Supply Bottlenecks: In India, they're no Small Potatoes

Buried in recent monthly data for wholesale prices in India, 
the wild gyrations of a humble vegetable tell the tale of an 
economy trapped in inflation by its own rigidities. In street 
markets and on the handcarts of vegetable hawkers, the rise 
has been even steeper, a shock for millions of Indians
who lay their tables each day with curries made of onions, tomatoes, 
lentils and "aloo", or potatoes.

"We used to buy whatever vegetables we liked, but now we always have 
to check the prices," says Maninder Kaur, shopping with her family at a 
market in Jalandhar, in Punjab, where a kilogramme (2.2 lb) of potatoes 
that cost 4-5 rupees (8-10 U.S. cents) at the beginning of the year is now 
up to four times more expensive.

Meanwhile, onions are selling for about a fifth of the price they were at 
the end of last year and the price of tomatoes rose 33 percent in April alone. 

Such erratic prices for perishable goods are routine in India, partly because 
the majority of farms depend on the variable monsoon for rains. However, 
they are also due to inadequate cold storage facilities and transport bottlenecks - 
that together cause up to 40 percent of the country's food harvests to rot before 
they get to market - and a primitive distribution network in which many layers 
of middlemen take cuts, forcing prices higher.

"The storage and the distribution networks are not getting better, so whenever 
there is even a small supply shock or a small demand shock prices are going 
haywire," said Samiran Chakraborty, chief economist at Standard Chartered in Mumbai.

"It has become structural in nature, and this is precisely why everybody is calling for 
supply-side reforms."

MANY MIDDLEMEN

There was a brief chance last December to sort out the distribution system, 
which for agricultural goods is deeply fragmented by a decades-old marketing act 
that prevents large retailing companies from buying produce directly from farmers.

But, hemmed in by coalition allies with an aversion to free market reform, the 
government was forced into a U-turn on plans to open up the retail sector to 
global chains like Wal-Mart (WMT.N) and Carrefour (CARR.PA).

"The current marketing system has been in existence for more than 60 years, 
neither benefitting the farmer nor the consumer," said N.R. Bhanumurthy, an 
economist at the National Institute of Public Finance and Policy, a Delhi-based think tank.

"We need competition and an alternative business model ... where retailers 
can buy directly from the farmers and eliminate the middlemen," he said.

Take the "aloo", which is passed from farmer to middleman after middleman 
and then to the final vendor like a hot potato, climbing in price at every stage.

In Punjab, a potato-growing state, big trading firms bought more than 80 percent 
of the crop from farmers at the end of last year for 3,500-4,000 rupees a tonne 
and put their purchases in storage.

Then, in the new year, as supplies tightened, they drip-fed wholesale markets, auctioning
their stock off at 7,000-8,000 rupees per tonne, a mark-up of more than 60 percent after 

their transport and storage costs.

At this point "commission agents" make a 5 percent charge, and the government levies 
4 percent in auction tax. The auction buyers sell for a 20-30 percent profit to intermediate 
wholesalers, who take a similar cut and pass the potatoes on to final vendors in the 
streets and neighbourhood shops.

At the end of the chain, potatoes that were sold at the farm gate for 3-4 rupees per kg 
reach the market at 15-20 rupees. The story is the same for many farm products. 
Neeraj Kumar, a commission agent in Jalandhar town, says garlic bought some 
2,500 km (1,500 miles) away in Assam at 3-4 rupees/kg can soar to 30 rupees within 
hours of being unloaded.

On the potato fields outside Jalandhar, the mood is despondent. Farmers are bitter 
that they were forced to sell their produce to traders at rock-bottom prices.

"Last year when we stocked potatoes in cold stores, there were no buyers, forcing 
us to leave the harvest in fields. This time, we sold it early to traders, but now 
the prices have gone up three-fold," says farmer Avtar Singh. "It is my fate. We do 
not know when prices are going to go up or fall."

