The Demonetisation Decision: Event, Impact, Narrative and Meaning

On November 8, the government announced its decision to discontinue the legal tender status of Rs 500 and Rs 1000 notes. The original objectives were stated as: eliminating fake currency; inflicting losses on those with black money; and disrupting terror and criminal activities. Later, new objectives were tacked on: enabling growth in bank credit, turning India into a cashless economy. A cost benefit analysis I conducted suggested that the benefits were relatively small when compared with the costs.

Expected impact on fake currency

A study by the National Investigation Agency and the Indian Statistical Institute, in 2016, estimated that fake Indian currency notes in circulation have a face value of Rs. 400 crore. This is an incidence of fake currency of 0.022%. The scale of counterfeiting of the Indian rupee is not out of line with what is seen in other countries, and the procedures adopted worldwide to address this include investigative actions against counterfeiters, phased replacement of old series of notes with new notes that have better security features, etc. Demonetisation is generally not seen as a tool for dealing with counterfeiting. We must also not forget that the counterfeiters will now get to work on the new 500/2000 rupee notes, while India will likely never do a demonetisation again.

Expected impact on unaccounted wealth a.k.a. “black money”

The analysis presented in the finance ministry’s White Paper on Black Money, 2012, shows (on page 47) that, on an average, the amount of cash seized during raids by income tax authorities is 4.88% of total undisclosed income admitted in those cases. This data is from more than 23,000 warrants executed. Even if this decision inflicted a 100% loss upon holders of unaccounted cash, this would imply a loss of only 4.88% of their total unaccounted wealth, which is not much of a shock for those with such wealth. If, as is more likely, the demonetisation has imposed a 40% loss upon holders of unaccounted wealth (who suffer a 40% discount when laundering their money), this implies a loss of just about 2% of unaccounted wealth.

Expected costs

Cash is a store of value (white or black), but it is also a medium of exchange. Most people in India only transact with cash. More than 90% of shops accept only cash or very short-term credit. Large numbers of labourers and small value suppliers are paid in cash. While these facts may change over time, they mean that this sudden ban may be leading to disruptions in consumption and production. Compared to the 10,000 yen note ($137 in purchasing power parity), the 1000 swiss franc note ($775), the USD 100 note, or the 500 euro ($530) note, the Rs. 1000 ($31 in purchasing power parity) and Rs 500 ($15.5) are practical notes that are used for daily transactions. Hence, demonetisation of these notes is a large adverse monetary shock –  perhaps the largest ever such shock in world history. The constraints of ATM recalibration and currency printing are leading to a long transition period. Even ensuring 50% re-monetisation in cash form – about Rs. 7.5 lakh crore – by December-end appears hard. The Centre for Monitoring of Indian Economy has estimated that a few elements of the first-round impact give a reduction of GDP of around Rs 1.3 lakh crore; the total impact will be higher owing to the multiplier effect, the hysteresis associated with the monetary shock, the impact upon expectations, etc.

Who bears the costs?

While there is much talk about the GDP impact of this decision, a unique feature of this episode is that there may considerable other costs that fall disproportionately upon the poor. The rich have access to electronic payments, employees who will stand in queues to obtain cash, and savings that are used to cope with a decline in income. The poor lack all these. If a poor person suffers an income shock, or is not able to get medical treatment, the consequences are enormous for the individual, but the GDP impact may be negligible. In terms of welfare implications, these costs matter a lot more than the impact on GDP.

Approach to comparing benefits and costs

The benefits are primarily in the form of losses inflicted upon those with black money, while costs are imposed on legitimate economic and social activities. Ordinary people, going about their lives, have suddenly been asked to bear a burden associated with the project of imposing costs upon people who have unaccounted wealth. Some of the costs are incurred by poor people, whose welfare loss might be much more for a given level of rupee cost incurred. Given this difference in the nature and incidence of benefits and costs, each rupee of cost should be given a much higher weight than each rupee of benefit.

It seems, thus, that the economic costs of this decision are likely to outweigh its economic benefits.

Some have compared this decision with a surgical strike, but it is more like a nuclear strike. The nuclear option has been exercised before exhausting other options. Although measures to help people disclose their undisclosed incomes have concluded, the efforts to directly or indirectly curb illegality have barely begun. This raises concerns about the wisdom of using this lever of demonetisation.

What the media says and doesn’t say

The mainstream media narrative around the decision is not as pessimistic as the analysis presented above. There is a disconnect between the mainstream narrative and the facts emanating from the ground [example]. In this essay, I look at the discourse, analyse the arguments which are being presented, and peer into the long term consequences.

Four key arguments are being forwarded in support of the decision:

  1. It is claimed that the decision is likely to have a smaller impact on the poor than what many, mostly anecdotal, reports suggest.
  2. The monetary shock can be, and will be, quickly overcome by the use of monetary policy instruments to restore liquidity.
  3. This decision will expedite the process of making India a “cashless economy”, with benefits that will make short-term costs worthwhile.
  4. Since the decision is popular, it must be good. This raises an interesting question: in a democracy, can there be a better measure of goodness of a policy than its popularity?

Small impact on the poor?

Two ideas have been offered in the claim that the adverse impact upon the poor will be small:

  • Cash savings as predictors of impact on the poor: Estimates based on national surveys show that cash earnings of the poor are small, and they usually lack cash savings. So, it is argued, they are likely to seldom visit a bank branch or post office, and they are not particularly inconvenienced.
  • Credit as a mitigant of the impact on the poor: It has been argued that since the rural economy is significantly credit-driven, the impact on the rural poor will be small. If transacting parties know each other, they would be willing to extend credit, which would make short-term non-availability of cash less costly. Given the practices in rural markets, many commercial relationships are indeed credit-driven, and cash calls are only made periodically.

I fear that a broader understanding of the financial and economic lives of the poor yields an understanding of the impact of demonetisation that is quite harsh.

The financial lives of poor households are very different from those of the middle class and the rich in one crucial aspect – the  intensity and frequency of financial transactions involving cash. The ratio of financial turnover to assets held, during a given period, is much higher for poor households. Financial turnover is the total value of all financial transactions, i.e. putting money in or pulling money out from any informal or formal financial instrument.

Think of a middle class household with one salaried person earning Rs 6,00,000 a year, with total financial investments worth Rs 10,00,000. From the bank account, money is withdrawn and spent, or drawn down through card/online payments, or transferred into an investment instrument. If this person has a credit card, each purchase on the card would create two financial transactions of equal value – drawing credit, and repaying credit. Other than this, there may not be much “push and pull” in the person’s financial life; only simple drawing down or investing up. She may occasionally take loans or switch across investment instruments. Financial turnover during a year is likely to be much lower than the total value of the financial assets owned. The cash portion of the transaction value may be smaller yet.

Research on the financial lives of the poor was presented in a landmark book, Portfolios of the Poor: How the World’s Poor Live on 2 dollars a day, by Collins et. al. in 2009. It found that the ratio of total transaction value to asset value for poor households is quite large. For the median rural poor household in India, financial turnover was about 33 times the year-end asset value. This shows that even though, at a given time, a poor household has only a small asset base and small savings, they are intensively transacting. They are using a range of informal (e.g. loan to or from friends) and formal instruments (e.g. microfinance loans) – to frequently put in and take out money.

