Public-Private Partnerships – Not a Silver Bullet

PUBLIC-PRIVATE partnerships are being promoted as a key instrument to fill the huge financial gap in infrastructure investment. But majority of the researchers found that claims in favour of PPPs are not backed up by evidence.

Public-private partnerships: hype vs reality

“Doing Business”: dubious ranking & harmful “beauty contest”

The World Bank has recently published its much “adorned” and criticised “Doing Business Report 2017”. Bangladesh is ranked behind all South Asian countries, despite doing much better than its peers in social development. It also slippled a few rungs. Should our heart be aching? You may want to follow the link below:

Should we worry about ‘Doing Business’ ranking?

The World Bank and Bangladesh

The souring of relationship between the World Bank and Bangladesh over Bangladesh’s signature infrastructure project, “Padma Bridge” connecting the North and South of the country has been well publicised. It was no good for the Bank as it now faces steep competition from other lenders; so it is coming with sweetners. Here is my op-ed on its recent move.


Modi’s gamble: India’s demonetisation drive

The following blog post is now available at Griffith Asia Institute.

The Indian economy might experience a sharp growth slowdown next year. This has to be attributed to a dramatic decision, announced personally by the Indian Prime Minister Narendra Modi, to scrap Rs 500 and Rs 1000 notes. Thus, on 8 November, at the stroke of midnight – to evoke a Nehruvian expression – these notes ceased to be legal tender. The government gave its citizens until the end of the year to exchange these notes for new ones at post offices and banks, but the extant notes were instantly rendered worthless because they were no longer legal tender beyond 8 November. The primary goals were manifold and laudable: to strike a blow against counterfeit currencies which typically targeted these notes, to come down hard on all those who held their ill-gotten, tax-avoided wealth in ‘black money’, to act as a deterrence against terrorists and criminal organisations who apparently relied heavily on these banned notes.

While the cheerleaders of the government celebrated this bold action and ‘surgical strike’ against real and perceived challenges that were allegedly endemic to the Indian economy, the ‘shock and awe strategy’ unleashed chaos as millions desperately lined up at post offices, bank branches and ATMs to exchange the banned notes for new ones. The scrapped notes, after all, accounted for 86 per cent of currency in circulation and 51 per cent of the money supply. The postal and banking system was simply unable to cope with this unprecedented ‘policy surprise’.  It might take several weeks – or even months – before the cash crunch is eased. Meanwhile, demonetisation has inflicted a great deal of hardship on the poor and the vulnerable and those of modest means. Scores of deaths have reportedly occurred. Hence, some Indians have paid the ultimate price for a policy experiment whose long-term goals may or may not be met.

The rather adverse consequences of such a major monetary shock is understandable. India is still a cash-intensive economy and its very large informal economy or unorganised sector as well as other activities, such as real estate, agriculture, the hosting of weddings are heavily dependent on cash transactions.

India’s dramatic demonetisation has attracted world-wide attention and has become the object of robust critique by many Indian and non-Indian economists. It has attracted scathing editorials in such august publications as the New York Times and the Guardian. Kaushik Basu, former World Bank Chief economist, questioned the wisdom of such a move, arguing that the costs will outweigh the benefits. Others – such as Larry Summers – were alarmed by the ‘most sweeping change in currency policy in the world in decades’. Even those – such as Kenneth Rogoff – who support the government’s long-term goals are clearly concerned about the unfolding short run costs.

Provisional estimates on the impact of  demonetisation  on GDP range from modest to major. HSBC has released estimates which suggest growth to be as much as 1 per cent lower in 2017 than the current 7 per growth rate. N.R. Bhanumurthy from the respected National Institute of Public Finance and Policy suggest similar numbers. The Ministry of Finance reportedly has a forecast of 5.5 per cent growth rate in the final quarter of 2016.

Perhaps the most pessimistic scenario is offered by Ambit Capital which has warned of growth grinding to a halt by the second half of 2017 and for growth in 2018 to be no more than 5.8 per cent. Ambit Capital points out to a permanent decline in the size of the informal economy by about 20 percentage points within the space of a year! Given the fact that the informal economy accounts for 79 per cent of employment in India, this is a staggering case of enforced structural change that will destroy the livelihood of millions unless they can find alternative sources of employment in the formal sector.

Trump as President: what can India expect to gain?

The following blog post is also available at the Griffith Asia Institute.

When Donald Trump secured a stunning victory in the US Presidential elections, Prime Minister Modi of India promptly ‘tweeted’ him congratulations and hoped that India-US relations would scale new heights. Trump himself has spoken warmly about India, most notably at an event hosted by the Republican Hindu Coalition just prior to the US Presidential elections.

One can thus expect a close relationship between the Trump and the Modi government.  Yet, the anticipated economic benefits flowing to India from such a relationship are not obvious.

India might become a victim of a global growth slowdown if Trump’s protectionist policies are fully enacted. In terms of specific sectors, the Indian pharmaceutical and IT companies are likely to be adversely affected. The former gained considerably from ‘Obamacare’ (or The Patient Protection and Affordable Care Act) as it enabled Indian pharmaceutical companies to establish themselves as competitive suppliers of generic drugs. Trump seeks to repeal Obamacare.

The Indian IT sector has gained a great deal from the outsourcing strategies of US companies. This might change as Trump has often noted that he wishes to bring back jobs home by finding ways of curtailing outsourcing. More generally, Trump’s anti-immigration stance might have a negative impact on skilled migration from India.