Tourismnomics 2012

- published in February 2012 edition of Travel Trend Today(T3), a business magazine for travel trade. 

A country blessed with diversity, both in terms of culture and geography, India has always been a fascinating nation to tourists. Owing to its diversity it attracts tourists from across the world and today it is one of the major global tourist destinations.  Indian travel and tourism is one of the most profitable and the largest service industry which contributes 6.23% to GDP (2010). According to the Planning Commission tourism sector has been instrumental in generating foreign exchange, employment opportunities and income.  Yet this sector is far from its potential but is expected to grow at double digit pace in next 7 years.

The Indian tourism industry experienced a strong period of growth fuelled by sustained economic growth, strengthening of ties with developed world via opening of sectors. Liberalisation of international airspace, cheaper flights and the use of the Internet as a travel tool has also contributed in the growth of this sector. Catalysing the above is rise in global spending power of households; the flourishing middle class and richer upper class.  In the era of globalisation and economic openness; economic cycles, exchange rate fluctuations and other macro-economic turns affect tourism receipts. Tourism is extremely sensitive to business cycle fluctuations in the short run, but in the long run it has its own cycle of around 7-10 yrs in duration. In 2008-09 the business cycle trough coincided with the tourism cycle trough which adversely impacted this sector. The current economic environment has direct impact on the Indian tourism industry.

Cheaper Leisure, cheaper venture

2011 has been a year of turmoil in the global economy. Debt pressure and low credibility in many European economies has not only curtailed economic growth across the world but has created an uncertainty about the future. In such a lack lustre background, travel and tourism industry is rebounding globally after its trough in 2008-09, with increase in global tourism spending by 4.5 % in 2011.  Strained personal accounts suppressed leisure travel for the last few. However, work stress and life style stagnation is forcing people to travel at least to cheaper destinations like India, Combodia and Africa. This has resulted in overall growth rate of  global tourism spending to 3.8% in 2011 but is expected to go up to 4.7% in 2012 (Figure 2). Furthermore, business tourism has experienced an upsurge due to the availability of lucrative but stressed ventures in turmoil economies. This too is likely to continue in 2012 growing at a rate of 6.4%.

Figure 1: Annual Growth (%) of Global Tourism Spending

Source: World Travel and Tourism Council[1]

Time to Tour India

India offers a diverse range of tourism packages. It could be classified into the following categories: Adventure, Cultural/ Pilgrim, Ecotourism and Medical Tourism. All have witnessed a surge in demand and boost in revenues.  While some of this came from the Indian Tourism and Culture Ministry’s ‘Incredible India’ initiative, rest is attributed to cost-effectiveness and uniqueness of India. According to India Tourism Statistics 2010, inbound tourism makes significant contribution to the foreign exchange reserves of the country. In 2010, foreign exchange earnings (FEE) from tourism were US$ 14.19 billion as compared to US$ 11.39 billion in 2009, registering a growth of 24.6%.

Figure 2: Foreign exchange earning from Tourism in India

Source: Indiastat.com and author's calculations.

India caters to back-packers and luxury royal travellers. It is a more sort after destination than its competitors as it is cheaper for what it offers. Arrivals between January and September 2011 were at 4.4 million or a growth of 10% year-on-year.  This rising trend together with depreciating rupee has already brought in 5% more inbound tourist in December and January 2011 as compared to the same time previous year. The current Rupee depreciation and volatility would be temporary and is likely to be reversed by March 2012. Coupled with good winters, India seems to be a hot tourist destination for foreign visitors. This has and is likely to cause an upsurge in domestic holiday as people would prefer to travel within the country rather than lose out on weak Rupees.  We expect that FTA in Q1Y12 to be up by 9% and domestic visits to be up by 11% from Q1Y11 levels.

Medical Tourism of India has been consistently rising in the last few years due to its low cost- high quality image. Chennai for instance happens to attract 45% of all foreign medical students, while Kolkata attracts medical tourists from Bangladesh, Nepal and Bhutan.  Medical tourism in India is a $1.8 Billion business increasing exponentially due to influx in cosmetic surgery market. Following the recent trends in this Industry we expect medical tourism to grow at an annual rate of 32 %. Q1Y12 would experience the highest growth rate of around 41%. This is attributed to good weather condition and cheaper treatment due to weaker rupee. Many travellers would like to combine a holiday with medical treatment and this season is most appropriate for that.

In conclusion, 2012 is expected to be a brighter year for Indian travel and tourism industry with increase in in-bound travel due to cost effectiveness and the diversity it offers. Out-bound travel is also likely to increase due to increase after March 2012 when inflation is controlled and economic boom continues.  Snowfall in Punjab in January, sunshine in Goa and Kerala would continue to attract tourists. 