(Writing by John Chalmers; Editing by Robert Birsel)

Story from REUTERS NEWS

Economics of Indian Railway: Some Interpretations...

From: Mostly Economics, By Amol gupta

Bibek Debroy who chaired the recent railways report has aninteresting piece on Indian railways (what else).

He says “If you don’t rationalise the number of trains, there are limited options to de-stress the railways’ high-density networks”:

How many railway stations are there in India? Oddly enough, the answer isn’t straightforward, because there isn’t an unambiguous definition of “station”. How does one count a halt, which may be because of operational reasons and not commercial ones? Does one have a handle on the number of abandoned stations? How does one count a station that has two different gauges passing through? And have you heard of Srirampur and Belapur stations in Maharashtra? On one side of the track, the station is called Srirampur. On the other side, it is called Belapur.

Therefore, though the “official” IR (Indian Railways) figure on number of stations is 7,112, a figure that is 8,000-plus isn’t necessarily wrong. Not all stations are equally important and there is a classification from A1 to F. This is a precise definition, but we needn’t get into that. Suffice to say, A1, A and B stations are more important than the others. A1 and A categories add up to 407. If we wish to prioritise resources spent on station development, these are indeed the ones we should focus on. The station with the most annual revenue is CST Mumbai, followed by Dadar.

Let’s think of a railway route as a track that takes us from point X to point Y. Some stations are junctions, in the sense that more than one route passes through that station. To be called a junction, the norm is that at least three routes must pass through the station. A junction leads to additional problems of switching and signalling.

Roughly, there are around 300 railway junctions. Which junction has most routes passing through? Obvious responses about a busy railway station won’t work. “Busy” originating or terminating stations aren’t junctions. Actually, Mathura is the junction with most routes (six broad gauge, one metre gauge) passing through. Roughly, a cluster of 23 ordinary stations will have a junction, because that’s when one will confront another route. There are exceptions like Nagpur and Ajni stations, where distance between the two stations is only three kilometres. But in general, the distance between two stations is between six and eight km and the distance between two junctions is between 100 and 150 km.

Hmm..Great facts about Indian railways..

Further, he makes a point on rationalisation of number of trains running:

To make the point, I am going to use a simple example. Think of a single line track between two ordinary stations. At any specific point in time, only a single train, moving in either of the two directions, can be on that track. In jargon, in this simple example, that track between two stations is called a block section. Time will be spent on decision-making and the operating of signals, on the driver’s perception and response, and on the train clearing that block section. Let’s say 10 minutes for all this. What’s a reasonable speed for this train? Remember this isn’t a Shatabdi or a Rajdhani. It stops at both stations.

The answer is that anything more than 30 km/hour is impossible. If for computational simplicity if we take the distance between two stations as 10 km, half an hour per train (adding the 10 minutes). Thus two trains per hour, 48 trains per day, even if one ignores time required for maintenance of track. That’s the capacity of this block section.

I recently met a MP who wanted more stops, more trains and greater punctuality. That’s a logical impossibility. Out of 1,219 block sections on IR, 233 are at between 100 and 120 per cent capacity, 193 at between 120 and 150 per cent capacity and 66 at more than 150 per cent capacity.

This is especially serious on the high-density network, that between the metros. If you want more, and faster, trains between Jodhpur and Jaisalmer, that’s never going to a problem, not today. But that’s not where people want more trains. There is an unaddressed issue of unviable routes. There are routes on which there are few trains. There is Ledo and there is Tundla. Within Delhi, there are stations on Delhi Ring Railway.

