Arindam Banik
Indian Prime Minister Manmohan Singh will be visiting Bangladesh shortly in a situation when no Indian prime minister has visited Dhaka in twelve years. This aspect is often debated in various places in India. Many Indians feel that India is obsessed with Pakistan. Most of the energies in her foreign Ministry are being spent on Pakistan. Indian media too are busy in the same direction. A recent visit to Delhi by Hina Rabbani Khar, Pakistan’s foreign minister, generated unnecessary Indian media hype over the choice of her handbag and sunglasses. It seems that Mr. Singh is now serious to change the trend because he feels that there are enormous economic potentials in her eastern neighbourhood.
India’s bureaucrats are partly responsible for underestimating Bangladesh and her economic might’s. Many Indian feels that they have very few intelligent bureaucrats now because of many government interventions in the recruitment process. They have little new ideas. In general India has failed to create her well deserved space under the changing global scenario. Experts alleged that her foreign policies are actually responsive type.
India has so far failed to explore strong business potentials of Bangladesh. The number speaks for itself. India is a relative silver carp in investment terms in a country that received nearly $600m in foreign investment last year. More interestingly, Foreign Direct Investment on cumulative term since 1977, India accounted for only 1.5 per cent of Bangladesh’s inward FDI last year.
More interestingly, despite recent global markets shocks, Bangladesh’s growth is exceeding expectations. The current fiscal year will see GDP growth cross 7 per cent – up from projected estimates of 6.6 per cent – whilst next year’s target has also been revised upwards from 7 to 7.2 per cent. In January 2007, foreign currency reserves stood at $3.74 billion, and then increased to $5.8 billion by January 2008, in November 2009 it surpassed $10.0 billion, and as of April 2011 it surpassed the US $12 billion according to Bangladesh Bank. In addition imports and aid-dependence of the country has systematically been reduced since the beginning of 1990s.
When leading top two trading partner countries such as China and India had earned from Bangladesh but so far they have miserably failed to give access her products in to their countries. For example, in 2010- 2011, Bangladesh Imports from her major trading partners such as China 11.4 per cent, Singapore 9.1 per cent , India 8.5 per cent, Hong Kong, 7.1 per cent , Japan 6.5 per cent of the total import of US$ 32 billion. Export-wise, these countries are not even top seven trading partners of Bangladesh. In recent time Bangladesh exported most her products to EU (38.6 per cent), USA (31.8 percent), U.K (7.9 per cent), Kuwait (4.9 per cent), and Japan (4.5 per cent) of the total US$ 22.93 billion.
India enjoys a special position in her neighbourhood due to historical, ethnic and emotional relationships. It may be possible to develop strong economic linkages leveraging on these old relationships. The Indian economy has many complementarities vis-à-vis Bangladesh and these could be used synergistically to result in a win-win situation for both. On the other hand, there are many areas, covering primary, secondary and tertiary sectors of the economy where India has done exceedingly well and there is scope for developing economic linkages based on the same. Many argue that there are prospects of high degree of complementarities in many sectors such as textile, automobile and leather. The magnitude of intra-industry trade and implication of global supply chain are just ignored.
A typical case you might think. Remember that Bangladesh has to import cotton and components from India in order to produce final product. It is necessary to give them a space here. The large volume intra- industry trade in the textile sector between Bangladesh and India in recent time tells us an interesting story. The Indian garments exporters are now facing challenges from countries such as China and Vietnam in the global market. Her currency appreciation, rising cost of labour and real estate issues has actually forced Indian garment exporters to hire production capacity in Bangladesh. In addition many Indian garments exporters are now engaged in Joint collaboration with Bangladesh. It may have some economic rationale when Prime Minister Hasina argues that exporters can even go for buy back arrangement to enter into India with the final product if there is a fear of violating rule of origin (means Bangladeshis may import components from China and then dump the final product in India). It’s a reality now in the global market to have tag “Made in Bangladesh”. Last financial year total export of readymade garments touched US$171,914.46 million and now the 4th largest apparels exports in the world. Let us accept the notion that trade is a win-win game .
Many new avenues of co-operation may be explored. For example, India and Bangladesh together can think about a South Asian Golden Quadrilateral, a sub-regional grouping with Nepal and Bhutan. This may resolve many issues such as sharing of water resources, power and connectivity.
Many feels the citizens of both countries visits each other because of many explanatory factors such as undivided family bond, cultural and historical ties. Likewise, citizens visit India for consumption abroad such as for medical treatment, to see religious places and to study in Indian educational Institutions. They should have no trouble to visit each other. But visa issue is the major irritant now between the two countries. Interestingly, there is a huge arbitrage opportunity for the local professionals and other local service providers in these two economies due to demand and supply gap. As a result people in these economies are not in a position to gain. To achieve greater economic welfare, the barriers have to be removed, defined by FDI and movement of natural persons. The organization of a regional skills council for standardization of skills would be very important to reduce the arbitrage opportunities. Once these are identified, then investments may be encouraged and in the process movement of natural persons without barriers such as simplified visa, favourable work permit, dual taxation, among others, may be resolved. This is a kind of win-win situation in the light of economic welfare gains in these two economies.
A group of people in Bangladesh even feel that India bashing is the best bait for their political survival. They should understand that there are two realities in Asia one, the emerging power of China and two emerging power of India. The truth is that if these two economies are growing then their neighbours has to grow. So growing together is the only option. If a country is unable or slow to respond will have to make room for others. In the process some countries will move quicker. The fact is that innovation will emerge as the key differentiating factor. In the long term, it may even be possible for some economies in the world to survive only on the basis of their capital or technology, but labour alone may be unable to provide this sustenance. Let’s hope that Manmohan’s visit will portray this reality.
The author is Professor at International Management Institute, New Delhi
Sunday, September 11, 2011
Sunday, November 7, 2010
Sex Ratio and High Savings Rate in China: An Out-of Box Explanation
Conventional explanations determining consumption are well-known. Keynes conjectured that the marginal propensity to consume is between zero and one, that the average propensity to consume falls as income rises. Hence, current income is the single determinant of consumption. Keynes’s validated such conjectures based on household data and that too based on short time series. Interestingly, studies based on long time –series found no tendency for the average propensity to consume to fall as income rises over time. Irving Fisher finds that the consumer faces an inter-temporal budget constraint and chooses consumption for the present and the future to achieve the highest level of lifetime satisfaction. Thus as long as consumer can save and borrow, consumption depends on the consumer’s lifetime resources.
Modigliani in his life-cycle hypothesis emphasizes that income varies somewhat predictably over a person’s life and that consumer’s use saving and borrowing to smooth their consumption over their lifetimes. This suggests that consumption depends on both income and wealth. In contrast the permanent income hypothesis (PIH) is a theory of consumption that was developed by Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations. Hence, short-term changes in income have little effect on consumer spending behavior.
Measured income and measured consumption contain a permanent (anticipated and planned) element and a transitory (windfall gain/unexpected) element. Friedman concluded that the individual will consume a constant proportion of his/her permanent income; and that low income earners have a higher propensity to consume; and high income earners have a higher transitory element to their income and a lesser than average propensity to consume. Accordingly it was thought that the key determinant of consumption is an individual's real wealth, not his current real disposable income. Permanent income is determined by a consumer's assets; both physical (shares, bonds, property) and human (education and experience). These influence the consumer's ability to earn income. The consumer can then make an estimation of anticipated lifetime income. Empirically, transitory income is the difference between the measured income and the permanent income. This can be calculated simply by subtracting the measured income and the permanent income.
Hall’s random-walk hypothesis combines the permanent-income hypothesis with the assumption that consumers have rational expectations about future income. It implies that changes in consumption are unpredictable, because consumers change their consumption only when they receive information about their lifetime resources. Laibson has suggested that psychological effects are important for understanding consumer behaviour. In particular, because people have a strong desire for instant gratification, they may exhibit time-consistent behaviour and may end up saving less that they would like.
The high Chinese household savings rate is however, somewhat puzzling and hence contradicts the above theoretical explanations. Why are high household savings a general East Asian and more specifically Chinese phenomenon? Explanations such as poor social safety net, weak pension system, inadequate health coverage, are often cited as powerful ingredients. Interestingly, in recent time, for example in China, social safety has improved and the insurance coverage has expanded over the last decade or so. Quite likely, household savings rates are expected to decline, or at least not increase. Yet, household savings as a share of disposable income almost doubled from 16 per cent in 1990 to over 30 per cent in 2008 and has been rising rapidly in recent time.
Shang-Jin Wei and Xiaobo Zhang’s study reveals an interesting explanation in this aspect. For the last few decades China has experienced a significant rise in the imbalance between the number of male and female children born to its citizens. There are approximately 122 boys born for every 100 girls today, a ratio that means about one in five Chinese men will be cut out of the marriage market when this generation of children grows up. According to them a variety of factors might have contributed to the imbalance. For example, Chinese parents often prefer sons. Ultra-sound makes it easy for parents to detect the gender of a foetus and abort the child that’s not the “right” sex for them, especially as China’s stringent family-planning policy allows most couples to have only one or two children. China has too many boys now.