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[1] I acknowledge Ms. Anushree Kejriwal for her contribution in making the graphs and suggestions for the article.

360 degrees in 3 minutes

360 degrees in 3 minutes- may seem like an interesting theme, but, it does come with two caveats. First, the time it takes to read this blog is conditional on the fluency of my write-up and your reading speed. Hence I do not take sole responsibility of the accuracy or precision of number ‘3’. You would be wondering, why I have put 3 of all the numbers.  This choice is based on some assumptions. First, it took me three minutes to read the article. Second, if I make 10 people read the article, the average time they would spend is 3 minutes. Lastly, 3 is my lucky and birth number. The second caveat lies in the other number– 360. As it would be a futile exercise to cover all the 360 degrees around the world, I would only cover the relevant angles.

I could take you around the world by telling you what’s happened in 2011 or I could tell you what may happen in 2012. I chose the latter and have laid out what I think would happen in 2012 around the world (in particular the countries which we here most in the news).

United States: Flat growth

This big power would be able to register low growth. Although, US is out of the recession, its high unemployment rates and a weak property sector act as obstacles to growth.  Persistently high unemployment rates forces consumers to curtail their spending which results in reduced consumption and growth. The crisis in the US started in the property sector and will not truly end until the sector recovers- and there is no evidence of that. Additionally, loose monetary policy (with almost zero interest rates and a possible Quantitative Easing III) coupled with easy fiscal policy (as a result of the upcoming presidential elections) impede growth.

European Union: Recession in progression

After a disastrous 2010-11, European Union will in all probability perform poorly in 2012 with tight fiscal policy and loose monetary policy. Although, Greece, Ireland and others knocking the doors of doom, others are far better. The debt crisis is beginning to hurt Italy allot more then it hurts Germany and France. The high unemployment rates and debt burdens bring out the structural nature of the problem. Unlike Japan and US, EU is trying to resolve its problem by trying to deliberate what take action. This slow paced policy measures continue to keep the markets nervous about the future of Euro.

Not all is bad in EU. First, the overall trend of falling bond yields in Spain and Italy and the progressive return of French yields to “normal” are encouraging.  Second, amidst the worst crisis in European Union the Euro has been self supporting. EUR/USD traded around 1.35 in the worst of times; far better than January 2001 price of 0.95 when the situation in EU wasn’t as bad.

Japan: Recovery alongside problem.

With 200 % Net Debt to GDP, huge fiscal deficit, weather disasters and aging problem ensure that the problem is long lasting. The fiscal initiatives post earthquake would support investment but at the expense of fiscal deficit. This increase in fiscal deficit results in the likelihood of future tax hikes; which curtails spending.  The existent deflation further leads to expectation of lower future prices which discourage spending. Also, discourages borrowing as lower prices in the future increase the real value to be repaid.  Amidst all this turmoil, exports are slowly picking up. Although they contribute only around 10 percent to GDP they could play an important role in the coming year when the domestic demand is subdued.  Also, manufacturing could benefit later in 2012, with the slow recovery of global trade. However, this would be capped by the strong yen. The Japanese Finance Minister Azumi has also said that 2012 could witness policy interventions like quantitative easing, which should infuse liquidity into the markets and increase spending.

China: Strong but slowing growth

 China is growing at 8.5 percent approximately lesser than 2010 levels but still a very good rate of growth. It surely isn’t “crash-landing” but controlled deceleration. The Chinese economy has been almost continuously slowing down since 2010, as a result of tight monetary and credit policies imposed to curb inflation. Credit has been restricted mostly by administrative means and primarily to the property sector. Falling inflation should turn things around in 2012.  The authorities may loosen the policies once they are certain that inflation is down and stable.

India: Inflation pulling growth

After a sustained period of high interest rates to control inflation, the Reserve Bank of India has reduced CRR by 50 basis points and is expected to reduce other rates in the coming year. India short term money market yields fell yesterday (Feb maturity yields were down by 10-15 bps) on RBI Governor’s statement, expectation of improved fiscal deficit to response and expectations of policy easing. The Governor also hinted towards a strong government bias to tackle inflation over growth management. 2012 is going to be a rather calm and uneventful year in India as multiple elections across the country guarantee the absence of any radical change. I do expect the Rs to become stronger and settle at Rs 46- 47 per US $ and inflation and slower growth rate is expected

Smaller Asian Economies

The rate of growth of smaller Asian economies has varied widely reflecting the differences in their structure and fundamentals. In particular, difference in drivers of growth and export dependency has played a crucial role in deciding the growth rate of these economies. Indonesia, Malaysia, Thailand and Philippines have performed well in the volatile period (2009-11) Thailand particularly defied political uncertainty and floods while Indonesia registered a consistent and strong performance along with Malaysia and Philippines. All the four economies are benefiting from strong bank loans growth and the central banks flexibility to ease monetary policy in 2012.

