treasury market volumes far for accumulating liquidity as Source: WEO Database IMF.
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a backstop for a potential banking crisis, and also for boosting pol­
icy credibility. According to some estimates, such insurance m o­
tives account for about two-thirds of current reserve holdings,
or over half of the increase over the past decade (Obstfeld,
Shambaugh and Taylor 2008).
The stocks of reserves are high relative to a variety of metrics
such as g d p , imports, gross capital formation and short-term
debt, especially for emerging economies (Table 2). These num­
bers exclude substantial foreign assets of the official sector in­
vested in liquid, dollar denominated financial instruments but
not recorded as reserves, including in sovereign wealth funds
(s w f s ), that have grown even more in recent years.
Table 2: Reserves in Relation to Selected Metrics in 2010
Global
Months of imports 7.6
Per cent of GDP 14.7
Per cent of gross capital formation 64.4
Per cent of money supply 13.3
Per cent of short-term debt - 840.5
Total reserves (gold at SDR 35/ounce as reported in the IMF's IFS; short-term debt is
available only for emerging and developing countries.
Source: IFS, IMF, various issues; "W orld Development Indicators 2011", World Bank.
More recent data suggest that the pace of reserve accumula­
tion is recovering after the global crisis of 2008-09.8 Some
countries will inevitably draw from the crisis experience and
build even more reserves. The i m p projects that even if global
reserves growth falls steadily to 8.5% per year by 2035 from an
average of 15.4% in 1999-2008, their level will reach 690% of
us g d p . Shorter term extrapolations suggest reserve levels
approaching 120% and 200% o f us g d p in 2015 and 2020,
respectively (i m p 2010a).
5 Alternatives?
Every crisis leads to a catharsis. In the context of the recent
crisis, this appears to have taken the form of a search for alter­
natives. This time around, however, it is not just back to imag­
ining what could be a substitute to the us dollar-based system.
It has a broader form, going beyond self-insurance through re­
serves. Several have been put on the table: third-party insur­
ance (the most infeasible); global or regional reserves pools;
and, creating a truly global lender of last resort that is able to
deploy its resources rapidly in a crisis - an obvious reflection of
what the i m f is still not perceived to be, due to concerns about
governance and stigma - complete with large resources, pre­
cautionary and automatic/high access lending/swap lines (the
s Flexible Credit Line (f c l ) meets substantially these crite­
im f ’
ria but has qualification prerequisites that could render it of
dubious value in being regarded as a true reserve substitute)
and an open mind. At the height of the crisis, the i m f ’ s out­
standing lending commitments were of the order of s d r 100
billion or $150 billion while the us Fed’ s swaps amounted to us
600 billion! This suggests that a pure liquidity line should be a
better prospect for a reserve substitute and also as a game
changer for the way in which the emerging world views the i m f .
A more recent alternative is a global financial safety net
combining all these aspects and coordinated by the i m f . It is
important that the i m f treats national reserves also as a part of
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SPECIAL ARTICLE
this safety net if it has to succeed. In this context, it is also
conceivable that several broadly substitutable reserve
currencies could emerge over time without any one of them
being clearly dominant. The euro, the yen, the Chinese r m b ,
the Brazilian real, the Russian rouble, the South African rand
and even the Indian rupee may be candidates to this multiple
currency pool of the future, but absent political will, as stated
earlier, this will remain in the realm of imagination. Such a
system would impose policy discipline on reserve issuers.
Close policy coordination among key reserve issuers would be
necessary to keep exchange rate volatility at bay as portfolio
selection and management of reserves becomes more active.
EmergingEconomies 6 Renaissance o f the SDR
13.6 With most ideas about reserve substitutes up in the air, the s d r
28.6 has drawn attention as a proximate alternative on the ground.
92.0 The crisis has revived interest in a global off-market mecha­
28.0
nism for reserve holders to convert their excess reserves into
SDR-denominated assets. The principal argument of large
reserve holding countries appears to be that it could alleviate
concerns of a disorderly diversification out of dollars if the
currency turns volatile under the impact of economic and
financial repair. For the i m f , it would be a bonanza. Such a
move would place it in the centre stage of the international ar­
chitecture. It would arm it with teeth in the conduct of
hitherto neglected multilateral surveillance - “ oversight of the
international monetary system in order to ensure its effective
operation”(Article iv, Section 3 of its Articles of Agreement).
In fact, Article vm Section 7 specifically requires members to
undertake to “ collaborate with the Fund and with other mem­
bers in order to ensure that the policies of the member with
respect to reserve assets shall be consistent with the objectives
of promoting better international surveillance of international
liquidity and making the special drawing right the principal
reserve asset in the international monetary system.”
What are the specific benefits claimed by the i m f itself? The
first one is stability that is associated with a multiple reserve
currency system, since the s d r is a composite of currencies. It
could thereby provide diversification benefits as it pools
together the main reserve currencies and could spread out
currency and interest risks. As a sum, it is technically more
stable than its individual parts. Second, it would make adjust­
ments smoother. The weights of different currencies in the s d r
basket are defined in “ hard”terms and adjust automatically on
the basis of exchange rate movements, providing a policy dis­
ciplining mechanism on reserve issuers. A country issuing too
much of its currency would face exchange rate depreciation
and loss of weight in the s d r basket. Third, it would spread
seigniorage evenly and bring balance to the system. It would also
reduce the need for capital receiving countries to export capital
to reserve issuers. Balance would be helped by having in place
reconstitution requirements that force a member to rebuild
spent s d r s over a stipulated period of time. Fourth, it would
provide the automatic basis for global policy coordination.
Fifth, it would align global “ monetary conditions”- the refer­
ence rates off which risky assets are priced - more with global
47
SPECIAL ARTICLE
developments than with conditions in any single economy,
particularly if the s d r basket is broadened (i m f 2009,2010a).
Before evaluating these “ so-called”advantages, it may be
useful to digress briefly to facts about the s d r s o as to place
these issues in an appropriate perspective.
6.1 What Is the SDR?
The s d r is neither a currency, nor a claim on the i m f , its crea­
tor. It is actually a potential claim on the freely usable curren­
cies of i m f members. Holders of s d r s can obtain these curren­
cies in exchange for their s d r s in two ways: through the
arrangement of voluntary exchanges between members; and,
by the i m f designating members with strong external posi­
tions to purchase s d r s from members with weak external posi­
tions. In addition to its role as a supplementary reserve asset,
the s d r serves as the unit of account of the i m f and some other
international organisations. The value of the s d r is currently
defined in terms of a basket of currencies - the euro, Japanese
yen, pound sterling, and us dollar. The us dollar equivalent of
the s d r is calculated as the sum of specific amounts of the four
basket currencies valued in us dollars on the basis of exchange
rates quoted at noon each day in the London market and is
posted daily on the i m p ’ s website. The basket composition is
reviewed every five years to ensure that it reflects the relative
importance of currencies in the w orld’ s trading and financial
systems. In the most recent review in November 2010, the
weights of the currencies in the s d r basket were revised based
on the value of the exports of goods and services and the
amount of reserves denominated in the respective currencies
that were held by other members of the i m f . These changes
became effective on 1January 2011 (Table 3). The next review
will take place by 2015.
Table 3: Valuation of the SDRon 1 January 2011
Currency Weights Exchange Rate# Dollar Equivalent
Euro 0.423 1.2972 0.548716
Japanese yen 12.1 83.56 0.144806
Pound sterling 0.111 1.5444 0.171428
US dollar 0.66 1 0.66
$/SDR 1.52495
SDR/$
0.655759205
#: dollar per currency; yen is number of yen per dollar.
Source: IMF website: http://www.imf.org/external/index.htm
Under its Articles of Agreement, the i m f allocates s d r s to
members in proportion to their i m f quotas. Such an alloca­
tion provides each member with an asset (s d r holdings) and
an equivalent liability (s d r allocation). If a m em ber’ s sd r
holdings rise above its allocation, it earns interest on the
excess; conversely, if it holds fewer s d r s than allocated, it pays
interest on the shortfall. There are two kinds of allocations:
(a) general allocations of s d r s , based on a long-term global
need to supplement existing reserve assets; and (b) special
allocation which are typically one-time measures, intended
to enable all members to participate on an equitable basis as
in 1997 since some members who had joined the i m f after
1981 had not received any allocation, s d r 9.3 billion was allo­
cated in yearly instalments in 1970-72. A general allocation of
s d r 9.3 billion was made in annual instalments in 1970-72,
48
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followed by s d r 12.1 billion in annual instalments in 1979-81,
and s d r 161.2 billion in 2009. A special one-time allocation of
s d r 21.5 billion took effect on 9 September 2009, bringing to­
tal cumulative allocations to about s d r 204 billion (equivalent
to about $318 billion).
Quantitative depiction of the role of the s d r in the inter­
national monetary system is usually in terms of the ratio of
s d r allocation to international reserves which is less than 4%.
In a more futuristic perspective, this can, however, be ex­
panded to encompass potential international transactions
which employ the s d r as the unit of denomination at least of
the first resort. This enlarged set could include lending facili­
ties of the i m f such as the workhorse Stand-By Arrangement
(s b a ) and the Extended Fund Facility (e f f ) that are financed
out of its general resources that include holdings of members’
currencies, s d r s , gold, and other assets derived from quota
subscription payments plus any activated borrowings by the
i m f from bilateral/market sources. Recently, the i m f estab­
lished the f c l has been to allow members with very strong
track records to access i m f resources based on preset qualifi­
cation criteria to deal with all types of balance of payments
problems. The f c l could be used both on a precautionary
(crisis prevention) and non-precautionary (crisis resolution)
basis. Arrangements are renewable and access is determined
on a case-by-case basis and is not subject to a preset cap. So
far, all three arrangements are in place and all are precau­
tionary with no drawals, but they can be treated as commit­
ted resources. It could also include the i m f ’ s usable resources
less the full amount of undrawn balances under existing ar­
rangements. A measure of the resources available for new
financial commitments in the coming year is the i m p ’ s for­
ward commitment capacity (f c c ) which is equal to uncom­
mitted usable resources plus repurchases one-year forward
less repayments of borrowing due one year forward and less
the prudential balance.
There are other i m f activities in s d r s that could qualify to
be included in the expanded set. In September 1999, the i m f
established the Poverty Reduction and Growth Facility (p r g f )
to make the objectives of poverty reduction and growth more
central to lending operations. Concessional lending under the
p r g f is administered by the i m f through Trusts which borrow
resources from central banks, governments, and official insti­
tutions generally at market-related interest rates, and lends
them on a pass-through basis to PRGF-eligible countries. The
Heavily Indebted Poor Countries (h i p c ) Initiative was launched
in 1996 by the i m f and World Bank, with the aim of ensuring
that no poor country faces a debt burden it cannot manage.
About 45% of the funding comes from the i m f and other multi­
lateral institutions, and the remaining amount comes from
bilateral creditors. The i m f ’
s share of the cost is financed prima­
rily by the investment income on the proceeds from off-market
gold sales. The Multilateral Debt Relief Initiative (m d r i ) provides
for 100% relief on eligible debt from three multilateral institu­
tions - the i m f , the World Bank and the African Development
Fund - to a group of low-income countries to help them advance
towards the United Nations’Millennium Development Goals
m a r c h 17, 2012 v o l x lv ii n o ii D B 53 Economic & Political w e e k l y

