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.
Monday, September 20, 2010
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.
Understanding Bangladesh from a Neighbour’s Door
The Mahajote’s victory in the recent Bangladesh election may be seen as one of the most important event in the history of Bangladesh. It is eventful because when the whole world was busy to project Bangladesh as a breeding centre for Islamic fundamentalism. The outcome is certainly a paradigm shift. This time the Jote has been able to reach across divides of religion, race, gender and politics and unify her country once again after 1971 war of independence. The caretaker government, election commission, civil society and the army also played a contributory role to conduct such a free and fair election. In fact the other developing economies where democracy is fragile and has had constant threat to the nation state may also learn this experience from Bangladesh.
The idea of projecting Bangladesh as a fundamentalist state may bear serious limitations. The country has its strong root. The culture, Rabindranath, Nazrul, Jashimuddin are all important contributors in order to support her claim as a nation state. One can not just ignore this root for just few episodes dictated by few Islamic fundamentalist groups.
The Mahajote’s win may be explained by high expectations because of repeated political failures. The country’s leaders took hazardous task to grow. At home, wrong policies, and selfish policymakers practically ruined the immense prospect of the country. This time, the Jote has successfully reconnected politics to the young and to youthful idealism. Then they have also tried to give them hope from frustration. The rediscovery of the ideals of liberation war has once again invigorated the young population. Thanks to Sector commanders forum for playing such catalytic role. How the new government will fulfill the challenges is remains to be seen.
The agricultural sector is the biggest challenge to the new government. The role of international agencies and their policy advice to the food-deficit economies such as Bangladesh may have played a significant contributory role to the development of the last year’s crisis. Since the mid-1990s, countries that rely heavily on cereal production – particularly rice – were advised by the international agencies that a highly liquid, global market for cereals would be a healthy and desirable development for all. Accordingly, many countries such as Bangladesh got convinced that it would be safe to cover any shortfall in domestic output with purchases from the international market particularly from India, Myanmar, Thailand and Vietnam. As a result the rice and wheat sectors became less protected. Some countries burdened with high cost of production even dismantled export bans and reduced import tariffs. Some International agencies even argued that there is a glut of food production worldwide as evinced from the downward trend in the real price of rice and wheat in the world market and building of huge food stocks in neighbouring India. India too has misunderstood this issue. Her response to last year’s food crisis in Bangladesh was not at all satisfactory. The policy makers in this region now can think of integrating the whole issue of agriculture, starting from uniform implicit and explicit subsidies (output and input) to pricing of output. Any unilateral decision will distort other markets, encourage informal trade and thus impedes the welfare of the people in the region.
Obviously, the old prescriptions of the international agencies have not worked. There is a need to revisit the old models, analyses and policy recommendations. Fresh long-term forecasts of demand of food items, factoring in new uses and new consumption patterns would be needed to estimate if there is a supply-demand gap emerging in the longer term. Investments in agriculture would have to be revived to increase the local production and this should include investments needed for better water management. Finally, out-of-the-box thinking will be needed to come out with new policy recommendations like creation of regional buffer stocks to overcome volatility in production. Or else, it will be the poor in the poorest countries that will suffer the most due to food shortage in future.
For last ten years, the country has produced result in the manufacturing sector. But the potentials still to be explored. Much of the failures may be derived from partisan politics, and the governments in power. People are disappointed by previous governments.
The most dangerous is security threat and tension across borders. Then there are countries who have been working hard to exploit the situation. India can play a pragmatic role here. Take the case of manpower. The training of man power may have immediate impact in order to improve relationship. It appears that there is a strong relationship between investments in human capital and economic growth in the context of Bangladesh. The need to improve the quality of human resources is particularly important for Bangladesh, given its importance in the attraction of foreign direct investment. Although the developing world accounts for a steadily increasing share of world manufacturing (partly driven by lower wages and costs in that world), competitive advantage based on low wages is inherently a transitory phenomenon: sooner or later, developing countries such as Bangladesh will face the need to improve their skill as other lower cost producers emerge (for example, garments).
