Tom Friedman has got his challenger. The world is not flat, says the World Bank, in its latest World Development Report.
And don't you believe in the "death of distance", because distance from a centre of economic activity is a critical factor for both people and geographies.
Indeed the report, titled "Reshaping economic geography", argues that development is almost always concentrated -- and that is the way it is meant to be. So governments should be encouraging such concentration by facilitating migration and building the infrastructure that helps the process (like transport linkages).
It cites Tokyo-Yokohama's dominance of the Japanese economy and Cairo's in Egypt to make the point, though the Report does not seem to argue a 'cause and effect' sequence that goes beyond merely recording a fact that is obvious.
And yet, readers will immediately recall the success of China's coastal strategy, which was deliberately designed to encourage concentration of economic activity, and worked--one of the thoughts behind India's official support to special economic zones.
The report challenges some long-established notions, especially in India where the spatial distribution of industrial activity has been part of official policy for more than half a century.
There is the effort to "provide urban facilities in rural areas" (or Pura); there is Narendra Modi with his notion of a "rurban" (rural-urban) model for Gujarat; and variations on these themes.
The report does not necessarily disagree with such initiatives, arguing that policies should encourage inclusive growth and try to equalise standards of living across geographies. But that would seem counter-intuitive when it argues at the same time that uneven development is an inescapable fact of life.
The report is likely to provoke debate, and its authors say that it is meant to be a starting point for discussion, not a final argument.
Certainly, India has seen that the cluster logic works for many industries (Tamil Nadu as an auto hub, Bangalore as an IT-driven city, and one-industry towns that dot the country like Moradabad and Tirupur).
More importantly, the country needs to figure out how to make its cities work better (the correct pricing of land and the development of mass transport are crucial, and on both points realisation is only slowly dawning on politicians and policymakers), how to finance urban development in a self-sustaining manner, and how to make the divisions between rich and poor more porous within a city so that habitations do not become completely stratified.
But there will also be debate about the changing nature of the city (de-industrialised, and service-driven), the drift to suburbia, the move to off-centre, campus-style office complexes, and what each of these means for concentration.
As with all World Development Reports, there is a set of tables that provide inter-country comparisons on some basic parameters.
India now figures about two-thirds of the way down the list of about 130 countries when it comes to per capita income (it used to be 16th from the bottom when the WDR first came out three decades ago, but there were fewer countries then), and just about scrapes into the category of 'lower-middle income' countries with per capita income of $950 (for 2007).
In total economic size, it is the smallest among the Bric economies, being fractionally behind Russia and Brazil. It therefore ranks 12th as an economy, 25th as an exporter, 20th as a recipient of foreign investment, and gets one dollar per capita as official aid (lower-middle income country average: $9). It has the fifth highest external debt, but that debt is just 15 per cent of GDP (low- and middle-income country average: 75 per cent).
And the maximum numbers of out-migrants in the world are from Mexico, China and India, followed in short order by Iran, Pakistan and Indonesia. On most millennium development goals, India is better than the low-income country average, but worse than the typical lower-middle income country figure.
And in case anyone is still in the mood for chest-thumping, India's per capita income is about one-eighth of the world average.
Source
Showing posts with label IIP. Show all posts
Showing posts with label IIP. Show all posts
Monday, March 16, 2009
Economic slowdown: Is the end in sight?
The numbers for the Index of Industrial Production for January 2009, released Wednesday, are along broadly expected lines. The overall index dropped by 0.5 per cent from its level of January 2008, while the manufacturing component, accounting for about 80 per cent of the index, dropped by 0.8 per cent.
Along with the significant upward revision to the December numbers, which saw the estimated growth from December 2007 change from -2 per cent to -0.5 per cent, these relatively small negative numbers give the impression of a bottoming out of the decline. Indeed, they suggest that the stringent credit conditions that emerged in October, and contributed to the decline immediately afterwards, have begun to ease and producers are now using low input prices and interest rates to replenish depleted inventories. If this is the case, it is indeed good news for a beleaguered economy and its prospects for the year ahead.
However, the numbers need to be understood in greater detail, and must be interpreted with caution. In the first place, if these numbers were in fact a precursor to a bottoming out, they suggest that the transmission from policy action to economic response is lightning fast.
Monetary policy turned pro-growth in October. There was also a significant fiscal stimulus around the same time, as the government paid out a part of the arrears on account of the implementation of the Sixth Pay Commission recommendations. This, it appears, is having some impact.