Why do they do this? Most poor households have small, irregular and unpredictable incomes. This forces them to do high frequency financial transactions in order to smooth their consumption. They are transacting intensively in the process of cash-flow management, to transform irregular income flows into a stable flow of consumption from day to day. When the poor flounder in this high wire act, they may go hungry. These are not the concerns of the middle class: their income is much more stable, and they can use their savings as a buffer. I fear that much of the commentary on demonetisation lacks an appreciation of this distinction.

Here is a table, from the book, summarising a year in the financial life of a tailor’s household in eastern Uttar Pradesh:

Start Amount End Amount Turnover
Formal Banking savings 152.72 10.46 167.36
Informal Saved with a deposit collector 33.47 71.13 37.66
Saved with a moneyguard 62.76 0.00 62.76
Goods supplied on credit 9.41 16.32 18.41
Total 258.36 97.91 286.19
Informal Wage advance 0.00 13.60 97.28
Shop credit 20.92 39.54 207.95
Services taken on credit 0.00 0.00 125.52
Total 20.92 53.14 430.75
Financial Net Worth 237.44 44.77
Total flows 716.94

The numbers are in USD. The total transaction value is more than 7 times the end-of-year value of assets, and about 16 times the end-of-year financial net worth. Instruments have low end-period values but are intensely transacted, as shown in the “Turnover” column. For instance, even though the credit balance is small, there is a large turnover, which means frequent repayments. This household needs to do high frequency cash-intensive transactions just to make the timing of consumption match the timing of money availability.

It is wrong to think of poor households as accumulating incomes and then going to a bank branch to exchange or deposit/withdraw it. Most poor households cannot afford to do that, as their savings are small. They must actively manage incomes and consumption, using high frequency financial transactions. To the extent that these transactions involved Rs.500 and Rs.1000 notes, the demonetisation decision has temporarily restricted the ability of poor households to engage in their consumption smoothing.

The argument about credit relationships holds true for some time and for certain contexts. All poor people are consumers, and many are also producers (eg. wage labourers, artisans, etc). Most of the credit relationships of poor households as consumers are for the short term, as evidenced by the high turnover in credit relationships. Further, as producers, their ability to work on credit is limited by their small or non-existent savings. There are about 14.5 crore casual labourers in India, who may not be able to work on credit for long. As the remonetisation is dragging on, credit relationships are coming under stress.

It is true that credit is integral to the high frequency financial transactions of the poor. This does not mean that there is depth to cope with much larger requirements of credit on a sustained basis. Lenders might sense problems of solvency, start demanding deleveraging, and choke off credit access.

These questions, about the financial activities of the poor, must be seen in the context of the large monetary shock which has also become a large negative GDP shock. The poor who work as casual labourers, especially in cash-intensive businesses, may see their employment opportunities drying up. There are reports of informal labor markets failing to generate work for many labourers who rely on such markets. There is anecdotal evidence about many small- and medium-scale industries and construction sites temporarily closing down. Similarly, for farmers, this is the time when crop is brought to the market and new sowing is done. Although farmers with small holdings usually do not have marketable surplus, they need cash during the sowing season. Landless labourers may be affected because farmers with medium to large landholdings are not able to get cash to pay them for sowing work.

India has a shadow economy. Many poor people work in enterprises outside the official, tax-paying economy. Many of these enterprises are doing legal activities without paying taxes. So, in that sense, although they are breaking tax laws, they are not criminal enterprises as such. Consider a small brick manufacturing unit that is totally outside the tax purview. The business is cash-intensive. It is doing something illegal – not paying taxes. However, it is a a productive enterprise employing people. It is in the shadow economy, and must be brought into the official economy. This means that it must be made to pay taxes and penalties, but it need not be shut down. The note ban may have pushed this cash-intensive enterprise into failure. The outcome is that the production and employment are lost, and nothing accrues to the taxpayer. This is not beneficial in any way, and may be particularly harmful to poor people working in such enterprises.

The poor are also more vulnerable to frauds and swindles that are thriving in the present environment of enormous uncertainty. The unbanked are likely to be mainly the poor, and the unexpected ban on exchange of notes has created a desperate situation for them. It is easy to say that they should open bank accounts. But in the present situation of uncertainty, we are hearing reports of people resorting to desperate measures even to protect a part of their savings. There are many reports of this happening in remote areas.

India being a vast, multi-terrain country, with the uneven presence of banking facilities, there are many regions with poor access to banking facilities. The transaction cost of having to make the trek to a bank branch multiple times to exchange or withdraw cash even once is quite high as a percentage of a household’s income. We have heard stories about people living in remote villages in hilly areas having to rely on others to get notes exchanged, and taking losses in the process. So, for a subset of the poor living in remote locations, the costs may be even larger.

It is quite likely that the costs of this decision on the poor will be significant, and some poor people might suffer disproportionately. Poor households have no black money and did nothing to deserve this.

Use of monetary policy instruments to restore liquidity

Some commentators have argued that although the note ban has created a shock to the money supply, the central bank could soon restore money supply through use of monetary policy instruments, such as open market operations, rate cuts, etc. It is argued that the Monetary Policy Committee will, in some weeks, see the adverse shock to GDP, and vote in favour of large cuts in interest rates, which will solve the problem.

However, it is important to keep in mind the distinction between India’s money supply in banks and India’s money supply in cash. On 8 November, there was Rs.10.5 trillion of demand deposits, and over Rs.96 trillion of time deposits, which are vastly greater values than the Rs.14.2 trillion of 500/1000 rupee notes which was disrupted. The electronic money supply was not disrupted; it was the cash money supply that was disrupted. This matters because cash is a preferred medium of exchange (“money”) for most transactions. The constraint today is the shortage of cash. To overcome the disruption, cash must be restored into the hands of people. None of the instruments of monetary policy do that. They only enhance liquidity in the banking system. Cash still needs to be printed and dispensed through bank and postal networks.

Cashless economy

An additional objective has been appended: make India a cashless society. It reflects poorly on the government’s policymaking process to add such a big objective after beginning implementation of such a momentous decision. If this was indeed an objective, much preparation should have gone in before the decision was announced. There is no evidence of such preparation.

Cash is expensive as a store of value – it gives negative returns and is amenable to loss and theft. Many households are forced to save in cash or other similar assets, because they do not have convenient and reliable access to the modern financial system. It would be beneficial for many households and enterprises to move most of their store of value to financial instruments, but only if considerable comfort around security, convenience and reliability of these instruments is created.

The evidence on superiority of electronic payments over cash as a medium of exchange is limited and context-specific. There is evidence to support making government-to-citizen payments cashless, but even there, the last mile problems of helping the recipients access and use this money has yet to be solved. Several research studies show the poor quality of the last mile banking network in India.

For transactions involving only private parties, the case for going cashless for payments depends on the context. It would be nice to have more cashlessness, but not in all situations, not for all persons, and not for all purposes. Cash has many inherent advantages, and in many contexts, cashless instruments are not superior to cash. For example, in an area with poor telecom connectivity, cash is more convenient. People should have the freedom to choose, depending on their context.

