1. Top prize for labour economics

Relevant for GS Prelims & Mains Paper; Miscellaneous

(From Left to Right) David Card, Joshua D Angrist and Guido W Imbens. (Ill. Niklas Elmehed © Nobel Prize Outreach)

On Monday, the Royal Swedish Academy of Sciences awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2021 — often incorrectly referred to as the Nobel Prize in Economics — to three US-based economists. One half of the award has gone to David Card, who teaches at the University of California at Berkeley, and the other half jointly to Joshua D Angrist of MIT and Guido W Imbens of Stanford University. The prize money of 10 million Swedish kronor (Rs 8.60 crore) will be divided accordingly. Imbens, who answered the call from the Academy, was particularly thrilled to have received the award along with his long-time friends; he was not only Imbens’s PhD supervisor but also the best man at his wedding.

Cause & effect

The citation states: “This year’s Laureates have provided us with new insights about the labour market and shown what conclusions about cause and effect can be drawn from natural experiments. Their approach has spread to other fields and revolutionised empirical research.”

To understand, one needs to look at some of the most important questions in society today: Does immigration affect salaries and employment levels? Do investments in school  education improve the future earnings of students? Will raising minimum wages lead to lower employment levels?

All these questions have been relevant and continue to be so across time and geographies. But what is particularly tricky about answering any such question is the inability to create a randomised control trial wherein one deprives some kids of school education and provides it to others to ascertain the answer.

This is where this year’s winners stood out. They found ways to cut through the often observed correlations and established whether or not they exhibited causality. To be sure, correlation is simply the occurrence of two events together, but mere correlation does not imply causality (which requires a clear understanding that one event “causes” the other.)

The association between education and income

Card: wages & jobs

Card’s use of so-called “natural experiments” (situations arising in real life that resemble randomised experiments) has been both revealing and exemplary.

For example, it is commonly held that raising minimum wages lead to lower employment. The argument is that higher wages will increase costs for the firms and lead to employers recruiting fewer people. But is it the case that higher wages “cause” employment to fall? Or, is it the case that just because the two things have been seen to occur on several occasions, one has, incorrectly, started believing that higher wages lead to lower employment?

Card used a “natural experiment” to test out this presumed casualty. In 1992, the hourly minimum wage in New Jersey was increased from $4.25 to $5.05. Card, along with Alan Krueger, studied the effect on employment in New Jersey and compared it with employment in neighbouring areas of eastern Pennsylvania. “The results showed, among other things, that increasing the minimum wage does not necessarily lead to fewer jobs,” noted the Royal Swedish Academy. Card’s “studies from the early 1990s challenged conventional wisdom, leading to new analyses and additional insights,” they state.

Angrist, Imbens: education, pay

Angrist and Imbens have been recognised “for their methodological contributions to the analysis of causal relationships”. They helped make sense of the data from such natural experiments. This is crucial because unlike a clinical trial or randomised control trial, in a natural experiment a researcher is not in control of the experiment. making it difficult to draw precise conclusions and firm up causal links.

For example, extending compulsory education by a year for one group of students (but not another) may or may not affect everyone in the groups in the same way. “Some students would have kept studying anyway and, for them, the value of education is often not representative of the entire group. So, is it even possible to draw any conclusions about the effect of an extra year in school?” the Academy notes. “In the mid-1990s”, the duo “solved this methodological problem, demonstrating how precise conclusions about cause and effect can be drawn from natural experiments.”

The India context

The methodology, research and findings of these economists date back to the early and mid-90s and they have already had a tremendous influence on the research undertaken in several developing countries such as India.

For instance, in India, too, it is commonly held that higher minimum wages will be counterproductive for workers. It is noteworthy that last year, in the wake of the Covid-induced lockdowns, several states, including Uttar Pradesh, had summarily suspended several labour laws, including the ones regulating minimum wages, arguing that such a move will boost employment.

Leading labour economists such as Professor Ravi Srivastava, Director of Centre for Employment Studies in Institute for Human Development, and Radhicka Kapoor, Fellow at the Indian Council for Research on International Economic Relations, had argued against such deregulation last year.