Many have argued that the level of education is below the performance required to integrate entrants to the labour force. According to them part of the low productivity levels are partly explained by ineffective education. A significant number of populations have been at the highest risk of low academic achievement. The fact that the poor have low levels of education in Bangladesh highlights the need to address educational issues.
There are many different types of public and private training programmes in Bangladesh in order to address issues such as low skill levels and high rate of unemployment rates among youth. In Bangladesh, ineffective training schemes impede an effective labour market for growth. This is due to limited labour market information systems and weak dialogue between public educational institutions and employers. Government programmes in particular have found it difficult to respond to the changing needs of the labour market, and to provide up-to-date equipment because of bureaucratic and fiscal pressures.
India can help Bangladesh in many ways such as developing English speaking population; increase the number of technical and high-tech skilled population. There is a dearth of semi skilled based educational institutes such as repairing cell phones, and Bajaj Scooters.
The prestigious Indian Institute of Technologies (IITs) may also be advised to open in Bangladesh based on public and private partnership. Indeed, this may help to restrict migration then the reduction of poverty . An economically strong democratic Bangladesh may stabilize South Asia. Needless to mention that availability educated workforce with low level of employability may create more problems for both India and Bangladesh.
It seems useful to mention here that the world as we know today will undergo major changes by the middle of this century. The countries that are unable or slow to respond will have to make room for others that can move quicker and innovation will be the key differentiating factor. In the long term, it may even be possible for some economies to survive only on the basis of their capital or technology, but labour alone may be unable to provide this sustenance. By bringing a large part of their population to the economic marketplace, India, Bangladesh and other South Asian nations will set free their innovation potential which has so far not found any route to reach the market. When this happens, the region will surely be a different place.
The idea of projecting Bangladesh as a fundamentalist state may bear serious limitations. The country has its strong root. The culture, Rabindranath, Nazrul, Jashimuddin are all important contributors in order to support her claim as a nation state. One can not just ignore this root for just few episodes dictated by few Islamic fundamentalist groups.
The Mahajote’s win may be explained by high expectations because of repeated political failures. The country’s leaders took hazardous task to grow. At home, wrong policies, and selfish policymakers practically ruined the immense prospect of the country. This time, the Jote has successfully reconnected politics to the young and to youthful idealism. Then they have also tried to give them hope from frustration. The rediscovery of the ideals of liberation war has once again invigorated the young population. Thanks to Sector commanders forum for playing such catalytic role. How the new government will fulfill the challenges is remains to be seen.
The agricultural sector is the biggest challenge to the new government. The role of international agencies and their policy advice to the food-deficit economies such as Bangladesh may have played a significant contributory role to the development of the last year’s crisis. Since the mid-1990s, countries that rely heavily on cereal production – particularly rice – were advised by the international agencies that a highly liquid, global market for cereals would be a healthy and desirable development for all. Accordingly, many countries such as Bangladesh got convinced that it would be safe to cover any shortfall in domestic output with purchases from the international market particularly from India, Myanmar, Thailand and Vietnam. As a result the rice and wheat sectors became less protected. Some countries burdened with high cost of production even dismantled export bans and reduced import tariffs. Some International agencies even argued that there is a glut of food production worldwide as evinced from the downward trend in the real price of rice and wheat in the world market and building of huge food stocks in neighbouring India. India too has misunderstood this issue. Her response to last year’s food crisis in Bangladesh was not at all satisfactory. The policy makers in this region now can think of integrating the whole issue of agriculture, starting from uniform implicit and explicit subsidies (output and input) to pricing of output. Any unilateral decision will distort other markets, encourage informal trade and thus impedes the welfare of the people in the region.