This government push to make Indians go cashless looks like a large, centrally planned effort in mission mode. This high modernist approach is ill suited for this objective. Going from cash to cashless is a vague and complex problem with unclear pathways. Storing money in financial instruments and using it to make day-to-day payments requires regular, reliable and secure access to these instruments. This is not a simple product that can be launched across the country overnight, but a sophisticated service that needs to take into account the infinite variety of needs of households and enterprises. At its core, it is a personal choice that each one should make in their own time. If this choice, and immature systems, are forced down their throats, many persons would recoil from electronic payments.

Government is inherently bad at seeing the complexity of such issues. It is likely to unleash a badly designed mission mode programme, without understanding the package of services required to actually make cashless stores of value and payments work. The programme would also be hampered by the persistent capacity constraints of the Government of India. When the objective is so complex, it is better for the government to be modest, and only play an enabling role.

The way most societies have gone to a ‘less-cash’ state is through slow, careful, detailed policy work. The willingness to use coercion at an early stage of India’s journey is troubling. As an example, consider shops accepting card payments. There are about 1.5 crore retail shops, but only about 14.6 lakh card devices. Should more shops accept cards? No one can decide this from the vantage point of policy-making in Delhi or Mumbai. There is no ideal number of card-enabled shops. If there are impediments preventing this, the government and RBI should remove those impediments. If the right conditions exist, and if both consumers and shopkeepers feel the need, this number will increase.

We in India have a relevant experience from an episode that began in mid-1990s – the dematerialisation of shares. If the government had forced households to immediately turn all their share certificates to demat shares, many may have turned their backs on the share market. They enjoyed the comfort of holding those certificates, and were not sure about the new system. Since they were given a choice, over a period of time, most of them opted for demat shares. They saw the advantages, and made their choice. This happened in a context where the numbers were quite small (the number of shareholders), but it still took about ten years. In that example, luckily, the new system worked out fine. But it could have failed to deliver. There were many risks of things going wrong. In such a situation, coercing households to switch to demat would have been unfair. The same holds true of the idea to go cashless, and at much larger scale.

An optimal shift from cash to electronic store of value and payments will happen if enabling conditions are created, within which people can make their choices. Government’s primary role in this transition should be to unleash competition and innovation, while addressing problems through regulations and grievance redress. Government also has a role in ensuring provision of enabling infrastructure, which includes Aadhaar, telecom network, broadband network, etc.

There is an enormous mismatch between expectation and reality on this issue. Some people seem to assume that India could quickly go cashless during this period of remonetisation of cash. This premature use of coercion, in an under-developed payments ecosystem which has suffered from major errors of policy for decades, speaks poorly of the policy process. It is problematic to cite this complex, long-term aspiration to reduce use of cash as some kind of mitigant for this sudden note ban.

Popularity of the decision

Several opinion polls show that the decision is popular. Consider the following conversation:

Friend: I have heard that person X in my neighborhood has kept a large stash of cash. He is now running around trying to launder it. He always flaunted his ill-gotten wealth, and it is good that he is going to suffer a big loss.

Me: The data from tax raids shows that about 5% of undisclosed income is kept in cash form. So, this decision will only inflict a small loss. Person X is just one person. The data I am referring to comes from thousands of tax raids. Even if Person X has a large stash of cash, it may be just a small percentage of the total black money he has. It is not worth causing so much disruption to society at large, in order to cause a small loss to the unaccounted wealth.

Friend: Even if that is true, at least all these corrupt people will lose their stash of cash. It will teach them a lesson. I am willing to incur some inconvenience for this. At least someone has done something to make the corrupt pay. It will help reduce corruption. This is about the moral standards of our society.

Reflecting on this exchange, I found four important differences in our perspectives.

Statistical vs. experiential standard

Public policy professionals like me primarily rely on statistical thinking. My friend is using an experiential standard. For a person like me, the evidence drawn from statistics dominates a few human interest stories, but for many others, it is the other way around. Since black money and corruption are emotive issues that affect the general public, most people already have opinions based on personal experience or cultural impressions. It is not easy to change these opinions. My friend is open to a statistical perspective, but perhaps it would not immediately alter his view. Most of us humans are intuitive – we form an opinion quickly, and then look for reasons to support it.

We in the policy analysis world tend to forget the novelty and the limited use of the statistical perspective in society. Statistics became systematised only around the middle of the 18th century, and was introduced in education systems much later. For countless millenia, we have been forming opinions about the world based on what we perceive in our immediate surroundings. That is our natural instinct. On this particular question, given the nature of information involved (cash as percentage of unaccounted wealth), experiential knowledge of those who do not deal in black money may be off the mark. Unfortunately, the media have done a poor job of putting out relevant information. Those who support the decision and those who oppose it are disproportionately relying on anecdotal evidence. Anecdotal evidence is useful but only to understand the nuance of specific situations.

Aggregate vs. local impact

We differ on the scale of our analysis. While I am thinking about the aggregate trade-off between benefits and costs, my friend is looking at impact on his immediate community. Since he is a middle class professional, the costs to him and his community may be small, while, in his view, the impact on Person X would be quite large. Sometimes, it is better to think local, and at other times, it is better to have a broader perspective. Corruption is an issue where thinking local might often be more reasonable, given the way it affects us, but the larger question of disrupting black money storage might be better addressed with a broader perspective.

We have different views about what has been done to solve the black money problem, and therefore our expectations from government also differ. I am used to the long time-scale over which policy projects play out. As an example, the public debt management agency has been in the making from the late 1990s, and we are still a few years away from seeing tangible results.

As a specialist, I appreciate pawn moves within a long strategy, even though the pawn moves tangibly deliver nothing in the short run. I would thus be happy if the government keeps chipping away on the battlefronts of corruption in the country, and sees no need of taking such a disruptive and expensive action. My friend may not see it that way. He probably mistrusts the gradual moves, as it is not clear to him whether they are parts of a sound strategy or just delaying tactics. He is happy to see decisive action because, in his view, not much has actually happened on this front. For me, the choice is between impetuous action vs. careful work within a fully thought out strategy; he sees it as a choice between inaction and action.

Administrative decision vs. righteous battle:

We also differ on how we perceive this decision as an instrument of change. My friend sees this as an administrative measure but he also see it as a righteous battle in the war against “the corrupt”. I see it only as an administrative decision that should be evaluated in specific and measurable terms. I am analysing whether benefits are likely to outweigh the costs. My friend may agree with this analysis, but perhaps he also sees this as a moral struggle that may include some lost battles, but has a noble objective.

These factors help explain why we in the intellectual world are puzzled at why the demonetisation decision was taken, but many other people (including writers in the media) are quite happy with it.