(m d g s ). The use of the i m f ’
s resources is consistent with the
principle of uniformity of treatment - all countries with per
capita income of $380 a year or less receive m d r i debt relief fi­
nanced by the i m p ’ s own resources through the m d r i -i Trust.
h i p c s with per capita income above that threshold receive
m d r i relief from bilateral contributions administered by the
i m p through the m d r m i Trust. In June 2010, the i m f estab­
lished a Post-Catastrophe Debt Relief (p c d r ) Trust that allows
it to join international debt relief efforts when poor countries
are hit by the most catastrophic of natural disasters, such as
the earthquake in Haiti in January 2010.
This expanded total of resources in s d r terms includes
undrawn facilities and future transactions which may not
even take place. For instance, if there are no further drawals
on the i m f as the world returns to normal, its uncommitted
resources will not be used. Likewise, the f c l is a purely pre­
cautionary facility and not likely to be drawn, going by the
experience so far. Furthermore, while these transactions are
denominated in s d r s their ultimate usage may be in one or
more of the major reserve currencies. Nevertheless, in idea of
the practical usability of the s d r under current and near-term
circumstances emerges from this expanded set - its sum
accounted for less than 8% of global foreign exchange reserves
at the end of September 2010 (Table 4).
6.2 Why the SDR Falls Short
It is important to assess how the s d r performs against the key
prerequisites of an international reserve currency that were
identified in Section 11. First, the s d r ’ s global monetary role
has thus far been very limited. There are virtually no deep
and liquid markets in which the s d r can be traded and hedged
with, or used in the settlements of transactions, either trade
and financial. The s d r ’ s role as a store of value is also extre­
mely limited, i e, s d r holdings in the reserves of countries is
extremely low and mostly related to transactions related to
the im f. The s d r ’s usage has remained essentially restricted
to the official sector - international financial institutions,
national governments. Second, the s d r is not used as an in­
voicing currency or in other private sector transactions. Con­
sequently, there are no network externalities associated with
the s d r , effectively circumscribing its wide use. There is also
little or no evidence of any preference of holding assets
denominated in the s d r . Third, and mostly as a corollary, the
i m f is not required to pursue credible and prudent monetary
and financial policies that underwrite the stability of the s d r .
Table 4: Potential SDRs In Global Liquidity: End 2010 (SDR Billion)_ _ _ _ _ _ _ _ _ _
Cumulative allocation of SDRs 204
Credit outstanding under IMF's general resources account 55.6
Credit outstanding under poverty reduction and grow th trust
Cumulative disbursements: heavily indebted poor countries initiative
Cumulative disbursements: multilateral debt relief initiative
Post-catastrophe debt relief
Commitments under flexible credit line
IMF's uncom m itted usable resources
(includes repurchases one year forward and prudential balances)
Total of above as a proportion to global reserves
Source: IMF w e b site : h ttp ://w w w .im f.o rg /e x te rn a l/in d e x .h tm
Economic & Political w e e k l y le a n m a r c h 17, 2012 v o l x l v i i n o 11
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SPECIAL ARTICLE
This is essentially an obligation that is upon the membership
of the i m f . Undoubtedly, the i m f is empowered to conduct
surveillance of its members’policies with a view to ensuring
the stability and smooth functioning of the international
monetary system; but this remains a responsibility of the
members themselves. The recent experience of Europe shows
how difficult it is to manage a common currency when there
is no adequate fiscal control over the members who form part
of the union. The i m p ’ s ability to enforce it carries a question
mark related to its governance structure, and the degree of
traction it has been able to secure with policymakers. The re­
petitive visitations of systemic crises are a testimony to its
limitations in these spheres.
In the current circumstances, an augmented role for the s d r
may actually meet with potential resistance from reserve issu­
ers who have no direct use for it. The need to convert it into a
freely usable currency for most payments transactions means
that reserve issuing countries face a contingent charge on
their currencies which may be undesirable if it coincides with
a restrictive monetary policy. They may not be comfortable
with demands on their currencies emanating from unpre­
dicted sources as when large volumes of home currency are
held overseas, similar to the situation facing the us in the
early 1970s. Furthermore, it is also necessary to evaluate the
desirability of making the s d r an international reserve cur­
rency before putting in place the governance reforms that are
required to make the i m f more representative, legitimate,
accountable and even-handed. Another issue is that the large
volumes of issuances that the s d r internationalisation will
entail could be undesirable for economic reasons - it could
thwart genuine macroeconomic adjustment where needed, or
even encourage countries with fragile debt positions to spend
their way out of trouble.
To argue the counterfactual, what will it take to make the
s d r a truly international reserve currency? First, it must be a
monetary liability of the i m f , just like the other reserve cur­
rency with its value guaranteed by the fiat of the membership
of the i m f . For the s d r to become a true international cur­
rency, in other words, the i m f would have to become more like
a global central bank and international lender of last resort
(Eichengreen 2009b). This warrants careful consideration.
Will it need to be backed by a globally unified monetary policy
and are members willing to subjugate national discretion to
supranational authority? Inflation and growth outcomes may
differ across countries for country-specific reasons. This clearly
requires a critical mass of political will by its membership to
vest the i m f with this power. It may be recalled that at the time
of the establishment, Keynes’bancor was a proposal for a
4.8 global currency, but the world shied away from it and never
2.5 returned it to the table.
3.5 What else would be required? As a first step, increasing the
0.2
role of the s d r in the global monetary system would require a
47.5
significant increase in the stock of s d r s through substantial
201 and regular allocations of new s d r s of at least the size of the
8.2 cumulative allocation currently available on an annual basis.
It has also been proposed that targeted periodic allocations to
49
SPECIAL ARTICLE
a subset of members that are accumulating reserves could be
considered (i m f 2010a). This will require fundamental reform
of the i m f . Second, the i m f and its membership must engage in
the development of deep and liquid markets for s d r s outside
the confines of the official sector so that holdings of s d r s are
encouraged across the world in view of easy transferability/
convertibility and exchange. To facilitate this development,
the i m f , other financial institutions and national governments
should be ready to issue instruments such as bond and notes
denominated in s d r s which can be fluently traded. An s d r
yield curve would need to emerge as a global public good to
price other instruments off it. Subsequently, the private sector
could be incentivised to issue its own instruments in s d r s . It
has to be recognised that to the extent that demand for s d r -
denominated assets remains less than for the component cur­
rencies, a liquidity premium would prevail. Is this price worth
paying? Third, promoting invoicing of international trade and
finance in s d r s could further enhance its role as a reserve
asset. Invoicing commodities such as oil could be a useful and
visible starting point. Fourth, developing clearance systems in
SDR-denominated instruments would also facilitate private
use, although settlement may eventually need to be in one of
the constituent currencies. Easier said than done! How for
instance, to overcome market participants' inertia in using
existing reserve currencies for invoicing and settlement? One
incentive that has been proposed is to get countries to peg
their exchange rates against the s d r (i m f 2009), and we are
back to the days of Bretton Woods!
Finally, it is necessary to ask: is all this really feasible?
Currently, restrictive allocation rules and complicated usage
rules laid out in the Articles of Agreement and Executive Board
decisions of the i m f will render it extremely difficult if not im­
possible. The hurdles are very significant and require an extra­
ordinary age of global cooperation to bring these changes in.
The 85% majority of the total voting power of the Board of
Governors sets a high threshold for both allocations and cancel­
lation and, therefore, makes both more difficult to achieve.
7 Conclusions
In the final analysis, the s d r is not a currency; it was never
intended to be one. It was created as an international unit of
account and that is what it is best suited to be. It is difficult to
conceive of an international monetary system based on a unit
of account without an actual currency role.
Why is the s d r being resurrected? The main reason can be
correction of global imbalances by the i m f and de-concentration
of reserve holding patterns by large reserve holders. The s d r is
not the remedy. It might become a part of the problem. In the
absence of a global adjustment mechanism, this role is best
played by active, incisive and equitable surveillance by the
i m f . The surveillance function has a critical pre-emptive role
in the context of crises in contrast to its lending function which
is a crisis mitigation tool. Early warnings that have traction
with its membership, drilling down into the specific aspects of
macroeconomic policies of members with special emphasis on
inconsistencies that can have external effects, equal emphasis
50
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on multilateral and bilateral surveillance, and addressing of
risks to global financial stability wherever they may lie are the
hallmarks of the desired surveillance role of the i m f . If reserve
accumulation is a by-product of exchange rate policy, the cause
must be addressed unequivocally. If reserves are the counter­
part of quantitative easing or of persistently high deficits by
a reserve issuing country, the i m f should call a spade by its
name. The i m f was designed to be an institution that leverages
its relatively small financial resources with its relatively large
human resources. The i m f must decide what it wants to be -
the global policeman that it has failed to be or honest and
trusted policy advisor, a role it must explore and aspire for. It is
said that no one can hold back an idea whose time has come.
For the time being, the s d r must await its moment of reckoning.
Despite shocks and sometimes acute differences in view on
the us dollar, the current system has been resilient over
decades. Arguments continue to be made that there is no nec­
essary connection between us deficits and reserve accumula­
tion, and that relatively favourable demographic trends in the
us and the likely persistence of high savings in emerging mar­
kets are consistent with sustainable growth (Truman 2009,
2010; Cooper 2008). As global demand for reserve assets
grows in relation to the us economy, a more acute trade-off
between domestic priorities and international monetary
stability is conceivable. Yet, in the near future, factors such as
inertia in currency use, the large size and relative stability of
the us economy, and the dollar pricing of oil and other com­
modities will help perpetuate the dollar’ s role as the dominant
medium for international transactions. The hard facts predi­
cate this outcome. The us dollar is a major form of cash cur­
rency around the world. Roughly 75% of 100 dollar notes, 55%
of 50 dollar notes, and 60% of 20 dollar notes are held abroad,
while about 65% of all us banknotes are in circulation outside
the country (Goldberg 2010). In 2010, eight countries used the
us dollar as legal tender, nine countries has currency board
using the us dollar, 15 had conventional pegs against the us
dollar, 12 had exchange rate arrangements that stabilised their
currencies against the us dollar, two had crawling pegs, two
had crawl-like pegs and three other managed arrangements
linked to the us dollar (i m f 2010b). A shift away from dollar
assets, including Treasury securities, could be a concern for
the us if divestiture triggers higher funding costs. However,
such a drastic outcome appears unlikely.
The future of the dollar in this context continues to be the
subject of discussion and policy statements, but the curren­
cy’s status has been maintained and is likely to remain so
for some more years. As the size and structure of the global
economy change, international currency use may change as
well, and the currency’ s pre-eminence could diminish in the
future. Indeed, historical precedent exists for the rise and
fall o f the international status of currencies. The question is
not “ iff but “ when” . Accordingly, it seems important in the
context o f global stability to monitor the role o f the us dollar
in international economic activity and to understand the
potential causes and consequences of the dollar's changing
international role.
m a r c h 17, 2012 v o l x l v i i n o 11 D 359 Economic & Political w e e k l y
NOTES_____________________________________
1 For a fuller exposition, see World Bank (2011).
2 Testifying before the US Congress in i960,
Robert Triffin pointed out that if the US
stopped running balance of payments deficits,
the international community would lose its
largest source o f additions to reserves. The re­
sulting shortage of liquidity could pull the
world economy into a contractionary spiral.
However, excessive US deficits (dollar glut)
would erode confidence in the value of the US
dollar. Without confidence in the dollar, it
would no longer be accepted as the world’ s re­
serve currency. The fixed exchange rate system
could break down, leading to instability. Triffin
proposed the creation o f new reserve units, not
dependent on gold or the US dollar, to enable
global economic expansion without chronic US
deficits. “
A fundamental reform o f the interna­
tional monetary system has long been overdue.
Its necessity and urgency are further highlight­
ed today by the imminent threat to the once
mighty US dollar.”
3 In addition to the US dollar, these currencies
were Deutsche Mark (DM), Japanese Yen, French
Franc, Pound Sterling, Canadian dollar, Italian
Lire, Netherlands Guilder, Danish Krone, Bel­
gian Franc, Swedish Kroner, Australian Dollar,
Norwegian Krone, Spanish Peseta, Austrian
Schilling, and South African Rand. The number
16 was chosen because it happened to be the
cut-off point for countries accounting for at
least 1% of world exports. In 1978, the IMF
dropped the Danish krone and the South Afri­
can rand from the SDR, added the Saudi Arabi­
an riyal and the Iranian rial. Only nine curren­
cies had well developed financial markets. In
addition to the G-5 currencies, these included
the Italian lira, the Netherlands guilder, the
Canadian dollar, and the Belgian franc. Effec­
tive 1981, the SDR basket was reduced to the
G-5 namely, the US dollar, the DM, the French
Franc, the Pound Sterling and the Japanese
Yen (de Vries, 1976). The IMF defines a freely
usable currency as on the IMF determines is
“(i) widely used to make payments for interna­
tional transactions, and (ii) is widely traded in
the principal exchange markets”(Article XXX,
Section (f) of IMF Articles of Agreement).
4 Economic and Monetary Union - Draft Com­
munication to the Council, European Commis­
sion, 1977, October.
5 The European Exchange Rate Mechanism,
ERM, was introduced by the European Com­
munity in March 1979 to reduce exchange rate
variability and achieve monetary stability in
Europe, in preparation for the introduction o f a
single currency, the euro, which took place on 1
January 1999. A grid of bilateral rates was cal­
culated on the basis of the central rates ex­
pressed in ECUs, and currency fluctuations had
to be contained within a margin o f 2.25% on
either side o f the bilateral rates (with the ex­
ception of the Italian lira, which was allowed a
margin o f 6%). Shortly after the launch o f the
ERM, the pound sterling, which was not an
ERM currency, appreciated against all ERM
currencies. The UK entered the ERM in O cto­
ber 1990, but was forced to exit the programme
within two years after it came under major
pressure from currency speculators, including
George Soros. The UK spent over £6bn trying
to keep the currency within the narrow limits.
The ensuing crash o f 16 September 1992 was
subsequently dubbed “ Black Wednesday”
1993, the margin had to be expanded to 15% to
. In
accommodate speculation against the French
franc and other currencies. On 31 December
1998, the European Currency Unit (ECU) ex­
change rates of the countries were frozen and
the value o f the euro, which then superseded
the ECU at par, was thus established. In 1999,
Economic & Political w e e k ly 1
HBS m a r c h 17, 2012
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ERM II replaced the original ERM. EU countries
that have not adopted the euro are expected to
participate for at least tw o years in the ERM II
before joining the eurozone.
6 The world has found the dysfunctional political
wrangling on raising the debt limit baffling,
given that it is reported to have been raised 102
times by Congress since 1917. Doomsday scenarios
o f the aftermath o f a US default that flooded the
media do not inspire confidence in the US re­
covery or in the credibility of US public finances.
US financial markets generate the maximum
outward spillovers and the global consequenc­
es of a US default or even a downgrade would
be disastrous. In terms o f the US fiscal position
alone, they would imply a question mark on the
ability to fund future deficits however small
they may be, even fuel flight to safety out o f US
paper, additional interest payments on Treas­
ury debt hitherto considered riskless, and
eventually threats to business investment, con­
sumer spending, employment and confidence.
7 COFER is an IMF database that keeps end-of-
period quarterly data on the currency com posi­
tion o f official foreign exchange reserves. For­
eign exchange reserves in COFER do not in­
clude holdings o f a currency by the issuing
country. The definition of foreign exchange re­
serves in COFER is the same as that in the
IMF’ s International Financial Statistics (IFS).
Currently, 139 countries report to COFER. The
unallocated reserves in COFER refer to the dif­
ference between COFER reportings and the to­
tal reporting for the IFS which comprises all
187 member countries of the IMF.
8 Data from the IMF’ s International Financial
Statistics indicate that between end-2008 and
end-2010, global reserves increased by almost
30%. Reserve accretion by advanced econo­
mies during this period was o f the order of
31.2%, faster than the global rate and that of
emerging and developing countries (29.4%).
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detail.asp?col= 6500&ID=178, March.
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SPECIAL ARTICLE
Variation in Private School Performance
The Importance of Village Context
A M ITA CH U D G A R
Using Annual Status o f Education Report 2009 data, this
paper investigates the linkage between private school
performance and the context w ithin which these
schools operate. The results from this study indicate that
the "positive private effect" or the private-public
performance gap does vary based on the village
context. The private school advantage is reduced in
villages w ith a strong government presence. This
government presence in the data is reflected in the
provision o f various government services, the presence
o f physical infrastructure, and a robust government-
funded and government-supported primary, middle
and secondary education system. Public and private
schools are not established and do not operate in a
vacuum. Public schools may respond to private
competition, or they may simply respond to greater
government support. Private schools similarly also
respond to the presence o f robust government-funded
services and infrastructure.
I would like to thank Rukmini Banerji and Wilima Wadhwa for very
generous access to the Annual Status of Education Report data. I would
also like to thank Savitri Bobde and Sakshi Kapoor at Pratham for
providing invaluable insights into the data. Karyn Miller and Chad Lee
at Michigan State University provided excellent research assistance with
earlier versions of this paper.
Amita Chudgar (amitac@msu.edu) is at the Michigan State University,
United States.
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D
ata indicate a rapid increase in both numbers of private
schools and private school enrolment across India
(Muralidharan and Kremer 2006; Kingdon 2007;
Wadhwa 2009). The debate surrounding the benefits of pri­
vate education - and the challenges associated with it - is
growing equally rapidly. For instance, the Economic & Political
Weekly recently published an exchange on this issue by Jain
and Dholakia (2009), Sarangapani (2009), Ramachandran
(2009), Jain and Dholakia (2010), and Jain and Saxena (2010).
These debates focus on several different yet related issues. Do
private schoolchildren perform better on tests compared to
public school students? Do private schools produce the same or
better learning at lower costs? Are private schools truly acces­
sible to poor Indian families? Finally, what explains the growth
in private schools? That is, are private schools a direct response
to parental demand and dissatisfaction with public schools or
do other contextual factors matter as well in determining the
supply of private schools?
In this paper, I use recent national data from rural India to
contribute to this conversation. I specifically look at villages
with private schools and compare the difference in perform­
ance of private and public schoolchildren in such villages. I am
interested in understanding whether children’ s performance
in private schools varies depending on the village where the
private school is located. Such variation in private school per­
formance, if it exists, may have two important implications for
this area of research. It may offer a deeper understanding of
the consistency of the “ positive private effect” , and it may
highlight mechanisms that can be called upon to bridge the
private-public performance divide.
Background
Until recently, few large-scale national-level studies on private
schooling have been available. In the section below, I briefly
review studies on private school performance and private school
location preference that are relevant to my research focus.
Private School Performance: The primary challenge in under­
standing private school performance is taking account of the
lack of randomness in private school enrolment. Children do
not enrol in the local public or private schools randomly. Their
schooling decisions are made by their parents. The choice may
reflect several factors, including the parent’ s ability to pay
more to educate their child, their access to information about
the available choices, and the value they place on education in
m a r c h 17, 2012 v o l x lv ii n o ii 13253 E con om ic & P olitical w e e k l y

general. In turn, it is also often likely that those parents who
choose (or are able to choose) the private options are better off
overall: more educated, well-off and better connected. Indeed
research from India shows that, in general, children in private
schools tend to belong to systematically different and better-
off homes than those in the public schools (Goyal and Pandey
2009). Harma (2011) shows that this may be true even for chil­
dren attending low-fee private schools.
But research has also shown that the home background is
crucial in understanding children’ s school performance across
the world (see, for example, Chudgar and Luschei 2009). Thus,
if we find that a child attending a private school performs
better than his or her public school counterpart, without
proper econometric corrections, it is hard to ascertain whether
this higher performance is due to private schooling, or if it
simply reflects the more privileged home background of the
child enrolled in the private school. Therefore, it is also not
surprising that if we compare raw performance differences
between public and private schoolchildren, we tend to find
that private schoolchildren significantly outperform public
schoolchildren, but these raw or “ uncontrolled”differences
often reduce drastically after home background is taken into
account (Wadhwa 2009).
In the Indian context, few studies have employed extensive
econometric corrections to account for this selection issue.
However, a few studies may shed light on the differences in
public and private performance (Kingdon 1996; French and
Kingdon 2010; Desai et al 2008; Goyal 2009). Kingdon (1996)
and Goyal (2009) rely on data from one and eight districts
respectively, while the other two studies have access to national-
level rural (French and Kingdon 2010) and rural and urban
data (Desai et al 2008). While the econometric approaches
these researchers use do have their own limitations (like any
such approach), in general, they find that after making
appropriate corrections for selection, the positive private
effect diminishes, but it does not disappear. In other words,
research indicates that the private-public performance gap
may be positive.
Private Schools and the Role o f the Context: Private school
students may uniformly outperform public school students
where such schools are available, but are private schools being
established uniformly across the country? Research indicates
that the answer to this question may be negative, due to fac­
tors on both the demand and supply sides.
Muralidharan and Kremer (2006) collected data from a rep­
resentative sample of schools in 20 Indian states. They found
rapid growth in private schools, especially in areas where
public school performance was lacking. They measured “ public
school failure”by accounting for teacher absence and non­
teaching activity (2006:9).
While these authors provide a predominantly demand-side
explanation for the emergence of private school, Pal’ s (2010)
study adds supply-side considerations. Pal (2010) used data
from the p r o b e database to understand the context factors
associated with private school presence. Her paper adds valuable
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SPECIAL ARTICLE
nuance to understanding the private school phenomenon. She
argues that in order for private schools to function efficiently,
i e, minimise the cost of production and maximise returns on
investment, they need robust public infrastructure. Her analysis
shows that private schools are likely to be present not just in
areas where public schoolteachers have lower attendance
rates but also in areas where more public infrastructure is
available, including access to water, roads, electricity, phones,
and post offices.
These findings from Pal about the importance of govern­
ment-sponsored infrastructure are also reflected in a study
from Pakistan by Andrabi, Das and Khwaja (2008). Among
other things, they found that private schools (especially low-
fee private schools) were more likely to be located in villages
with sufficient populations of younger, unmarried women who
had a secondary school education. These women formed the
readily available, low-paid teacher labour force for these low-
fee private schools. Such an educated female labour force was
available in the villages where the government had invested in
girl’s secondary education in the last 20 years. In summary
then, the emergence of private schools in a given village may
be driven not simply by parental demand, but also by the ease
and efficiency of supplying private education, given existing
government investments.
This brief review of the literature indicates that a fam ily’ s
decision to enrol their child in a private school, as also the pri­
vate sch ool’s decision to operate in a given community, are
driven by a host of factors. Not surprisingly, more affluent and
educated families are more likely to choose the private option.
Also interestingly, providers of private education may not be
simply responding to dissatisfaction with government schools
but also to local situations that either facilitate or hinder the
operation of such schools.
The topic that I investigate in this paper is the linkage
between private school performance and the context within
which private schools operate. Given that private schools are
more likely to be established in certain contexts, are these con­
textual factors also associated with private school advantage?
In other words, is it likely that the private-public gap may be
larger in certain types of villages than in certain others? If so,
what aspects of the village background may help explain this
variation in the private-public gap?
Data, Variables and Methods
The data used in this study come from the Annual Status of
Education Report (a s e r ) 2009. a s e r is the largest volunteer-
driven effort undertaken in rural India to provide a basic
measure of children’ s learning levels. Both in India and inter­
nationally, the challenges of universal primary enrolment are
now being replaced by a focus on improving grade attainment,
i e, reducing dropouts and increasing the achievement or learn­
ing levels of those students who enrol in schools. For years,
various National Sample Survey Office (n s s o ) studies have
provided nationally representative data on school enrolment
and retention. However, until recently, it was harder to access
large-scale child-level data on learning levels in India.1
53
SPECIAL ARTICLE
In this climate, a s e r data, collected since 2005, have been
an excellent resource for obtaining basic cross-national statis­
tics on student performance. While the initial rounds of a s e r
provided information on children’ s reading and mathematics
performance on simple tests across rural India, these data did
not contain enough of the necessary home background varia­
bles to facilitate more extensive quantitative analysis. Over the
years, a s e r ’
s data collection efforts have grown to generate
several additional sets of information.
The 2009 a s e r provides an overview of the evolution of
a s e r since 2005. The first round in 2005 focused on children
age 6-14 years; it collected data on reading and arithmetic
tasks and on the child’ s enrolment status and school type. The
survey also involved school visits. It surveyed households in 20
randomly selected villages per district. In 2006, the scope of
a s e r was increased to include children aged 3-16, and they
were tested on additional tasks. The survey collected informa­
tion on the m other’ s education and her ability to read. The
number of villages per district was increased to 30 but the
researchers tried to maintain an overlap with the villages sam­
pled in 2005. Since 2007, a similar pattern was continued with
an effort to gather more information about the child’ s family
and village, and a government school in the village.
The 2009 data collection process employed two-staged
stratified random sampling that allowed the researchers to
select 30 villages per district and 20 households per village.
This survey “ brings together elements from various previous
a s e r s ”(Pratham 2010:271). In a procedure carefully explained
in the a s e r valuable information was collected on each child
aged 3-16 including sex, enrolment status, class level, school
type, and experience of private tuition and preschool attend­
ance. Children aged 5-16 were tested on a series of tasks
including reading and arithmetic and English; the a s e r pro­
vides extensive details on the actual tasks and how student
competence was measured. For all the children the survey
gathered information on their father’ s and m other’s school
attendance and their actual education levels and on their pos­
session of certain household facilities such as television,
mobile phone, toilet and electricity. Finally, the child’ s mother
was asked to read a simple text.2
The survey gathered basic information on the village which
I used to generate measures of the village context. These vari­
ables include presence of private school, availability of pucca
road, electricity, long-distance calling facility, access to postal
services, bank, ration shop, anganwadi, an Accredited Social
Health Activist (a s h a ) worker, public and private health
clinics, and finally the presence of government primary, middle,
and secondary schools. The survey also gathered information
from one government school in the village; preferably this was
one offering classes first through seventh or eighth, but if that
was not feasible then they turned to the government school
with the highest enrolment for classes first through fourth or
fifth. Thus, while the government school data are not repre­
sentative of the village, they provide some understanding of
the government school context for the village. Together, these
data sets provide a unique opportunity to not simply account
54
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for the child’ s home background but also to construct a set of
village context covariates.
For this study, I worked with data on children who were cur-
rendy enrolled in government or private schools (i e, excluding
children in Madrassa or “ other”school types). Since I am spe­
cifically interested in understanding how the private school
advantage varies with the village within which the private
school is situated, I also made another data-constraining deci­
sion. I limited my sample to children attending public and pri­
vate schools in villages with private schools. (Roughly 10% of
the children in the sample attended private schools but their
own village recorded no private schools.)
The final study sample consisted of 1,31,553 children from
6,836 villages in 575 districts from 31 states and union territo­
ries. If I had included villages without private schools, the
study would have contained significantly more villages (over
16,000), but in terms of districts and states and union territo­
ries, this complete sample would have looked fairly similar
with 576 districts, 31 states and union territories. In terms of
specific states, the restricted sample slightly over-represents
Rajasthan, Haryana, Uttar Pradesh and Kerala and slightly
under-represents Orissa and Jharkhand. This sample was split
by class levels as I explain in the variable section below. I
included non-private school villages in one descriptive analy­
sis, as I explain when I discuss my results.
Dependent Variables: I used the children’ s reading and math­
ematics performance as the outcome variables. I split the chil­
dren in the sample into two groups: those in classes 1-2 and
those in classes 3-5. Because the a s e r manual notes that per­
formance data for younger children are more reliable, I gener­
ated four different outcome variables for these children, and
two for the older children. For children in classes 1-2, the vari­
able r d i y measured their ability to read at least a letter, or
more. r d 2 y measured their ability to read at least a word, or
more. The mathematics task for this group checked their ability
to recognise numbers from 1-9 (m tiy) and their ability to
recognise numbers from 1-99 (m t2y). For children in classes
3-5, the reading task measured their ability to read text from at
least standard 1 (rd o). The mathematics task measured their
ability to carry out subtractions with borrowing involving two
digit numbers (m to).
Independent Variables: I used two sets of independent varia­
bles. One set takes into account the attributes o f the child and
her or his family, and the other set takes into account the
attributes of the village. At the level of child and family, the
variables in the analysis included the child’s sex, age, and class
level, and an indicator variable to identify whether the child
receives private tuition. The analysis also included variables
that indicated if either of the child’ s parents had attended
school, a summative index of various home possessions as a
proxy for the fam ily’s socio-economic status (s e s ), the number
of household members, and the type of house construction -
pucca, semi-kuccha or kuccha. Finally the analysis included an
indicator variable to identify whether the child attended
m a r c h 17, 2012 v o l x lv ii n o ii QHSI Economic & Political w e e k ly
 SPECIAL ARTICLE