Obviously, the old prescriptions of the international agencies have not worked. There is a need to revisit the old models, analyses and policy recommendations. Fresh long-term forecasts of demand of food items, factoring in new uses and new consumption patterns would be needed to estimate if there is a supply-demand gap emerging in the longer term. Investments in agriculture would have to be revived to increase the local production and this should include investments needed for better water management. Finally, out-of-the-box thinking will be needed to come out with new policy recommendations like creation of regional buffer stocks to overcome volatility in production. Or else, it will be the poor in the poorest countries that will suffer the most due to food shortage in future.
For last ten years, the country has produced result in the manufacturing sector. But the potentials still to be explored. Much of the failures may be derived from partisan politics, and the governments in power. People are disappointed by previous governments.
The most dangerous is security threat and tension across borders. Then there are countries who have been working hard to exploit the situation. India can play a pragmatic role here. Take the case of manpower. The training of man power may have immediate impact in order to improve relationship. It appears that there is a strong relationship between investments in human capital and economic growth in the context of Bangladesh. The need to improve the quality of human resources is particularly important for Bangladesh, given its importance in the attraction of foreign direct investment. Although the developing world accounts for a steadily increasing share of world manufacturing (partly driven by lower wages and costs in that world), competitive advantage based on low wages is inherently a transitory phenomenon: sooner or later, developing countries such as Bangladesh will face the need to improve their skill as other lower cost producers emerge (for example, garments).
Many have argued that the level of education is below the performance required to integrate entrants to the labour force. According to them part of the low productivity levels are partly explained by ineffective education. A significant number of populations have been at the highest risk of low academic achievement. The fact that the poor have low levels of education in Bangladesh highlights the need to address educational issues.
There are many different types of public and private training programmes in Bangladesh in order to address issues such as low skill levels and high rate of unemployment rates among youth. In Bangladesh, ineffective training schemes impede an effective labour market for growth. This is due to limited labour market information systems and weak dialogue between public educational institutions and employers. Government programmes in particular have found it difficult to respond to the changing needs of the labour market, and to provide up-to-date equipment because of bureaucratic and fiscal pressures.
India can help Bangladesh in many ways such as developing English speaking population; increase the number of technical and high-tech skilled population. There is a dearth of semi skilled based educational institutes such as repairing cell phones, and Bajaj Scooters.
The prestigious Indian Institute of Technologies (IITs) may also be advised to open in Bangladesh based on public and private partnership. Indeed, this may help to restrict migration then the reduction of poverty . An economically strong democratic Bangladesh may stabilize South Asia. Needless to mention that availability educated workforce with low level of employability may create more problems for both India and Bangladesh.
It seems useful to mention here that the world as we know today will undergo major changes by the middle of this century. The countries that are unable or slow to respond will have to make room for others that can move quicker and innovation will be the key differentiating factor. In the long term, it may even be possible for some economies to survive only on the basis of their capital or technology, but labour alone may be unable to provide this sustenance. By bringing a large part of their population to the economic marketplace, India, Bangladesh and other South Asian nations will set free their innovation potential which has so far not found any route to reach the market. When this happens, the region will surely be a different place.
Understanding India's Growth
Everyone agrees that India has a long-term growth potential. The recent government data reveals an interesting insight. It shows that despite global melt down India can even grow by 7.1 per cent per annum. The problem is that the major contribution of India’s growth story is due to high labour productivity. That implies skilled workers immense contribution to this growth. The structure of imports also points to a very capital intensive production structure in India. But India urgently needs to create more jobs.
One such option would be to increase the supply of skilled workers and a prerequisite for this would be to raise the general educational standard. In general, the level is below the performance required to integrate entrants to the labour force. The fact that the poor have low levels of education in India highlights the need to address educational issues. Let us not forget that primary education generates the highest rates of return; secondary level has lower returns while the tertiary level has returns higher than that of the secondary level.
Experts argue that skill-biased technological change is responsible for increasing inequality within the top portions of the income distribution. Evidently, most of the growth in inequality between the highest and lowest earners is due to poor educational performance of the unskilled and their quality available in the market. At the household level, ample evidence reveals that the poor face credit constraints which prevent them from investing optimally in their children's education. But this is only part of the story.