The Shang-Jin Wei and Xiaobo Zhang study compared savings data across regions and in households with sons versus those with daughters. More interestingly, not only did households with sons save more than households with daughters on average, but that households with sons tend to raise their savings rate if they also happen to live in a region with a more skewed gender ratio. Even those not competing in the marriage market must compete to buy housing and make other significant purchases, pushing up the savings rate for all households. In addition, parents invest more in the education of their sons, and push them to work harder. There may also be spillover from a boy’s education to a girl’s education. In other words, parents want their sons to marry, and they figure that girls are more likely to want to marry rich boys. What about girls’ parent and their education? Arguably, the girls’ parent may have less incentive to invest on their girl child’s education assuming that they are all available in the marriage market.
Thus it appears that concerns relating to gender ratio imbalance in China may create both economic and social problems. The worry is that the result may actually be a real threat to the Chinese social system. So China should not be quite so gung –ho about her high household savings rate.
Modigliani in his life-cycle hypothesis emphasizes that income varies somewhat predictably over a person’s life and that consumer’s use saving and borrowing to smooth their consumption over their lifetimes. This suggests that consumption depends on both income and wealth. In contrast the permanent income hypothesis (PIH) is a theory of consumption that was developed by Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations. Hence, short-term changes in income have little effect on consumer spending behavior.
Measured income and measured consumption contain a permanent (anticipated and planned) element and a transitory (windfall gain/unexpected) element. Friedman concluded that the individual will consume a constant proportion of his/her permanent income; and that low income earners have a higher propensity to consume; and high income earners have a higher transitory element to their income and a lesser than average propensity to consume. Accordingly it was thought that the key determinant of consumption is an individual's real wealth, not his current real disposable income. Permanent income is determined by a consumer's assets; both physical (shares, bonds, property) and human (education and experience). These influence the consumer's ability to earn income. The consumer can then make an estimation of anticipated lifetime income. Empirically, transitory income is the difference between the measured income and the permanent income. This can be calculated simply by subtracting the measured income and the permanent income.
Hall’s random-walk hypothesis combines the permanent-income hypothesis with the assumption that consumers have rational expectations about future income. It implies that changes in consumption are unpredictable, because consumers change their consumption only when they receive information about their lifetime resources. Laibson has suggested that psychological effects are important for understanding consumer behaviour. In particular, because people have a strong desire for instant gratification, they may exhibit time-consistent behaviour and may end up saving less that they would like.
The high Chinese household savings rate is however, somewhat puzzling and hence contradicts the above theoretical explanations. Why are high household savings a general East Asian and more specifically Chinese phenomenon? Explanations such as poor social safety net, weak pension system, inadequate health coverage, are often cited as powerful ingredients. Interestingly, in recent time, for example in China, social safety has improved and the insurance coverage has expanded over the last decade or so. Quite likely, household savings rates are expected to decline, or at least not increase. Yet, household savings as a share of disposable income almost doubled from 16 per cent in 1990 to over 30 per cent in 2008 and has been rising rapidly in recent time.
Shang-Jin Wei and Xiaobo Zhang’s study reveals an interesting explanation in this aspect. For the last few decades China has experienced a significant rise in the imbalance between the number of male and female children born to its citizens. There are approximately 122 boys born for every 100 girls today, a ratio that means about one in five Chinese men will be cut out of the marriage market when this generation of children grows up. According to them a variety of factors might have contributed to the imbalance. For example, Chinese parents often prefer sons. Ultra-sound makes it easy for parents to detect the gender of a foetus and abort the child that’s not the “right” sex for them, especially as China’s stringent family-planning policy allows most couples to have only one or two children. China has too many boys now.
The Shang-Jin Wei and Xiaobo Zhang study compared savings data across regions and in households with sons versus those with daughters. More interestingly, not only did households with sons save more than households with daughters on average, but that households with sons tend to raise their savings rate if they also happen to live in a region with a more skewed gender ratio. Even those not competing in the marriage market must compete to buy housing and make other significant purchases, pushing up the savings rate for all households. In addition, parents invest more in the education of their sons, and push them to work harder. There may also be spillover from a boy’s education to a girl’s education. In other words, parents want their sons to marry, and they figure that girls are more likely to want to marry rich boys. What about girls’ parent and their education? Arguably, the girls’ parent may have less incentive to invest on their girl child’s education assuming that they are all available in the marriage market.
Thus it appears that concerns relating to gender ratio imbalance in China may create both economic and social problems. The worry is that the result may actually be a real threat to the Chinese social system. So China should not be quite so gung –ho about her high household savings rate.
Sunday, October 17, 2010
Dhamrai Ratha Yatra
Ratha Yatra ( Car festival) is a huge Hindu festival associated with Lord Jagannath held at Puri in the state of Orissa, India during the months of June . Most of the city's society is based around the worship of Jagannath (Krishna) with the ancient temple being the fulcrum of the area. The festival commemorates Lord Jagannath's annual visit to his aunt's home.
Usually the deities such as Jagannath (Krishna), Balarama and Subhadra are worshipped within the temple, but on the day of the Rath festival they are taken through the streets so that everyone can have the fortune of seeing them. Three richly decorated chariots, resembling temple structures, are pulled through the streets of Puri. This commemorates the annual journey of Lord Jagannath, Lord Balarama, and their sister Subhadra to their aunt' s temple, the Gundicha Temple. It is situated at a distance of 2 km from their temple. New chariots are built every year.
The festival is also known as Gundicha Jatra, Ghosa Yatra, Navadina Yatra, Dasavatara Yatra and by a variety of other names. For the devoted and believers, it is considered the most auspicious occasion. It is believed that if someone see a glimpse of the Vamana, the dwarf form, an incarnation of Lord Jagannatha, is sure to ensure emancipation, release from the cycle of birth and death. Jatra is an essential part of the ritual of the Hindu system of worship. Jatra literally means travel or journey.
Interestingly, the Yasho Madhab Rath Yatra is a chariot festival dedicated to the Hindu God Yosho Madhab located in Dhamrai Kahet Pada, Bangladesh. Lord Vishnu has many names in South Asia. In Dhamrai, the Lord is known as Lord Yasho Madhab. The deities were housed in an elaborate six storied wooden chariot and were taken out in a grand annual procession known as the Ratha yatra. Each floor of the Rath was adorned by carvings of Hindu deities together with interesting moments of Ramayana and Mahabharata. Kavi Jashimuddin described these form of arts in his famous poem, Dhamrai Rath. The Ratha yatra of Dhamrai is the oldest and most famous in Bangladesh attracting thousands of devotees from all over the country. The annual Ratha yatra in Dhamrai was famous because of the 60-foot-tall (18 m) chariot, built by the Baliati Zamindars during the 19th century. However, the Rathayatra utsav in Dhamrai is believed to be 300 years old. In Dhamrai, where Lord Vishnu in the form of the Lord Madhab is dragged to visit the house of his father-in-law located in Yatra Badi which is about a quarter kilometer from Kahet Pada temple. Lord Madhab is brought back again to the original temple on the eighth day. Sadly, this Chariot was burnt it to ashes by the Pakistani Army on April 17, 1971, the period is famously known as war of liberation. They also tried to burn the idol of Lord Madhab but some unknown reasons it didn’t burn.
After liberation war local Hindu communities formed a committee entitled, “Yasho Madhab Mandir and Rath Parichalana Committee” headed by Late Thakur Gopal Banik to look after the maintenance of both Mandir and Rath. The committee since then is responsible for all activities with the support of Kumudini Welfare Trust. It is believed that former sevayets of Yosho Madhab temple were awarded huge amount of agricultural land (patta) in order to maintain regular expenditure of the temple during the time of Moghal emperor Shah Alam. Unfortunately, the land documents are untraceable now. The then Subedar of Bengal also allowed the local sevayets to collect taxes during the two months of Ratha mela in order to maintain Ratha Mela cost. The system is still exists in Dhamrai. The committee is now responsible for this activity in accordance with the power given by the court. In addition, after the abolition of Jamindari system, the cost of maintenance of Rath and Yasho madhab temple was partly borne by Late Ranada Prasad Saha of Mirzapur.
Baliati , is best known as the home of the Baliati jaminders. It is in Saturia Upazila Head Quarter. The distance between Dhamrai Upazila Head quarter and Saturia Upazila Head quarter is about 15 kilometers. From a distance their house stands up above the level plain, an imposing mass of masonry which recalls a Georgian country house in England. A closer inspection shows that it is not at all one fine house, but a terrace of five very ordinary ones. The founder of the family was one Gobinda Ram Saha who was a big salt merchant in the middle of the 18th century. He left four sons, Dadhi Ram, Ananda Ram, Pandit Ram and Golap Ram. Dadbi Ram left two sons whose descendants now form the “east " and " west " houses as they are called. Pandit Ram's family forms the " middle house " and Golap Ram's the “ north house," while Ananda Ram's descendants are known as the “ Golaba'i." The Jagannath College in Dhaka was founded and endowed by a member of the Baliati jaminder family, Babu Kishori Lai Ray Chaudhuri, in memory of his father.