While this is a description of conditions now, things will change over time and space. Many people who are not policy professionals are opposing the decision. A key assumption behind my friend’s support for the decision is that Person X, the “corrupt” person, is going to suffer. In a few months, many people like my friend may revisit their views, as they would see that not much changed in the life of Person X. This is a dynamic situation that is unfolding in front of us, and the change in a person’s opinion about the decision would depend on many factors:

  • The costs and difficulties suffered by a person and his near and dear ones. It’s exciting to volunteer for a noble cause for a few days, but as the costs climb up, enthusiasm may decline.
  • A person’s political affiliation (we believe almost anything if we belong to a team).
  • Whether one thinks of this as a moral crusade, which is to be supported simply because it was launched, and not on its measurable success.
  • The extent to which one considers objectives that were added as afterthoughts (eg. making the economy cashess) to be relevant, and the extent to which these objectives are achieved.
  • One’s perception about the government’s overall success on other fronts that may rub off on this.
  • The ability of the political opponents to create credible alternatives, so that there is a real incentive to apply cognitive resources in carefully forming a judgment. If there is only one game in the town, we have little incentive to judge the merits and demerits of each act carefully.

Judgment and popularity

Should popularity matter? A crude caricature of liberal democracy is one where all decisions are made by the people. This is not how the Republic of India, and all representative democracies, are constructed. In a representative democracy, it is incumbent upon elected leaders to hear the people’s concerns, and then exercise their own judgment to choose a suitable course of action. Governments deviate from this responsibility in two ways.

  1. Sometimes, governments refer even complex decisions to public opinion. Prominent recent examples include the 2015 public referendum on the Greek debt relief package, and the Brexit decision.
  2. Sometimes, governments take decisions that appear popular (read: supported by a majority of the citizens), and use popularity as the only measure of success, without asking themselves pertinent questions, such as: is the decision harmful to some citizens? Could the decision be harmful in the long run?

In a democracy, the will of the people should matter. However, the entire machinery of modern republican governance is meant to channel popular will through exercise of sound judgment. Why is this machinery required? In an essay published in 1819, Benjamin Constant presented a distinction between the liberty of ancients and the liberty of moderns. For the citizens of ancient republics (eg. classical Athens), liberty meant having a share of the sovereign authority.

This was direct democracy – citizens had to carry out many functions of government “collectively but directly”. They came together in the public square to discuss and make decisions about war and peace; to form alliances with foreign governments; to vote on new laws; to pronounce judgments; to evaluate the performance of the magistrates; and so on. To do all this, citizens were expected to devote considerable time towards public and political matters, such that the individual citizens and their private concerns were less important than public concerns. Such participation was expensive. Societies had to depend on slaves to free up the time for citizens to perform civic duties, and the concept of private life was limited. Also, only 10-20% of residents had the privilege and responsibility of being citizens.

Modern liberty as exercised in modern republics is very different. It is largely private, and it is enjoyed by everyone in the country. It is essentially about removal of obstructions and encumbrances that prevent individuals from doing what they wish to do. It is an expansion of the private sphere. This liberty is made possible because of the system of representative democracy, wherein governments are elected to govern, and citizens participate in politics mainly through the instrument of voting, and through part-time civic engagement during intra-election periods to keep a check on the government. A minuscule portion of the populace participates in politics, and an even smaller number holds office. Citizens elect; the elected govern; and the citizens hold the elected accountable for outcomes.

Government leaders and their advisors are doing policy work full-time, while ordinary citizens are living their private lives. Ordinary citizens do not have the knowledge or the time to choose the right policy, nor do they have the full information to judge the merits of a complex policy that has just been announced.

In this context, direct democracy is suitable for certain local issues where people can see the inputs and outcomes. For complex, macro issues, legislators and governments may seek public opinion (perhaps through opinion polls), but then they must exercise their own judgment. People demanded an attack on black money, but they did not demand demonetisation as the weapon of choice. When asked, people seem to be saying that they support the move, perhaps because they believe that it is worth trying, when other measures don’t seem to have worked. However, leaders are in the arena and they must also hold their decisions to other measurable standards of success. Popularity does not necessarily attest to soundness of a policy. It is for the leaders to exercise judgment in devising the least expensive and most effective ways to attack generation and storage of black money.

A reckoning of costs and benefits, expressed in rupees, is important. It is likely that the demonetisation decision fails this test. However, even if it did pass the test of a careful cost-benefit analysis, there are important elements of political thinking which should be brought into the policy discourse:

  • Impact on the rights of individual citizens
  • Impact on rule of law and uncertainty in society
  • Impact on institutions

Impact on the rights of individual citizens

One problem with a cost-benefit approach is that, unless it is done very carefully, it can justify inflicting a great deal of pain upon innocent people just so that society in the aggregate can benefit. Even when done carefully, it is still based on the utilitarian assumption that as long as a decision is beneficial in the aggregate, it can be justified. This aggregate net benefit is a necessary condition for a decision, but is it a sufficient condition?

In a totalitarian system, where individual identity is subsumed under the collective good, aggregate benefit is both a necessary and sufficient condition. However, in a democratic republic, individual rights and duties provide the foundations on which democratic self-government is established and sustained. Civil and economic rights must be preserved, even in face of aggregate societal benefits. For example, a poor person may not contribute much to the GDP, but is still a citizen who has a piece of the constituent power that established the state in the first place. Any consideration of costs and benefits must be over and above an understanding of the rights of individuals that cannot be taken away.

The decision to discontinue the Rs. 500 and Rs. 1000 notes is harmful for the economic liberties of citizens. For weeks, their ability to conduct their economic lives has been severely disrupted. Money is of no use if one cannot use it when one needs to. By restricting withdrawals from banks, which is a decision of questionable legality, and by limiting exchange of notes, people have been deprived of using their hard-earned money when they need it. Because of the restrictions, some may be forced to take losses even on their hard-earned money. As my colleague Anirudh Burman has argued, these are forms of expropriation. The right to property is a right under Article 300A of the constitution of India, though it is not a fundamental right. However, intruding upon the property rights of citizens is bad policy, regardless of whether the constitution prohibits it or not.

The decision has led to considerable problems for people who needed cash for an emergency, for a pre-planned social event, or for other legitimate purposes. This is an insulting way to treat citizens, and potentially infringes upon their other rights. Their ability to take care of their health, to move across the country, to practice their profession, etc, are affected by this abrupt decision. Many of these impacts are not fully captured in a simple cost-benefit analysis.

Impact on rule of law and uncertainty in society

Order is our most fundamental need, and uncertainty is the enemy of order. The decision to disrupt the medium of exchange for so many people, and then implementing it in such a haphazard way, has generated enormous uncertainty. This uncertainty that has been unleashed could have unpredictable consequences, which ex-ante cost-benefit analysis cannot consider. For example, conspiracy theories and fraud are thriving due to this large scale disruption. Policy decisions should always try to minimise uncertainty, especially in decisions implemented at large scale. This decision fails this test.

Governments are expected to put in place system to reduce uncertainty, and to solve the problems that create uncertainty. For example, systemic crisis in the economy creates uncertainty. When Lehman Brothers failed and the global financial crisis began, the chief task of the central government and RBI was to reduce uncertainty and maintain stability in the financial system.

One of the main ways of reducing uncertainty is to uphold the rule of law. Rule of law is a complex notion, but at its heart lie certain core principles. First, laws should be consistent with natural rights and principles of natural justice. Second, laws should be clear, predictable and widely known beforehand. Third, laws should be applied uniformly across similar situations. Fourth, due process should be followed, which means every application of law should provide the private party with information about the application of the law, the reasoning behind the application, and a mechanism for appeal.