On the supply side, the government is equally to be blamed. In the Indian context mostly the government educational institutions are responsible for providing quality education from basic to higher educational level. In general terms they are abysmally poor. At the school level, the difference between the government schools and the private ones is too glaring to be emphasised. Similarly, although there are private institutions offering tertiary education, the regulating bodies are all government controlled. Research and publications wise, the performance of the teachers are abysmally poor even in the leading engineering and management institutes. One will have to struggle hard to find an Indian educational institute among the top 250 in the world. In future the country must compete through the quality of her human capital, her innovation and her research and development. Sound educational institutions will be a basic premise for meeting the challenges of skill-biased technologies. If it is possible, India will definitely be a different place.
One such option would be to increase the supply of skilled workers and a prerequisite for this would be to raise the general educational standard. In general, the level is below the performance required to integrate entrants to the labour force. The fact that the poor have low levels of education in India highlights the need to address educational issues. Let us not forget that primary education generates the highest rates of return; secondary level has lower returns while the tertiary level has returns higher than that of the secondary level.
Experts argue that skill-biased technological change is responsible for increasing inequality within the top portions of the income distribution. Evidently, most of the growth in inequality between the highest and lowest earners is due to poor educational performance of the unskilled and their quality available in the market. At the household level, ample evidence reveals that the poor face credit constraints which prevent them from investing optimally in their children's education. But this is only part of the story.
On the supply side, the government is equally to be blamed. In the Indian context mostly the government educational institutions are responsible for providing quality education from basic to higher educational level. In general terms they are abysmally poor. At the school level, the difference between the government schools and the private ones is too glaring to be emphasised. Similarly, although there are private institutions offering tertiary education, the regulating bodies are all government controlled. Research and publications wise, the performance of the teachers are abysmally poor even in the leading engineering and management institutes. One will have to struggle hard to find an Indian educational institute among the top 250 in the world. In future the country must compete through the quality of her human capital, her innovation and her research and development. Sound educational institutions will be a basic premise for meeting the challenges of skill-biased technologies. If it is possible, India will definitely be a different place.
Wednesday, June 11, 2008
Food crisis and World Bank
The FAO Chief Jacques Diouf recent comments on World Bank and the IMF policies are responsible for dismantling systems to protect farmers has introduced a new chapter to the ongoing debate on food crisis.
It is true that the donor-led policies led to the green revolution, it is equally true that their later policy changes left governments in the developing economies vulnerable to food shocks and troubles.Take the case of Green Revolution that was introduced in the late 1960s and its impact on rice cultivation. Farmers in these economies has had been immensely benefited. Thanks to the introduction wonder seeds such as IRRI-8 and IRRI-20 during Boro (winter) and Aman season (rain-fed). In fact the adoption of new technology averted widespread starvation and helped millions of people to escape hunger. Later, IRRI became the darling of Asian rice growers.
.The wonder seeds is also known as high yielding variety primarily implies use of improved variety of seeds, water, fertilizer and pesticides etc.The cultivation of the same variety during rabi season ( winter) needed deep-tube well, shallow tube well and areas under irrigation projects. The donor agencies played a contributory role in this context since the new variety needed a lot of money requiring credit and supportive investment from the government on flood control and irrigation.
At the later stage it was thought that money saved in subsidy would be reinvested in agriculture, but that did not happen. Interestingly despite the success of green revolution, the contribution of capital increasing land and labour productivity are low because of average savings and capital formation of rural areas are low in certain regions on account of limited average income from agriculture. This should have been considered as an ongoing process.
The World Bank and the USAID then advised the governments to phase out such programmes on the ground that these were not being properly targeted and leakage was high. Take the case of Bangladesh. Reports were prepared with the help of policy entrepreneurs. For example, an IFPRI study funded by the USAID argued that there is a glut of food production worldwide as evinced from the downward trend in the real price of rice and wheat in the world market and building of huge food stocks in neighboring India. Thus emphasis was given on economic efficiency in managing the food programme.
