Gist of EPW February Week 2, 2019

The Economic and Political Weekly (EPW) is an important source of study material for IAS, especially for the current affairs segment. In this section, we give you the gist of the EPW magazine every week. The important topics covered in the weekly are analysed and explained in a simple language, all from a UPSC perspective. 

Topic covered in this article are:

1. Is data in peril?

2. Are we heading towards a Synchronised Global Slowdown?

 

Is data in peril?

Context

  • The resignations of two independent members of the National Statistical Commission (NSC) have, once again, brought to the fore the question of autonomy of public institutions in India.
  • The NSC was created in 2006 not only to generate credible official statistics but also to see that such data is put in public domain. But, such a fundamental requirement, as the resigned members suggest, has not been met.
  • The government has chosen not to publish the National Sample Survey Office’s (NSSO) Periodic Labour Force Survey (PLFS) report for July 2017–June 2018, disregarding its approval by the NSC in December 2018. The members who resigned had also expressed their concerns about the NITI Aayog for its lack of consultation with the NSC and for sidelining the pre-eminent statistical institution.

Reasons cited for resigning from NSC by the members

  • The commission is being side-lined, neglected. The NSC was not doing its job and NSC members were not being involved in key decisions.
  • The NSC’s job is to restore trust in official statistics and NSC was not serving that purpose
  • The government has launched the seventh economic census for 2019 without the commission’s approval.
  • The GDP back series was released from the NITI Aayog even though that is not the norm. Though NSC members are not involved in the GDP computation, the commission is the apex body.
  • Another issue pertains to the government withholding the release of the results of NSSO’s quinquennial (released in every 5 years) survey, with the reference period being 2016-17 even though the commission approved the report. This assumes significance in the wake of the government being criticised for a scarcity of jobs in the country.

 National Statistical Commission

  • The Government of India through a resolution dated 1st June, 2005 set up the NSC based on the recommendations of the Rangarajan Commission
  • NSC has four Members besides a Chairperson, each having specialization and experience in specified statistical fields
  • Currently Niti Aayog CEO serves as an ex-officio member of NSC
  • NSC is the apex advisory body on statistical matters.
  • NSC was constituted with a mandate to evolve policies, priorities and standards in statistical matters
  • It is supposed to act as a nodal and empowered body for all core statistical activities of the country. It will also ensure statistical coordination among the different agencies involved.

Analysis of the issue

  • The release of NSSO report would be significant as the survey was conducted to provide reliable data on the employment scenario in the country, especially after the implementation of demonetisation and the introduction of the goods and services tax.
  • With the report being a much-anticipated household survey, why has the government withheld its publication? The general contention is that the report portrays a dismal picture of the employment scenario in the country, contrary to the government’s claims.
  • This was confirmed by the publication of leaked data from the withheld NSSO report by the media, which brought to light the gravity of the employment crisis in the country.
  • According to the leaked report, in 2017–18, the unemployment rate in the country as per the usual status (the activity status of persons on the basis of the reference period of a year) was at 6.1%, while as per the current weekly status (CWS), the unemployment rate stood at an alarming 8.9%.
  • In urban areas, the corresponding figures were 7.8% and 9.6%, and 5.3% and 8.5% in rural areas, respectively. Further, the unemployment rate among the youth (between the ages of 15 and 29) was considerably high.
  • But, the labour force participation rate (LFPR) was low at 36.9%, indicating that more people were withdrawing from the workforce, especially women.
  • The high rate of unemployment, together with a low LFPR, however, does not bode well for a growing economy like India, which has a large demographic dividend.
  • et us not forget the electoral promise that the NDA had made in 2014, about the creation of 10 million jobs. The publication of data would, on the other hand, suggest that the unemployment record has been the worst in the last 45 years.
  • The central government in Delhi is aware that it could have published this statistical truth only at its own peril. It would also prove to be disastrous for the government in the run-up to the general election this year.

Conclusion

  • The report and data on unemployment have implications for good politics and evaluative value for robust economic analysis. Such statistical information would help the governing class adopt a more informed policy for the benefit of the larger public.
  • It would also help enable investors and businesses plan their economic activities. Nonetheless, what is clear is that by bypassing conventions and overruling the decisions of the NSC, the NITI Aayog has disregarded the autonomy of the statistical institution, and that, by doing so, has adversely affected the credibility of the official statistics
 

Are we heading towards a Synchronised Global Slowdown?