Table 1: List offVariables, Description and Source variables were used in the de­
Variable Name Description Source scriptive analysis but not used
RD1Y Can read at least a letter, or more (grades 1-2) Child data
for the final regression analy­
RD2Y Can read at least a word, or more (grades 1-2)
MT1Y Can recognise numbers from 1-9 (grades 1-2) sis because significant data
MT2Y Can recognise numbers from 1-99 (grades 1-2) were missing. Table 1provides
RD0 Can read at least standard 1 level text (grades 3-5) a comprehensive list and de­
M T0 Can carry out subtractions w ith borrowing involving tw o -d ig it numbers (grades 3-5) scriptions of all the variables
Male Child is male
used in the study.
Age Age o f the child
Tuition Child receives private tuition
Grade Child's grade in school Methods: In addition to a
Private Child attends private school simple descriptive analysis, in
Parent_school Did either parent attend school this paper, I rely mainly on
SES Socio-economic status as determined by summative index indicating possession of toilet,
hierarchical linear modelling
TV, mobile phone, access to electricity and vehicle ownership (where a larger vehicle such as a car
gets more weight than a bicycle). (h lm ). h l m facilitates expli­
HH_Type Type of household construction (pucca,semi-kuccha,kuccha) cit modelling of the variation
HH-Size Number of people in the household. in the private school effect
V J n fra Summative index o f access to pucca road and electricity connection Village data (or the private-public gap)
V_Private Summative index of presence o f private health clinic, STD booth and bank summative index across villages, which is the
o f access to a post office, governm ent primary health clinic, ASHA worker.
primary focus of this rese­
V_governm ent Angandwadi and a ration shop
V _ education School (3)
arch. Specifically, I estimate
V_ATD Proportion of all regular teachers present on the day o f the survey School data the following linear proba­
V_SFAC Summative index of school facilities including access to toilet, water, learning material bility model (lpm ) where Y{-
represents the performance
private school. It is important to remember that these house­ of student “ i”in village “
j”.
hold and child control variables are necessary as we try to Model 1: Level 1: Y~ = b0.+ ^ p r i v a t e - + c x s t u d e n t
understand the relationship between private school attend­ + 5 f a m i l y -1- e.. (1)
ance and the child's performance on the reading or math task. Level 2: b0j = y00 + u0j (2)
However, these controls are not adequate to make a causal link b ij = Yio + u ij (3)
between these two factors. To do so would require more exten­ Level 1is the student-level equation where bxj represents the
sive home background measures and more sophisticated relationship between student performance and their private
econometric techniques, if the data were to allow it. Also, it is school attendance in village;. The letters in bold indicate other
foreseeable that with these additional variables and additional student/family variable matrices and coefficient vectors. I con­
econometric corrections, the private effect would most likely ducted the level 2 analysis in two steps. First, I investigate if
attenuate further. there is a systematic variation in the association between
At the village level, I utilised two different sources of infor­ private school attendance and student performance across
mation to generate the village background information. I de­ villages. I did this by estimating Equations (1M3). The varia­
rived one set of variables directly from the village data. Like tion in village-level coefficients for p r i v a t e , bj;.is provided by
Pal (2010), I created a variable v i n f r a to identify whether the the variance of u . represented as r22. xn is also known as the
village had access to a pucca road and an electricity connec­ variance component for p r i v a t e . The significance of the b2j
tion. The variable v p v t indicated if the village had a private variance component indicates significant differences in the
health clinic, s t d booth, and a bank. In addition, I generated private effect across villages or a significant variation in the
two variables that measured overall government presence in private-public gap across villages. How well a private school
village services and specifically in education. The variable v g o v t student does compared to a government school student de­
indicated whether the village had access to a post office, pends, among other things, on the village context within
government primary health clinic, a s h a worker, anganwadi, which these schools are situated. That is, the village context
and ration shop. The variable v e d u c measured the village's may be important in understanding the private school impact.
access to primary school (1), middle school (2), and secondary Model 2: Level 1: Y~= b oj + b ljPRiVATEij -I- c x s t u d e n t
school (3). I calculated all these variables by simple summa­ + S f a m i l y -1- e- (4)
tion. Finally, I used the data from the one government school Level 2: boj = y00+ doj v i l l a g e + uoj (5)
per village to generate two basic measures about the govern­ b ,j = Yi0 + ^ 0j V IL L A G E + 11^ (6)
ment school. Research has shown the importance of teacher If I find that the variance component associated with b^ is
attendance as a measure of school quality, so one variable significant, then I next estimate model 2, Equations (4M6) by
(v a t d ) measured the proportion of all the regular teachers introducing the four village background variables (v i n f r a , v
who were present on the day of the survey. Another measure is p v t , v g o v t , v e d u c ) to investigate if any of these specific
a summative index of school facilities, including access to a village attributes are important in reducing or increasing the
toilet, water, and learning materials ( v s f a c ) . These two private school effect or the private-public gap. In conducting

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SPECIAL ARTICLE

the h l m analysis, I account for the appropriate sample weight striking: villages where private schools set up are actually
at level 1in both models. likely to have a stronger government school system present.
This may concur with the finding from Pakistan - in order for
Results private schools to function efficiently they need a local, edu­
Tables 2 and 3 present descriptive statistics that concur with cated pool of teachers. This in turn is more likely in the event
the literature reviewed earlier. Table 2 provides a comparison that the government has already made substantial and long­
of village background variables for villages with and without term investments in higher levels of education in these areas.
private schools. It is important to remember that the primary Finally, and not surprisingly, such villages are also more
analysis in this paper, excluding Table 2, is limited to villages likely to invite other private services such as s t d phone serv­
with private schools. However, as shown in Table 2, 1specifi­ ices, private health clinics, and banking services, which admit­
cally analysed data from the villages without private schools tedly may be public as well. In other words, these descriptive
to compare them with the primary sample of interest - villages data make it amply clear that private schools are not merely a
with private schools. response to greater parental demand; they may also be very
Table 2: Comparison of Village Background Attributes for Villages with much a phenomenon that is supported by existing government
and without Private Schools investments in infrastructure, resources, and public education.
Villageswithout PrivateSchools Villageswith PrivateSchools Range
N Mean StdDev N Mean StdDev Minimum Maximum
Table 2 also highlights another important fact. While
villages with private schools are on the whole better off, sig­
V_SFAC 8,587 6.01 2.67 6,790 6.77 2.65 0 12
V_ATD 5,662 0.88 0.22 5,048 0.87 0.22 0 1 nificant variation still exists in the availability of these govern­
VJNFRA 8,756 1.50 0.66 6,906 1.76 0.50 0 2 ment services even across these villages. (The minimum to
V_governm ent 8,756 2.71 1.28 6,906 3.76 1.25 0 5 maximum range of each variable applies to both sets of vil­
V_education 8,756 2.26 1.60 6,906 3.74 1.98 0 6 lages.) It is this variation across this subgroup of villages that I
V_private 8,756 0.75 0.88 6,906 1.77 1.06 0 3 hope to exploit in the h l m analysis below.
(1) The range is the same for both types o f villages. Table 3 provides information on public and private school
(2) All means are statistically significantly different at p<0.001.
students from villages with a private school; these students
The descriptive results in Table 2 generally confirm the are the central focus of this study. Specifically, the analysis
observations made by previous studies (Muralidharan and reported in Table 3 compares their performance and their
Kremer 2006; Pal 2010; Andrabi, Das and Khwaja 2008). home background. The children attending public schools per­
Villages with and without private schools are statistically sig­ form less well than their private school counterparts on all the
nificantly different on all the variables studied (p<o.ooi). In six outcome variables. A greater proportion o f private school-
villages with private schools, public schoolteacher attendance children are likely to be able to read letters, words, and text,
is very slightly lower: 87% of teachers present on the day of the and recognise numbers and perform mathematical opera­
survey versus 88% in the comparison villages, indicating that tions, compared to their public school counterparts. Once
private school establishment may potentially be responding to again, all the differences are statistically significant (p<o.ooi).
lower public schoolteacher attendance. Looking at basic school Table 3: Comparison of Children in Private and Public Schools
facilities, government schools in villages with private schools (for children residing in villages with a private school)_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
actually have more resources, with a difference of 0.3 standard Variable PublicSchool PrivateSchool
N Mean N Mean
deviations, than the comparison school. Thus, it is unlikely
RD1Y 28,760 0.77 15,724 0.87
that private school establishment is a response to generally
RD2Y 28,760 0.38 15,724 0.52
lower quality of government schools. Overall, we find partial
MT1Y 28,575 0.78 15,600 0.87
support for the argument that the establishment of private MT2Y 28,575 0.37 15,600 0.53
schools is a demand-side phenomenon: private schools are RDO 46,481 0.63 20,615 0.75
potentially more likely to be established in villages where pub­ MTO 46,242 0.55 20,486 0.67
lic schoolteachers have lower attendance rates. Male 75,612 0.53 36,517 0.57
However, these data seem to provide stronger support for Age 75,612 8.61 36,517 8.47
the argument that private school establishment is a supply-side Tuition 75,612 0.23 36,517 0.27
phenomenon. Private schools are present in villages where Grade 75,612 3.04 36,517 2.90
existing public infrastructure, government services, private Parent_Sch 75,612 0.73 36,517 0.85
services, and even government schools are significantly more SES 75612 0.78 36,517 0.92
likely to be present. Villages with private schools are slightly HH__type 75,612 1.96 36,517 2.37
more likely to have road access and electricity. These villages HH__size 75,612 6.45 36,517 6.67
All means are statistically significantly different at p<0.001.
are also likely to have significantly more government services,
almost an entire standard deviation more. A different way to Reflecting the gender preferences in India, we also note that
think about this is that villages where private schools are more these children attending private schools are slightly more
likely to set up have an additional government service that the likely to be male. More importantly, in keeping with the
comparison villages do not have. The difference in terms of literature, we find that children who attend private schools
the presence of the government school system is even more belong to better off households. A greater proportion of their
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 SPECIAL ARTICLE

parents are likely to have attended school and these families who attend private school outperform their counterparts in
enjoy a higher s e s and are more likely to live in pucca houses.3 public schools on various reading and mathematics tasks. But
Table 4 presents the h l m results from model 1 and model 2 then we move a step forward from the existing research and
for the six outcomes. In general, the regression analysis ask if this positive private school effect is consistent across
upholds several findings supported by the earlier literature. different villages? The significance of the variance component
Across all the six outcomes and both model specifications, we associated with p r i v a t e indicates that the private-public gap
find that children whose parents have been to school outper­ may not be equal across all types of villages. The village within
form those whose parents have not. Similarly, we find that be­ which the private school is situated is important in determin­
longing to a higher s e s as measured by the summative index of ing the private school advantage.
home possessions is also associated with a positive perform­ The estimation of model 2 provides a glimpse into these
ance on reading and mathematics tests for younger and older village attributes, or the context factors that may be associated
children. Living in a pucca or kuccha household is not signifi­ with variations in private school performance across villages.
cantly associated with m t i y performance, but we find that For the younger children, we find that an increase in govern­
higher quality of household construction is positively associ­ ment presence in public education (in terms of primary,
ated with higher performance on other math and reading middle, and secondary public schools) is associated with a
tasks, once again indicating that children from better-off fami­ reduction in the private school advantage, or a reduction in
lies tend to perform better. Larger household sizes are associ­ the gap between private and public school performance. So for
ated with reduced performance on the tests. Interestingly, instance, for outcome r d i y , the baseline difference between a
boys outperform girls only in the advanced mathematics task private and public school attending child is 0.14 units. This
( m to ) ; otherwise we find no significant male-female differ­ difference is reduced by 0.008 units with greater presence of
ences. Also not surprisingly, while the age and class spread is government schools in the village. All else equal, in a village
limited in each of these analyses, we do find that older chil­ with government secondary school, the private-public gap on
dren and children attending higher classes perform better r d i y will therefore be 0.024 units smaller than a village
than younger children and those in lower classes. We also find without a government secondary school.
uniform, significant, and positive associations between chil­ Similarly, for the older children in classes 3-5 we find that a
dren’ s performance on the reading and mathematics tasks and strong presence of the government services is associated with a
their private tuition attendance. smaller private-public gap. For instance, all else equal, in a village
Finally, we turn to the private school effect, which is of pri­ without any government services ( v _ g o v t = o ) the private school
mary interest in this study. In model 1, for each of the six read­ advantage over public school is 0.17 units for outcome r d o . This
ing and mathematics tasks we find a large, positive, and private school advantaged will be reduced by 0.09 units in a vil­
significant coefficient associated with p r i v a t e . In other words, lage where all the government services are present ( v _ g o v t = 5).
after accounting for some of the basic home and child back­ Finally, in one instance ( r d 2y), an improvement in govern­
ground variables, we find like previous studies that children ment-provided infrastructure also reduces the private-public
Table 4: Hierarchical Linear Model Resultsfor Three Reading and Three Math Outcome Variables for Children In Villages with a Private School
RDIY MTIY RD2Y MT2Y RDO MTO
Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Model 1 Model 2
Intercept 0 .3 1 0 *** 0 .2 4 2 *** 0 .3 2 1 *** 0 .2 3 0 *** -0 .3 8 6 *** -0 .5 1 3 *** -0 .3 4 9 *** -0 .4 7 1 *** -0 .1 8 4 *** -0 .2 7 6 *** -0 .3 0 3 *** -0 .3 6 5 ***
V_infra 0.003 0.000 0.002 0.001 -0.003 -0 .0 2 4 **
V_governm ent 0.004 0.011** 0 .0 1 6 *** 0 .0 1 5 *** 0 .0 1 5 *** 0 .0 1 4 ***
V_education 0 .0 1 3 *** 0 .0 1 2 *** 0 .0 1 0 *** 0 .01 1 *** 0 .0 0 7 ** 0 .0 0 9 ***
V_private 0.002 0.004 0 .0 1 6 *** 0 .0 1 5 *** 0.010* 0.009
Private 0 .0 7 9 *** 0 .135*** 0 .0 7 3 *** 0 .14 5 *** 0.114*** 0 .1 8 4 *** 0 .1 3 8 *** 0 .1 5 2 *** 0 .0 9 3 *** 0 .1 7 3 *** 0 .1 0 6 *** 0 .1 2 0 ***
V J n fra -0.006 -0.013 -0 .0 2 8 ** -0 .0 04 -0.007 0.010
V_governm ent -0.004 -0.003 -0.003 0.001 -0 .0 1 8 *** -0 .0 1 4 **
V_education -0 .0 0 8 *** -0 .0 1 0 *** -0 .0 0 7 * -0 .0 0 8 ** 0.000 0.002
V_private 0.002 -0.002 0.009 0.009 0.002 0.008
Male -0 .0 04 -0 .0 04 0.001 0.001 -0.005 -0 .0 04 0.001 0.001 0.002 0.002 0 .0 1 6 *** 0 .0 1 6 ***
Age 0 .0 2 1 *** 0 .2 1 *** 0 .0 2 1 *** 0 .0 2 2 *** 0 .0 3 5 *** 0 .0 3 5 *** 0 .0 3 3 *** 0 .0 3 2 *** 0 .0 1 4 *** 0 .0 1 4 *** 0 .0 1 5 *** 0 .0 1 5 ***
Tuition 0 .0 6 6 *** 0 .0 6 6 *** 0 .0 6 2 *** 0 .0 6 2 *** 0 .0 9 9 *** 0 .0 9 8 *** 0 .117*** 0.116*** 0 .0 6 4 *** 0 .0 6 3 *** 0 .0 9 2 *** 0 .0 9 0 ***
Grade 0 .15 6 *** 0 .15 6 *** 0 .1 5 0 *** 0 .1 4 9 *** 0 .2 7 0 *** 0 .2 7 0 *** 0 .2 5 0 *** 0 .2 4 9 *** 0 .13 6 *** 0 .13 6 *** 0 .1 3 8 *** 0 .1 3 7 ***
Parent_school 0 .0 5 4 *** 0 .0 5 4 *** 0 .0 4 5 *** 0 .0 4 4 *** 0 .0 5 6 *** 0 .0 5 4 *** 0 .0 5 1 *** 0 .0 4 9 *** 0 .0 6 5 *** 0 .0 6 4 *** 0 .0 5 9 *** 0 .0 5 9 ***
SES 0 .0 7 2 *** 0 .0 6 9 *** 0 .0 8 1 *** 0 .0 7 7 *** 0 .0 9 3 *** 0 .0 8 8 *** 0 .0 9 7 *** 0 .0 9 2 *** 0 .0 6 9 *** 0 .0 6 7 *** 0 .0 7 0 *** 0 .0 6 8 ***
H H _type 0.006* 0.005 0.005 0.004 0 .0 1 6 *** 0 .0 1 5 *** 0 .0 1 8 *** 0 .0 1 6 *** 0 .0 2 1 *** 0 .0 2 0 *** 0 .0 2 6 *** 0 .0 2 6 ***
HH_size -0 .0 0 3 *** -0 .0 0 3 *** -0 .0 0 3 *** -0 .0 0 3 *** -0 .0 0 4 *** -0 .0 0 3 *** -0 .0 0 5 *** -0 .0 0 5 *** -0 .0 0 4 * * * -0 .0 0 4 *** -0 .0 0 5 *** -0 .0 0 4 ***
Variance component
Intercept 0 .0 4 2 *** 0 .0 4 2 *** 0 .0 6 0 *** 0 .0 5 9 *** 0 .0 6 5 *** 0 .0 7 7 ***
Private 0 .0 2 0 *** 0 .0 1 8 *** 0 .0 2 8 *** 0 .0 2 2 *** 0 .0 2 9 *** 0 .0 2 6 ***
p<0.01, * * P ^0.05, * p^O.IO.