This decision has hurt the rule of law and increased uncertainty. When government repeatedly promised to allow exchange of notes till December-end, but abruptly banned such exchange, the principle of predictability was violated. This did not just surprise those with black money, but also put others in difficulty. The myriad rules and frequent changes are placing enormous cognitive load and hurting clarity of law. Harming property rights on such a large scale without proper investigation, prosecution and conviction is not consistent with the due process requirement. Inflicting harm on the innocent goes against natural justice.

The expansion of discretionary powers of the tax authorities is also likely to weaken the rule of law. The pronouncements from government seem to suggest that it is going to be open season for the taxman. They will have the authority to send notices and start investigations against anyone who may have deposited cash. This has subverted a basic principle of law enforcement: everybody is innocent until proven guilty. One way in which this principle is put in practice is by requiring a reasonable burden of evidence before investigation, before prosecution and, of course, before convicting someone. The suspicion underlying the note ban decision turned everybody depositing cash, which is usually a legitimate activity, into a potential suspect.

We look back with disapproval at the license permit quota raj. Yet, sometimes we forget that the regime of innumerable, impossibly complex rules did not come up in one day. The rule books kept gathering fat over decades, before they were committed to a bonfire in the early 1990s. This regular addition to rules was necessitated by a mindset of suspicion. There was an endless cat and mouse game between the state and the citizen, because the state wanted to control everything. If the present trend continues, a similar game could be afoot yet again. This time it would be about cleansing society of all forms of corruption.

Impact on institutions

Institutions are not just their buildings, people or statutory powers. They are ideas that exist in the minds of people. The RBI has earned its credibility over more than 80 years, maintaining an image of an independent organisation that values integrity. There are criticisms of the RBI that it may have become hostage to its own success, and now stands in the way of India’s progress in macroeconomics and finance. However, its legitimacy and integrity have almost never been questioned. Now, the same institution has been placed in a very difficult position.

The way this decision was presented and is being implemented, there is cause to suspect that institutional distinctions were ignored, except as mere formalities. The government’s messaging is not helping the matter. Some in the government are crediting its leadership for the idea, while others are saying that it was the RBI’s idea. Communications about all matters are centralised at the ministry of finance, even regarding matters in  the RBI’s jurisdiction. This episode is harmful to the efforts to portray the RBI as an independent central bank. Add to all this the drama around badly printed notes, faulty drafting of notifications, and poor communications from the central bank, and we may have the beginning of the end of an institution’s credibility.

Four decades later, the capitulation of the judiciary during the Emergency still looms large in our imagination of that institution’s ability to protect our rights in our darkest hours. This note ban episode threatens to similarly cast a long shadow upon macroeconomic and financial policy in India. This episode indicates the limitations of legal protections such as statutory independence, job security under Article 311 of the constitution, etc. The vaunted checks and balances appear to be inadequate. The constitutional design of dividing power and vesting it in multiple institutions has been revealed to have severe limitations in practice, especially when a powerful government sets its mind to do something.

Another long-term institutional impact of this decision would be seen in the increase in the draconian powers of tax authorities. The nature of power of tax authorities is such that effectiveness can only be achieved by a complex system of accountability. Maximising revenue is not necessarily the best objective, as it may lead to abuse of power. The recent announcements seem to suggest that the tax department, especially their enforcement officials, will be given a carte blanche to go after depositors of cash. Since this is a high priority for government, they might err on the side of excess. Some may abuse their powers for personal gains. The damage to the institution would be lasting, and it might take a long time to restore a sense of balance and accountability.

Nature of the larger project

The decision is so astonishing that it has inspired utopian or apocalyptic pronouncements, depending on which side of the argument one is on. It has challenged our prior assumptions about the possibilities of policymaking in India. Is this the launch of a grand project? We obviously don’t know, but it would help to consider the record of the individual at the centre of this decision – the prime minister. Based on the PM’s governance record and work style, it seems he usually does not embark upon such adventurism. This decision is a break from his own record. Unlike Mao, Trotsky, Stalin, and others being invoked to explain what is going on, there was almost no foreshadowing for this decision.

The characterisations of this decision as an act of tyrannical overreach may be useful as warnings, and even understandable use of hyperbole to critique an egregious decision, but how do they fare as approximations of truth and as predictions of what is to come? Here is another way of thinking about this: could this decision be just an example of the failure of the policymaking process? The following inter-dependent assumptions mattered the most in this decision:

  • the portion of high denomination notes used for storing black money, and
  • the pace of remonetisation with new notes.

If most of the notes are used to store black money, and if the remonetisation in cash could be done in a week or fortnight, the decision would appear very different, albeit there would still be strong arguments against it. The PM may have been advised that not more than, say, Rs. 5-6 lakh crore, will come back, and the remaining cash is all black money, which will be difficult to launder if the government places severe restrictions on exchanges and withdrawals. Perhaps the government under-estimated the role of cash as a medium of exchange, and as a store of legitimate value. They may also have over-estimated the pace at which remonetisation in cash would happen. For a few days after the announcement, government leaders did say that remonetisation would take just two to three weeks.

All these mistakes may appear implausible, but not if you consider the very small number of people involved in this decision, and the views of certain persons who claim to have advised the government. Moreover, the history of policymaking is replete with bad decisions when there was ample evidence to counsel a different course. It is quite possible that the process began with wrong assumptions, which were not corrected in time. This obviously does not absolve anyone of responsibility, as the consequences do not depend on original intent.

If the government indeed started with different assumptions, it must now be surprised by the Rs. 8.44 lakh crore (as on November 27) that has already come back, and the long timelines for remonetisation in cash form (till date, only up to 18%  done). So, the government is now forced to improvise. Introduction of new objectives (eg. go cashless), reneging on important promises (eg. note exchange), and innumerable changes in timelines and rules are signs of improvisation. It is dealing with the fog of a rapidly unfolding situation in this vast, complex land of ours.

It is difficult to do meaningful improvisation, because this policy decision does not allow for much flexibility. Since the decision is founded on suspicion, flexibility is assumed to be “misused” to launder money. The only way to really cut costs was to roll the decision back, once it became clear that benefits might be smaller and costs might be larger than expected. However, rolling back would make the government look inept. Most leaders would prefer to appear authoritarian, than to appear inept. They would rather be feared than be ridiculed. Hence, improvisation seems to be the only politically feasible option. The kinds of things being done to improvise seem to be making things worse. This is not surprising, because governments are inherently not good at processing information quickly and efficiently, especially in a rapidly evolving context.

I do not think that the government intended to cause so much harm. However, what matters now is what it does from here on. If the government indeed had different assumptions about how this will work out, it may now be pleasantly surprised that it has popular support for the decision. For now, this support is a source of power. It remains to be seen if and how this support will change over time. So, the next steps are quite uncertain. Has the government unwittingly committed itself to a high stakes utopian project to make an honest society out of us, and would therefore feel compelled to take more such “bold” steps? The grand pronouncements about high modernist fantasies such as “cashless India”, and utopian ambitions such as a “cultural revolution” against corruption, suggest that the government may take that road riddled with enormous risks and unclear payoffs. Or could the government somehow carefully climb down and go back to a governance that is focused on getting the basics right?