“Their studies did provide a justification for raising minimum wages in the US — a question on which the economics fraternity was very divided. I used it with other studies to justify a national minimum wage for India,” said Srivastava.

Kapoor said the main learning from Card’s work is that minimum wages can be increased in India without worrying about reducing employment. She pointed out that minimum wages in India are very low. The national minimum wage, for instance, is just Rs 180 per day.

Now, India has a minimum wages code; it will extend to unorganised sector workers. “So, enhancing minimum wages is very important to improve incomes in the unorganised sector as well,” she said. “This (learning that raising minimum wages do not hold back employment) is particularly important given the aggregate demand constraints that exist in the Indian economy, especially among those who are at the bottom of the income distribution”.

Source: The Indian Express

2. Public-private partnership breaches space frontier

Relevant for GS Prelims & Mains Paper II; Polity & Governance

Prime Minister Narendra Modi on Monday launched the Indian Space Association (ISpA), an industry body consisting of various stakeholders of the Indian space domain. The members of the organisation include government bodies such as Indian Space Research Organisation (ISRO) and private telecom companies such as Bharti Airtel’s One Web, Tata Group’s Nelcom, L&T, MapMyIndia, and others.

Why is the formation of ISpA significant?

Ever since the race to reach the space and then land on the Moon began between the US and the erstwhile USSR, governments across the world have poured millions of dollars to push the envelope in term of exploring the edges of the space. With time, governments and government agencies collaborated to explore newer planets and galaxies in search of life forms that exist outside Earth.

In the recent past, private sector companies such as Elon Musk’s SpaceX, Richard Branson’s Virgin Galactic, and Jeff Bezos’ Blue Origin have taken the lead in spaceflight, promising to start tourist flights to space.

Though India too has made significant strides in space exploration over time, state-run ISRO has been at the centre and front of this progress. Several private sector companies, however, have shown an interest in India’s space domain, with space-based communication networks coming to the fore.

What does ISpA aim to achieve?

One of the main goals of the organisation is to supplement the government’s efforts towards making India a global leader in commercial space-based excursions. Of late, ISRO’s rockets have been carrying the payload and communication satellites of various countries; now, private players will also look to broach this space with the new organisation.

ISpA said it would engage with stakeholders across the ecosystem for the formulation of an enabling policy framework which fulfils the government vision of leading commercial space exploration. “ISpA will also work towards building global linkages for the Indian space industry to bring in critical technology and investments into the country to create more high skill jobs,” the organisation said.

Who are the stakeholders in this organisation? How will they contribute?

ISpA will be represented by leading domestic and global corporations that have advanced capabilities in space and satellite technologies. The founding members include telecom service providers such as Bharti Airtel, engineering firm Larson & Toubro, and other companies such as Nelco of Tata Group, OneWeb, Mapmyindia, Walchandnagar Industries and Alpha Design Technologies.

Other core members include Godrej, Hughes India, Ananth Technology Limited, Azista-BST Aerospace Private Limited, BEL, Centum Electronics, and Maxar India.

In India, the space-based communications network has taken off with several Indian and international companies betting on it as the next frontier to provide high-speed and affordable Internet connectivity to inaccessible areas as well. This includes SpaceX’s StarLink, Sunil Bharti Mittal’s OneWeb, Amazon’s Project Kuiper, US satellite maker Hughes Communications, etc.

OneWeb, for example, is building its initial constellation of 648 low-earth orbit satellites and has already put 322 satellites into orbit. Its services are expected to begin this year to the Arctic region including Alaska, Canada, and the UK. By late 2022, OneWeb will offer its high-speed, low latency connectivity services in India and the rest of the world.

In addition, StarLink and Amazon are also in discussion with the Indian government for a licence to offer satellite-based Internet services. SpaceX has a plan to create a network of 12,000 satellites of which over 1,300 are already sky-borne.

Why is satellite-based Internet important in India?

The expansion of the Internet in India is crucial to the Modi government’s dream of a digital India where a majority of government services are delivered directly to the customer. Although the government aims to connect all villages and gram panchayats with high-speed Internet over the next 1000 days through BharatNet, internet connectivity in hilly areas and far-flung places of Northeast India are still a challenge.