Economic & Political weekly nnBB m arch 17, 2012 v o l x l v ii n o 11 57

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SPECIAL ARTICLE

gap. Overall, in the h l m analysis, we find that the presence of
private infrastructure in the village (v p v t ) is not statistically
significant in explaining the variation in the private school
advantage across villages. This may indicate that the attenua­
tion of private-public gap may not be driven by general well­
being of the village, but rather more specifically by a stronger
government presence in the service sector. The limited signifi­
cance of the infrastructure variable may reflect the lower vari­
ation in infrastructure facility across villages to begin with
(Table 2). Alternatively, it is likely that the presence of infra­
structure is highly correlated with the other government based
variables ( v g o v t and v e d u c ) .
Discussion and Conclusions
This study makes a contribution to the debate on privatising
education provision in India. Before discussing the main find­
ings and their implications, it is important to highlight some of
the key limitations of this research. First, the measures of
children’s learning levels, based on their performance on
reading and mathematics, are at best proxies of the more com­
plex cognitive outcomes that we hope an efficient education
system produces. However, it is hard to dispute that we would
want all our children to be able to perform the simple age-
appropriate tasks that are tested by the a s e r data collection
team. Similarly, the speed and spread of the a s e r data collec­
tion effort means that we have limited home covariates. While
this helps us account for the home background to quite an
extent, these data do not allow us to make causal claims about
the relationship between private school attendance and student
performance. Finally, given the nature of the central research
question guiding this study, the results are limited to villages
with at least one private school. However, in spite of our focus
on this sub-sample of villages, the sample does contain a fair
representation of districts and state and union territories.
With these caveats in mind, the results from this study
highlight a few important and interesting patterns. First, the
results from h l m model 1 show that the positive private effect
or the private-public gap is not consistent across different
contexts. Rather, what matters for understanding how well the
children in such schools may perform compared to their public
school counterparts is the village where the private school is
located. This finding means that when we ask if privatisation
in education is beneficial, the accurate answer is, “it depends” .
It depends on the village in which the private school is
being established.
We find that the positive private effect is reduced in villages
with a strong government presence. This government pres­
ence is reflected in the provision of various government services,
in one instance the presence of physical infrastructure, and in
several instances it is manifested in a robust government-
funded and government-supported education system (primary,
middle and secondary public schools).
The positive private effect may be lessened in these cases
because somehow the private school attending children do not

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 SPECIAL ARTICLE

perform as well in these villages, or perhaps because those
attending the government school actually perform better in
the villages that have a more robust government investment
and presence. A preliminary analysis of the data shows that it
may be the latter that is driving the attenuation of the positive
private effect. Higher government school performance in
these circumstances has in turn two possible explanations.
One possibility is that driven by the concerted government in­
vestment, government schools were performing well to begin
with. Alternatively, government schools may be responding to
the private school competition and may be aided in this
response by the already present government investment.
Regardless, the findings points to the importance of govern­
ment presence in attenuating the private-public gap.
Finally, if we together consider increasing privatisation,
the importance of government-funded services, and public
school performance, these findings gain additional signifi­
cance. The present data and previous research show that
private schools are likely to be set up in villages that already
have strong government-supported infrastructure for services
and education. Now our analysis shows that these may also be
the villages where the private-public gap may be smaller, or
where the relative private school performance advantage may
be smaller.
It is also therefore likely that in these villages, the compara­
tive demand for private schools may actually be lower than
villages without a strong government presence - where private
schools may have a relative performance advantage and where
there truly may be a need for additional, non-government
intervention. But we just noted that private schools are less
likely to establish in such villages without adequate govern­
ment presence. Might it be the case then that the private school
establishment may not be driven so much by parental demand
and low public school performance but rather by supply-side
factors? Private schools may be established where, as Pal
(2010) noted, they find it efficient and economical to operate.
Does it mean then that the “ choice”offered by privatisation
still eludes the parents and children who may be most in need
for alternative, non-governmental services?
The paper began with a list of unresolved debates sur­
rounding increasing privatisation of education in India.
These debates are nuanced, technically challenging to
resolve and have implications for both efficiency in educa­
tion production and equity in education distribution. The
findings from this study form part of this ongoing conver­
sation. Public and private schools are not established or do
not operate in vacuum. Public schools may respond to private
competition, or they may simply respond to greater govern­
ment support. Private schools may respond to the presence of
robust government-funded services and infrastructure. More
privileged parents may choose private education, and the
parents and children most in need may have no private
schools to choose from. A better understanding of these
related factors is essential. A robust research agenda lies
ahead of us as we contemplate privatisation of education in
India and the developing world.

N O T ES____________________________________________ Educational Landscape” , India Policy Forum, India”, Oxford Review o f Economic Policy, 23(2):
5(1): 1-58. 168-95.
1 The India Human Development Survey, 2005,
organised by researchers at the University of French, Rand and G Kingdon (2010): “ The Relative Muralidharan, K and M Kremer (2006): “ Public
Maryland and the National Council of Applied Effectiveness of Private and Government and Private Schools in Rural India” , Working
Economic Research (NCAER), is an exception Schools in Rural India: Evidence from ASER paper, Massachusetts Institute o f Technology,
to this phenomenon. Data” , Department of Quantitative Social Sci­ Cambridge, Massachusetts.
2 While variables like preschool attendance, par­ ence Working Papeno-03, Institute o f Educa­ Pal, S (2010): “Public Infrastructure, Location of
ents’education, and mother’ s ability to read tion, University of London, London. Private Schools and Primary School Attain­
are all important covariates, I did not include Goyal, S (2009): “ Inside the House o f Learning: ment in an Emerging Economy” , Economics of
these in my analysis because significant data The Relative Performance of Public and Private Education Review, 29(5): 783-94.
were missing. Including these variables would Schools in Orissa” , Education Economics, 17(3), Pratham (2010): Annual Status o f Education Report
have led to the loss o f between 10% and 60% o f 315-27. (Rural) (New Delhi: Pratham).
all observations in the final sample. Goyal, S and P Pandey (2009): “ How Do Govern­ Ramachandran, Vimla (2009): “ Right to Education
3 A comparison of the children attending public ment and Private Schools Differ? Findings Act: A Comment” , Economic & Political Weekly,
and private schools in the whole sample shows from Two Large Indian States” , South Asia 44(28): 155-57-
similar results (table available upon request). Human Development Sector Report 30, World Sarangapani, Padma (2009): “ Quality, Feasibility
The main noteworthy difference is the slightly Bank, Washington DC. and Desirability o f Low Cost Private Schoo­
lower home background status of the children ling”, Economic & Political Weekly, 44(43):
Harma, Joanna (2011): “ Low Cost Private School­
attending public school in the sample as a 67-69.
whole. This indicates that, overall, villages ing in India: Is It Pro-Poor and Equitable?” ,
Wadhwa, W (2009): “ Are Private Schools Really
with private schools may be slightly better off. International Journal o f Educational Develop­
Performing Better Than Government Schools?”
The results from Andrabi, Das and Khwaja ment, 31(4): 350-56.
in Annual Status o f Education Report (Rural)
(2008) also show this to be true for villages Jain, Pankaj S and Ravindra H Dholakia (2009): (New Delhi: Pratham).
with private schools in Pakistan. “Feasibility o f Implementation o f Right to
Education Act” , Economic & Political Weekly,
44(25): 43-
R EFEREN CES____________________________________ - (2010): “ Right to Education Act and Public- Economic&PoliticalwEEKLY
Private Partnership” , Economic & Political
Andrabi, Tahir, Jishnu Das and Asim Ijaz Khwaja
Weekly, 45(8): 78-80. available a t
(2008): "A Dime a Day: The Possibilities and
Limits of Private Schooling in Pakistan” , Jain, Manish and Sadhana Saxena (2010): “ Politics
Comparative Education Review, 52(3): 329-55. of Low Cost Schooling and Low Teacher K C Enterprises
Chudgar, A and T Luschei (2009): “ National Salaries” , Economic & Political Weekly, 45(18): 3-6-136/6, Street No 17
Income, Income Inequality and the Importance 79-80.
Himayathnagar
o f Schools: A Hierarchical Cross-National Com­ Kingdon, G (1996): “ The Quality and Efficiency of
parison” , American Educational Research Jour­ Public and Private Education: A Case Study of
Hyderabad 500 029
nal, 46(3): 626-58. Urban India” , Oxford Bulletin o f Economics and Andhra Pradesh
Desai, S, A Dubey, R Vanneman and R Baneiji Statistics, 58(1): 57-82. Ph: 66465549
(2008): “ Private Schooling in India: A New - (2007): “ The Progress o f School Education in

Economic & Political w e e k ly EBB53 m a r c h 17, 2012 v o l x l v i i n o 11 59

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 SPECIAL ARTICLE
Why Publicly-Financed Health Insurance Schemes
Are Ineffective in Providing Financial
Risk Protection
SAKTHIVEL SELVARAJ, ANUP K KARAN
This paper provides early and robust evidence on the
impact o f publicly-financed health insurance schemes
on financial risk protection in India's health sector. It
conclusively demonstrates that the poorer sections o f
households in intervention districts o f the Rashtriya
Swasthya Bima Yojna, Rajiv Aarogyasri o f Andhra
Pradesh, and Tamil Nadu Health Insurance schemes
experienced a rise in real per capita healthcare
expenditure, particularly on hospitalisation, and an
increase in catastrophic headcount - conclusive proof
that rsby and other state government-based
interventions failed to provide financial risk protection.
Therefore, the policy that is needed would aim to
achieve universal health coverage o f the population,
moving away from the current trend o f piecemeal,
fragmented approaches, to providing a thrust for
primary health care.
Sakthivel Selvaraj ishakti@phfi.org) is with the Public Health
Foundation of India, New Delhi. Anup K Karan ianup.karan@dph.ox.ac.
uk) is currently supported by a Wellcome Trust Capacity Strengthening
Strategic Award to the Public Health Foundation of India and the United
Kingdom Universities Consortium.
6o
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T
he Indian health sector has been the testing laboratory
for launching several “financially innovative”schemes
since 2005-06. The country has been witness to one of
the most ambitious programmes in India’ s planned develop­
ment years - the flagship National Rural Health Mission
(n rhm ) - since 2005-06. Two years later, from 2007, India wit­
nessed a plethora of new initiatives, by the central and many
state governments that entered the bandwagon of publicly-
financed health insurance schemes. Given the commitment to
upscale government expenditure on health, the central and
state governments were devising various ways to spend addi­
tional resources through “ innovative”schemes. The Andhra
Pradesh government was the pioneer in launching the Rajiv
Aarogyasri Scheme in 2007, followed by the central govern­
ment (the Ministry of Labour and Employment) through the
Rashtriya Swasthya Bima Yojna (rsby) in 2008. Sensing politi­
cal capital from neighbouring Andhra Pradesh, the then Tamil
Nadu government launched its own version christened as
Kalaignar’ s Insurance Scheme for life-saving treatment in
2009 (the scheme has since been rechristened as Tamil Nadu
Insurance S ch em e for Life Saving Treatm ent u n der the n ew
government in 2011), and later by Karnataka’ s Vajpayee
Aarogyasri model in the same year. Interestingly, Karnataka is
the microcosm of this testing ground, where three govern­
ment-supported health insurance schemes coexist (Yashas-
wini since 2003, r s b y and Vajpayee Aarogyasri).
1 Introduction
The country, which had a low density of health insurance
coverage of about 75 million people (roughly about 16 million
family beneficiaries) in 2007, saw an estimated 302 million people
covered in 2010, covering roughly one-fourth of the population.
Comparatively, the coverage is by any global standards quite
breathtaking and occurred at a rapid rate in a span of three to
four years (Reddy et al 2011). However, in terms of the benefit
package, except the Employees State Insurance Scheme (e s is )
and the Central Government Health Scheme (c g h s ), the
publicly-funded models provide only limited hospitalisation
cover to the beneficiaries. In terms of benefit-packages, while
s package has been very moderate and cover largely sec­
r sb y ’
ondary care hospitalisations, Rajiv Aarogyasri and the Tamil
Nadu scheme have been the most ambitious o f all the pro­
grammes, covering high-end surgical procedures at tertiary
MARCH 17, 2012 VOL XLVII NO 11 I9SS3 Economic & Political w e e k l y
 SPECIAL ARTICLE

level. The amount of coverage under r s b y is by far the least,
with a maximum of Rs 30,000 on a family floater basis per
annum. On the other hand, the coverage amount goes up to
Rs 2 lakh per annum and Rs 1 lakh for four years on a family
floater basis under Rajiv Aarogyasri and the Tamil Nadu
scheme, respectively. Similarly, Karnataka’ s Vajpayee Aarog­
yasri provides coverage to both secondary and tertiary care
hospitalisation with a maximum amount of Rs 2 lakh.1
Interestingly, state governments such as, Kerala extended
the r s b y coverage to the above poverty line (a p l ) population,
while Himachal Pradesh extended the package value to over
Rs 1.75 lakh for a family of five people per annum. The premium
for r s b y is jointly paid by the central and the state governments
to the insurance companies, where the contribution is in the
ratio of 3:1 (75% of central government and the contribution of
state is 25%), except for the north-eastern states, where the
contribution of the central and state governments is in the
order of 9:1, respectively. On the other hand, as far as the state-
based health insurance schemes are concerned, the entire pre­
mium is borne by the respective state governments.
The key objectives of any publicly-funded health insurance
programme are multidimensional. Besides improving health
outcomes, it is expected to enhance access and availability of
essential healthcare services. But the critical goal of any health
financing strategy is to protect households from financial
catastrophe and impoverishment. This is expected to substan­
tially reduce the households’ out-of-pocket (o o p ) spending on
healthcare. The focus of this study is therefore to capture the
strategies and policy alternatives that are needed as a course
correction, to remedy the current health financing conundrum
and to improve financial risk protection strategies.
2 The M ethodology
The present study examines financial risk protection in India’ s
health sector, with special reference to the implications of
various publicly-financed health insurance schemes. We use a
pre-insurance and post-insurance approach that involves the
period 2004-05 and 2009-10, respectively. Further, in order to
capture the real impact of those districts that have rolled out
health insurance programmes and those that did not, we have
used a case-control approach. The number of intervention dis­
tricts ( id s ) (districts where r s b y and other health insurance
schemes were rolled out and continuing until June 2009-10)
stood at 321, while rest of the districts with a total of 291, com­
prise non-intervention districts ( n id s ) . The intervention
districts group included 74 districts from Andhra Pradesh,
Karnataka and Tamil Nadu, those that are covered under the
respective state-based health insurance schemes (Table 1).
These insurance schemes were rolled out gradually in different
months of the years 2007 through 2009, so that we have a 1-3
year lag period to comprehensively capture its impact.
The data source for this study is drawn from the unit level
records of the Consumer Expenditure Survey (c e s ), conducted
by the National Sample Survey Office (n s s o ), for the respective
years. The two periods under study are quinquennial rounds of
n s s o , where sample size is large enough, to capture the impact

impact, if any, of the publicly-financed health insurance

Table 1: Number of Intervention and Non-Intervention Districts under
programmes on financial risk protection in India. This is the Publicly-Financed Health insurance Models (2004-05 and 2009-10)
first attempt that brings together evidence on financial risk MajorStates Total NumberofDistricts NumberofInterventionandControl Districts
2004-05 2009-10 RSBY DistrictsBasedon Control
protection of various publicly-financed health insurance Districts StateSchemes Districts
schemes in the country. The early evidence reported in this Andhra Pradesh 23 23 23
journal by Narayana (2010) and Das and Leino (2011) essen­ Assam 23 27 4 23
tially examined the impact of r s b y on enrolment and hospi­ Bihar 37 38 23 15
talisation rates. The other assessments were earlier made by Chhattisgarh 16 16 11 5
R ao et al (2009) on Rajiv A arogyasri, while Reddy et al (2011) Delhi 7 7 5 2
critically analysed various issues relating to publicly-financed Goa 2 2 2
Gujarat 25 25 14 11
health insurance models in India. Evaluating some early
Haryana 19 20 14 6
impacts of Rajiv Aarogyasri, a recent work by Fan et al (2011)
Himachal Pradesh 12 12 12
indicated that although the programme appears to have had
Jammu and Kashmir 10 11 11
an impact by way of a decline on o o p payments in general, it Jharkhand 18 11 11
22
had no significant effect on catastrophic health expenditures Karnataka 27 27 5 22
or on medical impoverishment. Kerala 14 14 14
This section provides a brief overview of publicly-funded Madhya Pradesh 45 45 48
health insurance schemes in India beginning from 2007, while Maharashtra 34 34 29 5
Section 2 explains the data sources and methodology we North-eastern states 53 59 10 49
utilised for this study. Section 3 is devoted to discuss the sum­ Orissa 30 30 5 25
mary measures of o o p spending, its trends and pattern during Punjab 17 18 10 8
Rajasthan 32 32 4 28
the last one decade. Section 4 examines the real change in o o p
Tamil Nadu 30 31 2 29
expenditure and trends in catastrophic payments among dif­
Uttar Pradesh 70 70 60 10
ferent economic groups of households, across intervention and
Uttarakhand 13 15 7 8
non-intervention districts. An analysis of the emerging trends West Bengal 18 19 13
6
and patterns in o o p payments and its policy implications with Union territories 10 12 1 11
regard to health insurance programmes are outlined in All-India 585 612 247 74 291
Section 5. Finally, we conclude the study by outlining various Source: Based on reported coverage o f the respective schemes.