This event has also revealed a great deal about our intelligentsia, our media, and even the broader civil society. There is much to be thought and learnt from this teachable moment. The shaping of the narrative is instructive to watch. In my eyes, there is one effort that has suffered considerable damage: the effort to build a new conservative movement in India.

The spiritedness around the 2014 election presented an opportunity to lay the foundation for a different narrative of governance – one founded on more conservative principles. There is an ongoing attempt to build a community for nourishing conservative thought to take on the intellectual and institutional hegemony of the so-called “left”. This effort is necessary for India’s political and social discourse. The weaknesses of a countervailing intellectual force may have led to a certain stagnation in our political imagination. The possibilities of politics have not kept pace with the needs of our society.

If a conservative intellectual movement deepens its roots and informs principled conservative politics, in the resultant political churning, there is a genuine possibility of a different politics emerging. Take the example of economic issues. On these issues, our present political discourse largely operates in a post-1991 consensus. The consensus is essentially about a gradual opening up to private capital, but with the state continuing to occupy the commanding heights of the economy. It is a version of state-managed capitalism, but without a capable state. We also see failures of the state to get the basic tasks of governance right, while fighting innumerable battles for social and economic justice.

One of the reasons for the weaknesses of the Indian state is the baggage it carries from its socialist past. In terms of its mood, it is still a controlling, commanding entity. It wants to control outcomes across a wide range of domains. It suffers from a common curse of countries that were late modernisers: an overwhelming number and variety of social and economic demands are placed on it. Conservatism has its own excesses, but on many issues, it could provide an important counter-view to overcome the present stagnation. It could, among other things, help redefine the roles of the state, the market and the civil society, and the interplay between them.

The note ban decision and the narrative around it have emphasised the weakness of the Indian intelligentsia. We do not have a critical mass of people upholding values such as protection of property rights; who understand the need for limited government to protect civil society and markets; who oppose state-led utopian projects.

Utopian social engineering projects try to perfect human nature. A conservative perspective would suggest that human imperfections cannot be eliminated by diktat. The state can only mitigate the consequences of these imperfections to an extent. The efforts to overcome flaws of human nature should be in the social domain, not in the domain of state power. If the new Indian conservatives think that expanding state power to pursue their favorite social and economic objectives is a good idea, they should see that the same power would later be used for ends that they don’t agree with. This is a mistake that many on the left had made. Further, if they think that property rights must be compromised at the altar of a project to reduce black money, they may be missing the woods for the trees.

Irrespective of what the original intent may have been, the note ban decision matches or surpasses the worst excesses of high modernist socialism in India. It was not a conservative move. The decision threatens to radically empower the government to harass and intimidate citizens of the country. It damages property rights.

Sadly, instead of forming the vanguard of an intellectual and social movement, too many are choosing to be Praetorian guards for political power. This is inherently bad for the long-term project, not because all compromises are bad, but because compromising core principles is potentially devastating for a movement that intends to distinguish itself in terms of its worldview.

A poor bargain

The original assumptions underlying the decision remain unclear, but it seems to be causing considerable harm. All this harm is likely to buy us only a small dent on the black money problem and the elimination of a few hundred crores of fake currency. This is not a good bargain, especially considering the long-term consequences. I am not sure the government intended this bargain. Still, at the moment, the decision is popular.

The government may have painted itself into a corner of righteousness. Since, this decision seems to have struck a chord with a larger number of citizens, political ambition might tempt the government to double down on this path, and take more “shock and awe” decisions. It would take considerable statesmanship to veer away from this path of temptation fraught with enormous risks but questionable benefits.

The government would do well to reflect on the failures of the policy-making process that led to what appears to be a bad decision. If this was indeed a genuine mistake, and government’s assumptions turned out to be wrong, it would be unwise to risk making more of such mistake in an impatient pursuit of lofty goals. Our government’s capacity to run complex programmes is very limited, and it is best expended on higher priority problems, such as building the criminal justice system, achieving public health goals, improving learning outcomes in primary education, building a credible defence apparatus, ensuring provision of sound infrastructure, ensuring clean air and water, and so on.

The author is a researcher at the National Institute of Public Finance and Policy. Views expressed here are personal.

The author would like to thank Ajay Shah and Anirudh Burman for useful discussions.This piece was originally published here and has been reproduced with permission.