2012 would be a flat uneventful year around the world with no boom and hopefully no major busts. It makes me wonder is the world actually becoming flatter??

Becoming an Economist?

When I started on my journey of Economist on 8^th July 2006, I felt that, since the name of the subject derives itself from economy it must be the study of the economy.  It seemed to me that by reading economics in my undergraduate degree, I would be able to have a thorough understanding of all what is written in economic dailies like The Economic Times.  I thought  that just like the articles in The Economic Times, economics  was merely common sense communicated in a very confusing way along with horrifying numbers and simple diagrams ( at least simpler than the ones I had to draw for my biology practical’s ). I expected economics to give me the ability to combine logic with number crunching and enable me to understand and participate in complex discussions.  

Little did I know that I was going to be so grossly mistaken, but in a pleasant way.  Studying economics for 5 years has not only enabled me to do the above; but has given me the ability I now look at pretty much everything from an economist’s perspective . On reflection, I realize that the choice of studying economics was my 1^st decision as an aspiring economist.   I had used my limited information set to form rational expectations about the subject which influenced my choice.   Also, like most economists, my expectations did not realize. Today, when I perform a cost benefit analysis of this journey in economics, I realize that the outcome has been far better than my expectation.  Not only has the subject given me ability to understand and make informed decision of everything around but also given me my identity. 

In this article I illustrate how an economist would analyze the transmission mechanism from an individual to an economist.

Transmission Mechanism

The study of economics is quite white noise or random.  Economics cannot be explained by anyone to anyone. In an econometric exercise the random error component affecting the desired outcome of independent variables depending upon what the explanatory dependent variables cannot explain. Similarly, the white noise element of economics ensures that whatever the dependent variables be (learned professor , innate ability  etc)  the  independent variable (becoming an economist) is not completely explained, i.e. to say one cannot learn economics in its entirety via any course or degree or any amount of learning, there is always a random unexplored  component. There is always a possibility of something unexpected and unknown yet rational to happen. 

BE= a +b(Quality of knowledge imparted)+c(innate ability) +e 

Economics as a subject evolves daily if not hourly and hence becoming an economist is a tough task as it is a dynamic process. As most econometrician would say that if the dependent variable (BE) is dynamic the dependent variables should also be dynamic in order to minimize the random error component at every time period (daily, hourly). Put simply, if one has to keep pace with economics, one has to put in extra effort to ensure our knowledge evolution closely follow the evolution of economics.

The journey of becoming an economist is a personal optimization exercise where you maximize your Quality (as an economist) subject to your personal limitations (cost, personal skills), environmental constraints (quality of know-how, economic atmosphere etc) etc. Clearly, you learn a lot more economics in recession times than boom times because you hear it all around you, if you have a fantastic supervisor who has sound understanding of economics you would learn more and if your innate ability enables you to questions things in an economically logical and analytical way you would learn more. 

max Q=Q(.)   s.t.personal limitations( c,skills ..) > 0

 environmental constraints (quality of teaching,economic atmosphere…)>0

Etc

Each individual optimization exercise is performed independently and the result gives the quality of the economist and also hints towards the individual future course of action. It is usually perceived that whose optimization exercise returns a high quality is more inclined to pursue another economics degree and vice versa.

Outcome

Our society judges the quality of an economist by the number of degrees, by their ability to predict macro-economic events consistently and with accuracy and their ability to model profound theories. While I do not dispute the latter as it is not at all easy to come up with any new theory, I do dispute the prior. Economist, or rather forecasters may be able to forecast with accuracy on a number of occasion but the random error component is always going to be uncertain and un-forecastable.  Economists are bound to go wrong as often as they go right and this should not disregard their quality as an economist.  On a lighter note, a good economist should not just be able to model profound theories but also have the ability to analysis everything in an economic way. For instance, analyzing relationships as a vector- error correction model where the girl and the boys’ lives are co-integrated vectors.  If it leads to marriage then it’s a structural break; where the co-integrating relationship becomes stronger post marriage. However, if there is a break-up then also it’s a structural break with the co-integrating relationship absolving post break up.