The numbers for consumer durables production have shown an increase, though small, in contrast to the negative pattern seen for this category over the past few months. Perhaps government employees who received their arrears are doing the right thing by the economy and using them to buy new appliances. As the implementation spreads to state government and public enterprise employees, this suggests significant support to some sectors.
On the broader issue of transmission lags, though, the implied speed of the process raises some questions. Of particular interest is the surge in the industry segment machinery and equipment, which grew by 17.5 per cent over January 2008. This took the capital goods category to a growth rate of 15.4 per cent, completely against the grain of the past few months.
This number is, in fact, reminiscent of the investment boom of a couple of years ago. It would be greatly reassuring to policymakers and investors if machinery production were surging in the current environment. But, in the midst of all the news that is coming in from companies, banks and other players, it stretches credibility.
The aberration is even more striking when compared with the performance of other industry segments. Only five of the 17 showed positive growth. Metal products and transport equipment, both driven by the factors similar to machinery and equipment, declined by 4 per cent and 13.4 per cent, respectively, over January 2008. Cotton textiles declined by 8.5 per cent, as did sectors which have relatively high export content, like leather and leather products. Even food processing, typically seen as a relatively stable segment, declined by a huge 16.1 per cent.
In short, take away the machinery and equipment segment and the decline in the manufacturing sector would appear much more drastic. Quality and consistency issues apart, the conclusion that a bottom is being reached seems premature.
Source
Along with the significant upward revision to the December numbers, which saw the estimated growth from December 2007 change from -2 per cent to -0.5 per cent, these relatively small negative numbers give the impression of a bottoming out of the decline. Indeed, they suggest that the stringent credit conditions that emerged in October, and contributed to the decline immediately afterwards, have begun to ease and producers are now using low input prices and interest rates to replenish depleted inventories. If this is the case, it is indeed good news for a beleaguered economy and its prospects for the year ahead.
However, the numbers need to be understood in greater detail, and must be interpreted with caution. In the first place, if these numbers were in fact a precursor to a bottoming out, they suggest that the transmission from policy action to economic response is lightning fast.
Monetary policy turned pro-growth in October. There was also a significant fiscal stimulus around the same time, as the government paid out a part of the arrears on account of the implementation of the Sixth Pay Commission recommendations. This, it appears, is having some impact.
The numbers for consumer durables production have shown an increase, though small, in contrast to the negative pattern seen for this category over the past few months. Perhaps government employees who received their arrears are doing the right thing by the economy and using them to buy new appliances. As the implementation spreads to state government and public enterprise employees, this suggests significant support to some sectors.
On the broader issue of transmission lags, though, the implied speed of the process raises some questions. Of particular interest is the surge in the industry segment machinery and equipment, which grew by 17.5 per cent over January 2008. This took the capital goods category to a growth rate of 15.4 per cent, completely against the grain of the past few months.
This number is, in fact, reminiscent of the investment boom of a couple of years ago. It would be greatly reassuring to policymakers and investors if machinery production were surging in the current environment. But, in the midst of all the news that is coming in from companies, banks and other players, it stretches credibility.
The aberration is even more striking when compared with the performance of other industry segments. Only five of the 17 showed positive growth. Metal products and transport equipment, both driven by the factors similar to machinery and equipment, declined by 4 per cent and 13.4 per cent, respectively, over January 2008. Cotton textiles declined by 8.5 per cent, as did sectors which have relatively high export content, like leather and leather products. Even food processing, typically seen as a relatively stable segment, declined by a huge 16.1 per cent.
In short, take away the machinery and equipment segment and the decline in the manufacturing sector would appear much more drastic. Quality and consistency issues apart, the conclusion that a bottom is being reached seems premature.
Source
Sunday, September 21, 2008
PM panel asks govt to formulate new manufacturing policy
New Delhi: A high-powered group appointed by Prime Minister Manmohan Singh has asked the government to formulate a new manufacturing policy to reverse deceleration in growth in the sector.
“Manufacturing policy would ensure focussed attention by the government to various aspects that would enable it to achieve the goals of manufacturing and employment generation,” an official release said.
The group was formed by the Prime Minister in January under the chairmanship of National Manufacturing Competitiveness Council chief V. Krishnamurthy for suggesting policy measures and immediate steps to reverse deceleration in growth of manufacturing.