Dhamrai is well placed is history of Bengal. Ruins of stupas built by Asoka in the village Dhamrai (Dhaka) still stands as a witness of supposed to have derived its name from Dharmarajika. The historians Jatindra Nath Bose corroborated this view. The nomenclature itself has a significant background. Savar, not far from Dhaka was visited by Buddha according to Buddhist literature and was confirmed by the Bengal historian J. N. Bose. It has mount created by King Asoka. In course of time the place has been known as Dharmarajika which again turned into Dhammarajika. Like the ruins in Dhaka district bearing theatrics of rich Buddhist culture another district, Dinajpur (northern part of Bangladesh) also bears evidence of Buddhism, highly patronized by the ruler themselves. The Pala kings were princes of Gaur, a name that seems to have applied rather to the whole province, of which Dinajpur formed the principal part. The founder of this dynasty appears to have come from Western India and had become Buddhist.
Dhamrai was one of the most important trade and commerce centre of Dhaka district. About 15,000 people, both men and women, were involved in activities starting from manufacturing metallic utensils products to trading in Dhamrai and its neighbouring villages. They lost their jobs because of the availability of low cost aluminum and plastic products. As a result, quite a significant number of people were unemployed. Unfortunately, government played role in this situation was just as spectator. Many people became poor, many people died , many migrated to India. The life of them is miserable with no hope to escape.
Usually the deities such as Jagannath (Krishna), Balarama and Subhadra are worshipped within the temple, but on the day of the Rath festival they are taken through the streets so that everyone can have the fortune of seeing them. Three richly decorated chariots, resembling temple structures, are pulled through the streets of Puri. This commemorates the annual journey of Lord Jagannath, Lord Balarama, and their sister Subhadra to their aunt' s temple, the Gundicha Temple. It is situated at a distance of 2 km from their temple. New chariots are built every year.
The festival is also known as Gundicha Jatra, Ghosa Yatra, Navadina Yatra, Dasavatara Yatra and by a variety of other names. For the devoted and believers, it is considered the most auspicious occasion. It is believed that if someone see a glimpse of the Vamana, the dwarf form, an incarnation of Lord Jagannatha, is sure to ensure emancipation, release from the cycle of birth and death. Jatra is an essential part of the ritual of the Hindu system of worship. Jatra literally means travel or journey.
Interestingly, the Yasho Madhab Rath Yatra is a chariot festival dedicated to the Hindu God Yosho Madhab located in Dhamrai Kahet Pada, Bangladesh. Lord Vishnu has many names in South Asia. In Dhamrai, the Lord is known as Lord Yasho Madhab. The deities were housed in an elaborate six storied wooden chariot and were taken out in a grand annual procession known as the Ratha yatra. Each floor of the Rath was adorned by carvings of Hindu deities together with interesting moments of Ramayana and Mahabharata. Kavi Jashimuddin described these form of arts in his famous poem, Dhamrai Rath. The Ratha yatra of Dhamrai is the oldest and most famous in Bangladesh attracting thousands of devotees from all over the country. The annual Ratha yatra in Dhamrai was famous because of the 60-foot-tall (18 m) chariot, built by the Baliati Zamindars during the 19th century. However, the Rathayatra utsav in Dhamrai is believed to be 300 years old. In Dhamrai, where Lord Vishnu in the form of the Lord Madhab is dragged to visit the house of his father-in-law located in Yatra Badi which is about a quarter kilometer from Kahet Pada temple. Lord Madhab is brought back again to the original temple on the eighth day. Sadly, this Chariot was burnt it to ashes by the Pakistani Army on April 17, 1971, the period is famously known as war of liberation. They also tried to burn the idol of Lord Madhab but some unknown reasons it didn’t burn.
After liberation war local Hindu communities formed a committee entitled, “Yasho Madhab Mandir and Rath Parichalana Committee” headed by Late Thakur Gopal Banik to look after the maintenance of both Mandir and Rath. The committee since then is responsible for all activities with the support of Kumudini Welfare Trust. It is believed that former sevayets of Yosho Madhab temple were awarded huge amount of agricultural land (patta) in order to maintain regular expenditure of the temple during the time of Moghal emperor Shah Alam. Unfortunately, the land documents are untraceable now. The then Subedar of Bengal also allowed the local sevayets to collect taxes during the two months of Ratha mela in order to maintain Ratha Mela cost. The system is still exists in Dhamrai. The committee is now responsible for this activity in accordance with the power given by the court. In addition, after the abolition of Jamindari system, the cost of maintenance of Rath and Yasho madhab temple was partly borne by Late Ranada Prasad Saha of Mirzapur.
Baliati , is best known as the home of the Baliati jaminders. It is in Saturia Upazila Head Quarter. The distance between Dhamrai Upazila Head quarter and Saturia Upazila Head quarter is about 15 kilometers. From a distance their house stands up above the level plain, an imposing mass of masonry which recalls a Georgian country house in England. A closer inspection shows that it is not at all one fine house, but a terrace of five very ordinary ones. The founder of the family was one Gobinda Ram Saha who was a big salt merchant in the middle of the 18th century. He left four sons, Dadhi Ram, Ananda Ram, Pandit Ram and Golap Ram. Dadbi Ram left two sons whose descendants now form the “east " and " west " houses as they are called. Pandit Ram's family forms the " middle house " and Golap Ram's the “ north house," while Ananda Ram's descendants are known as the “ Golaba'i." The Jagannath College in Dhaka was founded and endowed by a member of the Baliati jaminder family, Babu Kishori Lai Ray Chaudhuri, in memory of his father.
Dhamrai is well placed is history of Bengal. Ruins of stupas built by Asoka in the village Dhamrai (Dhaka) still stands as a witness of supposed to have derived its name from Dharmarajika. The historians Jatindra Nath Bose corroborated this view. The nomenclature itself has a significant background. Savar, not far from Dhaka was visited by Buddha according to Buddhist literature and was confirmed by the Bengal historian J. N. Bose. It has mount created by King Asoka. In course of time the place has been known as Dharmarajika which again turned into Dhammarajika. Like the ruins in Dhaka district bearing theatrics of rich Buddhist culture another district, Dinajpur (northern part of Bangladesh) also bears evidence of Buddhism, highly patronized by the ruler themselves. The Pala kings were princes of Gaur, a name that seems to have applied rather to the whole province, of which Dinajpur formed the principal part. The founder of this dynasty appears to have come from Western India and had become Buddhist.
Dhamrai was one of the most important trade and commerce centre of Dhaka district. About 15,000 people, both men and women, were involved in activities starting from manufacturing metallic utensils products to trading in Dhamrai and its neighbouring villages. They lost their jobs because of the availability of low cost aluminum and plastic products. As a result, quite a significant number of people were unemployed. Unfortunately, government played role in this situation was just as spectator. Many people became poor, many people died , many migrated to India. The life of them is miserable with no hope to escape.
Geographical Indication, Saree and Firms’ Competitiveness
Management experts often talks about firms’ competitiveness in order to justify their survival in the market. According to them productivity enhancing firms will only survive because of cost considerations. Some of the important facets such as foreign exchange rate and certain products that correspond to a specific geographical location or origin (e.g. a town, region, or country) are unfortunately ignored here.
For example a firm may remain competitive by producing any product if the said country’s Central Bank decides to follow fixed exchange rate against a standard foreign currency. Assume trade baskets of two countries such as A and B is same. Country A follows fixed exchange rate regime and country B follows managed float regime. Now consider FoB (free on board or border price) price of a shirt is $10 in both country A and B. The condition is more interesting when country B’s currency appreciates (say from US$ 1=Tk 70 to US$ 1=Tk 60) because she follows managed float. As a result the US$ price of the shirt may be US$11.67 if this is imported from country B. In contrast country A is not affected because she follows fixed exchange rate regime. So firms in country A are still remain price competitive because they follow fixed exchange rate regime. Accordingly, firms in country B lost so-called competitiveness. This will affect job in country B in the garments sector.
Likewise, the sarees produced in Bangladesh such as Rajshahi Silk, Tangail Tant, Pabna Tant, Dhakai Jamdani Saree may be cited here. This year we have observed huge imports of sarees such as Pochampally, Kancheepuram , Mysore silk, Banarasi silk sarees and their made ups in Indian market from China. The said management expert may be tempted to argue in the light of scale economies, large scale production and so on. Imagine a situation if you see a China made Dhakai Jamadani saree in one of the retail store in Dhaka . The price will definitely be cheaper than that of Bangladeshi product due to two important considerations, one, exchange rate distortion and two, the Chinese product is machine-made.
All told, the geographical contours of global production of goods and services have seen significant shifts in recent times. This has been caused as much by forces of globalisation as by technological changes. In fact, the interaction of the two have caused an impact which in magnitude is greater than that of either alone.
While globalisation has made almost all product and factor markets global, technological change is bringing equally massive upheavals in its wake — all of which is still not fully understood. In the midst of such massive changes, the immobility of labour will perhaps continue and all our policy decisions will have to be based on this feature in the foreseeable future though even fewer services will need to be produced locally.
What was the basic idea of globalization? The answer is that the firms must explore their comparative advantage by specializing their skills. If firms in Bangladesh are specialized in producing final product in the garments sector, some firms are equally specialized in Taiwan in producing zippers. Hence the trade possibilities exist between Bangladesh and Taiwan. Firms can even upgrade their technology in their respective clusters. Think it. Why is chom chom of Porabari special? It is special because, historically, the supply of labour with relevant skill-set has been available in Porabari. In other words, labours are efficient in Porabari in producing chom chom. In the name of so called competitiveness, you cannot just change a chom chom producing worker to health technician.