As confusing as the above is the journey of becoming an economist. A puzzle of sorts; which is most often incomplete.  However, I do not wish to discourage all the budding economists nor those who wish to explore this domain.  Instead I hope to motivate you all. Understanding that confusion is inherent in economics would enable a more fruitful optimization where you abstract from the confusion and go for the simplistic essence of economics. The next article would be the flipside of this one. It would illustrate how simple economics is…

Would India usher in the Third Industrial Revolution?

India is a magnificent and beautifully designed country by the creator.  It is not specialized in terms of natural beauty but is blessed with diversity which allows us to find beaches and hills, valley and plains, greenery and sand dunes in the same country if not the same region.  If one does a due-diligence exercise to evaluate the discounted cash flows from utilizations the naturally gifted resources in a sustainable way, one could futuristically look at India as a developed nation with huge cash reserves and zero liquidity problem.

 I personally believe that India has immense potential and should utilize the gifted talent to attain this potential.  This is possible only if the talented Indians exploit the domestic potential for macroeconomic progress, rather than imitating the rest of the world. This belief of mine was re-enforced when I read a recent interview of an American economist, Jeremy Rifkin who believes that India could usher in the ‘Third Industrial Revolution’ by utilizing its renewable natural resources; much like the way the second industrial revolution was spearheaded by internal combustion engines and heavy use of crude oil. He believes India could be the Saudi Arabia of renewable energy, but only if the resources are properly utilized.

Proper utilization of resources would require a number of simultaneous actions, which given the size of our economy is not an easy task. Renewable energy in India has been a persistent topic for almost half a decade now, but India still needs to do a lot more.  In a study conducted in 2011 by The Ecologist[1], India ranks 10^th amongst the G20 economies in terms of its renewable energy investments. Investments in clean energy in 2010 rose by 25 % to $4 billion, primarily targeted towards the wind sector. However, not only are we far from reaching our potentials in solar, wind, geothermal hydro and bio-mass energy, the pace is also rather slow.

This sluggish pace is the first obstacle that is hindering us from achieving our full potential. India needs to be faster and have a wider coverage to be able to herald in the 3^rd Industrial Revolution.  This would require significant amount of infrastructure investment coupled with RnD and wide scale implementation. Simultaneously performing the above three feats is no easy task. The global investment in clean energy 2011 was $ 260 billion of which the Indian market accounted for a mere $ 11 billion.  Renewable energy transformation is happening across the globe and for India to be able to be a leading power in this sphere, it clearly needs rapid progress.

Secondly, to fuel the above mentioned acceleration India requires investment and project implementation by public and private sector. India is ranked as the third best investment destination in the renewable energy sector and India has exploited this to set up a renewable energy installed base of over 22 GW.  Renewable energy minister Dr. Abdullah says that they plan to add a further 30 GW in the next five years. If this target is achieved, it would signal progress in the right direction.  The generation based incentives for wind projects; solar specific renewable purchase obligation and tradable renewable energy certificate are some policies which are being incorporated for enhancing the private sector investments.  Public sector projects are being implemented and some are worthy of appraisal. In particular, the Jawaharlal Nehru National Solar Mission (JNNSM) plans a capacity of 22 GW by 2022 and the National Bio-Energy Mission – aims to draw upon the over 15 GW bio-energy potential in the country.  Private sector giants Tata, Reliance, are investing in various renewable energy projects. Some other big players driving this sector are Suzlon, Adani group while other small players receive assistance from private equity firms and International Finance Corporation (IFC). Indian investments are moving in the right direction. Still we are not even close to the zenith.

The discussions of RnD for technology innovation and cost effective means of renewable energy generation and distribution are very popular and rightly so. In my opinion, what is more important is an appropriate forward- looking vision for this sector. India’s renewable energy vision is very similar to those adopted by most countries across the world.  It needs a more futuristic and innovative vision to bring in a new era, much like the design of engines in the 2^nd industrial revolution era. An interesting visionary recommendation by Jeremy Rifkin is to create infrastructure such that each building and house in villages or cities can generate energy by utilizing solar and wind energy.  He says that this could act as a level-playing field for rural industrialization, whereby households generate solar power and then sell this energy via internet or distribution companies. This is not impossible as our neighbouring country – Bangladesh has over one million off grid rural homes and rural traders which are lighted by solar home systems with rooftop solar panels. This creates employment and an increase in rural income. 