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Figure 1: Trends in Share of OOP Spending in India from 1993-94 to 2009-10
(As percentage of total households expenditure)
....... ..........
0.51 ..............
0 ---------------------------------------------------
1993-94 1999-2000
Source: Estim ated fro m U n it Level Records o f respective Consum er E xpenditure Rounds, NSSO.
at the state and groups of districts levels. For instance, the
number of households surveyed during the period 2004-05
were 1,24,644 (79,298 rural and 45,346 urban households)
and 1,00,855 households (59,119 rural and 41,736 urban) dur­
ing 2009-10.
The c e s collects information on expenditure of households’
consumption for about 350 items. This includes food and
non-food items, while the relevant non-food items that are
examined here are institutional and non-institutional medical
spending of households. Under the institutional head, house­
hospitalisation expenses in particular, and therefore, provide
the much-needed financial risk protection. Catastrophic pay­
ments (Berki 1986) are defined as a scenario in which house­
holds report in excess of a given threshold of medical expend­
iture during a year. The threshold could take cut-off point,
such as 5%, 10%, 15%, 20% and 25% of households’overall
spending (Merlis 2002; Xu et al 2003 and 2007; Wagstaff and
Van Doorslaer 2003; Van Doorslaer et al 2007). For the pur­
1.3 /
pose of this analysis, we define catastrophic headcount as
number of households making o o p expenditure greater than
10% of their total household expenditure. Accordingly, the
2004-05 2009-10 headcount ratio of catastrophic payment (P^ is calculated as:
P0 = i/n I i(T/x>z) ...(1)
where: i(.) is an indicator function, which takes the value 1, if
T/x>z is true and o for otherwise; and n is the number of per­
sons incurring expenditure on health for various thresholds.
3 Emerging Trends in OOP Payments
India has one of the most privatised healthcare markets in the
world, both in terms of financing and provision of healthcare
services. While India spends around 4.2% of its gross domestic
product ( g d p ) on healthcare, the government’ s contribution is
roughly one-fifth, while that of households’ o o p is nearly 70%

holds’health spending on services such as, medicines, diag­
nostic tests, doctor’ s fee, hospital and nursing home charges
and other medical expenses are included. As far as the nature
of items under the non-institutional head is concerned, expen­
diture on medicines, diagnostic services, doctor’ s fee, family
planning appliances, and other medical expenses are obtained
by the n s s o . 2 The recall period for non-institutional medical
expenses is 30 days, whereas the reference periods for institu­
tional health expenditure of households are 30 days and 365
days.3We use the 365 days recall for our analysis of the institu­
tional health spending. Accordingly, the total o o p is worked
out as the summation of inpatient and outpatient expenses
taken together. The latest survey, 2009-10, distinguishes two
types of reference periods. Under the schedule Type 1, the
recall periods for institutional medical expenses are 30 days and
365 days, while under schedule Type 11, the reference period
for institutional expenditure is only 365 days only. As far as
non-institutional expenses of households are concerned,
Type 1 and Type 2 schedules have only one recall period,
which is 30 days. We utilise data from the schedule Type 1,
with the mixed recall period ( m r p ) , to make it consistent with
the earlier n s s o (2004-05) round.
We begin our analysis by reporting on the emerging trends
and patterns in households’o o p expenditure in four different
categories: (a) total o o p expenditure; (b) inpatient expenditure;
(c) outpatient expenditure; and (d) overall drug expenditure
(including inpatient and outpatient drug spending of house­
holds). The real change in expenditure by deflating nominal
expenditure is presented to have an idea of the real impact of
expenditure on households. Further, we analyse the impact of
catastrophic spending on households due to insurance coverage.
The publicly-funded health insurance schemes are intended
to reduce catastrophic expenses of households by reducing
62
of the overall healthcare expenditure. It has been documented
well in the past that over-dependence on o o p in India is
marked by high inequity (World Bank 2002; g o i 2005; Garg
and Karan 2008; Selvaraj and Karan 2009), which has implica­
tions for catastrophe and impoverishment (Van Doorslaer et al
2006; Selvaraj and Karan 2009; Ghosh 2011). Analysing the
long-term trend, 1993-94 to 2004-05, Ghosh (2011) provides
estimates of catastrophic and impoverishment impacts arising
out of household’ s spending at disaggregated level by states.
However, the present study is different in three respects:
(1) the estimates here are up to the latest quinquennial c e s ,
2009-10; (2) provides an estimate of catastrophic headcount
by different categories - hospitalisation, outpatients and
drugs. These breaks-up are vital for understanding what
causes catastrophic spending; and (3) the key departure of
this paper is to dissect the implications of various government-
financed health insurance schemes on financial risk protec­
tion. India has had large-scale changes in health financing
strategy through n r h m and government-financed health
insurance schemes, both of which occurred in the post-2005
period. Therefore, examining the latest trend (covering the
period 2005-10) is critical.
It is interesting to observe that the share of household’ s
expenditure on healthcare appears to have declined margin­
ally for the first time in decades. The decline in o o p share in
2009-10 is contributed solely by the fall in share of outpa­
tient expenditure. The hospitalisation expenses as a share of
overall household expenditure increased further during
2009-10 to 1.9%, from approximately 1.6% in 2004-05 and
0.5% in 1993-94 (Figure 1).
As far as the per capita expenditure on health by households
is concerned, the evidence suggests an all-round increase not
only in nominal, but also in real (nominal expenditure deflated
m arch 17, 2012 vol xlvii n o li Q 2Q E con om ic & P olitical weekly

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 SPECIAL ARTICLE

by various measures of consumer price indices (c p is )) terms. between the rich and the poor is substantial and wider in rural
Households’real per capita o o p expenditure is reported to areas than among their urban counterparts. Table 3 also
have increased significantly during the last five years of the reveals the proportionate share of hospitalisation expenditure
survey period, at an average annual growth of approximately as against outpatient expenses. Currently, hospitalisation
1.9% (Table 2). The rise in real o o p expenses of households expenses account for only about one-third of the overall o o p
appears to be largely due to hospitalisation expenditure, while expenditure, while the remaining two-thirds are accounted
outpatient and drug expenditure remained almost stable dur­ for by outpatient care expenditure, especially on medicines. It
ing the period. Another observation that stems from the analy­ is interesting to observe that all the current publicly-financed
sis of the households shows that the difference in per capita health insurance schemes cover only hospitalisation episodes
expenditure between the poorest and the richest quintile and not outpatient care. Further, it must be noted that a rela­
group of overall household expenditure is quite high across all tively larger proportion of poor and other economically vul­
categories, but much more among households incurring nerable (second poorest quintile and middle class) sections
hospitalisation expenses. As observed earlier, although the bear a higher burden of health spending on account of
expenditure pattern may show a progressive trend, the fact outpatient care. This is especially true of spending on drugs,
Table 2: Real Per Capita and Growth of OOP Expenditure by Quintile Groups where medicines accounted for three-fourths of all o o p spend­
(2004-05 to 2009-10) (PC in Rupees); (Growth in (%) - compound annual growth rate) ing of the poor, while for the rich it still accounted for over
Years Poorest Second Middle Second Richest All two-thirds of spending. The current thrust of insurance
Poorest Richest
schemes clearly demonstrates the distortion and lopsided
OOP expenditure
2004-05 12.21 22.35 32.80 51.91 112.92 41.83 priorities of programmes, priorities that are in direct conflict
2009-10 21.14 37.79 55.20 84.67 187.36 68.63 with evidence.
2009-10 (2004-05 prices) 14.17 25.32 36.99 56.73 125.53 45.98 Although the trends in o o p spending of households provide
CAGR (%) 3.02 2.53 2.43 1.79 2.14 1.91 a clear direction of the way in which o o p expenditure has been
Hospitalisation expenditure moving in the last two decades, it is worth probing into the
2004-05 2.83 5.38 8.09 13.56 32.99 11.20
real impact of o o p spending through the lens of catastrophic
2009-10 5.58 11.60 17.80 29.09 63.35 22.47
3.74 7.77 11.93 19.49 42.44 15.06
expenditure analysis. When a household spends on health­
200 9-10 (2 00 4 -0 5 prices)
CAGR (%) 5.73 7.63 8.08 7.53 5.17 6.10 care, in excess of say, 5% or 10% of their overall spending, it is
O utpatient expenditure termed as a situation in which it incurs catastrophic payments.
2004-05 9.39 16.97 24.71 38.35 79.93 30.63 Catastrophic incidence is typically measured by the headcount
2009-10 15.56 26.19 37.40 55.59 124.01 46.16 of households which exceed a minimum threshold of o o p
2009-10 (2 00 4 -0 5 prices) 10.43 17.55 25.06 37.24 83.09 30.92 spending of total household spending. With 10% level as the
CAGR (%) 2.12 0.67 0.28 -0.59 0.78 0.19
threshold, 7.4% of poor households incurred catastrophic
Drug expenditure
9.59 24.38 37.39 75.68 29.77
spending during 2004-05 (Table 4). The headcount of poor
2004-05 17.00
2009-10 15.95 27.34 38.70 56.57 123.47 46.86 households incurring catastrophic payments has marginally
200 9-10 (2 00 4 -0 5 prices) 10.68 18.32 25.93 37.90 82.72 31.40 risen between 2004-05 and 2009-10. The rise in catastrophic
CAGR (%) 2.18 1.51 1.24 0.27 1.79 1.07 spending, in fact, is much larger among households with
The nominal per capita expenditure data for 2009-10 isdeflated to 2004-05 prices, by CPIs hospitalisation cases as compared to the households with
for rural labour (CPI-RL) for rural and CPIsfor non-manual employees (CPI-NM) for urban
areas separately.
only outpatient and drug spending. However, given that a
Source: Same as in Figure 1. substantial share of o o p spending comes from outpatient
remains that a large section, especially the vulnerable groups, expenses, especially on drugs, the actual incidence is much
fail to access healthcare when ill, owing to financial barriers Table 3: Share of Households' OOPExpenditure by Quintile Groups (2009-10)
(Selvaraj and Karan 2009). Needless to say, drug spending is Sector Poorest 2ndPoorest Middle :2ndRichest Richest All
the single largest component of households’o o p expenditure OOP expenditure (as % of overall households spending)
in India, across all quintile groups. Rural 3.53 4.42 5.13 5.93 8.35 6.01
In order to design or evaluate any health insurance pro­ Urban 4.08 4.79 5.08 5.72 5.84 5.35
All India 3.74 4.57 5.11 5.84 7.23 5.73
gramme, one must recognise the structure of household’ s ex­
Inpatient expenditure (as % of OOP expenditure)
penditure patterns. If one were to examine the quintile groups, Rural 24.14 28.99 31.50 31.34 33.34 31.44
it may appear that o o p expenditure is progressive as only Urban 29.66 33.11 33.32 38.57 34.65 34.78
3.74% of poor households’spending goes into healthcare as All India 26.41 30.69 32.25 34.35 33.81 32.74
against 7.23% of the richest quintile groups. This trend is O utpatient expenditure (as % of OOP expenditure)
driven largely by rural households’spending pattern, which Rural 75.86 71.01 68.50 68.66 66.66 68.56
indicates substantial inequity in spending. Inequity in spend­ Urban 70.34 66.89 66.68 61.43 65.35 65.22
All India 73.59 69.31 67.75 65.65 66.19 67.26
ing is less pronounced in urban areas. This could be due to
Drug expenditure (as % of OOP expenditure)
better physical access of healthcare facilities and to a lesser Rural 77.12 75.34 73.19 70.31 67.90 70.79
extent because of better purchasing power in urban areas Urban 72.98 68.07 65.66 61.91 62.36 64.38
among the poor for seeking treatment. This is clearly the trend All India 75.42 72.34 70.11 66.81 65.90 68.28
in hospitalisation expenses as well, where the difference Source: Same as in Figure 1.

Economic & Political weekly DBQ m arch 17, 2012 v o l x l v ii n o 11 63

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SPECIAL ARTICLE = ■■= --
larger among these categories, but there has been a fall in districts as against non-intervention districts. The variation
catastrophic incidence owing to outpatient and drug spending in households’o o p expenses between case-control districts
during the period under consideration. Indeed, the decline in reveals that the o o p expenditure was as high as Rs 11.55 per
incidence of catastrophic spending has been rather sharp, as capita, with a difference in expenses on medicines as much as
Rs 7.74 per capita. This disparity continued to exist in the
Table 4: Percentage of Households Facing Catastrophic Expenditure
on Health during Pre- and Post-insuranceYears_____________________ post-insurance years as well. The difference between inter­
QuintileGroups OOP Inpatient Outpatient Drug vention and non-intervention districts declined marginally
Expenditure Expenditure Expenditure Expenditure
2004-05 2009-10 2004-05 2009-10 2004-05 2009-10 2004-05 2009-10
in real terms in the post-insurance period but was still posi­
Poorest 7.425 7.656 0.772 1.082 6.853 6.329 5.440 4.523 tive indicating that the health expenditure has also been on
Second poorest 10.967 9.875 1.791 1.980 9.523 7.394 7.622 6.012 the rise in the intervention districts. However, it is apparent
Middle 12.886 12.237 2.466 2.770 10.874 8.848 8.878 7.392 that the disparity in spending has become relatively signi­
Second richest 17.882 16.197 3.507 4.496 15.109 10.979 12.593 9.591 ficant in hospitalisation expenditure. The difference in house­
Richest 23.690 22.456 7.318 7.954 18.293 16.207 16.713 14.852 hold’ s spending on hospitalisation during the same period
All 14.570 13.684 3.171 3.656 12.130 9.951 10.249 8.474 increased from Rs 8.05 to Rs 13.48 in non-intervention dis­
Source: Same as in Figure 1.
tricts, while in the intervention districts it rose from Rs 12.70
Table 5: Mean Per Capita Real OOPExpenditure of Households to Rs 15.81.
Treatment Effects OOP Inpatient Outpatient Medicines We next move to analyse the emerging trends in the share
Expenditure Expenditure Expenditure Expenditure
of o o p expenditure in overall consumption expenditure of
2004-05 (pre-insurance period) (Rs)
households. It is interesting to observe that the difference in
Non-intervention districts (NID) 34.01 8.05 25.96 24.53
Intervention districts (ID) 45.56 12.70 32.86 32.27
share of o o p expenses of households between intervention
Difference between ID and NID 11.55 4.65 6.90 7.74 and non-intervention districts appears to have experienced a
2009-10 (post-insurance period) (Rs) sharp fall from 1.45% in the pre-insurance years to 0.75% in
Non-intervention districts (NID) 39.70 13.48 26.22 26.90 the post-insurance period. It is apparent from Table 6 that
Intervention districts (ID) 48.97 15.81 33.16 33.53 the disparity that existed in pre-insurance period between
Difference between ID and NID 9.27 2.33 6.94 6.63 case-control districts (at 1.45%) has dwindled (to 0.75%) in
Difference between pre-and post-insurance period (Rs) the post-insurance years. It is remarkable to note that while
Non-intervention districts (NID) 5.69 5.43 0.26 2.37
non-intervention districts experienced an increase in the
Intervention districts (ID) 3.41 3.11 0.30 1.26
share of o o p expenses, the opposite occurred in intervention
Difference between ID and NID -2.28 -2.32 0.04 -1.11
districts between the two periods under consideration. This
2009-10 figures are deflated on 2004-05 prices using CPI (RL) for rural and CPI(NM) for
urban areas. is reflected in the negative change in the share of o o p ex­
Source: Same as in Figure 1. penses in the intervention districts. However, the decline in
we move up the higher ladder of economic groups. In the case share of o o p expenditure in the intervention districts
of inpatient expenditure, catastrophic incidence has consist­ occurred due to a fall in outpatient expenditure, especially
ently g on e up in every quintile group. Table 6: Percentage Share of OOP Expenditure in Overall Household
Expenditure_______________________________________________
4 Im plications o f Publicly-Funded Schemes Treatment Effects OOP Inpatient Outpatient Medicines
Expenditure Expenditure Expenditure Expenditure
This section is devoted to capturing the emerging trends with
2 00 4-05 (pre-insurance period)
respect to publicly-funded health insurance schemes, sepa­ Non-intervention districts (NID) 4.88 1.16 3.73 3.52
rately in the intervention and non-intervention districts, be­ Intervention districts (ID) 6.33 1.76 4.57 4.48
tween 2004-05 and 2009-10. Since r s b y and other state-based Difference betw een NID and ID 1.45 0.61 0.84 0.96
health insurance schemes were introduced only in 2007 and 2009-10 (post-insurance period)
Non-intervention districts (NID) 5.21 1.77 3.44 3.53
after when they were rolled out in selected districts,4 it is
Intervention districts (ID) 5.96 1.92 4.04 4.08
possible now to effectively capture the potential impact that
Difference between NID and ID 0.75 0.16 0.60 0.55
these schemes have had on households’o o p expenditure.
Difference between p re-and post-insurance period
Eventually, it is equally feasible to tease out the impact and Non-intervention districts (NID) 0.33 0.61 -0.29 0.01
change in catastrophic payments of households before and Intervention districts (ID) -0.37 0.16 -0.53 -0.40
after the introduction of publicly-funded health insurance Difference between NID and ID -0.70 -0.45 -0.24 -0.41
programmes. Source: Same as in Figure 1.

Table 5 provides a summary of changes in average real per
capita o o p expenditure of households in pre- (2004-05) and
post-insurance (2009-10) years, broken down by intervention
and non-intervention districts. Effectively, such a comparison
captures both the time and region effect of health insurance
policy. Before the beginning of the insurance schemes (2004-05),
households’ o o p expenses, by all categories - inpatient, outpa­
tient and drugs - were reportedly higher in the intervention
64
due to the reduction in drug expenditure share. On the other
hand, the share of hospitalisation expenses is not only
relatively higher in intervention districts, but both interven­
tion and non-intervention districts experienced a rise in its
share in the post-insurance years. In contrast, outpatient
expenditure share experienced a sharp and consistent fall
during the post-insurance years, across both intervention
and non-intervention districts.
MARCH 17, 2012 VOL XLVII NO 11 DBS Economic & Political w e e k l y