But for the high-density network, options are limited. Here are some:
(1) Use technology to improve efficiency, including signalling. (Automatic signalling can de facto increase capacity by splitting the block into segments.)
(2) Reduce stops between junctions, so that throughput of trains through ordinary stations is faster.
(3) Back-of-the-envelope, badly-strained capacity is probably around 5,000 km of track. At Rs 10 per km, find the required Rs 50,000 crores. But since these capacity constraints are on high-density networks, they don’t fit the category of national priority projects and GBS (gross budgetary support) won’t be available for this.
(4) While one figures out how to find resources, rationalise the number of trains. I said rationalise, I didn’t say eliminate. Ignoring freight trains, does one need 13,000 passenger trains every day? Why have passenger trains with rakes of eight or nine coaches? Such a merger and consolidation has already been carried out for goods trains, and some doubled trains have more than 120 wagons. If all trains (segregated into three groups: Rajdhani/Shatabdi/Duronto, mail/express, and ordinary) have a template of 24 coaches, there will be no additional shortages because of consolidation. One should probably start with the Allahabad-Kanpur-Varanasi-Mughalsarai stretch – symptomatic of capacity problems, since every day 400 trains pass through this stretch.

But IR is reluctant to touch (1) and (2) – and can’t find the non-GBS of Rs 50,000 crores.

Useful stuff..

A CASE OF DEMAND & SUPPLY IN LAW SCHOOLS

By Annie Lowrey

During the recession, the logic was ubiquitous: The economy is terrible—better to wait it out! It is a three-year fast track to a remunerative, respectable career! It's not just learning a subject—it's learning how to think! Law school, always the safe choice, became a more popular choice. Between 2007 and 2009, the number of LSAT takers climbed 20.5 percent. Law school applications increased in turn.

But now a number of recent or current law students are saying—or screaming—that they made a mistake. They went to law school, they say, and now they're underemployed or jobless, in debt, and three years older. And statistics show that the evidence is more than anecdotal.

One Boston College Law School third-year—miraculously, still anonymous—begged for his tuition back in exchange for a promise to drop out without a degree, in an open letter to his dean published earlier this month. "This will benefit both of us," he argues. "On the one hand, I will be free to return to the teaching career I left to come here. I'll be able to provide for my family without the crushing weight of my law school loans. On the other hand, this will help BC Law go up in the rankings, since you will not have to report my unemployment at graduation to US News. This will present no loss to me, only gain: in today's job market, a J.D. seems to be more of a liability than an asset."

He is one of dozens of law students who have gone public, very public, to chastise the schools they elected to attend for leaving them older and poorer. One popular medium is the "scam blog," where indebted, unemployed attorneys accuse law schools of being little better than tuition-sucking diploma mills. (Sample blog title: Shilling Me Softly.) The author of one popular, if histrionic, such blog describes his law school as a Ponzi scheme.

Others have taken, perhaps inevitably, to the courts. Kenneth Desornes, for instance, named his law school in his bankruptcy filing. He asks the school to "[a]dmit that your business knew or should have known that Plaintiff would be in no position to repay those loans."

The students might be litigious—no surprise there—and overwrought. But they've got a point. The demand for lawyers has fallen off a cliff, both due to the short-term crisis of the recession and long-term changes to the industry, and is only starting to rebound. The lawyers that do have jobs are making less than they used to. At the same time, universities seeking revenue have tacked on law schools, minting more lawyers every year.

That has caused some concern among lawyers who think the accrediting organization, the American Bar Association, is doing the profession a disservice by approving so many new schools. (Contrast that with medical schools. They come with much higher startup costs and tend not to be money-makers. Relatively few students get medical degrees every year, and demand far outstrips supply.)

The job market for lawyers is terrible, full stop—and that hits young lawyers, without professional track records and in need of training, worst. Though the National Association for Law Placement, an industry nonprofit group, reports that employment for the class of 2009 was 88.3 percent, about a quarter of those jobs were temporary gigs, without the salaries needed by most new lawyers to pay off crushing debts. Another 10 percent were part-time. And thousands of jobs were actually fellowships or grants provided by the new lawyers' law schools.