India’s total power generation is 170 GW of which only 11 % currently comes from renewable energy. Growing demand for power is driven by higher growth rates and rural electrification plans. Associated with this are supply constraints resulting from restrictions on non-renewable energy and inflated prices of fuel and coal. Current and anticipated excess demand of power should be met by renewable sources.  India can also contribute to global excess demand for power via its supplies of renewable energy heralding in an era of 3^rd Industrial revolution. This would be solved by simultaneous investment, project implementation and a great vision of a greener and cleaner future.

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[1] http://www.theecologist.org/News/news_analysis/829664/revealed_how_your_country_compares_on_renewable_investment.html

Recent Macroeconomic Developments and its Consequences: Indian Perspective

In the recent months, the macroeconomic environment has been stormy. Global conditions have caused structural breaks in risk perception and appetites which have contributed to a significant rebalancing of Indian portfolios.  This has further led to increased volatility and instability in currency and capital markets.  The decelerating domestic growth and persistent inflation and upside pressure of a depreciating rupee worries all and sundry. However, even though the overall macroeconomic conditions look worrisome we must take a forward-looking view of the policy responses and its consequences on indicators and future risk.

Over the past two years, the performance of major advanced macro- economies has raised concerns over the sustainability of global revival. On the contrary, emerging economies have exhibited reasonable growth, suggesting that their domestic drivers and increased linkages with each other and the advanced economies have facilitated their growth stories. However, these growth stories have been curtailed by slower growth in advanced economies, sovereign debt pressure from Europe and growth volatility in US.   The European debt problem has without a doubt been the overriding global factor in recent months triggering confidence problem and volatility in currency and capital markets across the globe. As the prospects of any solution have ebbed and flowed, so have the asset prices and exchange rates. It was expected that a solution would come out from the crucial December Euro Summit or the recent ECB meeting in January; however these expectations are still to be realized.

The impact of the brewing global instability on India has been enormous. An emerging economy is structurally current account deficit and so is India. This deficit is usually financed by capital inflows, which over the past decade has been stable and large in magnitude and hence had more than offset the current account deficits. However, in the recent months there has been a significant reversal  and the observed effects are much like the 2008-09 global financial crisis (Chart 1). Between July 2008 and February 2009, the Rupee depreciated by nearly 17 percent.  This happened because of lack of capital inflow, which resulted in the current account driving the exchange rate and naturally, this pressure resulted in Rupee depreciation.

Source: Data are based on FEDAI (Foreign Exchange Dealers' Association of India) indicative rates.

For the past few years, the Indian exchange rate regime has been described as ‘bounded float’. Fundamentally, there is no restriction on Foreign Direct Investment (FDI), except for limits on specific sectors and portfolio investment in equities.  However, there are restrictions on debt inflows due to external stability issues.  In particular, these limits relate to quantity, tenor and pricing. Short-term debt is most vulnerable to sudden reversals and hence it’s least preferred; while long-term debt is viewed more favorably as it is seen as a resource channel for inflow into infrastructure despite the associated risk concerns. These debt controls may be viewed as ‘strategic’ capital controls; they are altered infrequently in response to macroeconomic conditions.  However, these and other capital account management tools are used to help in bounded float when volatility increases.  The exchange rate is determined by daily variations in demand and supply and hence a sharp fall in capital inflows leads to a situation of excess demand leading to exchange rate depreciation.

In times of bountiful capital inflows, current account surplus economies build up their foreign exchange reserves, which may be utilized in troubled times to manage exchange rates and meet short-term claims without disruptions or loss of confidence. India has reserves over $300 billion, but because of current account deficit, the reserves are essentially counter-balanced against our external liability position. The recent depreciation did not witness radical utilization of this foreign exchange reserves due to our current account deficit but also because excessive utilization of reserves could have resulted in deterioration of confidence in the economy’s ability to meet short term obligations. Alternately, if foreign exchange reserves were not utilized exchange rates could spiral out of control, triggered by self-fulfilling expectations. Hence, it was necessary to strike a balance.

The Reserve Bank of India (RBI) struck this balance by structural capital controls. In particular, they increased foreign currency supply by expanding market participation. This was done by increasing the investment limit in government and corporate debt instruments by foreign investors, raising interest rate ceilings payable on non-resident deposits and enhancement of the all-in-cost ceiling for external commercial borrowing. In addition, RBI undertook administrative measures to curtail the temptation of market participants to take positions against Rupee. For instance, entities which borrow abroad were now required to use a portion of their fund for domestic expenditure immediately. These measures facilitate a balance between short-term risk of Rupee spiraling downwards and the medium-term risk of a loss of confidence in India’s ability to meet external obligations.