Emerging Trends in Engineering Education – Indian Perspectives

Emerging Trends in Engineering Education –
Indian Perspectives

A SWOT analysis provides a glimpse into the national technology education system. The role of the
All India Council for Technical Education(AICTE) is highlighted. The recently announced National
Mission for Technical Education provides the strategic directions for the future. A SWOT analysis of
an Engineering Professional, a comparison of the XX and XXI century Engineers, and the distinctive
characteristics of XXI century Learners and Teachers illustrate the challenges ahead. The
globalisation and internationalisation perspectives and the cultural impact of globalisation are next
discussed. The national Quality and Accreditation initiatives are described, and the challenge of the
Digital Divide is highlighted. The importance of Partnership and Collaboration, in general, and of
nurturing Alumni-Alma Mater Relationship are stressed. Finally, some recommendations of a recent
ATN-IITs Conference are indicated.
1. A Swot Analysis of The National Technology Education System
Table I provides a SWOT analysis highlighting the distinctive characteristics of the National
Technology Education System.
2. The Role of AICTE In The National Technology Education System
The All India Council for Technical Education (AICTE) Act was passed by both the Houses of
Parliament in 1987, with the mandate to ensure “the proper planning and coordinated development of
the technical education system throughout the country, the promotion of qualitative improvements of
such education in relation to planned quantitative growth, and the regulation and proper maintenance
of norms and standards in the technical education system and for matters connected therewith”.
Among other things, the Powers and Functions of the Council include: technical manpower
assessment; coordinated development of technical education in the country at all levels; disbursement
of grants to institutions, promotion of R&D and innovations; promoting technical education for
women, physically challenged and weaker sections of the society; promotion of an effective link
between the technical education system and other relevant systems; evolution of performance
appraisal systems for technical institutions; Faculty development; laying down norms and standards;
fixing norms and guidelines for fees; grant of approval for starting new technical institutions and
programs; grant of charter to professional societies; laying down norms for granting autonomy to
technical institutions; steps to prevent commercialization; guidelines for student admissions;
inspection of technical institutions; steps to ensure compliance with the directions of the Council; and
establishing and sustaining the National Board of Accreditation.
3. The National Mission for Technology Education
The Ministry of Human Resource Development announced this Mission on January 10, 2002, with the
main objective “to prepare and implement a long-term strategy for Technical Education in the
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The Terms of Reference of the Mission include : the laying down of policy for expansion of the
highest quality of technical and management education in the country; planning for a substantial
expansion in the technical manpower, particularly in new and emerging areas; developing India as an
internationally acclaimed technical and management center; ensuring balanced regional development
of technical and management education in the country; promotion of postgraduate education and
research in higher technical institutions; and overseeing the several initiatives of the government such
as accreditation and quality assurance.
4. A SWOT Analysis of An Engineering Professional.
Table II highlights the SWOT of an Engineering Professional.
5. A Comparison of The XX And XXI Century Engineers
Table III brings out a comparison of the desirable characteristics of XX and XXI century engineers.
6. XXI Century Learners And Teachers.
The XXI Century learners: have never wound a watch, touched a typewriter, played a record album,
calculated with a slide rule, traveled in a steam engine, handwritten a letter, nor known a world
without computers. Today’s school kids know more about technology than do their teachers. They get
bored, if they are doing only one function at a time; they need multiple stimuli. For example, they
watch their computer screens, listen to music through headphones, and carry on conversation, all at the
same time. They have short attention spans, and have the attitude of take-it-all-at-once.
The XXI century teachers have several challenges to overcome. “The teacher is no longer the sage on
the stage, but the guide on the side.” The teacher is becoming less central to the learning process.
Learning with technology has to start by educating the teachers.
7. Stakeholders In The Engineering Education System
Table IV depicts the stakeholder relationships and the value addition achieved in the Engineering
Education System.
8. Globalisation and Internationalisation Perspectives
8.1 Globalisation of Higher Education.
􀂙 The rationales for globalisation are quite different for developed and developing countries.
􀂾 Economy : While for DCs, it is for favorable trading opportunities and expanded
markets; for LDCs it is : deregulation, enhanced privatization and currency integration.
􀂾 Education : While for DCs, it is for enhanced markets for educational products, processes
and services, and for making up for reduced indigenous demand; for LDCs, it means study
opportunities abroad, for those who can afford, and competition to local institutions.
􀂾 Employment : While for DCs, it leads to erosion of jobs and competition from low-wage
workforce from LDCs; for LDCs it leads to off-shore jobs and opportunities for short-term
employment abroad.
􀂙 Globalisation essentially deals with the processes leading to the integration of the economies of
the world, and the acceptance of the market economy world-wide. It has made the nations of the
world inter-dependent and inter-connected.
􀂙 There are two contrasting/conflicting views on the cultural impact of the globalisation process : in
terms of cultural imperialism, increasing homogenization, or what is popularly known as
McDonaldisation or Coca-colonisation; or celebration of the creation of the “Global Village,”
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leading to the demise of the nation-state, and the availability of increasing range of choices, in
terms of : lifestyles, values, technology, commodities, information, entertainment, etc.
􀂙 The ‘global economy’ is also an “informational economy”, in which the method of production
has shifted from : the mass production of goods at a centralized location(Fordism) to a flexible
system of production (post-Fordism) at dispersed locations.
􀂙 The impact of globalisation in India, leading to the opening up of the Indian economy, as part of
the structural adjustment program, launched under the directive of the IMF and WB, has been to
increase privatization and FDI in India, at the same time leading to closing down of domestic
industries, and laying-off of workers, unable to compete with the much greater competitive
powers of the MNCs, and the flooding of the domestic supermarkets with foreign goods.
􀂙 In the present phase of a ‘global economy’, goods and services are produced and marketed by an
oligopolistic web of global corporate network (MNCs), whose operations span national
boundaries, but are only loosely regulated by nation-states; this paradigmatic shift has been made
possible by the IT revolution.
􀂙 The concept of globalisation involves the blending of the global with the local ; it is a strategy
adopted by MNCs while dealing with local traditions in order to enhance their marketability.
􀂙 According to some, globalisation is a process of increasing heterogeneity, shifting identities and
8.2 Internationalisation of Higher Education
Internationalisation of Higher Education is described as:
􀂾 “the complex of processes that gives universities an international dimension”; thus
internationalization encompasses all facets of university life, including scholarship,
teaching, research and institutional management.
􀂾 “the process which integrates an international or inter-cultural dimension into each of its
three core activities, viz. teaching and learning, research and community service”.
􀂾 Includes academic mobility, global or multi-cultural education, area studies and study
􀂾 The rationales include : political rationales, such as peace and mutual understanding ; as
well as economic ones, such as the international labor market.
􀂾 Internationalisation is more a process than an activity with a beginning and an end.
􀂙 The rationales for internationalization are largely similar for both developed as well as developing
􀂙 There appear to be four kinds of rationales for institutions of higher education, national
governments, international bodies, and the private sector, to be actively involved in international
educational activities: academic, social/cultural, political and economic.
􀂙 Internationality has come to mean the capability of equipping graduates with competencies
applicable in a world where national borders no longer hinder the global flow of technologies and
products. It is also the ability of academic communities to attract and integrate intelligence of
any nationality seamlessly.
􀂙 The foreseeable effects of internationalization on engineering education and on its providers can
be categorized into:
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􀂾 cooperation : organization of student and teacher mobility, mutual recognition of credits,
development of a common system.
􀂾 convergence : harmonization of the educational structures.
􀂾 competition : struggle for motivated and qualified students and scientists.
􀂙 Many policy makers consider the internationalization of the university and of the curriculum as
the key components of internationalization.
􀂙 An OECD study provides the following definition of Internationalised Curricula : “Curricula with
an international orientation in content, aimed at preparing students for performing professionally
and socially in an international and multicultural context, and designed for domestic students as
well as foreign students.
􀂙 What we had prior to the 1970s was an ‘international economy’ in which goods and services were
traded across national boundaries by individual firms from different countries, under regulation
by sovereign nation – states.
9. Quality and Accreditation Initiatives
The US National Science Foundation (NSF) Task Force on TQM has come up with the following
definition of Quality Engineering Education :
“Quality Engineering Education is the development of intellectual skills and knowledge that will equip
graduates to contribute to society through productive and satisfying engineering careers as innovators,