Context

  • The global economy is heading towards a downturn. However, is the world prepared to deal with the consequences? Whether it is a slowdown or recession, it remains to be seen as to what the future would hold for the banking systems of Eurozone and China, and the global stocks in general.
  • When the International Monetary Fund (IMF) issued its World Economic Outlook Update in January 2018, the future looked bright. Indeed, even the title of the update was very optimistic: Brighter Prospects, Optimistic Markets, and Challenges Ahead.
  • It turned out that 2018 was a major disappointment and the IMF’s World Economic Outlook Update in January 2019, A Weakening Global Expansion, was a bit cautious.

What is a Global Recession?

  • The IMF estimated the global growth for 2018 at 3.7% and expects the global growth for 2019 to be at 3.5%.
  • But, its sister institution, the World Bank, was way gloomier. The World Bank estimated the global growth for 2018 at 3% and expects the global growth for 2019 to be at 2.9%.
  • So, we are not so sure if the global growth for 2018 was at 3.7% or 3% and whether to expect a 3.5% or 2.9% growth in 2019. It depends on whether you choose to believe the IMF or the World Bank.
  • But, how do we define what a global recession is? The answer depends on to whom the question is directed. Prior to the global financial crisis (GFC) that started in the summer of 2007, the IMF used to define a global recession as global growth of less than 2% or 3% depending on who the director of research at the time was. But more often than not, when global growth fell to 3% or below, the IMF called it a global recession.

IMF & World Bank

  • The International Monetary Fund or the IMF is a global organization with its headquarters at Washington, D.C. to promote international monetary cooperation, enable international trade, achieve financial stability, stimulate high employment, diminish poverty in the world and sustain economic growth. IMF was formed at the Bretton Woods Conference in 1944 and it was formally established a year later. Initially, there were 29 countries with a goal of redoing the global payment system. Today, the organization has 189 members.

  • The World Bank is a multinational financial institution providing loans to developing nations for capital programmes. It consists of two institutions namely, the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD). It is a part of the World Bank Group, which is in turn a part of the United Nations.

Global Financial Stability Report – 2108

  • The IMF issued its last Global Financial Stability Report in October 2018. The report was titled: A Decade after the Global Financial Crisis: Are We Safer? And the assessment was that we were not safe.
  • Looking ahead, clouds appear on the horizon. The global economic recovery has been uneven and inequality has risen, fuelling inward-looking policies and contributing to increased policy uncertainty.

Some major concerns in the report were

  • Failure of governments and regulators to push through all the reforms needed to protect the system from reckless behaviour;
  • Global debt levels well above those at the time of the last crash in 2008;
  • Dramatic rise in lending by the so-cal­led shadow banks in China, and the failure to impose tough restrictions on insurance companies and asset managers;
  • The growth of global banks such as JP Morgan and the Industrial and Commercial Bank of China to a scale beyond that seen in 2008, leading to fears that they remain “too big to fail”

Conclusion

  • 2019 is shaping up to be the year in which all the policies that worked in the past may no longer work. As we all know, the Global Financial Meltdown/recession of 2008-09 was halted by the coordinated policies of the major central banks, which lowered interest rates to near-zero, bought trillions of dollars of bonds and iffy assets such as mortgage-backed securities, and issued unlimited lines of credit to insolvent banks, i.e. unlimited liquidity.
  • The global economy has changed. Demand has been brought forward for a decade, effectively draining the pool of future demand. Unprecedented asset purchases, low rates of interest and unlimited liquidity have inflated credit/asset bubbles around the world as most asset classes are now correlated to central bank policies rather than to the fundamentals of the real-world economy.
  • Given all of this, if a global recession may hit sooner than the IMF expects, who knows what may happen to the banking systems in the Eurozone and China—in the case of China, also to the shadow banking system—or to the global stocks, in general, and the US stocks, in particular, or to all of these, as financial crises tend to be contagious.
  • Alternatively, if a financial crisis originates from any of these and spreads, who knows what may happen to the global economy?

Let us we conclude with the lyrics of one of the song, La Sagrada Familia from the Gaudi album by Alan Parson’s Project

Who knows where the road may lead us, only a fool would say
Who knows wha’s been lost along the way
Look for the Promised Land in all of the dreams we share
How will we know when we are there? How will we know?
Only a fool would say

For more EPW articles, read “Gist of EPW”.

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