Domestic Liquidity state

The domestic liquidity condition has come to fore-front since the borrowing under Liquidity Adjustment Facility (LAF) has been above the one percent of Net Demand and Time Liabilities (NDTL) threshold. The RBI makes a distinction between the monetary stance and liquidity stance and exploits this distinction by carrying out Open Market Operations (OMO’s) to inject liquidity into the system, despite maintaining an anti-inflationary monetary stance. The RBI did this form of intervention in December 2010 and November 2011.    

In spite of the OMO and advance tax payments in mid-December, domestic liquidity conditions are still expected to remain stretched for some time. Still, RBI must be careful that OMOs and LAF intervention do not result in excessive accommodation but ensures adequate liquidity (consistent with the comfort levels). 

In this regard, RBI has a wide range of instruments which have been utilized. For instances, the banking system as a whole hold 29 percent of NDTL as opposed to the stipulated  Statutory Liquidity Ratio (SLR) of 24 percent . Thus as and when the need arises a liquidity infusion of 2,740 billion is plausible.  However, we cannot rely on this entirely as SLR default is a serious offence for large banks and most banks life keeping the Liquidity in excess of SLR stipulation to avoid default. Alongside this lies the recently established Marginal Standing Facility (MSF) which allows banks to use a further one percent of SLR holdings. However, banks would exploit this only in situations of extreme stress. In recent weeks there hasn’t been any recourse to this window which could indicate that there isn’t much stress, however stress is brewing and we must be cautious. Furthermore, we must keep in mind that the large fiscal deficit cannot be fully accommodated by OMO’s and hence we must manage domestic liquidity condtions such that they do not de-stabilize financial markets and that too without violating the current monetary policy stance. However, an inadequate response can weaken our monetary control and also effect medium term inflation expectations.

Growth and Inflation Puzzle

Growth and Inflation are the two most commonly discussed phrases and the cornerstones of any form of macroeconomic development. Anything and everything has some impact on these two macroeconomic indicators. They also take us from the immediate worries to futuristic troubled waters. Since the last quarterly review by RBI a lot has happened to Rupee and inflation. The headline inflation clocked a two year low at 7.47 percent in December 2011. It stood at 9.11 percent in November 2011 and it is believed that the decline was prompted by cheaper food items. Commodity prices have softened to a large extent. Fuel and power segment inflation stood at 14.91 percent on an annual basis in December as opposed to 15.48 in November. Furthermore, stable crude oil prices in dollar terms favored the domestic inflation in December in-spite of depreciation in Rupee. Any positive news from European sovereign debt problem would also moderate the inflation risk, however the likelihood of such positivity in the near vicinity is bleak.

The Quarterly estimates of Q2 of 2011-12 substantiate the growth moderation story some of it is attributable to external macroeconomic events and interest rate hikes.  RBI intervention of increasing interest rates to curb inflation has moderated demand as growth deceleration precedes inflation deceleration.  If the current deceleration in inflation level continues in the coming months, RBI policy stance would be receiving accolades. However, the growth deceleration is also driven by the global turbulence and an investment lull. The government is initiating a number of reforms (tax reforms, skill formation, increased transparency in the system) to facilitate our growth stories. However, quick resolution and implementation is a key to success.

Even though food price inflation has been on a steady decline it is still a worrisome risk factor. It would persist to be a source of inflationary pressure unless there is radical improvement in technology driven productivity, both at the cultivation stage and more importantly at the distribution and procurement stages.  This would require many multilateral forces to come into action, such as infrastructure, technology, market institution reforms, price incentive realignment and the financial services that can support the realignment. However, these must be brought in rather quickly to achieve the target.

In conclusion, we need to balance the risk of rupee spiral and loss of confidence in Indian economy in the short term. It should be understood that the volatility and liquidity stress would last a while and prudent management of capital accounts and liquidity is essential to tide the worrisome waves.  The good news is that the growth-inflation dynamics is manageable and the coming year looks brighter than the year gone by. However, long term growth does require structural policy change at a rapid pace. 

Bengal Development Evolution needs Green Solutions

            -          published in  “Your Health” an Indian Medical Association journal.

Global warming and the accelerating scarcity of resources require a change in the modes of production that drive the world economy . This transition must take account of the differences in the technological advancement as well as the economic development of the countries in general and states in particular. 

Simultaneously, we are closing the chapters of   “Global Financial meltdown”  and drafting the preface of “Global Climate Crisis”. This budding topic that has been the subject of many a deliberations- between countries (Kyoto Protocol, G20 Summit and WTO Trade Rounds) and within countries (project tenders and implementation plans for building renewable energies). It pleases me to bring to your awareness that India is among the top five largest investors in Renewable energy (the major facilitator of clean environment).