Most newer technologies entering the market through newer products and processes are skill-biased in the sense that they use skilled workers more intensively than the older technology. Economists have found that adoption of new technology is affected by the relative supply of skilled workers in a country — countries having a higher supply are likely to be quicker in new technology adoption. Their overall costs are lower, so the proportional increase is greater. As a result weavers of Rajshahi Silk, Tangail Tant, Pabna Tant, Dhakai Jamdani Saree may lose their job.
Another example may be cited here in order to understand of how government miserably failed for not taking appropriate steps such as upgrading the traditional skill-set to new skill-set in accordance with the new product. About 15,000 people, both men and women, were directly involved in activities starting from manufacturing metallic utensils products to trading in Dhamrai and its neighbouring areas. The indirect job losses are even higher. They lost their jobs because of the introduction of low cost aluminum and plastic products. They are now the candidates for poverty in this region.
Take the cases of women labour such as Jariman bibi and Batasi in this context. They were indirectly employed in this industry. The loss of their job however, implied more responsibilities for Batasi and Jariman from household management to reproduction. Later, they started working as maids. When they returned late, the husbands abused them as prostitutes and beat them. The advocates of firms’ competitiveness should understand this aspect. Did you think about the pains when the policy entrepreneurs decide to destroy Adamjee?
The above case is a government failure case. The government now can play as a biggest easer in the saree sector. In the short run, government can form a statutory body for preparing the saree industry for globalization in the WTO regime. As it is, a geographical indication (GI) is a name or sign used on certain products which corresponds to a specific geographical location or origin (e.g. a town, region, or country). GI is a part of the Trade Related Intellectual Property Rights (TRIPS) agreement signed under the WTO frame-work. GIs are defined as indications, which identify a good as originating in the territory and having specific attributes. It confers legal protection to the products, safeguarding against unauthorised use by other countries. Accordingly government can help the weavers of Rajshahi Silk, Tangail Tant, Pabna Tant, Dhakai Jamdani Saree to register under GI system a form of Intellectual Property Rights protection.
People are now worried in this sector. A good government actually creates condition for level playing field before facing external competition. In the process they build trust rather than destroying it.
For example a firm may remain competitive by producing any product if the said country’s Central Bank decides to follow fixed exchange rate against a standard foreign currency. Assume trade baskets of two countries such as A and B is same. Country A follows fixed exchange rate regime and country B follows managed float regime. Now consider FoB (free on board or border price) price of a shirt is $10 in both country A and B. The condition is more interesting when country B’s currency appreciates (say from US$ 1=Tk 70 to US$ 1=Tk 60) because she follows managed float. As a result the US$ price of the shirt may be US$11.67 if this is imported from country B. In contrast country A is not affected because she follows fixed exchange rate regime. So firms in country A are still remain price competitive because they follow fixed exchange rate regime. Accordingly, firms in country B lost so-called competitiveness. This will affect job in country B in the garments sector.
Likewise, the sarees produced in Bangladesh such as Rajshahi Silk, Tangail Tant, Pabna Tant, Dhakai Jamdani Saree may be cited here. This year we have observed huge imports of sarees such as Pochampally, Kancheepuram , Mysore silk, Banarasi silk sarees and their made ups in Indian market from China. The said management expert may be tempted to argue in the light of scale economies, large scale production and so on. Imagine a situation if you see a China made Dhakai Jamadani saree in one of the retail store in Dhaka . The price will definitely be cheaper than that of Bangladeshi product due to two important considerations, one, exchange rate distortion and two, the Chinese product is machine-made.
All told, the geographical contours of global production of goods and services have seen significant shifts in recent times. This has been caused as much by forces of globalisation as by technological changes. In fact, the interaction of the two have caused an impact which in magnitude is greater than that of either alone.
While globalisation has made almost all product and factor markets global, technological change is bringing equally massive upheavals in its wake — all of which is still not fully understood. In the midst of such massive changes, the immobility of labour will perhaps continue and all our policy decisions will have to be based on this feature in the foreseeable future though even fewer services will need to be produced locally.
What was the basic idea of globalization? The answer is that the firms must explore their comparative advantage by specializing their skills. If firms in Bangladesh are specialized in producing final product in the garments sector, some firms are equally specialized in Taiwan in producing zippers. Hence the trade possibilities exist between Bangladesh and Taiwan. Firms can even upgrade their technology in their respective clusters. Think it. Why is chom chom of Porabari special? It is special because, historically, the supply of labour with relevant skill-set has been available in Porabari. In other words, labours are efficient in Porabari in producing chom chom. In the name of so called competitiveness, you cannot just change a chom chom producing worker to health technician.
Most newer technologies entering the market through newer products and processes are skill-biased in the sense that they use skilled workers more intensively than the older technology. Economists have found that adoption of new technology is affected by the relative supply of skilled workers in a country — countries having a higher supply are likely to be quicker in new technology adoption. Their overall costs are lower, so the proportional increase is greater. As a result weavers of Rajshahi Silk, Tangail Tant, Pabna Tant, Dhakai Jamdani Saree may lose their job.
Another example may be cited here in order to understand of how government miserably failed for not taking appropriate steps such as upgrading the traditional skill-set to new skill-set in accordance with the new product. About 15,000 people, both men and women, were directly involved in activities starting from manufacturing metallic utensils products to trading in Dhamrai and its neighbouring areas. The indirect job losses are even higher. They lost their jobs because of the introduction of low cost aluminum and plastic products. They are now the candidates for poverty in this region.
Take the cases of women labour such as Jariman bibi and Batasi in this context. They were indirectly employed in this industry. The loss of their job however, implied more responsibilities for Batasi and Jariman from household management to reproduction. Later, they started working as maids. When they returned late, the husbands abused them as prostitutes and beat them. The advocates of firms’ competitiveness should understand this aspect. Did you think about the pains when the policy entrepreneurs decide to destroy Adamjee?
The above case is a government failure case. The government now can play as a biggest easer in the saree sector. In the short run, government can form a statutory body for preparing the saree industry for globalization in the WTO regime. As it is, a geographical indication (GI) is a name or sign used on certain products which corresponds to a specific geographical location or origin (e.g. a town, region, or country). GI is a part of the Trade Related Intellectual Property Rights (TRIPS) agreement signed under the WTO frame-work. GIs are defined as indications, which identify a good as originating in the territory and having specific attributes. It confers legal protection to the products, safeguarding against unauthorised use by other countries. Accordingly government can help the weavers of Rajshahi Silk, Tangail Tant, Pabna Tant, Dhakai Jamdani Saree to register under GI system a form of Intellectual Property Rights protection.
People are now worried in this sector. A good government actually creates condition for level playing field before facing external competition. In the process they build trust rather than destroying it.
Monday, September 20, 2010
On India’s One Billion Dollar Loan
India’s billion-dollar soft loan to Bangladesh is considered as the biggest credit package New Delhi has ever given to any nation. This is under EXIM Bank (Export and Import Bank), India’s line of credit agreement. In addition, the two countries signed a 35-year landmark electricity transmission deal under which India will export up to 500 megawatts of power to Bangladesh starting from late 2012. Likewise, in February, Dhaka also signed a 1.7-billion-dollar agreement with India’s state-run National Thermal Power Corp (NTPC) to build two coal-fired power plants with a combined capacity of 1,320 megawatts in southern Bangladesh.
EXIM Bank India works through channels such as enhancing exports from India, integrating the country’s foreign trade and investment with the overall economic growth. EXIM Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment across regions such as Africa, Latin America and the Caribbean. Commencing operations as a purveyor of export credit, like other Export Credit Agencies in the world (such as EXIM Bank-China, EXIM Bank U.S.A, EXIM Bank South Korea) EXIM Bank of India has, over the period, evolved into an institution that plays a major role in partnering Indian industries, particularly the Small and Medium Enterprises, in their globalisation efforts. They offer a wide range of products and services at all stages of the business cycle, starting from import of technology and export product development to export production, export marketing, pre-shipment and post-shipment and overseas investment. It is quite possible that Government of Bangladesh can also take an initiative to establish EXIM Bank of Bangladesh in order to facilitate her exports (mainly garments products and machineries produced in small and medium scale sector aka suppliers credit) to other countries based on public and private sector partnership . This is an excellent way of creating demand for local products in other economies.
The main terms and conditions of the one billion dollar credit line agreement include 1.75 per cent interest (fixed) per annum, 0.5 per cent commitment fee per annum on unutilised credit after 12 months from the date of contract approval, and 20 years' repayment period including a grace period of five years.
Well for the moment and for argument’s sake some people may say that the cost of borrowing in the current global context has been stagnated. Therefore, this is not at all lucrative. It is useful to note that in order to acquire the credit in the long run one must face both transaction and translation exposures. To qualify cash loan but not tied loan, the country should be an obvious investment darling. For example, as a proxy if LIBOR ( London inter Bank offer rate) rate is used as the most competitive interest rate, then country specific risks are significant contributory factors in defining cost of borrowing in the long term.