Krishnamurthy submitted the final report to the Prime Minister on Saturday recommending suggestions on a number of issues such as policies on macroeconomics, tax, trade, technology and FDI.
The recommendations were in respect of specific sectors that require focussed action by the government. These have been classified into two sets of industry verticals employment intensive and strategically important industries.
It has also called for creating a mechanism suitably empowered to monitor developments in the sector on a regular basis and to suggest necessary action to the government in line with the manufacturing policy.
Manufacturing growth has been hovering around 7-7.5% for the past 20 years, while the sector itself has stagnated at 17% of the GDP during the same time.
For the economy to grow at an average of 9-10% in the medium to long term, the manufacturing sector needs to grow at about 12-14%. “Such growth is also required from the point of view of absorbing the surplus work force now dependent on rural sector,” it said.
Industrial growth declined to 5.7% in the first four months of this fiscal, against 9.7% a year ago. Manufacturing, which contributes about 80% to Index of Industrial Production, grew by 7.5% in July, slower than 8.8% a year ago.
The terms of reference for the group included suggestions on both short-term and long-term issues relating to the growth of the sector. The group in January-February this year submitted four interim reports-- in time for formulation of Budget 2008-09 and to assist in framing the Foreign Trade Policy -- on the measures required for an immediate arrest in the decline of the sector’s growth.
These interim reports form Part-II of the final report submitted, while Part-I deals with measures required for the long-term growth of the manufacturing sector.
The report took into account experience gained by the country in respect of the manufacturing sector during the past two decades as well as in the implementation of the National Strategy for Manufacturing (NSM 2006) prepared by NMCC during the past three years.
It has also considered policies adopted by various developing countries like Korea, Taiwan, Singapore, Hong Kong, Malaysia, Indonesia, Thailand and China, which have posted high growth rates of manufacturing for a prolonged period.
Secretaries in the Ministries of Finance, Commerce, Textiles, Revenue and Industrial Policy and Promotion as well as the Member Secretary of NMCC were part of the group.
“Manufacturing policy would ensure focussed attention by the government to various aspects that would enable it to achieve the goals of manufacturing and employment generation,” an official release said.
The group was formed by the Prime Minister in January under the chairmanship of National Manufacturing Competitiveness Council chief V. Krishnamurthy for suggesting policy measures and immediate steps to reverse deceleration in growth of manufacturing.
Krishnamurthy submitted the final report to the Prime Minister on Saturday recommending suggestions on a number of issues such as policies on macroeconomics, tax, trade, technology and FDI.
The recommendations were in respect of specific sectors that require focussed action by the government. These have been classified into two sets of industry verticals employment intensive and strategically important industries.
It has also called for creating a mechanism suitably empowered to monitor developments in the sector on a regular basis and to suggest necessary action to the government in line with the manufacturing policy.
Manufacturing growth has been hovering around 7-7.5% for the past 20 years, while the sector itself has stagnated at 17% of the GDP during the same time.
For the economy to grow at an average of 9-10% in the medium to long term, the manufacturing sector needs to grow at about 12-14%. “Such growth is also required from the point of view of absorbing the surplus work force now dependent on rural sector,” it said.
Industrial growth declined to 5.7% in the first four months of this fiscal, against 9.7% a year ago. Manufacturing, which contributes about 80% to Index of Industrial Production, grew by 7.5% in July, slower than 8.8% a year ago.
The terms of reference for the group included suggestions on both short-term and long-term issues relating to the growth of the sector. The group in January-February this year submitted four interim reports-- in time for formulation of Budget 2008-09 and to assist in framing the Foreign Trade Policy -- on the measures required for an immediate arrest in the decline of the sector’s growth.
These interim reports form Part-II of the final report submitted, while Part-I deals with measures required for the long-term growth of the manufacturing sector.
The report took into account experience gained by the country in respect of the manufacturing sector during the past two decades as well as in the implementation of the National Strategy for Manufacturing (NSM 2006) prepared by NMCC during the past three years.
It has also considered policies adopted by various developing countries like Korea, Taiwan, Singapore, Hong Kong, Malaysia, Indonesia, Thailand and China, which have posted high growth rates of manufacturing for a prolonged period.
Secretaries in the Ministries of Finance, Commerce, Textiles, Revenue and Industrial Policy and Promotion as well as the Member Secretary of NMCC were part of the group.
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