Clearly, India is ahead of its targets and has a humongous role to play in achieving global balance in clean climate. It could also be one of the major proponents for the shift of power to East from the West. India, one of the largest decentralized economies,  has a further tier  for implementation of any project-  the State. Hence, inorder to  make India a super power in global scenario the responsibilities lies not only on the centre but also on the state.  Every state has its share of targets, goals ,plans of implementation.

West Bengal is a dear state to me, it’s the source of my origin and even though I am an Indian, I am a Bengali at heart. The progress of my State, its contribution is crucial to me. There is a buzzing phrase – West Bengal has turned green after being red for decades. This indeed is a welcome change. But such a change has to transcend into concrete actions. Bengali’s and Bengal has to rise to the occasion and make our state a leading example of rapid progress and development. We have the potential and ‘Yes we can do it’. We need to act smart and act fast.

In this article, I wish to highlight West Bengal strengths and weakness in achieving Clean Environment and Development; via the channel – Renewable energy projects. A circular flow mechanism works in this domain. The more renewable energy projects are implemented- the cleaner the environment is – the more the state can trade its CDR’s (emission rights) with other states or countries – which increases is the inflow of capital – which enhances development and facilitates trade in goods , technology and others.

West Bengal has been a pioneer in the adoption and utilization of renewable energy for meeting its daily requirements of energy in general and electricity in particular in commercial way. It has shown ways for involving the community for the maintenance and management of renewable energy projects. The generation and supply of electricity in Sundarbans and Gosaba Islands through renewable energy are successful examples before us.

Given the ample sun shine in West Bengal, we have a great potential to become a hub of solar energy. India’s first megawatt-level solar photovoltaic power plant was working in the Asansol area for more than three months. We easily could and we should strengthen our solar energy plants.

As of 31 Dec 2010 the installed capacity of wind power in India was 13065.37MW, leading states being Tamil Nadu (4906.74 MW), Maharashtra (2077.70 MW). West Bengal's capacity is a paltry 1.1 MW. We should develop this further. Suzlon Energy Ltd plans to set up a large wind-power project in West Bengal Suzlon Energy Ltd is planning to set up a large wind-power project in West Bengal, for which it is looking at coastal Midnapore and South 24-Parganas district. Our proximity to Bay of Bengal should enable us the tap this resource further.

We are endowed with bountiful of rainfall which can be utilized to strengthen and increase hydro power and rain-water harvesting potential. Under UNFCC provisions 3 megawatt (MW) run-of-the-river small hydro power project shall be set upstream of the river Neora in Darjeeling, in order to export clean power to West Bengal State Electricity Board (WBSEB) grid.

Having briefly touched on the major sources of renewable energy in West Bengal, its evident that it is a potential hub of renewable energy. This is because of its magnificent geographic placement and the blessing of Maa Kali. We have to tap our resources correctly channelize our blessing. There’s an old adage – “you can only take a horse to a well, whether to drink or not is in the horses hand”. Similarly, the platform is set for West Bengal to shine. Whether it shines or not is in its hand.

As a specialist student of economics, I hereby propose some policy recommendations to facilitate the process of clean development in West Bengal

Policy Recommendation

At a time when governments around the world are in the process of liberalizing their electricity markets, the increasing competitiveness of renewable energy should lead to higher demand. Without political support, however, renewable energy remains at a disadvantage, marginalized by distortions in the world’s energy markets.

Developing renewable energy sources will, therefore, require strong political and economic support, especially through laws that guarantee stable tariffs over a period of up to 20 years. Political action is needed to create a level playing field. In the process, it would also contribute to sustainable economic growth, high quality jobs, technology development, global competitiveness and industrial and research leadership.

Actions on the following grounds could be undertaken:

• Enacting a renewable energy Law with time bound legal targets for Renewable energy uptake, both at the grid, and at stand alone level.

• The law should provide incentives for investment in RE technologies, such as offering potential tariffs, open transmission, as well as incentives for buying green energy.

• A shift from subsidiaries from fossil fuel to renewable energy.

Essentialism of Spirituality to blossom in life: Economist's perspective

- an  extract from a lecture given at World Confluence of Humanity Spirituality an Power on 3rd January 2012

Essentialism of Spiritualism is a big question whose cost-benefit analysis would take decades, if not centuries, to value.  This is partly because of the qualitative nature of spiritualism and partly because of the lack of methods to quantify its effect. But more importantly, it is because of the lack of understanding of what constitutes spiritualism and spirituality.