“The emphasis was then that the government can move from a policy of self-sufficiency to self-reliance with the underpinning idea that instead of producing its full requirement of food itself, it can look for import of food grain which was then cheaper on the international market," according to eminent economist Mahabub Hossain . In general the governments in developing economies took the advice and dismantled the food stocking and marketing infrastructure.
In the context of South Asia, public investments in agriculture are declining, and the annual increment to gross capital formation in agriculture is now lower than in the early 1980s. This trend is same across all economies More interestingly, increasing shares of total public expenditure on agriculture are allocated to input subsidies (on fertilizers, electricity, irrigation, and credit, for example), rather than to productivity-enhancing investments such as research and public investment in irrigation.
Experts argue that the differences in yield are due to poor water management. Irrigation, drainage and flood control investments can alter the water regime and in the process the plight of millions of small farmers. In other words, the two issues are inter-related, one with excess water regime and the other with shortage of water regime. Together, they constitute the concept of water management. The high magnitude of poverty in this region is partly explained by poor water management. The problem is that the said policy entrepreneurs are actually confused with the differences.
In the name of cost, agriculture became neglected by many international development agencies such as including the World Bank, IMF and the Asian Development Bank. In addition farmers’ lobby from US, Canada and Australia played a big role in this change of heart of their governments. The farmers' lobbies argued that the dip in international food price led to their ventures unprofitable and influenced their governments to stop funding Green Revolution.
In recent time many developing economies are transforming and in the process this has created shortages in food grains in order to fulfill the demand of new high value agriculture –with fast-growing urban incomes. Now we have new realization that achievement of MDG goal and poverty reductions are correlated.
The said policy entrepreneurs are vocal now for revival of agriculture. But it has huge cost such as starvation, malnutrition and death. Indeed, the governments of low-income food importing countries are beginning to learn a lesson from the present crisis .It is not wise to depend on the international market for food security as food exporting countries shut their doors as and when there is a crisis in the supply side.
It is true that the donor-led policies led to the green revolution, it is equally true that their later policy changes left governments in the developing economies vulnerable to food shocks and troubles.Take the case of Green Revolution that was introduced in the late 1960s and its impact on rice cultivation. Farmers in these economies has had been immensely benefited. Thanks to the introduction wonder seeds such as IRRI-8 and IRRI-20 during Boro (winter) and Aman season (rain-fed). In fact the adoption of new technology averted widespread starvation and helped millions of people to escape hunger. Later, IRRI became the darling of Asian rice growers.
.The wonder seeds is also known as high yielding variety primarily implies use of improved variety of seeds, water, fertilizer and pesticides etc.The cultivation of the same variety during rabi season ( winter) needed deep-tube well, shallow tube well and areas under irrigation projects. The donor agencies played a contributory role in this context since the new variety needed a lot of money requiring credit and supportive investment from the government on flood control and irrigation.
At the later stage it was thought that money saved in subsidy would be reinvested in agriculture, but that did not happen. Interestingly despite the success of green revolution, the contribution of capital increasing land and labour productivity are low because of average savings and capital formation of rural areas are low in certain regions on account of limited average income from agriculture. This should have been considered as an ongoing process.
The World Bank and the USAID then advised the governments to phase out such programmes on the ground that these were not being properly targeted and leakage was high. Take the case of Bangladesh. Reports were prepared with the help of policy entrepreneurs. For example, an IFPRI study funded by the USAID argued that there is a glut of food production worldwide as evinced from the downward trend in the real price of rice and wheat in the world market and building of huge food stocks in neighboring India. Thus emphasis was given on economic efficiency in managing the food programme.