To overcome this, industry experts suggest that satellite Internet will be essential for broadband inclusion in remote areas and sparsely populated locations where terrestrial networks have not reached. As of now, however, satellite communications remains limited to use by corporates and institutions that use it for emergency use, critical trans-continental communications and for connecting to remote areas with no connectivity.

As of August this year, India had only 3 lakh satellite communications customers, compared with 45 lakh in the US and 21 lakh in the European Union.

Source: The Indian Express

3. Islamic State vs Taliban

Relevant for GS Prelims & Mains Paper II; International Issues

The suicide attack on a mosque in Kunduz last week, killing at least 50 people, all of them from Afghanistan’s persecuted Shia minority, is a grave reminder that the conflict in the country is far from over. The Islamic State-Khorasan (IS-K), the Afghanistan-based arm of the terrorist organisation, has claimed responsibility. The IS’s doctrinal hatred towards the Shias is known. In Iraq and Syria, it systematically targeted Shias, who it calls “rejectionists” of faith, and used such attacks to mobilise the support of Sunni hardliners and trigger sectarian conflicts. The Kunduz blast was the third major attack by the IS since the Taliban’s takeover of Kabul on August 15. Days later, an IS suicide squad attacked Kabul airport when thousands of Afghans were desperately trying to flee the country, killing at least 170 Afghans and 13 American soldiers. On October 3, a bomb targeted a memorial service being held for the mother of the Taliban spokesman, Zabihullah Mujahid, in a Kabul mosque, killing five. All these attacks suggest that the IS-K’s ability to strike has grown. The group, which started operating in Afghanistan’s eastern provinces after it suffered setbacks in Iraq and Syria in 2015-16, is no longer confined to the east.

When the Taliban captured power in 1996, their main promise was to provide security to a people who were living through almost two decades of civil war. The Taliban had taken control of almost 90% of the country and established order through the implementation of their brutal code. This time, the Taliban control almost all of the country, but still struggle to establish order. There have been multiple instances of direct fighting between the Taliban and IS-K jihadists. The Taliban is an enemy for the IS-K, which wants to establish a foothold in Afghanistan exploiting the its sectarian wounds and security vacuum. While both groups have used tactics of terror, the IS-K is a pan-Islamist jihadist outfit, while the Taliban are largely a Pashtun nationalist militancy. The rise of the IS-K poses multiple challenges to the Taliban’s rule over Afghanistan, which many in Afghanistan and Pakistan saw as a solution to the country’s security woes. On one side, their promise to provide security looks hollow. Afghanistan’s cities under the Taliban remain as insecure as they were under the previous Islamic Republic. On the other hand, even if the Taliban, under pressure from Afghanistan’s donors and the public, want to make some concessions on the many restrictions already imposed, they would come under pressure from the more extremist IS-K, which says the Taliban are not Islamic enough. For the people of Afghanistan, who are stuck between the devil and the deep blue sea, the war that started 40 years ago continues, no matter who is in power in Kabul.

Source: The Hindu

4. Boost tourism through disruption

Relevant for GS Prelims & Mains Paper III; Economics

The Indian tourism and hospitality sector were adversely affected by the COVID-19 pandemic and saw substantial job loss. How do we pull this sector out of the COVID-19 trap?

The Government of India recently announced financial support for more than 11,000 registered tourist guides/travel and tourism stakeholders. It also said once international travel resumes, the first five lakh tourists will be issued visas free of charge. In the pre-pandemic period too, many initiatives were adopted to promote the tourism sector, such as providing e-visas under various categories for people from particular countries, Global Media Campaigns, the Heritage Trail and the Paryatan Parv celebration.

These measures are welcome. However, we need other long-term measures too, to tap the potential of this sector. What we need is disruptive innovation strategy which has the potential to create employment opportunities and increase revenue through private sector growth.

The Startup India initiative has boosted entrepreneurship. However, the travel and tourism startups need a bigger push. Innovative startups should be encouraged. Support from the government for ideation and access to finance are required.