The big firms that make up about 28 percent of recent grads' employment slashed their associate programs in 2009 and 2010, rescinding offers to thousands and deferring the start dates of thousands more. Worse, the profession as a whole shrunk: The number of people employed in legal services hit an all-time high of 1.196 million in June 2007. It currently stands at 1.103 million. That means the number of law jobs has dwindled by about 7.8 percent. In comparison, the total number of jobs has fallen about 5.4 percent over the same period.

At the same time, the law schools—the supply side of the equation—have not stopped growing. Law schools awarded 43,588 J.D.s last year, up 11.5 percent since 2000, though there was technically negative demand for lawyers. And the American Bar Association's list of approved law schools now numbers 200, an increase of 9 percent in the last decade. Those newer law schools have a much shakier track record of helping new lawyers get work, but they don't necessarily cost less than their older, more established counterparts.

Welcome Batch 2020! What Does Economics Have to Do With Law?

Welcome to the Class of Economics. We will learn the 'Economic way of Thinking' throughout the Semester. I am sure this will add one more line of intelligence in your life as a lawyer. The below given passage contains the arguments, commections and debate about the link between Law & Economics.....See you on 13th July 2015. Lets see how many of you have questions, answers and importantly, 'Point of Views'. Happy Reading  

You live in a state where the most severe criminal punishment is life imprisonment. Someone proposes that since armed robbery is a very serious crime, armed robbers should get a life sentence. A constitutional lawyer asks whether that is consistent with the prohibition on cruel and unusual punishment. A legal philosopher asks whether it is just.

An economist points out that if the punishments for armed robbery and for armed robbery plus murder are the same, the additional punishment for the murder is zero—and asks whether you really want to make it in the interest of robbers to murder their victims.
That is what economics has to do with law. Economics, whose subject, at the most fundamental level, is not money or the economy but the implications of rational choice, is an essential tool for figuring out the effects of legal rules. Knowing what effects rules will have is central both to understanding the rules we have and to deciding what rules we should have.

The fundamental assumption of the economic approach, to law and everything else, is that people are rational. A mugger is a mugger for the same reason I am an economist: Given his tastes, opportunities and abilities, it is the most attractive profession open to him. What laws are passed, how they are interpreted and enforced, ultimately depend on what behavior is in the rational interest of legislators, judges and police.

Rationality does not mean that a burglar compiles an elaborate spreadsheet of costs and benefits before deciding whether to rob your house. An armed robber does not work out a precise analysis of how shooting his victim will affect the odds of being caught, whether it will reduce the chances by ten percent or twenty. But if it is clear that it will reduce the risk of being caught without increasing the punishment, he is quite likely to pull the trigger.
Even in this weaker sense, people are not always rational. 

I, for example, occasionally take a third helping of spaghetti when a careful calculation of my own long-run interests would lead me to abstain. I am well acquainted with my own irrationality and can take steps to deal with it. Having discovered that bowls of potato chips located within arm's reach empty themselves mysteriously, I at least sometimes take the precaution of putting the bowl somewhere else.

But I do not know other people—the vast masses of other people to whom economic analysis of law is intended to apply—well enough to incorporate their irrationalities into my analysis of the effect of legal rules on their behavior. What I do know about them is that they, like me, have purposes they wish to achieve and tend, albeit imperfectly, to correctly choose how to achieve them. That is the predictable element in human behavior, and it is on that element that economics is built.

Whether armed robbers should get ten years or life is not a burning issue for most of us. A question of considerably more importance is the standard of proof. In order for you to be convicted of a crime or to lose a civil case and have to pay damages, just how strong must the evidence against you be?

It is tempting to reply that nobody should be punished unless we are certain he is guilty. But by that standard, nobody would ever be punished; the strongest evidence establishes only a probability. Even a confession is not absolute proof: While our legal system no longer permits torture, it does permit plea bargaining, and an innocent defendant may prefer a guilty plea on a minor charge to risking a long prison term on a major one. Scientific evidence is no more conclusive; even if we somehow had a perfect match between the DNA of the suspect and the criminal, there would still be the possibility that someone at the lab made a mistake or that somewhere, perhaps unknown to him, the suspect has an identical twin. If we are to convict anyone at all, we must do it on evidence short of absolute proof.