“The emphasis was then that the government can move from a policy of self-sufficiency to self-reliance with the underpinning idea that instead of producing its full requirement of food itself, it can look for import of food grain which was then cheaper on the international market," according to eminent economist Mahabub Hossain . In general the governments in developing economies took the advice and dismantled the food stocking and marketing infrastructure.
In the context of South Asia, public investments in agriculture are declining, and the annual increment to gross capital formation in agriculture is now lower than in the early 1980s. This trend is same across all economies More interestingly, increasing shares of total public expenditure on agriculture are allocated to input subsidies (on fertilizers, electricity, irrigation, and credit, for example), rather than to productivity-enhancing investments such as research and public investment in irrigation.
Experts argue that the differences in yield are due to poor water management. Irrigation, drainage and flood control investments can alter the water regime and in the process the plight of millions of small farmers. In other words, the two issues are inter-related, one with excess water regime and the other with shortage of water regime. Together, they constitute the concept of water management. The high magnitude of poverty in this region is partly explained by poor water management. The problem is that the said policy entrepreneurs are actually confused with the differences.
In the name of cost, agriculture became neglected by many international development agencies such as including the World Bank, IMF and the Asian Development Bank. In addition farmers’ lobby from US, Canada and Australia played a big role in this change of heart of their governments. The farmers' lobbies argued that the dip in international food price led to their ventures unprofitable and influenced their governments to stop funding Green Revolution.
In recent time many developing economies are transforming and in the process this has created shortages in food grains in order to fulfill the demand of new high value agriculture –with fast-growing urban incomes. Now we have new realization that achievement of MDG goal and poverty reductions are correlated.
The said policy entrepreneurs are vocal now for revival of agriculture. But it has huge cost such as starvation, malnutrition and death. Indeed, the governments of low-income food importing countries are beginning to learn a lesson from the present crisis .It is not wise to depend on the international market for food security as food exporting countries shut their doors as and when there is a crisis in the supply side.
Friday, March 21, 2008
Farm Loan Waiver and Agricultural Investment
Arindam Banik and Pradip K Bhaumik
The Rs 60,000 crore agricultural loan waiver by the finance minister has rightly generated widespread debate. The reason goes back to farmers’ debt-related distress and even suicides in India. However, the move has been controversial. If the issue is debt- related misery and distress one must ask why it is so. One can not guarantee that the farmers will not borrow next year. More specifically, long run prospects are sacrificed at the cost of short run gains.
It is established now that the farmer-debtor is generally required to repay his/her debt immediately after the harvest is in. This means that the farmer is trapped in a regressive market mechanism in two ways. First, with no other means to repay the debt, he/she is forced to sell the produce immediately after the harvest – quite often to the creditor or to the creditor's agent – probably at a pre-arranged price or in pre-decided quantities.
Second, sale of crops immediately after the harvest means that the farmer-debtor probably receives less for his/her produce than what he/she could have obtained at a later point in time when the market prices stabilize. As more and more farmer-debtors wish to convert their harvest into cash, the crop prices tend to get further depressed.
While all that has been stated above is true of farmers in general, the case of cash crop farmers deserves special attention. Interestingly, farmers who go for cash crops such as tobacco, sugarcane, or cotton are not the typical small farmers.
They are the ones with relatively large land holdings and risk appetite and for them farming is an act of commerce. The anticipated incentives in the output market are the motivating factors for hard work as well as for high input costs. The results are, however, not always as expected.
During harvest time, supply of crops often overshadows demand and thus price goes down. This is due to the pressure created by both formal and informal lenders for loan repayment immediately after harvest.
As a consequence, not only are marginal input costs higher than the marginal revenue, even average input costs are sometimes higher or just marginally lower than the average revenue, leaving little or no cash surplus for loan servicing.
It is hard to generalize a small farm as one with not more than two hectares of land across the whole of India. Physical land under assured irrigation is much more productive than the area with no assured irrigation. Thus a small farmer with less land but assured irrigation may be financially much better-off than another farmer with much larger land holding but no assured irrigation.