Alternately a country can also float long term sovereign bond ( or call this one as infrastructure Bond) to attract non-resident Bangladeshis (NRBs) to invest in those bonds . But average maturities of bond have gone down from fifteen years to seven years now in the emerging economies. Because of the reason the NRBs may not be interested here at 1.75 per cent interest rate even it is dollar denominated interest rate. They may have the better option such as either to buy real estate properties or to do transport business in Bangladesh where rate of return is very high. Why? Evidently, risk perception is not a general term. This risk perception may differ from person to person and then country to country in the environment of asymmetric information condition. Quite naturally, yield seeking NRB investors will try to lock in these sectors. In the process whether NRB investors are getting enough compensation for the risk of holding long-term infrastructure debt is questionable.
The example of China EXIM bank may bear some useful lessons. In recent time China EXIM Bank has offered Sino Hydro a 270 million U.S. dollar loan at 6 per cent interest to build the Kampot province dam in Cambodia. Similarly Chinese EXIM Bank charged 10 per cent interest rate to obtain $500 million loan for the construction of Abuja light rail project.
Historically, Bangladesh has also borrowed loans from various countries and multilateral agencies the interest rate of which ranged between 2 per cent and 5 per cent. Even countries such as the USA or Japan had given tied loan to Bangladesh in the past. Sometime back, the country had signed a $109 million dollar Supplier's Credit deal with China to fund the Barapukuria coal mine project at the rate of 5 per cent interest rate. The repayment was scheduled in 17 years period. More interestingly, the country made commitment to make down payment of 10 per cent of the total loan.
The projects identified under one billion dollar package are as under,
1 Procurement of six high-powered dredgers at $71.69 million. Of the dredgers, one will be used for dredging at Mongla Port while three for Bangladesh Inland Water Transport Authority and two for Bangladesh Water Development Board.
2 Construction of an internal container river port at Ashuganj at a cost of $36.23 million. Bangladesh and India have recently signed an agreement under which Ashuganj in Bangladesh and Silghat in India have been declared ports of call.
3 To buy 10 broad gauge locomotive engines worth $31.55 million for Bangladesh Railway.
4 Some 125 broad gauge passenger coaches will be bought at a cost of $53.63 million
5 Sixty tank wagons for fuel oil transportation and two break vans at a cost of $8.85 million
6 To buy 50 metre gauge flat wagons and five break vans at a cost of $4.55 million for Bangladesh Railway.
7 Two railway bridges , one, second Bhairab Bridge and two, second Titas Bridge will be constructed, which will cost $120 million.
8 To buy 300 double-decker buses for Bangladesh Road Transport Corporation (BRTC) at an estimated amount of $29.65 million.
9 Fifty articulated ( luxury) buses would be bought for BRTC at a cost of $6.12 million.
10 Development of road communications for a land port. Under the project, Sarail-Brahmanbaria-Sultanpur-Akhaura-Senarbadi road will be constructed at a cost of $33.82 million.
11 For construction of an overpass at Jurain rail crossing and a flyover at Malibagh rail crossing in Dhaka. These will cost $31.44 million.
12 Connectivity between Bangladesh and India. Under this project, a road will be constructed between Ramgarh and Sabroom [Tripura's southern border town] at a cost of $14.53 million.
13 An amount of $150.86 million will be spent to set up power gridline between India and Bangladesh. Under the project, a 400KV grid inter-connection between Bheramara of Bangladesh and Baharamapur of India will be set up.
14 To built capacity building of Bangladesh Standard and Testing Institute (BSTI). Laboratories will be set up at a cost of $8.92 million to test foods, cement, brick and gold.
15 The cost of other three projects estimated to be US$ 398.16 million.
It appears from the above that most of them related to development of railway and communications infrastructure in Bangladesh, particularly to facilitate trade and development to the isolated India’s northeastern region. The debate is perhaps to examine magnitude of costs and benefits due to one billion dollar loan in accordance with Bangladesh point of view.
In the current global environment one can observe two distinct scenarios such as the failure of global trade talks and then lower demand from major economies that were hit hard by the global economic crisis. Interestingly, regional trade agreements are emerging as a way for middle/small -income countries to increase trade, spur growth, and lower unemployment rates. In recent time the regions such as Eastern Europe, and Latin America —are increasing trade within their borders and building a broader free trade system. Sadly, regional trade agreements didn’t work best in South Asia because of participating countries is having major political differences. If South Asian region has failed to embrace globalization it is partly explained by non- coordination of their monetary and fiscal policies. The truth is that bottom-up approaches in which companies develop regional supply chains are more effective in improving regional integration than top-down approaches imposed by governments. For that matter creating an ideal infrastructure for them is a necessary condition. Look at the picture of Eastern Europe. The European Union—which bought 80 per cent of Eastern Europe’s exported goods in 2008—can spur further regional growth by implementing policies that reduce deficits and regain lost competitiveness. Latin America too is stronger now. With their relatively strong fiscal positions, Latin American countries can expand on existing agreements by ending administrative restrictions and tariffs and coordinating investment in transportation, energy, and telecommunications.
India’s North-East and Bangladesh enjoys a successful trading history. They became economically disintegrated as a result of political division of the sub-continent in 1947. Eventually, the region was cut-off from its traditional trading partners such as Bhutan, Myanmar, the then East Bengal now Bangladesh, Thailand and Indo-China. In fact, the region became land-locked and also exacerbated the isolation.
Historically the region generally has been a food-deficit region. Myanmar was the supplier of cereals, pulses, fish and other marine products. Manufacturing products on the other hand were supplied by Kolkata. People in the hilly villages used to plant oranges, coffee beans, paan, bay leaves, betal nut, sweet potatoes, yum and other tubers. They traded for rice, vegetables and dried fish at the weekly haat some 25 kms away, in what’s now Bangladesh and Myanmar. That trade stopped long back with the drawing of borders. People still dream those days.
Some people argue that Bangladeshi manufacturers will gain marginally in India’s North –East market because the general consumption patterns in the region are price sensitive but not income sensitive. This idea is static here because all trade theories are static. But who alters trade theories? The firm specific OLI model (O-Ownership advantages; L-Location or country specific advantages; I-Internalization advantages) is the most appropriate answer here because country doesn’t trade but firms does trade. If Bharati Telecom is competitive and innovator in price sensitive markets, you cannot just ignore Grameen phone in the similar market condition.
What are the priorities now for Bangladesh to address development and their challenges? To further broaden this appeal one must consider infrastructure, trade and development and poverty. In fact an efficient infrastructure development can help the building blocks for regional trade expansion. Note that India's assistance in improving the railway infrastructure will facilitate Bangladesh's transit to Bhutan and Nepal as well. One thing is certain that the rise of India and China will push African economies to grow because they need energy and resources. In our neighbourhood firms need market. That implies cooperation is a win-win game.
In the short run, there are few easy choices for Bangladesh when it comes to massive investment in the infrastructure sector. It is useful to quote an African sociologist here, “From my perspective, China’s goal is to develop China and to raise the living standards of Chinese people. Fortunately, there are benefits for Africa, as well. In the very narrow prism of economic development, I think it is better for the Chinese to be in Africa because they view Africans as business partners. And even when they don’t—because I don’t want to make it seem like the Chinese are perfect—I believe that there is scope for having that conversation. So African leaders, who should be accountable, should be standing up and saying to the Chinese: “We love the fact that you’re investing in our continent. However, we need you to employ more Africans or we need you to have higher health standards.” That, again, is the responsibility of government—to regulate—and so I don’t think Africa needs westerners to step in and wag fingers at the Chinese and say, “Oh, don’t go into Africa because you’re being exploitative.”The Chinese have created jobs; they’ve built roads. The West has failed to do that in sixty years in Africa.”
Who is responsible for the collapse of the Bangladesh Railway Transport system? It has been considered as highly price sensitive and environment friendly. Historically, we took advice from the experts of so-called multilateral agencies because it was not “cost effective.” Experts were myopic in their decision making. Road transport lobby must have influenced their decision.
But people are suffering. Who knows that this loan may bear a new beginning because you are to find out the best alternate option. Otherwise you may have few trips to the peoples’ welfare.
EXIM Bank India works through channels such as enhancing exports from India, integrating the country’s foreign trade and investment with the overall economic growth. EXIM Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment across regions such as Africa, Latin America and the Caribbean. Commencing operations as a purveyor of export credit, like other Export Credit Agencies in the world (such as EXIM Bank-China, EXIM Bank U.S.A, EXIM Bank South Korea) EXIM Bank of India has, over the period, evolved into an institution that plays a major role in partnering Indian industries, particularly the Small and Medium Enterprises, in their globalisation efforts. They offer a wide range of products and services at all stages of the business cycle, starting from import of technology and export product development to export production, export marketing, pre-shipment and post-shipment and overseas investment. It is quite possible that Government of Bangladesh can also take an initiative to establish EXIM Bank of Bangladesh in order to facilitate her exports (mainly garments products and machineries produced in small and medium scale sector aka suppliers credit) to other countries based on public and private sector partnership . This is an excellent way of creating demand for local products in other economies.
The main terms and conditions of the one billion dollar credit line agreement include 1.75 per cent interest (fixed) per annum, 0.5 per cent commitment fee per annum on unutilised credit after 12 months from the date of contract approval, and 20 years' repayment period including a grace period of five years.