How far short? Raising the standard of proof reduces the chance of convicting an innocent defendant but increases the chance of acquitting a guilty one. Whether that is on net worth doing depends on the relative costs of the two kinds of mistake. If, as Blackstone wrote more than two hundred years ago, it is better that ten guilty men go free than that one innocent be convicted, we should keep raising our standard of proof as long as doing so saves one more innocent defendant at the cost of freeing no more than ten guilty ones. We would end up with a high standard..

(Excerpts from Blog of Santa Clara University, USA)

Today's economic debate is misguided, it's job growth not GDP growth that matters

Jun 03 2015 : The Times of India (Ahmedabad)

Barking Up The Wrong Tree

Rajiv Kumar





Economics is indeed a strange discipline. Sample this. “A larger fall in imports than in exports contributed substantially to growth in GDP in the fourth quarter of the financial year.“ So a fall in both exports and imports contributes to growth as long as net exports are positive! Baffling it may be, but most economists like myself have accepted this quasi-mystical statement ­ without blinking an eyelid ­ as part explanation for GDP growth at a healthy 7.5% during January to March 2015. Today public and policy attention is being hijacked by numbers spewed out by a statistical establishment that is fast losing its credibility on account of too many revisions of and internal inconsistencies in data. Surely the more important and simpler question is how this growth, at whatever rate, affects employment generation.
I am distressed to report that question is simply lost in ongoing debates on GDP numbers. Employment, unfortunately , still does not seem to figure as a priority for our policy makers. This lack of attention to employment in a country that boasts of the youngest population in the world is simply incomprehensible.
Extensive commentary on the latest GDP growth numbers has been unable to clear prevailing confusion on whether the economy is in its recovery phase or not.Combined with the fact that growth momentum was visibly weaker in the second half of 2014-15 compared to the first six months, it can be reasonably argued that overall economic weakness is persisting ­ prompting RBI to revise its growth target for 2015-16 downward from 7.8% to 7.6% in the second bimonthly policy statement issued yesterday.
Thus, the economy needs a strong stimulus to be given by a combined dose of fiscal expansion and monetary easing.Thankfully, latest data show that as much as 9.1% of total annual expenditure has been spent in a single month of April 2015.
This demonstrates a welcome resolve to hike public capital expenditure, reflect ing an improvement in governance across the board but specially in ministries such as surface transport which accounted for a major chunk of the expenditure in April. Moreover, this has been supplemented by further monetary easing with RBI announcing a 25 basis points cut in the repo rate yesterday. This combined stimulus is most welcome.
The need for sustained stimulus is evident when one looks in some detail at both consumption and investment data.Consumption continues to display continued weakness especially in rural demand. Here again CSO data seems at variance with trends from other sources.
Normally, growth in private final consumption expenditure (PFCE) is closely correlated with growth in corporate income and sales. This is not surprising as both are two sides of the same coin.This correlation has curiously snapped during the last financial year with CSO data showing a rising trend in PFCE, in contrast to corporate sales that have plunged. This is inexplicable. Imports have not covered this supply-demand gap as they have pretty much collapsed.
The investment scene is somewhat better. CMIE data shows new project announcements are rising, projects abandoned are declining and projects under implementation are just beginning to perk up. The major fly in the ointment is the sharply declining rate of growth of credit off-take by corporates from commercial banks, which has plunged to below 4%. Investment, thus, is a mixed picture. It will hopefully improve if public capital expenditure is sustained.
Therefore, it's not surprising that we get very mixed signals about the state of the Indian economy. Corporate pessimism exists simultaneously with official effervescence which, let us admit, sometimes verges on the irrational.
Real estate suffers from anaemic demand and sluggish growth. Exports have declined for five months continuously and core sector growth remains weak. The best one can say is that there are signs of recovery, which need to be nurtured and reinforced. They certainly do not warrant any complacency.
The ordinary Indian is left numbed by the numbers game. He is expectedly more interested in news on job opportunities. And that unfortunately is not yet positive. Worse, real wages are flat in cities and declining in rural India.
Rising employment opportunities are the only sure guarantor of a better life and higher welfare for ordinary people or Modi's neo-middle class. Employment signifies inclusion through empowerment and not entitlements. To expand employment as rapidly as possible must surely be this government's topmost priority.
In this context it is ironical that for a country faced with a very serious demographic challenge, credible official data on employment are still produced by NSSO, which releases its `thin' and `thick' rounds once in two and five years respectively. The annual labour data produced by the labour bureau is, from all accounts, quite worthless.
As pointed out in India Labour Report of the Institute of Human Development, the quality of unemployment does not correspond to ground realities because `self-employed' is used as a residual category to include all those who are unemployed or underemployed. Regular and credible data on employment is a critical policy input. Should Niti Aayog not be charged with producing credible labour market data, if not also a plan for maximising employment in India?
The writer is Senior Fellow at Centre for Policy Research and Founder Director of Pahle India Foundation

