Thursday, December 14, 2017

Ideal Money – Ideal or a Far Cry from the Idea?

By Deepthi Mary Mathew*
The world has witnessed two major economic crises over the last decade – Sub-prime and Euro zone crises. These periods witnessed a string of discussions and debates aimed at lifting the ailing economies out of the crises. Keynesian economics that lost its glory during the 1970s returned to the centre stage. The central banks in the crisis-hit countries resorted to unconventional measures and started pumping money into the economies. From ‘Quantitative Easing’ to ‘Helicopter Money’, we were introduced to different concepts, while capital was flooded to financial institutions. The result was a sudden movement of capital between the countries in search of maximum returns. Consequently, there was huge instability in the currency markets that witnessed sudden depreciation/appreciation of major currencies.
Now, the central banks in these economies are in a major dilemma, as the withdrawal of measures meant to combat the crises could possibly lead to another major financial crisis. The whole situation throws light on the inherent weaknesses in the existing monetary system. Under the present system, central banks and governments have a monopoly in printing currency. With ‘fiat money’ in circulation across the globe not backed by any commodity but only by the government, central banks are given a free hand in deciding the amount of currency to be printed. Bubbles and burst experienced by us is mainly an offshoot of this system.
The demand for an alternative monetary system that could ensure stability in the currency market and limit the manipulative powers of central banks gained traction. It was against this backdrop that John F Nash introduced the concept of ‘ideal money’ as an alternative to the existing system. He proposed the construction of a good Industrial Consumption Price Index (ICPI) statistic, which would include the prices of commodities such as copper, tungsten, silver etc that are mainly used in industrial activities. He states that ICPI would serve as the standard for the value of international monetary unit, thus limiting the political roles of the central banks and state authorities.
Nash does not guarantee that such a system would completely eliminate political corruption, and argues that its success, to a great extent, depends on how the index is constructed in the first place. In his words, “… politicians in control of the authority behind standards could corrupt the continuity of a good standard, but depending on how things were fundamentally arranged; the probabilities of serious damage through political corruption might become as small as the probabilities that the values of the standard meter and kilogram will be corrupted through the actions of politicians.”
A major concern is with regard to the commodities that should be included in the construction of the index. From gold and platinum to crude petroleum, Nash maintains that a good ICPI should be accommodative enough to include a ‘miracle energy source’ that would be found in the future. “If a good ICPI is constructed, it should not be expected to be valid as initially defined for all eternity. It would instead be appropriate for it to be regularly readjusted depending on how the patterns of international trade would actually evolve,” he adds.

However, it is difficult to ensure that the ICPI will have a smooth ride. Changing market conditions and growing technology could have a direct impact on the prices of the commodities that are included in the index. This, in turn, will be reflected in the value of the index. As the Consumer Price Index (CPI) for measuring inflation rate varies in different quarters, so will the value of ICPI. The changing value of ICPI can make the currency market more risky and unstable. Thus, the selection of commodities to ensure stability in the value of ICPI could turn out to be a costly affair. 

*Deepthi Mary Mathew is Research Associate at CPPR-Centre for Comparative Studies. Views expressed by the author is personal and does not represent that of CPPR

Wednesday, December 13, 2017


By Ginu Sunny*

Domestic workers comprise a significant part of the unorganised sector and contribute to the national income. Yet, they remain invisible, unregistered in any book and excluded from the labour legislations of our country. The domestic workforce is often considered the grey area of work force that works behind closed doors of private households and is often hard to reach by any conventional policy tools.For instance, this is how the National Sample Survey Organisation (NSSO) in its survey in 2009–10 described the Indian scenario of employment and workforce.
“The total employment in the country was 46.5 crore comprising around 2.8 crore in the organised and the remaining 43.7 crore workers in the unorganised sector. Out of these workers in the unorganised sector, there are 24.6 crore workers employed in agricultural sector, about 4.4 crore in construction work and remaining in manufacturing and service.”(C-DAC, 2016)
Being a highly feminised sector, the nature of domestic work differs from person to person making it a unique and complex workforce. The household works and the employer–employee relationship differ in each situation. Even though most of them work 24/7, they are paid very low wages, have no guaranteed weekly day of rest or medical cover, face restrictions on freedom of movement, and often suffer physical, mental and sexual abuse.
The exploitation of domestic workers can partly be attributed to gaps in national labour and employment legislations, and often reflects discrimination along the lines of sex, race and caste. Various state governments put forward legislations such as the Unorganized Social Security Act and Minimum Wages Schedule, which refer to domestic workers also. However, we can still find an absence of a comprehensive, uniformly applicable national legislation that guarantees fair terms of employment and decent working conditions. Building and strengthening national institutions, adopting effective policy and legislative reforms, facilitating the organisation and representation of domestic workers and their employers, regulation of recruitment and placement agencies in the resource states, and raising awareness and advocacy on domestic workers’ rights are some strategies put forward to change this situation. Main hurdles in implementing these strategies are society’s attitude towards domestic workers and illiteracy, which exclude this disadvantaged section from enjoying the benefits of their own rights. Organising them into one group is also a giant leap in achieving these strategies. But other than these, the ultimate change should happen on the part of employers, who should ensure that theyrespect the rights of domestic workersand treat themfair and square.
There is no dearth of legislations or programmes in our country that intend to cover domestic workers and protect their rights. The problem lies in their implementation and weak institutions and systems of the country. Rather than framing new legislations and forming new organisations, we should work to fortify these institutions and make them capable of delivering and defending the rights of domestic workers. This will help turn the spotlight on the plight of domestic workers and kindle the society to recognise their contributions.