Well for the moment and for argument’s sake some people may say that the cost of borrowing in the current global context has been stagnated. Therefore, this is not at all lucrative. It is useful to note that in order to acquire the credit in the long run one must face both transaction and translation exposures. To qualify cash loan but not tied loan, the country should be an obvious investment darling. For example, as a proxy if LIBOR ( London inter Bank offer rate) rate is used as the most competitive interest rate, then country specific risks are significant contributory factors in defining cost of borrowing in the long term.
Alternately a country can also float long term sovereign bond ( or call this one as infrastructure Bond) to attract non-resident Bangladeshis (NRBs) to invest in those bonds . But average maturities of bond have gone down from fifteen years to seven years now in the emerging economies. Because of the reason the NRBs may not be interested here at 1.75 per cent interest rate even it is dollar denominated interest rate. They may have the better option such as either to buy real estate properties or to do transport business in Bangladesh where rate of return is very high. Why? Evidently, risk perception is not a general term. This risk perception may differ from person to person and then country to country in the environment of asymmetric information condition. Quite naturally, yield seeking NRB investors will try to lock in these sectors. In the process whether NRB investors are getting enough compensation for the risk of holding long-term infrastructure debt is questionable.
The example of China EXIM bank may bear some useful lessons. In recent time China EXIM Bank has offered Sino Hydro a 270 million U.S. dollar loan at 6 per cent interest to build the Kampot province dam in Cambodia. Similarly Chinese EXIM Bank charged 10 per cent interest rate to obtain $500 million loan for the construction of Abuja light rail project.
Historically, Bangladesh has also borrowed loans from various countries and multilateral agencies the interest rate of which ranged between 2 per cent and 5 per cent. Even countries such as the USA or Japan had given tied loan to Bangladesh in the past. Sometime back, the country had signed a $109 million dollar Supplier's Credit deal with China to fund the Barapukuria coal mine project at the rate of 5 per cent interest rate. The repayment was scheduled in 17 years period. More interestingly, the country made commitment to make down payment of 10 per cent of the total loan.
The projects identified under one billion dollar package are as under,
1 Procurement of six high-powered dredgers at $71.69 million. Of the dredgers, one will be used for dredging at Mongla Port while three for Bangladesh Inland Water Transport Authority and two for Bangladesh Water Development Board.
2 Construction of an internal container river port at Ashuganj at a cost of $36.23 million. Bangladesh and India have recently signed an agreement under which Ashuganj in Bangladesh and Silghat in India have been declared ports of call.
3 To buy 10 broad gauge locomotive engines worth $31.55 million for Bangladesh Railway.
4 Some 125 broad gauge passenger coaches will be bought at a cost of $53.63 million
5 Sixty tank wagons for fuel oil transportation and two break vans at a cost of $8.85 million
6 To buy 50 metre gauge flat wagons and five break vans at a cost of $4.55 million for Bangladesh Railway.
7 Two railway bridges , one, second Bhairab Bridge and two, second Titas Bridge will be constructed, which will cost $120 million.
8 To buy 300 double-decker buses for Bangladesh Road Transport Corporation (BRTC) at an estimated amount of $29.65 million.
9 Fifty articulated ( luxury) buses would be bought for BRTC at a cost of $6.12 million.
10 Development of road communications for a land port. Under the project, Sarail-Brahmanbaria-Sultanpur-Akhaura-Senarbadi road will be constructed at a cost of $33.82 million.
11 For construction of an overpass at Jurain rail crossing and a flyover at Malibagh rail crossing in Dhaka. These will cost $31.44 million.
12 Connectivity between Bangladesh and India. Under this project, a road will be constructed between Ramgarh and Sabroom [Tripura's southern border town] at a cost of $14.53 million.
13 An amount of $150.86 million will be spent to set up power gridline between India and Bangladesh. Under the project, a 400KV grid inter-connection between Bheramara of Bangladesh and Baharamapur of India will be set up.
14 To built capacity building of Bangladesh Standard and Testing Institute (BSTI). Laboratories will be set up at a cost of $8.92 million to test foods, cement, brick and gold.
15 The cost of other three projects estimated to be US$ 398.16 million.
It appears from the above that most of them related to development of railway and communications infrastructure in Bangladesh, particularly to facilitate trade and development to the isolated India’s northeastern region. The debate is perhaps to examine magnitude of costs and benefits due to one billion dollar loan in accordance with Bangladesh point of view.
In the current global environment one can observe two distinct scenarios such as the failure of global trade talks and then lower demand from major economies that were hit hard by the global economic crisis. Interestingly, regional trade agreements are emerging as a way for middle/small -income countries to increase trade, spur growth, and lower unemployment rates. In recent time the regions such as Eastern Europe, and Latin America —are increasing trade within their borders and building a broader free trade system. Sadly, regional trade agreements didn’t work best in South Asia because of participating countries is having major political differences. If South Asian region has failed to embrace globalization it is partly explained by non- coordination of their monetary and fiscal policies. The truth is that bottom-up approaches in which companies develop regional supply chains are more effective in improving regional integration than top-down approaches imposed by governments. For that matter creating an ideal infrastructure for them is a necessary condition. Look at the picture of Eastern Europe. The European Union—which bought 80 per cent of Eastern Europe’s exported goods in 2008—can spur further regional growth by implementing policies that reduce deficits and regain lost competitiveness. Latin America too is stronger now. With their relatively strong fiscal positions, Latin American countries can expand on existing agreements by ending administrative restrictions and tariffs and coordinating investment in transportation, energy, and telecommunications.
India’s North-East and Bangladesh enjoys a successful trading history. They became economically disintegrated as a result of political division of the sub-continent in 1947. Eventually, the region was cut-off from its traditional trading partners such as Bhutan, Myanmar, the then East Bengal now Bangladesh, Thailand and Indo-China. In fact, the region became land-locked and also exacerbated the isolation.
Historically the region generally has been a food-deficit region. Myanmar was the supplier of cereals, pulses, fish and other marine products. Manufacturing products on the other hand were supplied by Kolkata. People in the hilly villages used to plant oranges, coffee beans, paan, bay leaves, betal nut, sweet potatoes, yum and other tubers. They traded for rice, vegetables and dried fish at the weekly haat some 25 kms away, in what’s now Bangladesh and Myanmar. That trade stopped long back with the drawing of borders. People still dream those days.
Some people argue that Bangladeshi manufacturers will gain marginally in India’s North –East market because the general consumption patterns in the region are price sensitive but not income sensitive. This idea is static here because all trade theories are static. But who alters trade theories? The firm specific OLI model (O-Ownership advantages; L-Location or country specific advantages; I-Internalization advantages) is the most appropriate answer here because country doesn’t trade but firms does trade. If Bharati Telecom is competitive and innovator in price sensitive markets, you cannot just ignore Grameen phone in the similar market condition.
What are the priorities now for Bangladesh to address development and their challenges? To further broaden this appeal one must consider infrastructure, trade and development and poverty. In fact an efficient infrastructure development can help the building blocks for regional trade expansion. Note that India's assistance in improving the railway infrastructure will facilitate Bangladesh's transit to Bhutan and Nepal as well. One thing is certain that the rise of India and China will push African economies to grow because they need energy and resources. In our neighbourhood firms need market. That implies cooperation is a win-win game.
In the short run, there are few easy choices for Bangladesh when it comes to massive investment in the infrastructure sector. It is useful to quote an African sociologist here, “From my perspective, China’s goal is to develop China and to raise the living standards of Chinese people. Fortunately, there are benefits for Africa, as well. In the very narrow prism of economic development, I think it is better for the Chinese to be in Africa because they view Africans as business partners. And even when they don’t—because I don’t want to make it seem like the Chinese are perfect—I believe that there is scope for having that conversation. So African leaders, who should be accountable, should be standing up and saying to the Chinese: “We love the fact that you’re investing in our continent. However, we need you to employ more Africans or we need you to have higher health standards.” That, again, is the responsibility of government—to regulate—and so I don’t think Africa needs westerners to step in and wag fingers at the Chinese and say, “Oh, don’t go into Africa because you’re being exploitative.”The Chinese have created jobs; they’ve built roads. The West has failed to do that in sixty years in Africa.”
Who is responsible for the collapse of the Bangladesh Railway Transport system? It has been considered as highly price sensitive and environment friendly. Historically, we took advice from the experts of so-called multilateral agencies because it was not “cost effective.” Experts were myopic in their decision making. Road transport lobby must have influenced their decision.
But people are suffering. Who knows that this loan may bear a new beginning because you are to find out the best alternate option. Otherwise you may have few trips to the peoples’ welfare.
On North-East
The North-Eastern states became economically disintegrated as a result of political division of the sub-continent in 1947. Eventually, the region was cut-off from its traditional trading partners such as Bhutan, Myanmar, the then East Bengal now Bangladesh, Thailand and Indo-China. In fact, the region became land-locked and also exacerbated the isolation. Unfortunately, the issues are ignored and less understood.
People here are in no position to drive the economy forward. Many wrong policies may have contributed as explanatory factors. Available data reveals that incomes in seven of eight north-eastern states are now below the national average ( Rs. 33,283 in 2007-08). Just five years ago, four of these states such as Tripura, Sikkim, Nagaland and Mizoram had income levels marginally higher than the country’s average ( Rs. 20,871 in 2003-2004) . Sikkim is the only state where per capita income has remained above the national average during the period 2003/2004-2007/2008. The states such as Assam, Mizoram, Tripura, Manipur, Arunachal Pradesh, and Nagaland and Sikkim are now growing slowly. The region is home to more than five crore people (3.8 per cent of India's total population). It contributes to over 80 ethnic groups. More interestingly the eight north-eastern states are rich in mineral and natural resources.