The Human Capital Index

(FROM: World Economic Forum Website)

A nation’s human capital endowment—the skills and capacities that reside in people and that are put to productive use—can be a more important determinant of its long term economic success than virtually any other resource. This resource must be invested in and leveraged efficiently in order for it to generate returns—for the individuals involved as well as an economy as a whole.

The first edition of the World Economic Forum’s Human Capital Report explored the factors contributing to the development of a healthy, educated and productive labour force. This second, revised edition attempts to deepen the analysis by focusing on a number of key issues that the first edition brought to the fore and that can support better design of education policy and improved workforce planning.

Currently, more than 200 million people globally are out of a job, with youth hit particularly hard.1 Yet, a focus on unemployment rates alone provides an incomplete outlook on a nation’s success in utilizing its human capital endowment. A more inclusive metric of human capital outcomes would need to take stock of all those—including youth, women and older workers—who have the desire and potential to contribute their capabilities, skills and experience for their own well-being as well as that of economy and society as a whole. Such a metric would also need to assess the education and skills of both the active and inactive population. Above all, as today’s economies become ever more knowledge-based, technology-driven and globalized, and because we simply don’t know what the jobs of tomorrow will look like, there is a growing recognition that we have to prepare the next generation with the capacity for lifelong learning.2

The Human Capital Index seeks to serve as a tool for capturing the complexity of education and workforce dynamics so that various stakeholders are able to take better-informed decisions. Because human capital is critical not only to the productivity of society but also the functioning of its political, social and civic institutions, understanding its current state and capacity is valuable to a wide variety of stakeholders.

The Human Capital Index provides country rankings that allow for effective comparisons across regions and income groups. The methodology behind the rankings is intended to serve as a basis for time-series analysis that allows countries to track progress, relative to their own performance as well as that of others. As a vital support to the Index, the Country Profiles included in this Report provide a visual representation of countries’ demographic and labour force structure—calling attention to population dynamics such as youth bulges, ageing populations and shrinking workforces—as well as a wealth of information on countries’ human capital composition and contextual variables pointing to critical areas for urgent and longer-term investments.

In pointing to the education and employment outcome gaps, demographic trends and untapped talent pools, it is our hope that this Report can help governments, businesses, education providers and civil society institutions identify key areas for focus and investment. All of these entities have a stake in human capital development, whether their primary goal is to power their businesses, strengthen their communities, or create a population that is better able to contribute to and share in the rewards of growth and prosperity. We thus hope that this Report will also help foster public-private collaboration between sectors, ultimately reframing the debate around employment, skills and human capital from today’s focus on problems and challenges towards the opportunities for collaboration that fully leveraging the human capital potential residing in people’s skills and capacities can bring.

Trade Freedom and Poverty