A sector with potential

As per the estimates of the erstwhile Planning Commission, an investment of ₹1 million generates 78 jobs in the tourism sector. In the manufacturing sector, it results in just 18 jobs and in the agriculture sector, 45. The tourism sector, unlike many other sectors, can grow with smaller capital investments and that too without any industrial gestation period.

There is need to train the workforce in India, so that workers can develop the skills to perform jobs in the travel and tourism sector. The growth in this sector has multiplier effects on income generation as it is employment-intensive with less capital investment. The India Skill Report, 2019, estimates the Indian workforce to increase to about 600 million by 2022 from the current 473 million in view of the fourth industrial revolution. The tourism sector will have a major role to play in providing employment opportunities.

India improved its competitiveness in travel and tourism, from occupying the 65th position in 2013 and then the 40th position in 2017 and then the 34th position in 2019, as per the Travel and Tourism Competitiveness Report of 2019. But international arrivals have remained comparatively low, at around 9 to 10 million. Thus, there is a need to highlight the significance of public-private partnership to improve infrastructure and tackle the problem of end connectivity, which negatively affect the experiences of international travellers. The travel and tourism industry in India is also fragmented, hindering the ability of the sector to achieve its potential. This area needs to be nudged to embrace the digital revolution, so as to promote public-private initiatives, medium and small and sized enterprises’ growth while ensuring that India follows best practices from across the world.

Use of blockchain technology

Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. There are examples worldwide on blockchain-based money solutions to kick-start local tourism industries, for instance. Blockchain enables the tracking of items through complex supply chains. Indian start-ups could also explore strategies along these lines. Blockchain ledger coupled with IOT devices for healthcare could have a positive impact on medical tourism.

There are challenges too with the advent of disruptive technologies. The government and regulators need to collaborate and design innovative mechanisms to address the challenges of these technologies, for smooth growth of the sector.

Source: The Hindu

5. Why govt proposes to redefine forests, and the concerns this raises

Relevant for GS Prelims & Mains Paper III; Environment

Last week, the Ministry for Environment, Forests and Climate Change (MoEFCC) published proposed amendments to the Forest Conservation Act, 1980, easing diversion of forests and exempting certain categories of development from the need to take clearance from the Ministry. The Ministry has invited feedback from state governments and the general public within 15 days. After examining the feedback, it will draw up a draft amendment, followed by a second round of public consultation before an amendment Bill is finally drawn up and tabled in Parliament.

Why is the Act being amended now?

It has been amended only once before, in 1988. Ministry officials have said the current definition of forests has locked land across the country; even private owners cannot utilise their own property for non-forestry purposes. Under the Act, any diversion of any forest land for any purpose, including assignment of leases, needs prior approval of the Centre.

In 1996, ruling in T N Godavarman Thirumulpad v Union of India, the Supreme Court had expanded the definition and scope of forest land to include all areas recorded as forest in any government record, irrespective of ownership, recognition and classification. Previously, the Act had applied largely to reserve forests and national parks. The court also expanded the definition of forests to encompass the “dictionary meaning of forests”, which would mean that a forested patch would automatically become a “deemed forest” even if it is not notified as protected, and irrespective of ownership. The order was also interpreted to presume that the Act is applicable over plantations in non-forest land.

Ministry officials said the amendment is proposed to “streamline provisions of the Act”. It has said the identification of forest land is subjective and arbitrary and that the “ambiguity” has “resulted into lot of resentment and resistance particularly from private individuals and organisations”.

The Ministry has also cited “strong resentment in the Ministry of Railways, Ministry of Road, Transport & Highways”, which too require forest clearance. Officials said these clearances usually take several years, in turn delaying infrastructure projects.

What are the proposed amendments?

* The Ministry has proposed that all land acquired by the Railways and Roads Ministries prior to 1980 be exempted from the Act. It says these lands had been acquired for expansion, but subsequently forests have grown in these areas, and the government is no longer able to use the land for expansion. If the amendment is brought in, these Ministries will no longer need clearance for their projects, nor pay compensatory levies to build there.

