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Kannada translation of the blog post “Cost of a non-functioning parliament” appeared in Prajavani on 21st August 2015.

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Cost of a non-functioning parliament

The impact of a non-functional parliament goes beyond mere attendance or the cost incurred to run the houses of the parliament – Varun Ramachandra(_quale)

“An Introduction to Parliament of India” is a document produced by Dr. Yogendra Narain a former Secretary-General of Rajya Sabha to acquaint the lay reader with the organisation and functioning of the parliament. (The pdf can be accessed from the Rajya Sabha website). The document describes the parliament variously as: a magnificent manifestation of democratic ethos, a body that encourages nurturing and participatory democracy, a body that has functioned as the ‘grand inquest’ and ‘the watchdog’ of the nation.

One must remember that the primary function of the Indian parliament is to enact laws. In addition, the parliament is also entrusted with the duties of discussing the finances of the nation and people’s grievances through various parliamentary mechanisms that are in place. To accomplish these tasks, the parliament is in session 3 times each year for the budget session, the monsoon session, and the winter session. The parliamentary committees however transact throughout the year.

The current Lok Sabha(16th) was scheduled to meet for its monsoon session between 21st July and 13th August 2015. This session has been a complete dud i.e., no meaningful business was transacted in this session. For various political reasons, the opposition stuck to boycotting the session, the ruling party failed to negotiate, and the speaker suspended 25 members of the parliament for ‘persistent and wilful obstruction’ of the house.

A simple assessment shows us that the parliament has lost 33.3 per cent of the available time this year. Pedantically speaking, the present Lok Sabha, the lower house, has lost 6.67 per cent of its total available time in the parliament.

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Naturally, the din in the media is about how a non-functioning parliament is a waste of taxpayers’ money. Various numbers based on the parliament’s budget are bandied to drive home this point. Flippant statistics about the price of the food being served in the parliamentary canteen, salaries of the members of the parliament is discussed too. While these are all valid assessments, the real story remains untold.

The impact of a non-functional parliament goes beyond mere attendance or the cost incurred to run the houses of the parliament.  For instance, the list of important bills that were scheduled to be passed during this session included The GST bill, the child labour amendment bill, the prevention of corruption bill and the right to fair compensation and transparency in land acquisition bill to name a few.

Each of these bills are likely to have a profound impact on the way India will progress over the next few years. Various news reports have suggested that the introduction of GST has the potential to add anywhere between 1 – 2 per cent to India’s GDP (an addition of 20 billion to 40 billion dollars). The prevention of corruption bill which deems the act of bribing a public servant a criminal offence can dampen the flow of unaccounted money in India. Lastly, the child labour amendment bill can enable a large number of children — who are bound by the shackles of employment — to attend school.

With respect to the land acquisition bill, the government and the opposition had a chance to debate the fundamental questions on property rights and land titles. Instead, theatrics has taken center stage, leaving the voters and the public in a state of confused frustration.

Therefore, the actual cost of the parliament not functioning is the 2 per cent that would have been added to the GDP thanks to GST, the lack of education of those kids who are working instead of going to school, and the addition of unaccounted money into the economy thanks to corrupt public servants. Economists term this as “opportunity cost” — the value of the alternative that is given up. When viewed through this lens, a non-functioning parliament has far reaching consequences on the economy, society, and democracy.

Along with the passing of the aforementioned bills, the parliament was also scheduled to introduce several other important bills in this session. An important aspect of law making that is worth our notice is that enacting laws and implementing them takes time. There is a delayed effect and the real impact of a law is palpable only after several months of its enactment. Now that the session is washed out (for all practical purposes) these bills will be introduced at a later stage, discussed and passed/withdrawn even further in time.

Needless to say, the rhetoric around the loss of taxpayers money due to the parliament without regard to opportunity costs is penny wise and pound foolish. Perhaps, it is also wise for our parliamentarians to read “An Introduction to Parliament of India” with care.

(The author would like to thank MR Madhavan from PRS Legislative research for his inputs)

Varun Ramachandra is a policy analyst at the Takshashila Institution — a Bengaluru-based independent think tank and school of public policy. He tweets @_quale

Image credits: Simantik Dowerah (Creative commons)

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Making Sense of India’s Latest GDP Figures

The new methodology to compute India’s GDP numbers is more comprehensive, accurate and in tune with international standards

The Ministry of Statistics came out with India’s GDP growth rate figures for the fiscal year 2013-14. Much to everyone’s surprise, the growth rate came out at 6.9 percent, much higher than the anticipated 4.7 percent. The 2.2 percent difference baffled everyone, including the RBI governor Raghuram Rajan, and the Chief Economic Advisor Arvind Subramaniam. The difference has raised a lot of questions and invited skepticism from both within and outside the government. Business newspapers have claimed that radical changes have been introduced in computing the GDP numbers, which explains the more positive numbers.