Take the case of Eastern India and some parts of Southern India. The basic unit for organizing production in the rural areas is either the farm or the village, depending on the way in which rural society is structured. In this region agriculture is characterized by small farms in alluvial lowlands, too many people on too little land, production largely for subsistence, and a heavy dependence on cereals and other food staples. Farming with simple handheld tools or ploughs pulled by draft animals is very common. Many farmers are owner-tenants and tenants.
Rice, usually grown under wet conditions, is the staple food crop in this region. Controlled irrigation facilities are poorly developed, yields are often low, and double-cropping (planting and harvesting two crops in one calendar year) is not universally practiced. Although high-yield varieties of wet rice have been introduced since the 1960s, this has not increased production as predicted.
In Northern India irrigation schemes have helped stabilize annual yields and increase overall production, but the average rice yield per hectare in the mid-1990s was only about half that of Japan. Nevertheless, Asian countries produce about 90 percent of the world’s rice. China and India alone account for nearly 60 percent of the world total.
The average rice yield is 2.9 tonnes per hectare in India. In comparison, average rice yield is 6.8 tonnes per hectare in Republic of Korea, 6.2 tonnes in Japan, 6.3 in China, 4.3 in Indonesia, and 3.8 in DPR Korea. A central issue is therefore why productivity has remained so low in India particularly in the eastern region despite availability of modern rice technology.
Experts argue that the above differences in yield are due to poor water management. Irrigation, drainage and flood control investments can alter the water regime and in the process the plight of millions of small farmers. In other words, the two issues are inter-related, one with excess water regime and the other with shortage of water regime. Together, they constitute the concept of water management. The high magnitude of poverty in this region is partly explained by poor water management.
Admittedly, achieving food security has been the overriding goal of agricultural policy in India. The introduction and rapid spread of high-yielding rice and wheat varieties in the late 1960s and early 1970s resulted in steady output growth for foodgrains. Public investment in irrigation and other rural infrastructure and research and extension, together with improved crop production practices, has significantly helped to expand production and stocks of foodgrains.
However, success story due to Green Revolution is waning now. Public investments in agriculture are declining, and the annual increment to gross capital formation in agriculture is now lower than in the early 1980s. This trend is same across all states in India, not just the poorer ones. More interestingly, increasing shares of total public expenditure on agriculture are allocated to input subsidies (on fertilizers, electricity, irrigation, and credit, for example), rather than to productivity-enhancing investments such as research and public investment in irrigation. The share of input subsidies in public expenditure increased from 44 per cent in the early 1980s to 83 per cent by 1990. Private investment in agriculture has increased modestly in recent years, but not enough to fill the gap left by the decrease in public spending.
The economy is transforming and in the process this has created shortages in foodgrains in order to fulfill the demand of new high value agriculture –with fast-growing urban incomes. Thus we need investment to create more fertile land and water. Otherwise the success story of green revolution may disappear shortly. Unfortunately, the agricultural loan waiver would hardly be used to create these investments.
The Rs 60,000 crore agricultural loan waiver by the finance minister has rightly generated widespread debate. The reason goes back to farmers’ debt-related distress and even suicides in India. However, the move has been controversial. If the issue is debt- related misery and distress one must ask why it is so. One can not guarantee that the farmers will not borrow next year. More specifically, long run prospects are sacrificed at the cost of short run gains.
It is established now that the farmer-debtor is generally required to repay his/her debt immediately after the harvest is in. This means that the farmer is trapped in a regressive market mechanism in two ways. First, with no other means to repay the debt, he/she is forced to sell the produce immediately after the harvest – quite often to the creditor or to the creditor's agent – probably at a pre-arranged price or in pre-decided quantities.
Second, sale of crops immediately after the harvest means that the farmer-debtor probably receives less for his/her produce than what he/she could have obtained at a later point in time when the market prices stabilize. As more and more farmer-debtors wish to convert their harvest into cash, the crop prices tend to get further depressed.