The author is Research Intern with CPPR. Views expressed by the author is personal and does not reflect that of CPPR.

*Featured Image source: Business Line

Friday, June 16, 2017

How Liberal is Kerala’s Latest Liquor Policy?

Rahul V Kumar*

The hardline liquor prohibition policy of the previous United Democratic Front (UDF) Government in Kerala was debated more as a political issue than for its economic rationale. The outcome of this policy indicated that popular political whims could have serious unintended consequences. While there is an absence of systematic data indicating a decline in the use of alcohol, there are sufficient data indicating that drug abuse became prevalent following restrictions in the sale of liquor. This was enough evidence for the incumbent Left Democratic Front (LDF) Government to roll back the policy of prohibition. The LDF government’s new liquor policy is more a political statement that challenges the existing policy intended to phase out liquor sales in Kerala. Several bars with three and four-star status that were closed following the ban are proposed to be opened under the new policy. There are conflicting data on the exact number of bars that will start functioning in the state. The new policy has also raised the minimum age to purchase and consume liquor to 23 years. Moreover, the policy would give the toddy industry a big push by allowing the sale of toddy in bars. While the license fees to sell liquor through stores and other outlets are hiked, the new policy appears to liberalise the sector by increasing access to liquor in the state. However, the liquor industry in Kerala is still strictly controlled by the government, as it is in many other states in India.
As the new policy becomes operational, it is important to ask if it proposes any novel initiative that could transform the liquor sector of Kerala. A crucial transformation that liquor businesses in Kerala require is not mere access to liquor but access to quality liquor through quality outlets. If the new liquor policy cannot guarantee this aspect of liquor trade, then dingy bars and crowded consumer outlets will make a comeback in the state. Is there anything that the state of Kerala could do to effectively modernise these outlets? If there is then what are the constraints that prevent the State Government from taking specific steps towards this goal? Buying liquor from outlets in Kerala could be a time-consuming exercise at any time of the day. Long queues in front of these outlets are a common sight. Those who find it difficult to stand in queues have little choice but to visit bars, where taxes still pull up the price of liquor. Will the new liquor policy bring respite to the plight of these consumers? Increasing the price through taxes is supposed to be a disincentive for liquor consumers. The logic is that if liquor becomes unaffordable, people would buy less and thereby the state could demonstrate its commitment to the health of its citizens. This has not been a successful policy in Kerala.
Lack of asymmetric information alone does not cause market failure in the liquor sector of Kerala. Addiction that leads to overuse or abuse, which, in turn, begets crime, accidents and health hazards is a major worry. If prohibition has not been able to tackle these issues for a long time, it is worth experimenting what a liberal market in liquor has to offer. To formulate an effective liquor policy, we need to accept the fact that there is a large market for quality liquor in Kerala. The successive governments in Kerala have acknowledged that liquor is a major tax earner but have failed to accept that it is the market that creates this potential to tax and thereby provide revenue to various other state activities. Hence, the requisite is to support the market for liquor and frame rules that could make this market effective by avoiding failures. Even amidst aggressive taxing strategies as well as isolating the outlets in dingy corners, the market for liquor in the state has survived and seems to be thriving. This is indicative of the insatiable demand for the product. This also suggests that any attempt to control the liquor market would lead to a proportional increase in black markets.