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 SPECIAL ARTICLE

The trends and patterns as observed in real mean o o p households increased marginally in the post-insurance years,
expenditure and its share in total expenditure provide a clear both in i d s and n i d s . Our further probe into catastrophic
direction of the disparity of changes in various measures of headcount of households arising out of hospitalisation, espe­
o o p expenses in different settings. A change in mean and share cially across different quartile groups of households is worth
of o o p expenses by different categories has implications for noting. This set of analysis is useful because r s b y and other
catastrophic payments. Table 7 captures the changes in cata­ state-based health insurance schemes are basically supposed
strophic headcount ratio of households incurring catastrophic to cover the poor (below poverty line (b p l )) population.
payments, measured by the percentage of households incur­ Catastrophic headcount ratios across expenditure quintile,
ring over 10% of their overall spending on medical treatment. both in the pre-insurance and in the post-insurance period are
During the post-insurance period (2009-10), we observe that consistently higher in the intervention districts in comparison
11.01% of households appear to have incurred catastrophic ex­ to those in the non-intervention districts. In general, the cata­
penditure in non-intervention districts as compared to 14.9% strophic headcount ratio is higher among richest than among
in intervention districts. The r s b y intervention districts re­ poorest quintile group. The pattern in the two poorest eco­
ported a higher catastrophic burden than the non-intervention nomic groups (two poorest quintiles) in the post-insurance
districts in both the periods under consideration. However, the years, especially in the intervention districts, reflects that the
difference across pre- and post-insurance years clearly suggest catastrophic headcount ratio had risen as against a marginal
increase among the poorest quintile groups and a fall in the
Table 7: Catastrophic Headcount of OOP Expenditure (in % of households)
TreatmentEffects OOP Inpatient Outpatient Medicines second poorest quartile group in the non-RSBY, non-state-
Expenditure Expenditure Expenditure Expenditure based health insurance districts. Therefore, poorer economic
2 00 4-05 (pre-insurance years) groups in intervention districts had indeed experienced a rise
Non-intervention districts (NID) 11.65 2.37 9.71 8.45 in the catastrophic headcount ratio.
Intervention districts (ID) 15.89 3.53 13.23 11.06 The changes in the headcount ratios in the last column of
Difference between NID and ID 4.24 1.16 3.52 2.61
Table 8, capture the difference-in-difference, namely, the time
2009-10 (post-insurance years)
and region effects. Unlike the richest groups which appear to
Non-intervention districts 11.01 2.76 7.99 6.75
Intervention districts 14.90 4.06 10.84 9.26
have experienced a sharp decline in the catastrophic head-
Difference between NID and ID 3.90 1.30 2.86 2.51 count ratio (-1.77%), the poorer groups (especially, all the four
Difference between pre- and post-insurance years lower income groups, namely, the poorest, second poorest,
Non-intervention districts -0.65 0.39 -1.72 -1.70 middle, and to some extent, the second richest income catego­
Intervention districts -0.99 0.53 -2.38 -1.81 ries) in the r s b y districts experienced a rise in the catastrophic
Difference between NID and ID -0.34 0.14 -0.66 -0.10 headcount ratio.
Catastrophic headcount of inpatient and outpatient expensestakentogether do not add
upto that oftotal OOPbecauseanumber of householdsfacecatastrophic expenditure
becauseof being both inpatients andoutpatients separately. 5 Discussion
Source: Sameasin Figure 1. Two major initiatives since the year 2005-06 in the Indian
a sharp decline in catastrophic headcount ratio because of health sector are remarkable for giving a new direction to health
overall o o p expenses from 4.24% in 2004-05 to 3.90% in system financing, namely: the n r h m and publicly-funded
2009-10. health insurance schemes (including r s b y , Rajiv Aarogyasri
The decline in catastrophic headcount ratio during the post­
Table 8: Catastrophic Headcount (%) Due to o f Hospitalisation Expenditure
intervention districts is brought about by a fall in catastrophic
QuartileGroups Non-Intervention Intervention Differencebetween
ratios in both intervention and non-intervention districts, with Districts(NID) Districts(ID) IDandNID
the decline being less sharp in the intervention districts. How­ Pre-insurance years (2004-05)
Poorest 0.88 0.72 -0.16
ever, the sharper decline in the intervention districts is contrib­
Second poorest 1.42 1.96 0.53
uted mainly by a steep fall in the catastrophic headcount ratio
Middle 2.14 2.61 0.47
on account of outpatient expenses and not due to hospitalisa­
Second richest 2.74 3.87 1.13
tion expenses. On the whole, three clear trends are worth
Richest 5.15 8.14 2.99
observing in the overall fall in catastrophic headcount ratio: Post-insurance years (2009-10)
(1) the decline in catastrophic headcount ratio is observed due Poorest 0.87 1.20 0.33
to a sharp fall in outpatient care expenses, especially in drug Second poorest 1.20 2.36 1.16
spending; (2) catastrophic headcount ratio due to hospitalisa­ Middle 2.20 3.03 0.83
tion expenditure has indeed experienced an increase in the Second richest 3.54 4.93 1.39
post-insurance period; and (3) districts that are under r s b y Richest 7.05 8.27 1.22
and other state-based insurance schemes (intervention dis­ Difference between pre-and post-insurance years
Poorest -0.01 0.48 0.50
tricts) appear to have experienced a higher (0.53%) percentage
Second poorest -0.22 0.40 0.62
of increase in catastrophic headcount ratio than the non-health
Middle 0.06 0.42 0.36
insurance intervention districts with only 0.39% increase. 1.06 0.26
Second richest 0.80
It is, therefore, evident from the above analysis that the cat­ Richest 1.90 0.13 -1.77
astrophic headcount ratio due to hospitalisation expenses of Source: Sameasin Figure 1.

Economic & Political weekly uuui m arch 17, 2012 v o l x l v ii n o 11 65

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SPECIAL ARTICLE :

and the Tamil Nadu Chief Minister schemes, among others). period. Before the beginning of the insurance schemes
nrhm largely relies (except for Janani Suraksha Yojana or (2004-05), households’ o o p expenses, by all categories - inpa­

the j s y scheme) on supply-side financing, through the tradi­
tional way of an integrated financing and provision functions
under the umbrella of government ministries and depart­
ments. Demand-side financing, on the other hand, focuses on
the split between financing and provision. Under demand-
side financing, while the financing function is left to the
government and/or contribution from employees, inter­
mediated by an insurer or other financing intermediaries,
healthcare is purchased by the intermediaries from both the
public and private providers. Demand-side financing, is
therefore, expected to lead to “ money follows the patients” ,
approach (Hsiao 2007: 953). Ironically, in a sector that is
characterised by intrinsic market-failure due to supplier-
induced demand and information asymmetry, “ consumers”
are being called up on to exercise their “ choice”of choosing
between providers.
The r s b y and other publicly-funded state government
schemes veer towards this model. In this exercise, we have
attempted to evaluate whether r s b y - and state government-
based health insurance schemes have been able to provide the
much-needed financial risk protection to the poorer segments
of society. Our methodology, carefully calibrated for region
and time ( r s b y districts versus non-RSBY districts and pre-
versus post-RSBY time period), brings out evidence of the
emerging scenario of financial risk protection due to publicly-
funded health insurance models.
The evidence from this study indicates that the share of
households’expenditure on medical care appears to have de­
clined marginally for the first time in decades. The decline is
brought about by a significant fall in outpatient expenditure.
The predominant component of outpatient expenditure is on
drugs. On the other hand, expenditure on hospitalisation rose
both in rural and urban India. In real terms, we find that
households per capita o o p expenditure is reported to have in­
creased significantly during the last five years of the survey
period. The real rise in o o p expenses of households appears to
be largely due to hospitalisation expenditure, while outpatient
and drug expenditure remained almost stable during the
tient, outpatient and drugs, were reportedly higher in inter­
vention districts as against non-intervention districts. This dis­
parity continued to exist in the post-insurance years as well.
However, it is apparent that the disparity in spending has
become relatively significant in hospitalisation expenditure.
As far as the share of hospitalisation expenses is concerned, it
is not only relatively higher in intervention districts, but both
intervention and non-intervention districts experienced a rise
in its share in the post-insurance years. In contrast, outpatient
expenditure share experienced a sharp and consistent fall
during the post-insurance years, across both intervention and
non-intervention districts.
Regarding the headcount in the catastrophic nature of hos­
pitalisation, it increased marginally in the post-insurance
years, both in intervention and non-intervention districts.
Catastrophic headcount across income/expenditure quintiles,
both in the pre-insurance and in the post-insurance period
shows a consistently higher number in the intervention dis­
tricts in comparison to the non-intervention districts. Further,
the poorer income sections in r s b y and other state-based
health insurance districts had indeed experienced a rise in
catastrophic headcount, conclusive proof that r s b y and other
state-based health insurance intervention failed to provide
financial risk protection. So, rising per capita health spending
on hospitalisation and the associated increase in the catastro­
phe headcount, especially among the poor population, is
reflective of a continuation of the trend witnessed since the
last two decades, with r s b y and state-based health insurance
schemes making no impact whatsoever.
Despite its aim of providing financial cushion to patients
suffering from illness, the track records of such insurance
models are poor in securing financial risk protection (Wag-
Staff and Lindelow 2008; Wagstaff et al 2009). Such models
are target-specific and designed to address low-frequency
high-value hospitalisation expenses. Target-oriented appro­
aches ( b p l population) have never worked in the past due to
several reasons. Identification of beneficiaries has never been
easy. Andhra Pradesh, for instance, has rolled out insurance

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India, the ILO and th e Quest fo r Social Justice since 1919 - Gerry Rodgers
Indian Officials in th e ILO, 1919-c 1947 - J Krishnamurty
Employm ent in D evelopm ent: Connection betw een Indian Strategy and ILO Policy Agenda -TS Papola
Fundamental Principles and Rights at Work: India and the ILO - Kamala Sankaran
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schemes for almost 85% of the population, while in several
states, the b p l population has been inadequately covered.
Unfortunately, the provision of healthcare has been turned
into another poverty-reduction programme. While improving
population health could make a major dent on poverty, there
are other key dimensions of health sector including providing
financial risk protection. By providing financial risk protection
to the b p l population, it is assumed that the a p l population
does not face catastrophic payments and impoverishment.
With only a thin line that separates the b p l from the a p l ,
it is myopic to plan and make policies for b p l population
involving healthcare.
The major design flaw of r s b y and other such state health
insurance programmes is their narrow focus on secondary and
tertiary care hospitalisation. While r s b y currently covers a
limited package of secondary care hospitalisation, the state-
level schemes cover only the high-end tertiary care hospitali­
sation. Essentially, these models are designed with an inten­
tion to address low-volume high-value financial transactions
that could result in catastrophic expenditure and impoverish­
ment of households. However, the evidence on catastrophic
payments and impoverishment of households in India due to
healthcare expenditure points in the opposite direction (Garg
and Karan 2008; Selvaraj and Karan 2009; Berman et al 2010;
Shahrawat and Rao 2011). The fact that only 2.3% and 3.1% of
rural and urban population, on an average, are hospitalised at
any given point of time, while 8.8% and 9.9% of the popula­
tion access outpatient coverage (n s s o 2006), is strong evi­
dence that outpatient care matters a great deal in the Indian
setting. Further, if one were to examine the expenditure pat­
tern of households, it is again clear that outpatient expendi­
ture far outweighs inpatient care expenditure (in terms of per
capita spending, share of the o o p expenditure and overall
household expenses).
The narrow focus of these schemes typically endangers
health system and its goal. Hospitalised treatment for second­
ary and selected surgical care at the tertiary level has been the
thrust of these schemes. A hospitalisation episode is seen as a
one-off solution to health problems, while prevention and pro­
motion is relegated to the background. Private providers find it
lucrative to turn simple ailment into hospitalisation episodes,
which otherwise would have been treated at the outpatient
care level. Indeed, several such hospitalisation episodes could
have been well prevented had the primary care been strength­
ened. Such insurance programmes lack an overall vision for
the health system and its population that it seeks to cover, due
to compartmentalisation of care into secondary and tertiary
care. Healthcare is not viewed as a continuum of care, rather
seen as a compartmentalised care.
It is, therefore, clear that demand-side financing provides a
narrow and single-minded thrust to market forces and compe­
tition, despite the abject failure of that model, profoundly
exemplified by the healthcare market in the United States (us).
The us spends twice (17% of gross domestic product) on
healthcare as compared to other industrialised countries, but
with poor health outcomes (one of the worst indicators with
Economic & Political w e e k l y DBS m a r c h 17, 2012 v o l x l v i i n o 11
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SPECIAL ARTICLE
high infant mortality rate and maternal mortality rate and life
expectancy). With run-away cost inflation in healthcare, that
country failed to provide financial risk protection to almost 50
million (nearly 17% of the population). And yet, we find the
market competition and market principles are being peddled
as the right model for developing countries, as a panacea for
government failure. Market forces appear to have come alive
in recent times sensing immense opportunity to “ commodify”
and “ medicalise”the “ health market” . It is the same market
forces, which were bent upon preventing and denying every
opportunity for the government to intervene in healthcare
financing and provision. In the contemporary scenario, with
markets everywhere battered by the global meltdown, govern­
ments are being called upon to expand their financing func­
tions so that the private provider and insurance market gets
“business” , to survive and thrive, in the name of providing
“efficient” and “ quality” care. Navarro (2000) succinctly
captures this trend:
Thus, there is a grow in g call for increased partnership b etw een public
and private interests in w hich the latter are increasingly influential in
shaping the nature o f public decisions. In the n ew w isdom , client d e ­
m and replaces patients’needs, risk is valued ov er security, m arket
shares dom inate over governm ent planning, and entrepreneurship
dom inates over public services. This conventional w isd om has b ecom e
alm ost a dogm a, which, like all dogm as, is b a sed m ore on faith than
on eviden ce (Navarro 2000).
How efficient are insurance companies in containing cost?
It is often argued that competition in insurance market brings
down the prices. While we are yet to witness this phenome­
non, premiums have only increased and are likely to rise in the
coming years, as utilisation rate goes up. Evidence from
Kerala’ s r s b y experience clearly suggests an increasing trend
in premiums. A single purchaser has the potential strength to
negotiate with fragmented providers using their monopsony
power, rather than fragmented insurance companies. With the
arrival of insurance companies, the administrative apparatus
only grows, as several layers of administrative entities are
added: insurers, third party administrators, reinsurers, etc,
into their fold. Unfortunately, the cost of administering these
entities and the profits that would ensue fall ultimately on the
funders at some point (government in this case). The high
transaction costs of insurance companies are well-documented
(Woolhandler et al 2003), and therefore, the argument for
cost containment under insurance setting is only illusionary.
Households in several country settings (as in China recently)
have witnessed rising costs despite health insurance, as house­
holds end up paying co-payments and deductibles with the
development of health insurance, which can push up house­
holds healthcare costs.
Policy Im plications
The systemic and intrinsic failure of the free market cannot be
wished away against government failure in the health sector.
Underinvestment, inefficient utilisation of resources and iniqui­
tous distribution of public healthcare have been the bane of
the last six decades of planned development in India’ s health sec­
tor. And part of the problem lies in utter neglect of governance,
67
SPECIAL ARTICLE

poor monitoring and lack of accountability in the system.
All these factors have given rise to mushrooming of an
unregulated and an unmanageable private sector. The pres­
sures from the private sector to open up the government treas­
ury are clearly unmistakable. Given the current limitations of
expansion, the private sector has now been given an open-
ended cheque by the government, relinquishing its roles and
responsibilities of providing the much-needed healthcare. The
current health insurance schemes perpetuate this scenario,
but these schemes are celebrated for their innovative technol­
ogy and business line operations. Technology and insurance
are viewed as magic bullets that can cure all ills.
Several key issues underlined above call for an urgent need
to reverse this trend. This is critical in order to protect public
health system, to cap healthcare costs from escalating, to pro­
vide much needed financial risk protection and to improve
health outcomes of the population. Any policies, strategies and
plans must give primacy to promotive and preventive care.
Primary care must take precedence over secondary and
tertiary care. Scaling up public investment must aim to
strengthen primary care facilities.
Significant and sustained investment in the public health sys­
tem is the need of the hour. Several promises and commitments
made in the past, to step up government investment in public
health system, from the current 1.2% of g d p to about 3%, must
be realised. One of the quick gains of this strategy would be to
focus on providing free medicines to all. India must not only
flaunt its current status of being the “ pharmacy of the south” ,
but must turn its attention to providing free medicines and
make it a reality. These and other key recommendations made
by the High Level Expert Group on Universal Health Coverage
recendy would go a long way in addressing the persistent prob­
lems of the Indian health sector: These recommendations are
expected to improve health outcomes significantly, reduce the
burden of o o p spending on households, improve equity and ac­
cess to healthcare in India. A decisive and concerted action on
the part of various stakeholders is critical to make it a reality, as
we begin to step into the path of Universal Health Coverage.

n o t e s ____________________________________________ Gol (2005): “ Delivery and Financing o f Services - Hyderabad.

1 For a detailed analysis o f coverage, enrol­
ments, benefit-packages o f various publicly-
funded health insurance schemes, see Reddy et
al (2011).
2 These are covered under item numbers 410 to
419 and 420 to 429 for institutional and non-
institutional health expenditure, respectively.
3 The two recall period-based estimations of
total consumption expenditure o f households
are referred to as “ usual reference period
(URP)”and “ mixed reference period (MRP)”
The first time the Planning Commission, Gov­
ernment of India, released data on using two
reference periods was in 2007 (Gol 2007).
4 State-based Rajiv Aarogyasri Scheme and the
Tamil Nadu schemes covered the entire state
by June 2010.
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68 MARCH 17, 2012 VOL XLVII n o 11 DDQ9 Economic & Political w e e k l y

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DISCUSSION
N C A E R ’s R e p o r t o n G o a
A Rejoinder
R V ENKATESAN
This is a response to the two sets
of criticisms (epw ,
2011 and 21 January 2012) of the
report of the National Council
of Applied Economic Research
comparing benefits and costs
of mining and forest services in
Goa. The response focuses on
the conceptual fallacies in the
method proposed by the critics
in estimating “
social benefits”
associated with iron ore mining
and also comments on the
alternative total economic value
approach proposed by them.
RVenkatesan (rvenkatesan@ncaer.org) is
a senior consultant at National Council of
Applied Economic Research, New Delhi.
Economic & Political w e e k ly
“the n c a e r (2010) report attempts to lay
the economic justification for permitting
further land use change of Goa’ s forests
in favour of mining”as inaccurate and
unwarranted. In project appraisal meth­
odology, the option of computing the
opportunity cost of disallowing mining
assumes that the extraction rates, price
T
his is a rejoinder to the article en­ of mineral, extraction costs, and so on,
12 November titled “Missing the Woods for the are frozen at the 2008-09 production
Ore: Goa’ s Development Myopia” and price levels (period of analysis).
( e p w , 12 November 2011), by Pranab
Mukhopadhyay and Gopal K Kadekodi Issues in Valuation
(hereafter m -k). It also briefly responds and Evaluation
to Rahul Basu’ s comments “ Mining in The numeraire used in the n c a e r study
Goa: Beyond Forest Issues”( e p w , 21 Jan­ is the uncommitted social income in the
uary 2012). The authors argue that a scru­ hands of government measured in do­
tiny of the methodology of the recent re­ mestic prices. The study also assumes a
port by the National Council of Applied positive elasticity of marginal utility to
Economic Research ( n c a e r ) comparing an increased consumption as well as the
benefits and costs of mining and forest below poverty line (b p l ) income group
services in Goa revealed an overvalua­ as the reference income level (at which
tion of social benefits and costs. This private gains equal governmental in­
rejoinder is from the main author of the come); with the result, the private sector
n c a e r report. income gains were accorded negligible
This rejoinder is formulated in two weights. This brief background about the
parts. In the first part, we focus on con­ numeraire will clarify some of the explana­
ceptual fallacies in the method proposed tions given below.
by the authors in estimating “ social ben­
efits”associated with iron ore mining. Appropriate SDR
For instance, observations such as the The authors argue for use of a 0% s d r
taxes and duties can be exported or that instead of the 12% adopted by n c a e r .
foreign exchange should not be valued “ The logic of 0% s d r is that societies
at a premium, etc, fall under this category. may value each generation equally and
The n c a e r report focused mainly on therefore any positive s d r tends to dis­
estimation of benefits and integrated count the welfare of future generations,
various studies on social costs o f “ defor­ which is not ethically acceptable...” .
estation”by updating social costs to the s d r is often set as the real rate of re­
base year 2008-09. turn in economic prices on the marginal
In the second part, we comment on unit of investment in its best alternative
the alternative Total Economic Value use (a d b 1997). This is the logic of as­
(t e v ) approach proposed by the authors suming an s d r of 12%. A lower s d r
m -k and review Basu’ s concerns. would result in suboptimal projects
being undertaken initially, while deserv­
Introduction ing ones starve of funds which arrive
In the Introduction the authors observe later while a very high s d r would result
that n c a e r using a 12% social discount in non-utilisation of surplus funds.
rate (s d r ) and a time frame of 25 years, For providing sectoral preferences to
finds that “ the opportunity cost of min­ chosen sectoral projects, the cut-off eco­
ing is Rs 14,449 crore measured as net nomic yield rate is set at lower values. For
present value (n p v ) of losses to be in­ net cash flows with more than one sign
curred if mining was disallowed” . While change where multiple internal rate of re­
we concur with their above observa­ turns ( ir r s ) can result, special procedures
tions, we feel that their observation that are adopted (Venkatesan 1981:72-80).
QBS9 m a r c h 17, 2012 v o l x l v i i n o 11 69
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DISCUSSION

