गुरुवार, २६ जानेवारी, २०१७

Political stability… It does matter for economics also..

Now-a-day, we have strong political stability. But past was little bit unstable. India has witnessed POLITICAL DRAMA in 1980s and even in 1990s. We have experienced several wars also. These things are important not only for political and social conditions but also for economical situation. Let’s see. 
I have created a coding for political stability. In India, resignation of prime minister means abolition of council of minister and loksabha. So ideally P.M. should complete full five years. So suppose X person completed his full years as a P.M. then corresponding years would be coded as 1 (it means government was stable in these years.). Now suppose Y person couldn’t be there as P.M. for 5 years. He ruled (let’s say) only for 2 years then code for corresponding years would be 365*2/365*5 (365*5 are ideal days and 2*365 days were practically stable days.). For emergency, I have given -1 code. One might say that the dictatorship is the most stable (with compare to democracy) and that’s why emergency period should be coded as 1. But we are taking in the context of democracy and in the context of democracy, such kind of incidents are simple invalid. Now we have several wars. And wars have also an impact on government stability. We should consider it also. So suppose war is fought for 45 days then 45/365 (45 days are unstable days in given year.) would be subtracted from the corresponding year’s code. 

Fig 1 shows the whole picture of coding.

Fig 2 

Now observe the fig no. 2. The trends of stability and gdp growth rate (gdp growth rate/10 for simplicity) are very similar. Except 2008, graphs are very similar. We know that in 2008, there was a financial crisis therefore the given downfall was because of international fluctuation. Generally we connect political situation with FDI. But there are certain other undetermined factors through which such type of instability affects economy. 

Fig 3 

If we see fig 3, FDI is actually increasing but still there are fluctuations in growth rate. Fall and rise in growth rate during unstable and stable government is not actually because of FDI. It might be because of other factors like government expenditure, trust on government, trust on system and skeptical market. In next article, I will try to find out the reasons behind this relationship.

(Data sources – world bank - http://data.worldbank.org/) 
(Note – I have taken only major wars like Sino-India, Indo-Pak wars, Indian intervention in Sri Lanka. I have ignored the internal conflicts.).

शनिवार, २१ जानेवारी, २०१७

Inequality: run without your legs

कही है रोशनी 
तो कही है बस धुआ 
कही है छत शीशे का 
तो कही है आसमान खुला 

And that's inequality.
Yes, it’s true that the disparity between rich and poor people is continuously increasing.
Recently Oxfam announced the data related to the wealth hold by richest people. According to Oxfam, own 58% of total wealth in India is owned by richest 1%. But why this disparity is increasing continuously? And does it really matter? Let’s have a discussion.

First figure shows that the GDP (current US$) (in billion), per capita GDP, government spending and tax revenue is increasing with similar trend. It means tax revenue and government spending (total) is increasing continuously and it's reflecting in the growth of GDP. As GINI coefficient for each year is not available, I am just using the share of top 1% richest people in GDP. We can draw a rough diagram of inequality.

Second diagram is showing that the income share of top 1% richest people is increasing after 1990. But is it serious? If there is economic growth, then it is obvious. Problems takes very serious and dangerous face when there is no growth in the income of certain people. It the income of certain group of people is stagnated, then the economic growth itself becomes a reason behind the increase in inequality.

Third figure clears all doubts. The value added in service sector is rapidly raising while it's rapidly decreasing in agricultural sector. As service sector is a labor intensive sector, the return on capital is very high. That's means owners (very few) of limited sectors are getting high returns while majority of people are getting very low return as they are highly dependent on agricultural sector. That means the growth which we have seen is not equitable.

Now last diagram is interesting. More complicated analysis of given figure is required. But two things are showing consistency i.e rate of government spending and rate of income share of top 1% people. They have clear opposite nature. When rate of government spending is high, the rate of income share of top 1% is very low and vice versa. Government spending can be a weapon to tackle the problem of inequality. As one sector has high growth and another has low, there must be balance. And it does matter. As there is disparity, we are seeing the outflow of worker from one sector to another. But the sector which has high returns is not able to absorb the excess labor supply. And that's why informal sector with problems related to health, crimes, unemployment are increasing. Market is there for efficient return but for fair and equitable return government should intervene. Rather than encouraging the sector which has already grown up for more economic growth, government has to focus more on the benefit transfer programs like skill, health, credit supply (specially for a sector which has low return)

(data sources - world bank, https://datahub.io/dataset/world-top-incomes-database/resource/1a3b85d0-1076-4dd1-b762-f6e99201fa15