* For individuals whose lands fall within a state-specific Private Forests Act or come within the dictionary meaning of forest as specified in the 1996 Supreme Court order, the government proposes to allow “construction of structures for bona fide purposes’’ including residential units up to 250 sq m as a one-time relaxation.

* Defence projects near international borders will be exempted from forest clearance.

* Oil and natural gas extraction from forested lands will be permitted, but only if technologies such as Extended Reach Drilling are used.

* The Ministry has proposed doing away with levies for non-forestry purposes during the renewal of a lease, saying the double levy at the time of awarding of the lease and the renewal is “not rational”.

* Strip plantations alongside roads that would fall under the Act will be exempted.

What are the concerns?

* Activists and opposition leaders say the relaxation of forest rules will facilitate corporate ownership and the disappearance of large tracts of forests.

* About the exemption of forests on private land, even former forest officials said many forests will disappear. For instance, 4% land in Uttarakhand falls under private forests.

* Leaders such as Brinda Karat (CPM) have asked what will happen to tribals and forest dwelling communities — an issue the amendments do not address.

* Environmentalists say exemption for Roads and Railways on forest land acquired prior to 1980 will be detrimental to forests as well as wildlife – especially elephants, tigers and leopards.

* Environmentalists say one time exemption for private residences on private forest will lead to fragmentation of forests, and open areas such as the Aravalli mountains to real estate.

Do environmental groups note any positives?

They have welcomed the fact that the consultation paper has been public, and the decision to make changes through an amendment using the parliamentary process. Environmental lawyer Ritwick Dutta said that over the last decade and a half, irrespective of which party has been in power, the standard procedure has been to change laws through office memorandums and letters and not through statutory process.

Environmental groups have also acknowledged that:

* The MoEFCC has pointed out where the pressure for forest land diversion has been coming from — Ministries such as Rail and Roads — and allowed a public debate on it.

* It has proposed making forest laws more stringent for notified forests, making offences non-bailable with increased penalties including imprisonment of up to one year.

* It has disallowed any kind of diversion in certain forests.

* It has attempt to define and identify forests once and for all — something that has been often ambiguous.

Source: The Indian Express

6. The Ease of Doing Business rankings controversy

Relevant for GS Prelims & Mains Paper II; International Organizations

On Tuesday, the executive board of the International Monetary Fund (IMF) came out backing its Managing Director, Kristalina Georgieva, stating it has full confidence in her. The announcement aimed to quell weeks of increased questioning about Georgieva’s role in allegedly rigging the World Bank’s Ease of Doing Business rankings when she was the chief executive there.

What is the controversy around Georgieva?

Georgieva is a Bulgarian economist who held several high-profile positions in European politics. In January 2017, she was appointed the chief executive of the World Bank group. In January 2019, she took over as the interim president of the WB group after Jim Yong Kim resigned three years before the end of his second term. In October 2019, she took over as Managing Director of the IMF.

The trouble started when in January 2018, Paul Romer, then the chief economist of the World Bank — he took over from Kaushik Basu — told The Wall Street Journal that the World Bank’s Ease of Doing Business (EoDB) rankings were tweaked for political reasons. Soon Romer resigned. (Incidentally, Romer was awarded the Nobel Prize in Economics later that year for showing how knowledge can function as a driver of long-term growth.) Romer’s comments and resignation kick-started a series of queries both inside and outside the World Bank about the integrity of EoDB rankings.

In August 2020, the World Bank suspended its EoDB rankings after finding some “data irregularities”. “A number of irregularities have been reported regarding changes to the data in the Doing Business 2018 and Doing Business 2020 reports, published in October 2017 and 2019. The changes in the data were inconsistent with the Doing Business methodology,” it stated in a press release.

In particular, it was alleged that the EoDB rankings were tweaked to inflate the ranks for China (in EoDB 2018) and Saudi Arabia, UAE and Azerbaijan (EoDB 2020).