Overvaluation of Mining Benefits
The authors argue that in order to
enhance the estimates of social benefits
of mining, n c a e r has listed various
claims, “which on scrutiny we find ineli­
gible to be counted as social benefits” .
Our rejoinder:
Double Counting: According to the
authors, “n c a e r (2010) claims a number
of central and state taxes as social
benefit. However, all these taxes have
already been added in the firms’ price of
the ore. So the taxes and cesses should
not be added to social benefits as it
would lead to double counting.”
The authors make a grave error in
this judgment. All of Goan iron ore is
exported and economists know that
taxes and cesses cannot be exported.
Since our numeraire is the uncommit­
ted income in the hands of the govern­
ment, obviously these income flows
from taxes and duties represent social
benefits. The authors’ remarks are inap­
propriate and incorrect.
Foreign Exchange: The authors’argu­
ment “ The major item claimed as a ben­
efit is a bonus for (10% of) foreign ex­
change earnings by the industry, Rs 908
crore. The import tax according to this
claim supposedly reflects the scarcity
value of foreign exchange....There are
many reasons why import taxes are im­
posed and forex scarcity may be only
one of the factors that may determine
import tax rates, say, for example, the
infant industry argument”has a major
fallacy. I quote the Asian Development
Bank (a d b ) for computing the shadow
exchange rate ( a d b 1997):
S hadow exch an ge rate refers to the e c o ­
n om ic price o f foreign cu rren cy u sed in the
e co n om ic valuation o f g o o d s and services.
The shadow exch an ge rate can b e calculated
as the w eigh ted average o f the dem and price
and the supply price for foreign exchange.
Alternatively, it can b e estim ated as the ratio
o f the value o f all g o o d s in an e co n om y at
dom estic market prices to the value o f all
g o o d s in an eco n om y at their border price
equivalent values. Generally, the shadow
exch ange rate is greater than the official
exch ange rate, indicating that dom estic
purchasers place a h igher value on foreign
currency resou rces than is giv en b y the o f­
ficial exch an ge rate.
For economic analysis using the
domestic price numeraire, s e r f is ap­
plied to all outputs and inputs, including
labour and land that have been valued
at border price equivalent values, with
project effects measured at domestic
market price values left unadjusted. Any
expert would agree with the appropri­
ateness of such an approach if he exam­
ines the trend in depreciation over the
last four months or over the last two
years since the analysis was carried out.
Transport o f Ore: The first in this list
are the claims that pertain to the trans­
port of ore. Iron ore in Goa is largely ex­
ported by sea. It is transported from the
mines to Mormugao Port Trust by barges
by way of river navigation.
n c a e r (2010) has claimed carbon credits
worth Rs 10.9 crore for the mining industry
due to use of barges for transporting iron
ore from the mines and Rs 30.6 crore due to
reduced diesel subsidy for the same means
of transport. The basis of this claim is that
these benefits accrue because barges are
clean and more efficient transport alterna­
tives to trucks. The authors argue that these
are false claims on the following counts.
Carbon Credit: The carbon credit claim
is invalid as the use of barges is the least
cost-efficient alternative for the mining
firms and no additional expense is in­
curred by way of use of an eco-friendly
alternative (to a polluting) transport op­
tion ( n c a e r 2002).
Our rejoinder is that just for the rea­
son that the eco-friendly transportation
mode also happens to be the least cost
option, this would not disqualify the in­
dustry from claiming carbon credit bene­
fits. The market void created by the ab­
sence of Goan ore exports can easily be
filled up by exports from Orissa, Karna­
taka, and so on, which could adopt a less
energy efficient mode of transportation.

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Barge Tax: There is a claim of social
benefits due to the annual barge tax of
Rs 12 crore. Barges, when they travel
down the river with their loads of mining
ore, lead to quicker “wear and tear”of
embankments. Again, barge tax is the in­
come flow in the hands of government,
and per our numeraire, represents the
uncommitted income. Maintenance of
embankments, roads, etc, is a major state
government responsibility and these tax
flows augment state government outlays.
Road Cess: The authors use similar
reasoning to disallow cess income to
government. “ A similar argument holds
for the road infrastructure cess. Mining
trucks are the main users of the roads in
the forest areas and their heavy load on
the major tarred roads of the state cause
considerable damage. This cess payment
needs to be treated as compensation.”
Our rejoinder to this is the same as the
one mentioned for barge tax.
Royalty: The authors state that the issue
of royalty needs to be seen from a re­
source compensation principle. They
argue, “ The equilibrium price for an
exhaustible resource is:
Exhaustible resource price = Marginal
cost of ore extraction + Exhaustibility
rent (same as royalty rent in theory)”
The authors argue: “ n c a e r (2 0 1 0 : 4 3 )
claims that the royalty paid by firms is
the net benefit to society (Rs 3 0 0 crore).
This is an accounting fallacy since the
royalty paid is supposed to be the
resource rent for consuming a sub-soil
asset. It is the opportunity cost for deple­
tion of natural capital.”
Since the numeraire is the uncommit­
ted income in the hands of government,
the royalty payment needs to be added
to the benefits stream. The state can levy
one-time payments such as the auction
fee or recurring payment request such as
depletion premium. These can be addi­
tional sources of income for the state
government as these need not be viewed
as mutually exclusive options.
The adb guidelines define the deple­
tion premium as the premium imposed
on the economic cost of depletable
resources representing the loss to the
national economy in the future of using
E con om ic & P olitical w e e k l y I33Q
DISCUSSION
up the resource today. The premium is weights past the 2 0 year horizon would
frequently estimated as the additional be negligible for an s d r of 1 2 %. To sum
cost of an alternative supply of the re­ up, all benefit items except diesel subsi­
source, or a substitute, when the least dy, would not stand altered. We repro­
cost source of supply has been depleted. duce the table for ready reference.
In the case of iron ore, since Goa ore is of Table: Benefit Calculation by NCAER (2010)
low grade an application of depletion Ite m B e n e fit A ttr ib u te d
premium is not warranted.1 (in Rs crore)
Carbon credit
To say that the royalty is the compen­ 1 0 .9
Subsidy on diesel 3 0 .6
satory payment in lieu of depletion pre­
Forex benefits 908
mium or one-time leasing bid costs and
State tax royalty 300
ignoring the royalty payments would be
Barge 12
an accounting fallacy. Road infra cess 50
Central tax export duty 250
Useful Life of the Project Corp tax difference 748
The authors argue that an assumption of Total 2 ,3 0 9 .5
a useful life of 25 years would be in­ Source: NCAER (2010:43).
correct as the reserves will last only for
21 years. “In 2008-09, Goa produced 33 Benefits Not Considered in
mega tonnes of iron ore for an estimated the NCAER Report
value of Rs 38.8 billion... Simple arith­ On the benefit side, employment bene­
metic suggests that for 712 mega tonnes fits provided by the industry that accrue
of ore to be extracted at an annual rate to the state (this can be approximated as
of 33 mega tonnes would take only 21 the promotional expenses the state has
years for the reserves to end.” to incur to absorb in services or industry
Our rejoinder to this observation is sectors such as eco-tourism, business
that the total reserves as per records of services, etc) have not been factored for
ibm stand at 926 million tonnes (712 mil­ want of authentic data on this aspect.
lion tonnes of haematite and 214 million
tonnes of magnetite). The authors have Social Costs
considered only haematite ore deposits
for exports. Even if the useful life is set at All about Forest Values: The authors ar­
. 21 years, the results at 12% discount rate gue, “n ca e r (2010: 61) claims to have
would not be different for the discounting adapted forest values generated by ira d e
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 (2008) using Verma (2000) methodology.
But curiously, both irade and ncaer de­
duct most of the benefits in their computa­
tion of the economic value of forests...”
We had decided to adopt numerous
studies on social costs of deforestation in
the public domain. Except for changing
the cost figures to reflect 2008-09 price
levels using gross state domestic product
deflators, we adopted these to compute
social costs. We attempted at measuring
the social benefits in a systematic man­
ner as no work was done on this aspect,
while many studies on social costs were
available in the public domain.
The authors advocate use of the tev
method as a point for discussion in this
context. According to them the logic of
tev is that resources have multiple “ use”
(direct and indirect) and “ non-use”ben­
efits (whether the non-use benefits need
to be factored in needs a wider debate).
If all these items could be added up then
we would arrive at a composite value for
one or more natural resources.
According to my understanding, au­
thors argue that the preservation of for­
ests as the basic objective and mining in
the forest areas should have a threshold
value beyond which preservation of eco­
system is not feasible.
Rahul Basu comments on the report
are based on the assumption that m -k’ s so on. These emergent key policy issues
critique is valid and intends to add to
them. We, in the earlier section, had
argued that m -k’ s social benefits compu­
tations are conceptually flawed. Our
brief comments on Rahul Basu’ s other
concerns are as under:
On methodological issues Basu’ s con­
tention is that the ncaer’ s (iron ore)
price expectations are poorly informed.
Our rejoinder is that the Economic Sur­
vey 2008-09 (Chapter 2: “ Challenges, Poli­
cy Response and Medium Term Pros­
pects” ) briefly analyses commodities price
movement, global developments and the
Indian economy. It analyses the iron ore
market vis-a-vis other commodities such
as crude, edible oil, etc. The structural
change in iron ore prices was inferred
based on the analysis and 2008-09 prices
were used as border prices.
Basu laments that the ncaer’ s calcu­
lation on input-output table has not
been placed in the public domain, if the
72
This content downloaded from 192.190.180.53 on Tue, 06 Nov 2018 10:54:14 UTC
author needs any clarification/discus-
sion, he could address his queries to
me and I can put him in touch with the
concerned expert.
The author has contended that the
barges only transport 86% Goan ore,
while 14% of ore is from other regions, etc.
Since the Goan iron ore needs to be blend­
ed with the higher grade ore to meet mini­
mal requirements of exporters’norms,
there exists a market for the 14% higher
grade ore. Thus, the loss of job in barges
transportation cannot be limited to 86%.
Ethical Concerns: Basu’ s contention that
the 62 page report is priced at Rs 1,000
etc, and sold by the ncaer is incorrect.
Indeed, some of the reports prepared for
the ministries/departments are placed on
their respective websites. As a researcher,
I do not wish to comment further on
ethical concerns.
To conclude, the important takeaway
for the state government, in my opinion,
is a consideration of issues such as
(a) freezing the export volumes at
2008-09 level, (b) deciding on the ap­
plicability of state-level depletion pre­
mium for iron ore, and (c) incurring
promotional schemes for job-creation in
services/industry sectors to combat the
current high unemployment levels, and
need to be included in the agenda of
INSTITUTE FOR SOCIAL AND ECONOMIC CHANGE
Dr. V.K.R.V. R a o Road, N agarabhavi, B a n ga lore 560 072
Applications are invited for the following posts:
Cadre No. of Posts
Associate Professor One
Assistant Professor One
Detailed advertisement and the prescribed application form can
be downloaded from www.isec.ac.in. The last date for receiving
applications with reference to the above advertisement is
April 11, 2012.
MARCH 17, 2012
All use subject to https://about.jstor.org/terms
state government’
s policy initiatives to
be considered.
n o t e __________________________________________
1 India’ s high-grade ore (+65% Fe content) re­
serves, proven and probable, amount to only
0.58 billion tonnes. And even if we were to
factor in indicative and inferred reserves
(probable/feasible reserves), the total reserves
(proven and possibly future potential) would
be only 0.92 billion tonnes.
India’s medium-grade ore (+62% Fe to - 65%
Fe) reserves, proven and probable, is only 1.3
billion tonnes. Here too, if we factor in indica­
tive and inferred (probable/feasible and pre­
feasibility estimated) reserves, the total re­
serves (proven and possibly future potential)
will be only 2.8 billion tonnes. India’ s high-
grade and medium-grade iron ore reserves
would not last more than 20 years and thus
warrant use of a depletion premium.
India’s low grade ores are relatively abundant
and thus do not warrant use of a depletion pre­
mium.
r e f e r e n c e s _________________________________
ADB (1997): G u id elin es f o r the E c o n o m ic A n a ly sis o f
P ro jects (Asian Development Bank: Economics
and Development Resource Centre).
IRADE (2008 ): Natural Resource Accounting in
Goa, Phase II, Project Report of the Integrated
Research and Action for Development, New
Delhi, viewed on July 2011 (http://mospi.nic.
in/Goa_report_ 21apr0 8 .pdf).
NCAER (2002): R ole o f M in era l E x p o rts in the
E co n o m ic D e v e lo p m e n t o f G o a: A H is t o r ic a l
a n d E c o n o m ic E n q u iry (New Delhi: National
Council of Applied Economic Research).
- (2010): A S tu d y o f C o n tr ib u tio n s o f G o a n Iro n
O re M in in g Industry, New Delhi.
Venkatesan (1981): “ Interpretation and Integration
of Economic Efficiency Criteria through Use
of Projected Cash Flow Statements” , The E n g i­
n e e r in g E c o n o m is t Fall: 72-80 .
Verma, Madhu (2000 ): “ Economic Valuation of
Forests of Himachal Pradesh” , mimeo, Indian
Institute of Forest Management, Bhopal.
Category Centre
SC ADRT Centre
GM ADRT Centre
Sd/-
Registrar
VOL XLVII NO 11 E con om ic & P olitical w eekly
 C U R R E N T STATISTICS EPW Research Foundation
The quarterly GDP growth rate has moved down from 7.7% in Q1 to 6.9% in Q2 and further to 6.1% in Q3 of 2011-12. Accordingly, the growth rate for the period April-December 2011 at 6.9% is lower than the
8.1% growth recorded for the same period in 2010. This was the result of a decline in agricultural output growth from 6.8% to 3.2% and in industry from 7.2% to 3.6% despite a good performance in electricity,
gas and water supply. The growth in services sector improved to 9.4% compared to 8.9% a year ago.
Macroeconomic Indicators
IndaxNumbtrtofWhotaalePricts* Variation(%):Point-to-Point
(BaseYear:2004-05 = 100)A Weights January Over Over 12 Months Fiscal Year So Far Full Financial Year
2012 Month 2011 2010 2011-12 2010-11 2010-11 2009-10 2008-09 2006-072007-08
All Commodities 100.0 157.7 0.5 6.6 9.5 5.5 8.6 9.7 10.4 1.6 6.7 7.7
Primary Articles 20.1 199.7 0.9 2.3 18.4 6.1 17.7 13.4 22.2 5.4 12.8 9.6
Food Articles 14.3 191.4 0.3 -0.5 16.7 6.9 17.6 9.4 20.6 8.0 13.2 5.6
Non-Food Articles 4.3 182.8 2.4 0.6 26.6 -4.5 21.0 27.3 20.4 0.6 10.6 16.3
Minerals 1.5 324.5 1.9 24.8 16.1 21.6 12.3 15.2 37.9 -2.8 13.8 28.2
Fuel & Power 14.9 172.8 0.1 14.2 11.4 9.6 8.0 12.5 13.8 -3.4 1.1 7.4
Manufactured Products 65.0 141.2 0.4 6.5 5.3 4.1 5.1 7.4 5.3 1.7 6.3 7.1
Food Products 10.0 153.4 0.3 5.6 -0.1 5.7 2.5 2.4 15.1 6.3 4.3 8.4
Food Index (computed) 24.3 175.8 0.3 1.6 10.3 6.5 11.9 6.8 18.5 7.3 9.6 6.7
All Commodities (Monthly averagebasis) 100.0 155.2 - 9.2 9.6 9.1 9.6 9.6 3.8 8.1 6.6 4.7
AThe date offirst release of data based on 2004-05 series wef 14 September 2010.
* Consequent upon the decision ofthe Cabinet Committee on Economic Affairs (CCEA) held on 24January 2012, weekly release ofWholesale Price Index (WPI) forthe commodities/items under the Groups "Primary Articles* and
"Fuel and Power* isdiscontinued with immediate effect. WPI shall, henceforth, be released on a monthly basisonly. The last WeeklyWPI forthe weekending 14January2012.__________________________________
Variation {%): Point-to-Point
Cost o f Living Indices Latest Over Over 12 Months Fiscal Year So Far Full Fiscal Year
Month 2012 Month 2011 2010 2011-12 2010-11 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06
Industrial Workers(IW) (2001=100) 1981 0.5 5.3 9.3 7.0 10.6 8.8 14.9 8.0 7.9 6.7 5.3
Agricultural Labourers (AL) (1986-87=100) 6181 -0.0 4.9 8.7 5.6 9.9 9.1 15.8 9.5 7.9 9.5 5.3
Note:Superscript numeral denotes month to which figure relates,e g, superscript 1stand for January.
Variation
M oney and Banking (Rscrore) 10 February Over Month OverYear Fiscal Year So Far Full Fiscal Year
2012 2011 2011-12 2010-11 2010-11 2009-10 2008-09
Money Supply (M,) 7211890 19320(0.3) 887930(14.0) 712400(11.0) 721260(12.9) 896817(16.0) 807920(16.8) 776930(19.3)
Currency with Public 1016530 15930(1.6) 108810(12.0) 102330(11.2) 140220(18.3) 146704(19.1) 102043(15.3) 97040(17.1)
Deposits Money with Banks 6193190 3360(0.1) 780030(14.4) 611550(11.0) 581760(12.0) 750239(15.5) 707606(17.2) 683375(19.9)
of which: Demand Deposits 663950 -5960(-0.9) 14650(2.3) -53710(-7.5) -68670(-9.6) -310 (-0.0) 129281 (22.0) 10316(1.8)
Time Deposits 5529240 9320(0.2) 765380(16.1) 665260(13.7) 650430(15.8) 750549(18.2) 578325(16.4) 673059(23.5)
Net Bank Credit to Government 2318960 43630(1.9) 462310(24.9) 336190(17.0) 187460(11.2) 313584(18.8) 391853(30.7) 377815(42.0)
Bank Credit to Commercial Sector 4700680 29090(0.6) 627500(15.4) 465270(11.0) 581760(16.7) 743997(21.3) 476516(15.8) 435904(16.9)
Net Foreign Exchange Assets 1468650 -52210(-3.4) 86950(6.3) 75310(5.4) 100240(7.8) 111858(8.7) 367718 (-5.2) 57053(4.4)
Banking Sector's Net Non-Monetary Liabilities 1290110 1180(0.1) 290070(29.0) 165360(14.7) 149410(17.6) 274078(32.2) -9050 (-1.1) 94672(12.4)
of which: RBI 540360 -29350(-5.2) 166880(44.7) 172010(46.7) 71840(23.8) 66660(22.1) -86316 (-22.3) 177709(84.5)
Reserve Money (24 February 2012) 1389320 -40900(-2.9) 109800(8.6) 12500(0.9) 123870(10.7) 221170(19.1) 167652(17.0) 59696(6.4)
Net RBI Credit to Centre 488300 -30050(-) 189250(-) 94260(-) 87470(-) 182460 149819 176397
Scheduled Commercial Banks (10 February 2012)
Aggregate Deposits 5800460 1760(0.0) 754490(15.0) 592490(11.4) 553150(12.3) 715143(15.9) 658716(17.2) 637170(19.9)
Demand 593260 -5930(-1.0) 18010(3.1) -48440(-7.5) -70360(-10.9) -3905 (-0.6) 122525(23.4) -1224 (-0.2)
Time 5207200 7690(0.1) 736470(16.5) 640930(14.0) 623510(16.2) 719048(18.7) 536191 (16.2) 638395(23.9)
Investments (for SLRpurposes) 173T410 41790(2.5) 259340(17.6) 229800(15.3) 87320(6.3) 116867(8.4) 218342(18.7) 194694(20.0)
Bank Credit 4382390 27910(0.6) 594610(15.7) 440310(11.2) 543000(16.7) 697294(21.5) 469239(16.9) 413635(17.5)
Non-Food Credit 4300810 32730(0.8) 577030(15.5) 423010(10.9) 527480(16.5) 681500(21.3) 466961 (17.1) 411825(17.8)
Commercial Investments 166870 -6620(-3.8) 11570(7.5) 19269(13.1) 37229(31.5) 28872(24.5) 11654(11.0) 10911 (11.4)
Total Bank Assistance to Comml Sector 4467680 26110(0.6) 588600(15.2) 442279(11.0) 564709(17.0) 710372(21.4) 478615(16.9) 422736(17.5)
Note: Government Balances ason 31 March 2011 areafter closure of accounts.
Index Numbers o f Industrial Production December* Fiscal Year So Far Full Fiscal Year Averages
(Base 2004-05=100) Weights 2011 2011-12 2010-11 2010-11 2009-10 2008-09 2007-08 2006-07
General Index 100.00 178.8(1.8) 166.8(3.6) 161.0(8.3) 165.4(8.2) 152.9(5.3) 145.2(2.5) 141.7(15.5) 122.6(12.9)
M in in g 14.157 136.2-(3.7) 124.1-(2.7) 127.6(6.9) 131.0(5.2) 124.5(7.9) 115.4(2.6) 112.5(4.6) 107.6(5.2)
M a n u fa c tu r in g 75.527 190.7(1.8) 177.3(3.9) 170.7(9.0) 175.6(8.9) 161.3(4.8) 153.8(2.5) 150.1(18.4) 126.8(15.0)
Electricity 10.316 149.8(9.1) 148.5(9.4) 135.7(4.7) 138.0(5.6) 130.8(6.1) 123.3(2.8) 120.0(6.4) 112.8(7.3)
# Indices for the month are Quick Estimates.
Fiscal Year So Far 2010-11 End of Fiscal Year
Capital Market
2 March 2012 Month Ago Year Ago Trough Peak Trough Peak 2010-11 2009-10 2008-09
BSE Sensitive Index (1978-79=100) 17637(-4.4) 17432 18447(10.0) 15175 19702 16022 21005 19445(10.9) 17528(80.5) 9709(-37.9)
BSE-100 (1983-84=100) 9276(-3.1) 9099 9578(7.3) 7805 10262 8540 11141 10096(8.6) 9300(88.2) 4943(-40.0)
BSE-200 (1989-90=100) 2180(-3.6) 2129 2260(7.0) 1824 2427 2034 2753 2379(8.1) 2200(92.9) 1140(-41.0)
S&P CNX Nifty (3 Nov 1995=1000) 5359(-3.0) 5270 5522(10.1) 4544 5912 4807 6312 5834(11.1) 5249(73.8) 3021(-36.2)
Skindia GDR Index (2 Jan 1995=1000) 2477(-14.6) 2424 2900(8.8) 1875 3441 2477 34791 3151(9.3) 2883(134.2) 1153(-56.2)
Net Fll Investment in (US $ Mn Equities) - period end 108969(9.1) 104205 99898(36.8) - - 101454(31.5) 77159(43.1) 51669H8.6)
January* Fiscal Year So Far Full Fiscal Year
Foreign Trade
2012 2011-12 2010-11 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05
Exports: Rscrore 130129 1153800(28.7) 896518(31.8) 1118823(32.3) 845534(0.6) 840754(28.2) 655863(14.7) 571779(25.3) 456418(21.6) 375340(27.9)
USSmn 25347 242792(23.5) 196633(37.8) 245868(37.5) 17875K-3.5) 185295(13.6) 163132(29.0) 126361(22.6) 103091(23.4) 83536(30.8)
Imports: Rscrore 205911 1859168(34.8) 1379478(24.5) 1596869(17.1) 1363736(-0.8) 1374434(35.8) 1012312(20.4) 840506(27.3) 660409(31.8) 501065(39.5)
USSmn 40108 391459(29.4) 302529(30.1) 350695(21.6) 288373(-5.0) 303696(20.7) 251654(35.5) 185749(24.5) 149166(33.8) 111517(42.7)
Non-POL US$mn 27783 273545(25.7) 217596(34.0) 249006(23.7) 201237(-4.2) 210029(22.2) 171940(33.5) 128790(22.4) 105233(37.1) 76772(33.2)
Balance ofTrade: Rscrore -75782 -705369 -482959 -478047 -518202 -533680 -356449 -268727 -203991 -125725
USSmn -14761 -148668 -105896 -104827 -109621 -118401 -88522 -59388 -46075 -27981
* Provisional figures.
Foreign Exchange R eserves (excluding Variation Over
gold but including revaluation effects) 24 Feb 25 Feb 31 Mar Fiscal Year So Far Full Fiscal Year
2012 2011 2011 Month Ago Year Ago 2011-12 2010-11 2010-11 2009-10 2008-09 2007-08 2006-07
Rscrore 1303220 1254896 1245284 -10430 48320 57940 82650 73038 -57826 33975 359500 189270
US$mn 265583 276592 278899 1000 -11009 -13316 16901 19208 18264 -57821 107324 46816
Figures in brackets are percentage variations over the specified or over the comparable period of the previous year. (-) not relevant.
[Comprehensive current economic statistics with regular weekly updates, asalso the thematic notes and Special Statistics series, are available on our website: http://www.epwrf.in].