Historically the region generally has been a food-deficit region. Myanmar was the supplier of cereals, pulses and fishery related products. Manufacturing products on the other hand were supplied by Kolkata. People in the hilly villages used to plant oranges, coffee beans, paan, bay leaves, betal nut, sweet potatoes, yum and other tubers. They traded for rice, vegetables and dried fish at the weekly haat some 25 kms away, in what’s now Bangladesh and Myanmar. That trade stopped long back with the drawing of borders. People still dream those days.
Furthermore, agriculture suffered. People, for example, in hilly areas have had no choice but to look for alternatives such as mining for coal, limestone and stone quarrying. Most work as daily labourers in the mines or in the lime kilns, or run the mines themselves. In addition people from other states are busy in financing deforestation. After all people from prosperous states need nice wood furniture! Moreover, cheap, old and polluted vehicles from the main land cause environment degradation. In fact the experience of traveling by car from Guwahati to Shillong generates part fear and part anger,
Tea planters too exploited the whole situation. The poor, defenseless people are exploited by large, well-funded, well-organized tea planters. They never invested in land but inherited gardens left by the English planters with a lower price. The mottos were clear. Promise them entertainment, exploit them to the utmost with inflated prices for food and let them consume masses of booze, and then disappoint them. The region needs better environment and infrastructure to grow.
In the plain Assam and Tripura cereals (mostly paddy) and jute are cultivated. Before partition the labourers from the then East Bengal (now Bangladesh) were instrumental to neutralize the excess demand for labour during sowing and harvesting season. They use to come with their tools and then returned with a load of paddy. Because the available cash money was not just enough to meet the demand side.
Horticultural products are plenty here. They are cheap in the primary form. Their value additions are possible at a competitive price. But they are slimmed in main land once transport costs are factored- in according to the policy makers. This logic is vague. Even then are other alternate ways to resolve the issue such as concentrate and non-liquid form. The policymakers needs to be little innovative here.
The model of development in the region should be different from traditional ideas. For centuries, Christian missionaries have generated quality services in the form of education in the region. Thus the creation of effective service sectors, infrastructure development, providing training to the youths for the demand of service sectors are all powerful ingredients in order to facilitate the overall development of the region. The development model of Switzerland may bear useful lesson in this context.
The new political development in Bangladesh has created new opportunities in this region. The people of India see Hasina's government as a “significant opportunity" to forge a "new relationship" with Bangladesh. From Indian perspective, the cost of alternate to Awami League government in Bangladesh had been high. Thus she deserves special attention from us. With each acknowledgement the issue on “ Tessta Water” has been a major irritant of Indo-Bangladesh relationship because the scarcity of water on the Teesta causes sufferings to people on either side of the border during the lean season.
Bangladesh feels that India can afford to shorten the list of sensitive goods so that Bangladesh can export more products to the country and reduce the trade imbalance in bilateral trade. Interestingly India has 460 products on its sensitive list. From Indian part the fear may be due to trade distortion as we have already seen the case of ‘Vanaspati’ in explaining major irritant between India-Sri Lanka free trade. The same fear may cause other issues because the garment components may be imported from third countries. The solutions such as buy back, Indian investment in this sector in Bangladesh may be thought of. Historically, the economic clusters played an important role in this region. In fact, this has implication even now. Bangladesh is the only densely populated country in the region. This country is bordered with scarcely populated countries such as Myanmar and India’s north-east. This suggests the re-establishment of integration in a coherent way.
Admittedly, the policymakers deserve credit for the speed and scale of their responses to the above issues in recent time. However, it is too soon to conclude that they have broken with the past.
People here are in no position to drive the economy forward. Many wrong policies may have contributed as explanatory factors. Available data reveals that incomes in seven of eight north-eastern states are now below the national average ( Rs. 33,283 in 2007-08). Just five years ago, four of these states such as Tripura, Sikkim, Nagaland and Mizoram had income levels marginally higher than the country’s average ( Rs. 20,871 in 2003-2004) . Sikkim is the only state where per capita income has remained above the national average during the period 2003/2004-2007/2008. The states such as Assam, Mizoram, Tripura, Manipur, Arunachal Pradesh, and Nagaland and Sikkim are now growing slowly. The region is home to more than five crore people (3.8 per cent of India's total population). It contributes to over 80 ethnic groups. More interestingly the eight north-eastern states are rich in mineral and natural resources.
Historically the region generally has been a food-deficit region. Myanmar was the supplier of cereals, pulses and fishery related products. Manufacturing products on the other hand were supplied by Kolkata. People in the hilly villages used to plant oranges, coffee beans, paan, bay leaves, betal nut, sweet potatoes, yum and other tubers. They traded for rice, vegetables and dried fish at the weekly haat some 25 kms away, in what’s now Bangladesh and Myanmar. That trade stopped long back with the drawing of borders. People still dream those days.
Furthermore, agriculture suffered. People, for example, in hilly areas have had no choice but to look for alternatives such as mining for coal, limestone and stone quarrying. Most work as daily labourers in the mines or in the lime kilns, or run the mines themselves. In addition people from other states are busy in financing deforestation. After all people from prosperous states need nice wood furniture! Moreover, cheap, old and polluted vehicles from the main land cause environment degradation. In fact the experience of traveling by car from Guwahati to Shillong generates part fear and part anger,
Tea planters too exploited the whole situation. The poor, defenseless people are exploited by large, well-funded, well-organized tea planters. They never invested in land but inherited gardens left by the English planters with a lower price. The mottos were clear. Promise them entertainment, exploit them to the utmost with inflated prices for food and let them consume masses of booze, and then disappoint them. The region needs better environment and infrastructure to grow.
In the plain Assam and Tripura cereals (mostly paddy) and jute are cultivated. Before partition the labourers from the then East Bengal (now Bangladesh) were instrumental to neutralize the excess demand for labour during sowing and harvesting season. They use to come with their tools and then returned with a load of paddy. Because the available cash money was not just enough to meet the demand side.
Horticultural products are plenty here. They are cheap in the primary form. Their value additions are possible at a competitive price. But they are slimmed in main land once transport costs are factored- in according to the policy makers. This logic is vague. Even then are other alternate ways to resolve the issue such as concentrate and non-liquid form. The policymakers needs to be little innovative here.
The model of development in the region should be different from traditional ideas. For centuries, Christian missionaries have generated quality services in the form of education in the region. Thus the creation of effective service sectors, infrastructure development, providing training to the youths for the demand of service sectors are all powerful ingredients in order to facilitate the overall development of the region. The development model of Switzerland may bear useful lesson in this context.
The new political development in Bangladesh has created new opportunities in this region. The people of India see Hasina's government as a “significant opportunity" to forge a "new relationship" with Bangladesh. From Indian perspective, the cost of alternate to Awami League government in Bangladesh had been high. Thus she deserves special attention from us. With each acknowledgement the issue on “ Tessta Water” has been a major irritant of Indo-Bangladesh relationship because the scarcity of water on the Teesta causes sufferings to people on either side of the border during the lean season.
Bangladesh feels that India can afford to shorten the list of sensitive goods so that Bangladesh can export more products to the country and reduce the trade imbalance in bilateral trade. Interestingly India has 460 products on its sensitive list. From Indian part the fear may be due to trade distortion as we have already seen the case of ‘Vanaspati’ in explaining major irritant between India-Sri Lanka free trade. The same fear may cause other issues because the garment components may be imported from third countries. The solutions such as buy back, Indian investment in this sector in Bangladesh may be thought of. Historically, the economic clusters played an important role in this region. In fact, this has implication even now. Bangladesh is the only densely populated country in the region. This country is bordered with scarcely populated countries such as Myanmar and India’s north-east. This suggests the re-establishment of integration in a coherent way.
Admittedly, the policymakers deserve credit for the speed and scale of their responses to the above issues in recent time. However, it is too soon to conclude that they have broken with the past.
Thursday, February 26, 2009
The High Definition War
Pradip K Bhaumik and Arindam Banik
The war for the next generation removable digital storage medium, now unfolding in all its viciousness in front of us has all the ingredients of a high drama. Both Toshiba and Sony are aware of the dangerous consequences of losing the war – as well as the benefits of winning it. It is a high stake war.
The consumers have a need to store higher and still higher amount of digital information in a single medium and this need has spawned the development of floppy diskettes, compact discs (CDs), and later digital versatile discs (DVDs). A DVD can store 4.7 GB of data where a CD could store about 700 MB and so you have a whole 3 hour movie stored in a single DVD which otherwise required 3 or 4 CDs. By now, customers’ expectations have gone up where they would expect to have a high resolution movie stored in a single disc. Simultaneously, technologies have also grown further where a single multilayer disc can store up to 100 GB of data enabling storage of high definition movies. The only problem is that we have not one but two competing technologies – both vying for that single slot.