The World Bank initiated a full review and an independent investigation. One such effort was to engage WilmerHale, a law firm, in January 2021. In its report, submitted September 15 this year, Wilmerhale’s investigations found that the World Bank staff did indeed fudge data to help China’s ranking and they did so under pressure from Georgieva. In fact, at one point the report states that Georgieva “chastised” the World Bank’s country director for “mismanaging” the Bank’s relationship with China and “failing to appreciate the importance of the Doing Business to the country”.

These findings are particularly damning because China is the third-largest shareholder in the World Bank after the US and Japan, and it is being seen as manipulating its way to higher rankings.

WilmerHale did not find any evidence of wrongdoing with respect to the rankings of Saudi Arabia, UAE and Azerbaijan.

What are the EoDB rankings, and why do they matter?

The EoDB rankings were started in 2002 to rank countries on a number of parameters to indicate how easy or difficult it is for anyone to do business in a country. Each year, the EoDB rankings mapped whether, and by how much, a country had improved on a number of big and small parameters, such as how long it takes to start a business, or how costly it is to get a construction permit, or how many procedures one has to go through to enforce a contract etc.

Given the apparently extensive nature of rankings and that the World Bank was doing it, the EoDB soon became the go-to metric for international investors to assess risk and opportunity across the globe. Billions of dollars of investments started becoming predicated on where a country stands on EoDB and whether it is improving or worsening. It also acquired massive political significance as leaders in different countries started using EoDB rankings to either claim success or berate the existing government.

How reliable are the rankings?

Even before this controversy, it was openly known that there are several gaps in the rankings. For example, in India, which had registered a massive jump in the last few years, all the data to construct the ranking was taken from just two cities — Mumbai and Delhi. Any ranking based on such a small sample ignored how remarkably the “ease” of doing business varied once one moved away from these two metros.

Such weaknesses were exploited in boosting China’s ranking.

The WilmerHale report states that at one point, when Georgieva took direct control of China’s ranking and was looking for ways to raise it, a junior member suggested that they just take the average of the two best performing cities — Beijing and Shanghai — as they do for several other countries (such as India) instead of taking a weighted average of several cities. By cherry-picking the top two cities, China’s ranking would go up.

How can the ranking methodology be improved?

On September 1, the World Bank also published the findings of an external panel review of its EoDB methodology. It stated that “the current methodology should be significantly modified, implying a major overhaul of the project.

Some of the key recommendations are:

* A substantial methodological shift away from hypothetical case studies and in favour of more data collection from representative samples of “actual” business owners and operators on their de facto experiences of doing business.

* Don’t ignore the government functions that provide essential public goods to the private sector: transport and communications infrastructure, a skilled workforce, law and order, etc.

* Doing Business covers a diverse array of indicators that often have little meaning when aggregated with arbitrary weights. For some indicators, less is clearly better (e.g., delays in registering a business), while for others, optimal policy is far less clear (e.g., the optimal corporate tax rate).

* Do not rank countries on their tax rates. From a societal standpoint, collecting taxes is necessary, and thus lower tax rates are not necessarily better.

* Eliminate the indicators “Protecting Minority Shareholders” and “Resolving Insolvency.”

* Make the “Contracting with Government” indicator more relevant.

* Restore and improve the “Employing Workers” indicator, but do not rank countries based on this information.

* Improve the transparency and oversight of Doing Business.

Is this the first time the head of the IMF and/or World Bank has been in a controversy?

No. In recent years, several heads of the World Bank and IMF have been found guilty of some wrongdoing or the other.

In 2011, Dominique-Strauss Kahn, then the MD of IMF, had to resign after he was arrested in the US following allegations of sexual assault. Rodrigo Rato, IMF’s MD between 2004 and 2007, was jailed in Spain for a credit card scandal in 2017. Christine Lagarde, who was IMF MD between 2011 and 2017, has been found guilty of negligence in allowing the misuse of public funds in 2016 for a case dating back to 2011.

Paul Wolfowitz, president of the World Bank between 2005 and 2007, had to resign following ethical violations and his romantic links with a World Bank employee. The role of Jim Yong Kim, who was World Bank president until 2019, is also being questioned in the rankings controversy.

Source: The Indian Express