The Central Statistical Organization has introduced two big changes in computing GDP numbers: base year revision and using GDP at market prices. Before going into the technical aspects of these two changes, it should be mentioned that neither change is radical. The first of them is the change in base year from 2004-05 to 2011-12. The changing of the base year is a rather routine exercise carried out by the statistical offices around the world. In India, the base year has been changed numerous times and will henceforth be changed once every five years[1]. The other change is the adoption of a universal standard: that of using market prices instead of factor costs to make the GDP computations. This is mainly done to keep India’s numbers comparable with the rest of the world.

BASE YEAR CHANGE

Base year analysis is mainly done to eliminate the effects of inflation and to give a more meaningful picture of the data. GDP measures the sum total of all economic activity within a country. This monetary value is first calculated in nominal terms or at current prices. It is then adjusted for inflation or the changes in the general price level over time and is thus, expressed in terms of the general price level of some reference year, called as the base year.  To make this slightly clear, assume that a country is producing only one commodity, say books. So, the GDP of that country would be the total quantity of books produced times the price of the book. Changes in the nominal value of the book over time can happen either due to a change in quantity or a change in prices. Change in real values captures only the change in the quantity of books produced.

Choosing the Base Year: Almost any year can be chosen as the base year, but ideally it should be a recent year to give a more meaningful idea. Since the index number of any series is set to 100 for the base year, it should also be relatively normal. Normal here means the absence of any large aberrations and upheavals in the economy (like extremely high inflation rate or an economy wide downturn).

The base year that was previously used in India was 2004-05. However, since then, there have been significant structural changes to the economy (as in any 10 year period) and a new base year had to be chosen to reflect these changes. The CSO has chosen 2011-12 as the new base year.

GDP AT MARKET PRICES:

The bigger change that has been adopted by the CSO is the change from calculating GDP at factor cost to GDP at market prices. GDP at factor costs is a measure of national income that is based on the cost of factors of production. It is essentially looking from the producers’ side. It does not include the indirect taxes paid by the consumer but includes the subsidies given by the government. GDP at market prices essentially looks at economic activity from the consumers’ angle. It measures GDP at the last step of the transactions, which is the market price paid by the consumer.

It is clearly visible that GDP at market prices is always bound to be higher than GDP at factor cost. Removing subsidies and adding indirect taxes adds a significant part to the GDP numbers (as much as 7% in 2012-13). Thus, moving to GDP at market prices was always bound to give a different number.

Table showing the difference in GDP at factor cost and GDP at market prices (in Rupees trillions)

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(Source: RBI Database on Indian Economy)

The Growth rates show a significant discrepancy as well. Look at the difference between the two approaches in 2008-09 and 2010-11.

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(Both tables are based on the previous base year 2004-05).

The move to market prices can broadly be seen as a good move in terms of being comparable with world standards. IMF, World Bank and various international databases apart from the statistical organizations in different countries use the market prices measure. Market prices are usually a more comprehensive measure and give a better picture of economic activity. The CSO has also decided to include a range of previously not included sectors and activity. They have covered more sectors, more amount of financial intermediation, revision of labour activities, then also looked into the organized sector and the unorganized sector activity. It has also expanded its coverage of manufacturing and included under-represented sectors and data from the corporate database of the government in arriving at the growth figure. Overall, economists and statisticians would agree that the changes in the data measurement approaches are in a positive direction. A case in point is a statement by former CSO chief Pronob Sen “What has happened when we moved to the new base year is we’ve actually got better data. Basically if you look for instance in the corporate sector, we were earlier going with the RBI forecast and which were based on 2500 corporates. This time around we are using the MCA21data base which is five lakh companies as compared to 2500. So the quality of data has improved”.

 

However, the skepticism from different corners comes from the fact that the higher GDP growth numbers do not quite tie in well with numbers from other leading indicators of economic activity. For example, Index of Industrial Production numbers are down, so is the rate of gross fixed capital formation (investments). To bridge this gap and understand the discrepancy, we will have to wait a bit longer and wait for the revisions in the data of the other indicators, but for now, there does not seem to be much reason for complaints against this move by the CSO.

 

[1] The base years of the National Accounts Statistics series have been shifted from 1948-49 to 1960-61 in August 1967; from 1960-61 to 1970-71 in January 1978; from 1970-71 to 1980-81 in February 1988; and from 1980-81 to 1993-94 in February 1999. Thereafter it was changed to 2004-05 in 2006.

Anupam Manur is a Research Associate at The Takshashila Institution

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