Economic 8c Political w e e k ly E33S9 m a r c h 17, 2012 v o l x l v i i n o 11 73

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 India's Quarterly, April-December and Annual GPP Estimates from 2008-09to 2011-12

STATISTICS
Quarterly April-December Annual
2008-09 2009-10 2010-11 2011-12 2010-11 2011-12 2009-10 2010-11
Q1 02 Q3 04 Q1 Q2 Q3 04 Q1 Q2 Q3 04 Q1 Q2 Q3
At2004-05 Prices
1 Agriculture, forestryandfishing 154307 123389 204748 171675 156740 126524 201853 173580 161614 132668 224044 186557 167875 136880 230168 518326 534923 656975 700390
(4.8) (2.6) -(1.3) (3.8) (1.6) (2.5) -(1.4) (1.1) (3.1) (4.9) (11.0) (7.5) (3.9) (3.2) (2.7) (6.8) (3.2) (0.4) (6.6)
2 Industry 285035 286695 289074 308115 300116 308773 316993 346350 325004 326505 341115 367410 341281 336923 349958 992624 1028162 1261999 1364234
(6.8) (6.0) (1.9) (3.2) (5.3) (7.7) (9.7) (12.4) (8.3) (5.7) (7.6) (6.1) (5.0) (3.2) (2.6) (7.2) (3.6) (8.0) (8.1)
2.1 Miningandquarrying 22903 22125 25226 26989 24611 23671 26577 29399 26304 25398 28200 29903 26778 24661 27334 79902 78773 103999 110009
(1.0) (0.0) (1.2) -(1.8) (7.5) (7.0) (5.4) (8.9) (6.9) (7.3) (6.1) 0.7) (1.8) -(2.9) -(3.1) (6.7) -0.4) (6.9) (5.8)
2.2 Manufacturing 159042 162174 162114 172445 167571 176550 180421 198663 182895 187309 194435 209608 195986 192367 195228 564639 583581 713428 772960
(6.4) (6.3) (1.9) (2.5) (5.4) (8.9) (11.3) (15.2) (9.1) (6.1) (7.8) (5.5) (7.2) (2.7) (0.4) (7.6) (3.4) (8.8) (8.3)
2.3 Electricity, gasandwatersupply 20687 20723 20823 21110 21902 22175 21656 22642 22541 22241 22480 24399 24161 24424 24509 67262 73094 88654 93665
(5.1) (6.2) (5.9) (6.0) (5.9) (7.0) (4.0) (7.3) (2.9) (0.3) (3.8) (7.8) (7.2) (9.8) (9.0) (2.3) (8.7) (6.4) (5.7)
2.4 Construction 82403 81673 80911 87571 86032 86377 88339 95646 93264 91557 96000 103500 94356 95471 102887 280821 292714 355918 384629
(9.7) (7.2) (1.1) (5.6) (4.4) (5.8) (9.2) (9.2) (8.4) (6.0) (8.7) (8.2) (1.2) (4.3) (7.2) (7.7) (4.2) (7.0) (8.1)
3 Services 544952 564412 592686 637422 600776 635001 647627 702642 660867 692886 697635 763587 727216 757227 759477 2051388 2243920 2574769 2822500
(9.7) (10.0) (10.2) (8.9) (10.2) (12.5) (9.3) (10.2) (10.0) (9.1) (7.7) (8.7) (10.0) (9.3) (8.9) (8.9) (9.4) (10.1) (9.6)
3.1 Trade, hotels,transport andcommunication 257700 261944 272156 295776 279247 289018 300999 336417 314622 320130 330573 367747 354643 351655 361074 965325 1067372 1193282 1315656
(10.1) (10.4) (4.3) (7.0) (8.4) (10.3) (10.6) (13.7) (12.7) (10.8) (9.8) (9.3) (12.7) (9.8) (9.2) 01.1) (10.6) (9.7) (10.3)
3.2 Financing, insurance, real estateandbusinessservices 168259 170953 177881 189619 187106 189145 192558 201547 205861 208815 214205 219645 224379 230805 233537 628881 688721 771763 848103
(10.1) (9.8) (10.8) (12.8) (11.2) (10.6) (8.3) (6.3) (10.0) (10.4) (11.2) (9.0) (9.0) (10.5) (9.0) (10.6) (9.5) (9.2) (9.9)
3.3 Community, social andpersonal services 118993 131515 142649 152027 134423 156838 154070 164678 140384 163941 152857 176195 148194 174767 164866 457182 487827 609724 652431
(8.3) (9.4) (22.6) (7.8) (13.0) (19.3) (8.0) (8.3) (4.4) (4.5) -(0.8) (7.0) (5.6) (6.6) (7.9) (2.7) (6.7) (11.8) (7.0)
GDPatfactorcost 984293 974496 1086507 1117212 1057632 1070298 1166473 1222572 1147485 1152059 1262794 1317554 1236372 1231030 1339603 3562338 3807005 4493743 4877842
(8.0) (7.8) (5.6) (6.4) (7.5) (9.8) (7.4) (9.4) (8.5) (7.6) (8.3) (7.8) (7.7) (6.9) (6.1) (8.1) (6.9) (8.0) (8.5)
AtCurrent Prices
1 Agriculture,forestryandfishing 213140 176709 291936 247158 233318 199810 338527 306650 272542 230823 409549 385029 318181 267520 450149 912914 1035850 1089297 1386882
(14.5) (14.8) (10.5) (17.1) (9.5) (13.1) (16.0) (24.1) (16.8) (15.5) (21.0) (25.6) (16.7) (15.9) (9.9) (18.3) (13.5) (17.3) (27.3)
>£ 2 Industry 362289 373388 369346 385421 386042 403776 422692 464651 453874 459883 488226 529422 511535 512414 545327 1401983 1569276 1653870 1906116
(17.0) (18.8) 01.5) (5.3) (6.6) (8.1) (14.4) (20.6) (17.6) (13.9) (15.5) (13.9) (12.7) (11.4) (11.7) (15.6) (11.9) (11.0) (15.3)
2.1 Miningandquarrying 33220 34796 36199 34434 35068 34800 40519 43176 44221 43710 49471 51412 51179 49745 56601 137402 157525 154269 191565
o (15.1) (32.7) (26.8) -(18.2) (5.6) (0.0) (11.9) (25.4) (26.1) (25.6) (22.1) (19.1) (15.7) (13.8) (14.4) (24.5) (14.6) (11.3) (24.2)
NJ
2.2 Manufacturing 197109 204291 201665 213152 206901 220234 228127 257951 241368 248195 260858 287154 274822 272038 282589 750421 829449 905224 1034149
o (15.5) (16.2) (9.0) (6.7) (5.0) (7.8) (13.1) (21.0) (16.7) (12.7) (14.3) 01.3) (13.9) (9.6) (8.3) (14.5) (10.5) (10.9) (14.2)
£ 2.3 Electricity, gasandwatersupply 20916 20952 21053 21243 27296 28268 27914 23931 30481 30558 30886 26718 32954 33543 34555 91925 101052 92671 103173
(1.0) (1.9) (1.7) (0.7) (30.5) (34.9) (32.6) (12.7) (11.7) (8.1) (10.6) (11.6) (8.1) (9.8) (11.9) (10.1) (9.9) (10.1) (11.3)
C 2.4 Construction 111044 113349 110429 116592 116777 120474 126132 139593 137804 137420 147011 164138 152580 157088 171582 422235 481250 501706 591864
H (24.1) (23.6) (13.7) (13.0) (5.2) (6.3) (14.2) (19.7) (18.0) (14.1) (16.6) (17.6) (10.7) (14.3) 06.7)
n (16.2) (14.0) (11.1) (18.0)
3 Services 665053 707049 731016 759581 749438 815883 849394 945464 904244 962942 984495 1098076 1074511 1139230 1154683 2851681 3368424 3390063 4008952
(20.5) (22.9) (20.6) (13.3) (12.7) (15.4) (16.2) (24.5) (20.7) (18.0) (15.9) (16.1) (18.8) (18.3) (17.3) (18.1) (18.1) (18.4) (18.3)
3.1 Trade, hotels,transport andcommunication 311607 323603 330140 343290 338200 356314 378586 422714 410181 419242 441613 482347 493890 493560 513838 1271036 1501288 1477456 1725485
(20.1) (22.7) (12.8) (9.5) (8.5) (10.1) (14.7) (23.1) (21.3) (17.7) (16.6) (14.1) (20.4) (17.7) 06.4) 08.4) (18.1) (12.9) (16.8)
3.2 Financing, insurance, real estateandbusinessservices 202898 211551 214590 220154 226550 234675 243471 274323 277459 284803 296083 325859 330523 343470 351447 858345 1025440 1027158 1232897
(22.8) (24.9) (22.6) (18.2) (11.7) (10.9) (13.5) (24.6) (22.5) (21.4) (21.6) (18.8) (19.1) (20.6) (18.7) (21.8) 09.5) (21.0) (20.0)
& 3.3 Community, social andpersonal services 150548 171895 186286 196137 184688 224894 227337 248427 216604 258897 246799 289870 250098 302200 289398 722300 841696 885449 1040975
2 (18.0) (21.1) (34.5) (14.7) (22.7) (30.8) (22.0) (26.7) (17.3) (15.1) (8.6) (16.7) (15.5) 06.7) (17.3) (13.4) (16.5) (25.6) (17.6)
£ GDPatfactorcost 1240482 1257146 1392298 1392161 1368798 1419469 1610613 1716765 1630660 1653648 1882270 2012527 1904227 1919164 2150159 5166578 5973550 6133230 7306990
(18.4) (20.5) (15.8) (11.6) (10.3) (12.9) (15.7) (23.3) (19.1) (16.5) (16.9) (17.2) (16.8) (16.1) (14.2) (17.5) (15.6) (16.1) (19.1)
Figures in the brackets are percentage variations over the previous year's estimates.
5 Source: CSO'spress note.
FULBRIGHT

► Fulbright-Nehru Master's Fellowships for Leadership Development: For outstanding individuals who demonstrate
leadership qualities; have completed the equivalent of a U.S. bachelor's degree; and have at least three years of professional or
work experience; to pursue a master's degree program at select U.S. colleges and universities in the areas of Arts and Culture
Management including Heritage Conservation and Museum Studies; Communication Studies; Conflict Resolution; Economics;
Environment; Public Administration; Urban and Regional Planning; and Women's Studies. Application deadline:
July 16,2012.
► Fulbright-Nehru Doctoral and Professional Research Fellowships: These pre-doctoral level research fellowships, for a
maximum period of nine months, are designed for scholars who are registered for a Ph.D. at an Indian institution and also for
professionals with significant work experience and accomplishments. Application deadline: July 16,2012.
► Fulbright-Nehru Postdoctoral Research Fellowships: These fellowships, for a maximum period of 12 months, are designed
for Indian scholars and professionals who have a Ph.D. degree from an Indian institution within the past four years.
Application deadline: July 16,2012.
► Fulbright-Nehru Senior Research Fellowships: For faculty, researchers and professionals from all disciplines who have a
Ph.D. or equivalent published work. These fellowships, for a duration of up to eight months, aim to provide opportunity to do
research on contemporary issues and concerns to contribute to the creation of knowledge. Application deadline:
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► Fulbright-Nehru Visiting Lecturer Fellowships: For faculty, researchers and professionals from all disciplines who have a
Ph.D. or equivalent published work. These fellowships for a duration of upto four months, contribute to internationalization of the
curriculum at the U.S. host institutions and understanding of recent developments in India. Application deadline:
July 16,2012.
► Fulbright-Nehru Environmental Leadership Program: For mid-level Indian environment professionals in public/private
sector or non-govemmental organizations for up to four months in the fields of Environmental Information/Systems Reporting;
Environmental Education; Environmental Policy, Regulations and Law; Environmental Sciences and Toxicology; and
Environmental Management. Application deadline: July 16,2012.
► Fulbright-Nehru International Education Administrators Seminar: For mid- to senior-level Indian college and university
administrators with at least two years of experience in international program development and management at their institutions.
This two week seminar will enable participants to learn about various facets of U.S. higher education, including the types of
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campuses, as well as share knowledge on Indian higher education. Application deadline: July 16,2012.
► Hubert H. Humphrey Fellowships: For mid-level policy planners and administrators in the government, public and private
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(Teacher Training or Curriculum Development); Technology Policy and Management; Trafficking in Persons, Policy and
Prevention; Urban and Regional Planning. Application deadline: July 16,2012.
► Fulbright Teacher Exchange Program: For Indian school teachers (6th to 12th grades) of English, Mathematics, or Science to
participate in direct exchange of positions with U.S. teachers for a semester. Application deadline: September 14,2012.
► Fulbright Foreign Language Teaching Assistant Program (FLTA): For scholars between 21 and 29 years of age with a
Master's degree in English. Selected Fulbright FLTA participants from India will teach Bengali, Gujarati, Hindi or Urdu at select
U.S. campuses during their nine-month non-degree grants. Application deadline: September 14,2012.
For complete details on the fellowship programs and downloadable application material, visit USIEF’s website w w w . u s ie f. o r g . in or
write to the USIEF office in your region. For any queries, e-mail to: ip@usief.org.in.

USIEF Offices
Northern Region : USIEF, 12 Hailey Road, New Delhi 110001, Phone: Oil 42090909
Western Region : USIEF Regional Office, Maker Bhavan-1 (2nd Floor), Churchgate (E), Mumbai 400 020, Phone: 022 2262 4603
Eastern Region : USIEF Regional Office, American Centre, 38A, Jawaharlal Nehru Road, Kolkata 700071, Phone: 033 3984 6310
Southern Region : USIEF Regional Office, American Consulate Building, Anna Salai, Chennai 600006, Phone: 044 2857 4131

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