The logical alternative then is to set certain broad rules for the liquor sector and liberalise the industry allowing access to foreign as well as local players. Alcohol consumption and sales are still a male-dominated sector in Kerala. Allowing retail chains to sell high-quality liquor products could change these gendered notions. Once we overcome such conventions, the sector could be a major source of employment for all genders. Such retails would better the choice available with the people and allow consumers to choose between vendors. Competition will then be among the vendors to ensure quality of products and services. Competition will allow the industry to set better standards not only in responsible drinking but also in ensuring that consumers have a choice between dingy outlets and well-maintained stores.

*The author is Research Consultant at Centre for Public Policy Research. Views expressed by the author is personal and does not reflect that of the organisation. 

Image source: The Wire

Wednesday, June 14, 2017

Animal Market Regulations: Some Immediate Concerns

D Dhanuraj and Rahul V Kumar*

India is predominantly an agrarian economy with a large section of its population depending on the sector for their livelihood. Cattle form a vital part of agriculture and allied activities. Various estimates suggest that India has a large bovine population with approximately 303 million cattle and water buffaloes alone. More than 60 million small and marginal farmers own a major part of these animals, which directly aid agriculture and form an essential part of the dairy and meat industry. The meat producing industry depends mostly on the unorganised sector for sourcing the products. This unorganised sector includes animal markets as well as slaughter houses. Estimates put the number of slaughter houses in the unorganised sector in India at 25000. The meat industry in India is estimated at approximately $15000 million. Various departments under the Ministry of Health and the Ministry of Commerce regulate the functioning of these markets.
It is in the context of these huge business prospects in the meat industry in India that the ‘Prevention of Cruelty to Animals (Regulation of Livestock Markets) Rules, 2017’ needs to be examined. The new regulatory framework attempts to regulate animal markets by introducing a set of rules restricting the sale of animals in these markets. Animal market in India is largely in the form of an open market with little formal controls. The rule provides a loose definition of a market to accommodate this informality. Accordingly, an animal market is defined as, “… a market place or sale-yard or any other premises or place to which animals are brought from other places and exposed for sale or auction and includes any lairage ... slaughter house ... and any place adjoining a market ... parking areas by visitors to the market ... animal fair and cattle pound where animals are offered or displayed for sale or auction.”
As such, the new regulations on animal markets could be a crucial step in formalising the markets and making efficient allocations within a formal structure. This could be considered as a novel initiative to reform the animal markets. However, we need to probe more into the functioning of such markets to understand the effect of the new rule on business transactions. An efficient market should be allowed to function freely with broad rules to ensure effective transactions between buyers and sellers. In the least, entry and exit from these markets should be convenient and prices tending towards competitive levels.
The Regulation of Livestock Markets Rules, 2017, is likely to create more hurdles towards a competitive market structure and bring in undue controls disrupting the existing animal markets. For instance, the rule constitutes the creation of a new bureaucratic framework  called the Animal Market Monitoring Committee, which will make it difficult for poor farmers to sell animals in these markets. A major hurdle is that such animals cannot be sold in the markets for the purpose of slaughter. Selling of cattle between the states is also restricted. Proof of sales (five copies to be maintained by not only the buyer and seller but also the local government officials, Chief Veterinary Officer and Animal Market Monitoring Committee) as well as documents to prove farmland ownership rights will be monitored by the authorities under the Animal Market Monitoring Committee for each sale of animals. These restrictions and documents make it extremely difficult for the small and marginal farmers to dispose of their old cattle stock to the meat producers through animal markets. This, in turn, is likely to affect not only the livelihood of these farmers but also the large meat export industry in India.

In India, multiple laws govern animal trade and various agencies monitor the trade at different levels. Since the State Governments have a major say in the matter, animal traders have to deal with the Central, State and Local Government legalisations. While each State Government has defined its own rules, governmental departments including health, Food Safety and Standards Authority of India (FSSAI), Pollution Control Board, Police etc monitor the trade. What matters the most are the rules and regulations that restrict opportunities for small and medium enterprises. It is easy to find fault with them, as they may not have the wherewithal to oblige to conform to the technical requirements that the law stipulates. In a way, these issues are similar to the challenges faced by street vendors. There is a need to study the matter carefully so that the smaller players could also make a decent living doing a decent job. These rules seem to be restricting them from trade and increasing opportunities to harass them. 

D Dhanuraj is Chairman of Centre for Public Policy Research and Rahul V Kumar is Research Consultant at Centre for Public Policy Research. Views expressed by the authors are personal and does not represent of CPPR