Announced in 2002 by nine companies including Sony, Hitachi and Philips, the Blu-ray technology promises 25 GB on a single layer of a BD disc while the High Definition DVD (HD-DVD), with a storage capacity of 15 GB per layer, was sanctioned by the DVD Forum in 2003. A distinct advantage of HD-DVD for the disc manufacturer is that the stamping machines for regular DVDs require only minor modifications to make HD-DVD discs. Toshiba, a traditional rival of Sony is now ready to compete again in this arena. Between them they have been able to split the whole industry into two opposing camps each claiming the superiority of their standard over that of the other.
Sony seems to have learnt its lesson very well from a similar situation in the seventies when Panasonic with its VHS format for video cassettes, came from behind and overtook Sony even though Sony’s Betamax was arguably technically superior. Sony lost out as it did not share its standard with others while VHS technology was licensed to many among both VCR manufacturers and content providers and soon emerged as the de facto industry standard. This also reminds us of a similar story when Apple computers lost to the Wintel machines despite having a better product.
This time too BD is perhaps technologically superior to HD-DVD but there is an even chance that HD-DVD may turn out to be the eventual winner. Both of these use the low frequency blue laser unlike the red laser used in CDs and DVDs, allowing discs to store data at higher densities required for high definition video storage. Both formats have multiple layer capability and so technically BD can have up to 100 GB capacity in a dual side dual layer BD disc, while Toshiba has already developed a prototype three-layer 45 GB HD-DVD disc. There are differences in the compression technologies used but either format would offer vastly improved picture quality and consumers may not experience significantly different viewing pleasure between the two formats.
As neither format is likely to offer lossless recording, it is possible that a later generation of technology may make these discs also obsolete just as CDs and DVDs may become obsolete after the high definition discs are released in the market.
The ultimate success of either format will not depend only on the storage capacity of the discs. Thanks to a special hard coating developed for BD discs, they can reportedly withstand even screwdriver swipes unlike other optical media like CDs and DVDs which can be damaged even by tissue wipes. BD also claims to have superior security features by way of BD+ and the ROM mark which may make it the content and media companies’ darling. The ROM mark is designed to tie the recorded disc with the specific burner used to prevent large scale copying while BD+ is a safeguard against future cracks and hacks.
HD-DVD is cheaper and easier to manufacture and has product familiarity on its side as it conveys a high definition version of DVD. The lower price of players, recorders and discs would be a significant advantage as would being the first-mover when Toshiba launches its HD-DVD any time now. But Sony’s strength in the content market with its ownership of Hollywood studios, media companies and dominant position in the games market with Playstation cannot be wished away. It thus appears to be an evenly poised war with formidable armies lined up on both sides.
HD-DVD has the backing of the DVD forum, which is an international membership-based organization created to enable the DVD platform grow through technical improvement and innovation. Ironically, Sony Corporation is one of the founding members of the DVD forum but it sponsored the Blu-ray Disc association (BDA) as an alternate forum for BD thus implying that BD incorporates a technology distinctly different from that of DVD. Almost all the global bigwigs among hardware, software, media and content companies are covered between the two with many joining both.
Both sides seem confident about winning in the market where other stakeholders besides the consumer like the manufacturers, content providers, games console producers, computer manufacturers, etc. will also have significant roles. There are reports of Toshiba encouraging low-cost Chinese producers to start making HD-DVD players and recorders. If true, such early commoditization of the product will hurt all. Attempts of mediation and negotiation to avoid such a high-cost war have failed as each side asserts the superiority of its technology and strategy. The absence of a regulator leaves the market as the only arbiter.
From the sidelines, the whole episode may appear as wholly avoidable and costly for the two camps and particularly for the consumers when seen from an Indian perspective still used to notions of guiding hands of the government but for both the warring sides any government role is conspicuous by its absence. The only Indian company in the middle is Moser Baer and it has hedged its position by joining both the DVD forum and the BDA.
The inexorable march of technology is accompanied by destruction of the old giving way to the creation of the new and guided by the principle of survival of the fittest where fitness is as defined by the market. Particularly for Indian companies, it would seem that development of technology is far less risky than launching products based on new technology. For Indian companies with global ambitions, tracking the details of these technology wars would be of immense learning value, as would be for the government and the various regulatory bodies.
Technology-wise, we began with transfer and graduated to assimilation through adoption. Hopefully it will not take many more years for Indian companies to move up to innovation.
The war for the next generation removable digital storage medium, now unfolding in all its viciousness in front of us has all the ingredients of a high drama. Both Toshiba and Sony are aware of the dangerous consequences of losing the war – as well as the benefits of winning it. It is a high stake war.
The consumers have a need to store higher and still higher amount of digital information in a single medium and this need has spawned the development of floppy diskettes, compact discs (CDs), and later digital versatile discs (DVDs). A DVD can store 4.7 GB of data where a CD could store about 700 MB and so you have a whole 3 hour movie stored in a single DVD which otherwise required 3 or 4 CDs. By now, customers’ expectations have gone up where they would expect to have a high resolution movie stored in a single disc. Simultaneously, technologies have also grown further where a single multilayer disc can store up to 100 GB of data enabling storage of high definition movies. The only problem is that we have not one but two competing technologies – both vying for that single slot.
Announced in 2002 by nine companies including Sony, Hitachi and Philips, the Blu-ray technology promises 25 GB on a single layer of a BD disc while the High Definition DVD (HD-DVD), with a storage capacity of 15 GB per layer, was sanctioned by the DVD Forum in 2003. A distinct advantage of HD-DVD for the disc manufacturer is that the stamping machines for regular DVDs require only minor modifications to make HD-DVD discs. Toshiba, a traditional rival of Sony is now ready to compete again in this arena. Between them they have been able to split the whole industry into two opposing camps each claiming the superiority of their standard over that of the other.
Sony seems to have learnt its lesson very well from a similar situation in the seventies when Panasonic with its VHS format for video cassettes, came from behind and overtook Sony even though Sony’s Betamax was arguably technically superior. Sony lost out as it did not share its standard with others while VHS technology was licensed to many among both VCR manufacturers and content providers and soon emerged as the de facto industry standard. This also reminds us of a similar story when Apple computers lost to the Wintel machines despite having a better product.
This time too BD is perhaps technologically superior to HD-DVD but there is an even chance that HD-DVD may turn out to be the eventual winner. Both of these use the low frequency blue laser unlike the red laser used in CDs and DVDs, allowing discs to store data at higher densities required for high definition video storage. Both formats have multiple layer capability and so technically BD can have up to 100 GB capacity in a dual side dual layer BD disc, while Toshiba has already developed a prototype three-layer 45 GB HD-DVD disc. There are differences in the compression technologies used but either format would offer vastly improved picture quality and consumers may not experience significantly different viewing pleasure between the two formats.
As neither format is likely to offer lossless recording, it is possible that a later generation of technology may make these discs also obsolete just as CDs and DVDs may become obsolete after the high definition discs are released in the market.
The ultimate success of either format will not depend only on the storage capacity of the discs. Thanks to a special hard coating developed for BD discs, they can reportedly withstand even screwdriver swipes unlike other optical media like CDs and DVDs which can be damaged even by tissue wipes. BD also claims to have superior security features by way of BD+ and the ROM mark which may make it the content and media companies’ darling. The ROM mark is designed to tie the recorded disc with the specific burner used to prevent large scale copying while BD+ is a safeguard against future cracks and hacks.
HD-DVD is cheaper and easier to manufacture and has product familiarity on its side as it conveys a high definition version of DVD. The lower price of players, recorders and discs would be a significant advantage as would being the first-mover when Toshiba launches its HD-DVD any time now. But Sony’s strength in the content market with its ownership of Hollywood studios, media companies and dominant position in the games market with Playstation cannot be wished away. It thus appears to be an evenly poised war with formidable armies lined up on both sides.
HD-DVD has the backing of the DVD forum, which is an international membership-based organization created to enable the DVD platform grow through technical improvement and innovation. Ironically, Sony Corporation is one of the founding members of the DVD forum but it sponsored the Blu-ray Disc association (BDA) as an alternate forum for BD thus implying that BD incorporates a technology distinctly different from that of DVD. Almost all the global bigwigs among hardware, software, media and content companies are covered between the two with many joining both.
Both sides seem confident about winning in the market where other stakeholders besides the consumer like the manufacturers, content providers, games console producers, computer manufacturers, etc. will also have significant roles. There are reports of Toshiba encouraging low-cost Chinese producers to start making HD-DVD players and recorders. If true, such early commoditization of the product will hurt all. Attempts of mediation and negotiation to avoid such a high-cost war have failed as each side asserts the superiority of its technology and strategy. The absence of a regulator leaves the market as the only arbiter.
From the sidelines, the whole episode may appear as wholly avoidable and costly for the two camps and particularly for the consumers when seen from an Indian perspective still used to notions of guiding hands of the government but for both the warring sides any government role is conspicuous by its absence. The only Indian company in the middle is Moser Baer and it has hedged its position by joining both the DVD forum and the BDA.
The inexorable march of technology is accompanied by destruction of the old giving way to the creation of the new and guided by the principle of survival of the fittest where fitness is as defined by the market. Particularly for Indian companies, it would seem that development of technology is far less risky than launching products based on new technology. For Indian companies with global ambitions, tracking the details of these technology wars would be of immense learning value, as would be for the government and the various regulatory bodies.
Technology-wise, we began with transfer and graduated to assimilation through adoption. Hopefully it will not take many more years for Indian companies to move up to innovation.
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