While all that has been stated above is true of farmers in general, the case of cash crop farmers deserves special attention. Interestingly, farmers who go for cash crops such as tobacco, sugarcane, or cotton are not the typical small farmers.
They are the ones with relatively large land holdings and risk appetite and for them farming is an act of commerce. The anticipated incentives in the output market are the motivating factors for hard work as well as for high input costs. The results are, however, not always as expected.
During harvest time, supply of crops often overshadows demand and thus price goes down. This is due to the pressure created by both formal and informal lenders for loan repayment immediately after harvest.
As a consequence, not only are marginal input costs higher than the marginal revenue, even average input costs are sometimes higher or just marginally lower than the average revenue, leaving little or no cash surplus for loan servicing.
It is hard to generalize a small farm as one with not more than two hectares of land across the whole of India. Physical land under assured irrigation is much more productive than the area with no assured irrigation. Thus a small farmer with less land but assured irrigation may be financially much better-off than another farmer with much larger land holding but no assured irrigation.
Take the case of Eastern India and some parts of Southern India. The basic unit for organizing production in the rural areas is either the farm or the village, depending on the way in which rural society is structured. In this region agriculture is characterized by small farms in alluvial lowlands, too many people on too little land, production largely for subsistence, and a heavy dependence on cereals and other food staples. Farming with simple handheld tools or ploughs pulled by draft animals is very common. Many farmers are owner-tenants and tenants.
Rice, usually grown under wet conditions, is the staple food crop in this region. Controlled irrigation facilities are poorly developed, yields are often low, and double-cropping (planting and harvesting two crops in one calendar year) is not universally practiced. Although high-yield varieties of wet rice have been introduced since the 1960s, this has not increased production as predicted.
In Northern India irrigation schemes have helped stabilize annual yields and increase overall production, but the average rice yield per hectare in the mid-1990s was only about half that of Japan. Nevertheless, Asian countries produce about 90 percent of the world’s rice. China and India alone account for nearly 60 percent of the world total.
The average rice yield is 2.9 tonnes per hectare in India. In comparison, average rice yield is 6.8 tonnes per hectare in Republic of Korea, 6.2 tonnes in Japan, 6.3 in China, 4.3 in Indonesia, and 3.8 in DPR Korea. A central issue is therefore why productivity has remained so low in India particularly in the eastern region despite availability of modern rice technology.
Experts argue that the above differences in yield are due to poor water management. Irrigation, drainage and flood control investments can alter the water regime and in the process the plight of millions of small farmers. In other words, the two issues are inter-related, one with excess water regime and the other with shortage of water regime. Together, they constitute the concept of water management. The high magnitude of poverty in this region is partly explained by poor water management.
Admittedly, achieving food security has been the overriding goal of agricultural policy in India. The introduction and rapid spread of high-yielding rice and wheat varieties in the late 1960s and early 1970s resulted in steady output growth for foodgrains. Public investment in irrigation and other rural infrastructure and research and extension, together with improved crop production practices, has significantly helped to expand production and stocks of foodgrains.
However, success story due to Green Revolution is waning now. Public investments in agriculture are declining, and the annual increment to gross capital formation in agriculture is now lower than in the early 1980s. This trend is same across all states in India, not just the poorer ones. More interestingly, increasing shares of total public expenditure on agriculture are allocated to input subsidies (on fertilizers, electricity, irrigation, and credit, for example), rather than to productivity-enhancing investments such as research and public investment in irrigation. The share of input subsidies in public expenditure increased from 44 per cent in the early 1980s to 83 per cent by 1990. Private investment in agriculture has increased modestly in recent years, but not enough to fill the gap left by the decrease in public spending.
The economy is transforming and in the process this has created shortages in foodgrains in order to fulfill the demand of new high value agriculture –with fast-growing urban incomes. Thus we need investment to create more fertile land and water. Otherwise the success story of green revolution may disappear shortly. Unfortunately, the agricultural loan waiver would hardly be used to create these investments.
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