Spiritualism and Religion are considered to be synonyms, just as ethics and spiritualism are looked upon as the same thing.  However, the three- Spiritualism, Religion and Ethics are fundamentally and structurally different. There is a strong causality between them but that is only a channel for co-existence. Without a doubt there is correlation between either of the pairs but they are not identical.

Let’s begin by clarifying what is spiritualism, religion and ethics? ‘Spiritualism’ refers to the science of self realization. It refers to the search of the inner path which enables us to discover the essence of our existence on this earth. It is nothing but soul searching. ‘Religion’ on the other hand is the medium employed or the methodology to discover spiritualism. Choice of religion is just a complexified version of a simplified problem- choice of airline to reach a desired destination.  The choice of the latter is usually determined on the basis of two key parameters- price and comfort. On the contrary, the choice of religion is a lot more complex with dynamically evolving variables some of which are lagged to ancestral times. Last of all ‘Ethics’ could be social, cultural, personal and professional. Some are forced upon us while others are chosen by us based on our intrinsic beliefs. Usually individuals follow the self chosen ethics and most often find ways to circumvent the imposed ones depending upon situations.

Clarifying the difference between the three is imperative to answer this complex question in a simplistic way. Clearly, now it can be established that Spirituality/Spiritualism is sufficient to blossom in life however religion is neither necessary nor sufficient.   As William Irwin Thompson said, "religion is the form spirituality takes in civilization”, implying that even an atheist can be spiritual, if he has discovered the path to his inner self. Secondly, ethics is necessary but not sufficient to blossom in life. It is necessary, as ethics enables a thinking mind which makes choices on which virtues to follow and which vices not to. However, it is not sufficient to succeed in life as the choices do not come with a disclaimer that they are the correct choices.

Choices of ethics is a like a game of ‘snakes an ladders’ where right choices of virtues act as ladders fast-forwarding you closer to spirituality and success and wrong bets on vices result in snake bites spiraling one downwards to the starting point. Hence a calculative optimization of the virtues and vices is crucial for long termed progress and spiritual development. Some vices may seem lucrative in the short run giving quick returns in a short span of time or open doors to an indirect way forward. However, they are often associated with hidden snakes and in fact some of them can end up being fatal as well.  On the contrary, a virtuous path may seem slow at the start but as it goes on, it picks pace and also reduces the probability of a fatal blow due to the strong virtuous foundation.

Deep down within us we all know what is good for us; we know the right path to success. But the length of this path and the challenges it has in store entice us to shirk away from it towards short-cuts which more often than not turn out to be longer in reality. I believe that growth in any level happens only when one introspects into one’s strengths and weaknesses and works according to one’s capability. This applies equally well to individuals, families and economies. We all need to discover our ‘Swadham’ or the birth nature and then work towards it. The creator has made each one of us a distinct piece of a big jigsaw puzzle and only when we do the role designed for us would we fit perfectly in to the puzzle. However, we need to discover this designated role for us which can only come from introspection and self realization. For instance, if a person has a natural inclination towards music he/she needs to develop this and become a musician. An athletic person should not try to become a doctor, he should explore sports. We must realize in each and every one of us that there is someone and we shouldn’t try to become someone else but become that someone and it is only then would we grow and be successful.

Most of you would say that this choice of ethics and path to spirituality is not as simple as I have exemplified it above. However, I still disagree with you all. The path is only as difficult as you make it out to be. Let me give you two simple examples which would help you realize that each and every one of you has already done a phase of deep rooted spiritualism which fascinated rapid self growth.  First, when a foetus is conceived it is merely 1 gram in weight. However in 9 months it develops senses and mobility and weighs at least 2700 gram. This enormous speed of development was partially because of genetics and the mother’s nutrition level but primarily because the child was inclusive. The nine months in the mother’s womb was a phase of self realization and growth. Similarly, a child grows from a toddler who can barely speak, walk and think to become a mature adult, who has developed his/her, senses to think they way he/she wants. It is only introspection and following your inner self which leads to development.

Having understood the broad key to success- discovery of swadham, I now outline three steps which if absorbed and implemented are necessary and sufficient for success. These being Simple, Smile and Sach (Truth). Keeping things ‘simple’ in this complex world would not only reduce the gravity and size of the problems we encounter but would also facilitate the hunt for solution. ‘Smile’ inculcates a positive attitude and enables one to turn every challenge to an opportunity. Finally, ‘sach’ and by this I do not mean truthfulness to all but truthfulness to oneself. When you are true to your soul it enables you to work better and faster. It is also a key attribute to determine ones swadham.

These three S’s would lead to success in every endevour and in every sphere of life.