decision-makers and leaders in the global economy of the twenty first century.”
The Task Force also points out that TQM is not a destination, but rather a journey to improvement.
There have been several discussions on the fundamental question whether Academic Quality is
quantifiable. It is widely believed that academic quality, like beauty, for example, is an elusive
Two Quotes are given below to bring out the need for quantification, and simultaneously the
limitations of this approach.
􀂙 Lord Kelvin : “When you can measure what you are speaking about, and express it in
numbers, you know something about it; and when you cannot measure it in numbers, your
knowledge is of a meager and unsatisfactory kind.”
􀂙 G.N. Lewis : I have no patience with attempts to identify Science with measurements, which is
but one of its tools, or with any definition which would exclude a Darwin, a Pasteur or a Kekule.
AICTE has set up a National Board of Accreditation for defining the criteria for assessment of Quality
of Technical Institutions, both at the under-graduate as well as post-graduate levels. The Process
includes: self-assessment by the Institution, as well as, an Expert Committee Visit, and subsequent
consideration by a Sectorial Committee and the Board. It is gratifying that the necessity for
Accreditation has been instrumental in making almost all the Institutions strive to put in place
mechanisms for addressing Quality issues. The National Board of Accreditation is now making a
proposal to the Washington Accord for Membership.
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10. The challenge of the Digital Divide.
The Digital Divide refers to the gap between those who have access to information technology and
those who do not and; the widening gap in both dial-up and broadband access. It is pointed out that to
understand the Digital Divide, a much more sophisticated analysis is needed, one that looks beyond
access to type and levels of use, acquisition of skills, and motivation to prepare for technology careers.
10.1 The Indian Scenario
Dr. Murli Manohar Joshi, Union Minister for HRD and S&T, has said : “The scientific knowledge of
the future has to be one which is directly integrated with social requirement. Only such knowledge
can help provide the foundations of a society, which becomes truly sustainable”. It is pointed out that
technology itself is not relevant to mankind; the relevance lies in the human aspect of the technology.
As far as IT tools are concerned, too much information paralyses action, and quality information is
vital. New technology magnifies the gap between the information-rich and the information-poor.
Joseph Dunite has said : ‘If we want the technology to liberate us rather than destroy us, we — the
techno peasants– have to assume responsibility for it”.
While the Digital Divide is an issue of recent concern, the Technology Divide has been an issue for
much longer. There appear to be two approaches to enable a wider population to benefit from the
Technology and Information Revolutions : one is to enhance the level of literacy−basic, functional,
technology and computer−and education among the population; and the other is to design
‘appropriate’ IT tools around the capabilities of the users, such as, for example, the Simputer, which
employs audio/visual input/output (without the need to be literate)
11. The Importance of Partnership
The rationale for collaboration is highlighted by Henry Ford’s statement : “Coming together is a
beginning; keeping together is progress; working together is successs”.
In order to derive the full benefits of Collaboration, it is necessary to identify and remove the
barriers/inhibitors for Collaboration : Identify committed individuals (‘champions’) on either side, and
empower them; enable potential partners to communicate with each other; accord recognition for
collaborative work; put in place institutional mechanisms for promoting collaboration; identify
collaborative partnership as a strategic intent.
11.1 The Case study of IIT Madras
A research university like IIT Madras enters into collaboration with a wide range of partners : other
universities; industry; R & D labs; community organizations; government agencies; funding
/sponsoring agencies; international agencies; and Alumni. IIT Madras has 36 MoUs ( Memoranda of
Understanding) with international universities. The activities include exchange of students and faculty
members, undertaking joint projects, joint workshops, etc. Another interesting collaborative
partnership involves three partners in the area of telecommunications: the faculty and research
scholars undertake designs, the chips are manufactured by a company in the US, which are
incorporated into the devices, which are prototype-manufactured and tested by companies started by
alumni. The technology is transferred and licensed for manufacture by commercially-oriented
12. Nurturing Alumni-Alma Mater Relationship
The strength of this Relationship is a function of : the success achieved by the Alumnus; the credit
he/she is prepared to ascribe to the contributions of the Alma Mater; and the efforts made by each to
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keep in touch with the other. The relationship itself is rather tenuous: such as that between Parents and
Children, as they grow up. There are mutual expectations : the Alumni expect the Alma Mater to
constantly keep in touch with them; communicate with them; continuously enhance its reputation so
that the Alumni can be proud of their Alma Mater; and keep the feel-good factor at a peak all the time.
The Alma Mater, in return, expects the Alumni to feel proud and good about the contributions of the
Alma Mater in providing a good foundation and initial conditions as the basis of their present success.;
constantly keep in touch with it; promote activities that will benefit the Institute, in both tangible as
well as intangible ways; form cohesive groups in the cities they live in , and help each other, if and
when necessary; and provide mentoring and counseling to current students.
There are barriers however; such as for example : time constraints; time for self and family versus
Alumni activities; apathy/cynicism, in some cases; lack of communication; and history of some bad
experiences. Strategies to overcome these barriers, like in any partnership are : to establish
communication channels and continuously communicate and interact.; to organize Reunions; Regular
Meetings, Chat Sessions and e-groups; Nodal persons to provide a focus; to promote mutual
understanding and respect; to clearly articulate goals and projected activities; to elicit feed back to
reorient or fine tune plans; to ensure fast and precise response; to broadbase the participation; to
provide leadership; to involve current faculty and students; to document success stories; and to learn
from best practices of others.
It is Nostalgia that provides the strong force that binds Alumni with the Alma Mater. The intensity of
Nostalgia is a function of space and time: it is directly proportional to the distance between the current
location of the Alumnus and the Alma Mater; and it is directly proportional to the number of years
elapsed since graduation.
13. Some Recommendations of a recent ATN-IITs Conference
An interesting Conference was held at Indian Institute of Technology – Madras a couple of years ago,
with the participation of the Presidents of the Institutions comprising the Australian Technology
Network and the Directors of five Indian Institutes of Technology. The principal objectives of the
conference were to first learn of each other’s activities, strengths and interests, and to explore ways
and means of promoting collaboration between the two “ networks” of technical institutions.
The recommendations of this Conference are given under two heads :
I. Short-term action to cement the Collaboration and create impact and visibility :
􀂙 Opportunities for Indian students to undergo Summer Training in Australian
Industries/Research Labs/ ATN Universities; and for Australian Students to undergo Training/
Research in Indian Industries/ R & D Labs/IITs.
􀂙 Preparation of R&D proposals in areas of mutual interest for funding by International/ Bilateral
agencies or industries through communication between interested faculty in the two systems.
It would be advisable if more than one Institution from each side would participate in these
ventures. Some examples are listed below :
Aerospace Technologies ; Biomedical Technologies ; Distributed Computing ; Educational
Technology ; Energy and Environment Technologies ; Engineering Education ; IT and
Telecommunications ; Manufacturing Technologies ; Materials Technology ; Ocean
Engineering ; Strategic Planning and Management ; Sustainable Development ; Sustainable
Energy Technologies ; Transportation Engineering ; Water Resources Management ; Waste
Water Management.
􀂙 International Conferences, on a relevant topic involving all the IITs and the ATN Universities.
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􀂙 Exchange of information regarding best practices and innovative initiatives with regard to
Education, Technology and Management.
􀂙 Joint collaborative teaching of courses, at the UG and PG levels.
􀂙 Sharing of Courseware (in different media).
II. Possibilities of Long-term Collaboration
Exchange of UG, PG and Research students ; Exchange of faculty for Teaching, Research and
Consultancy ; Exchange of support staff for Training, Consultancy, Technology Development ;
Collaborative Research, Technology Development, Industrial Consultancy, Educational Consultancy,
Training Programmes for International clients- in Australia, India or other countries – on selfsupporting
basis ; Joint International Conferences, Seminars, Workshops, Continuing Education
Programmes ; “2 +2” initiatives (Industry + Institution in each country coming together as partners) ;
Twinning Programmes possibility ; Formal and Non-formal Programmes in 3rd countries through
Distance Plus Contact Mode ; Continuous exchange of information about new initiatives and
feedback thereon ; Establishment of Chairs in Australia and in India to facilitate exchange of
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􀂙 Aspirations of our Youth to pursue Technical
􀂙 Private Sector initiatives complementing
Government initiatives.
􀂙 Increasing interest of Industry Associations
(such as CII, FICCI, ASSOCHAM) and of
Professional Societies to partner and collaborate
with academic institutions.
􀂙 The Accreditation initiatives of NBA are serving
to promote Quality Improvement in the Technical
Education sector.
􀂙 The upcoming World Bank project will provide
the necessary resources for upgradation of
technical education in the country.
􀂙 The QIP schemes have contributed significantly to
the upgrading of qualifications of faculty in
Technical institutions. The scheme has recently
been enlarged to cover non-engineering
disciplines also.
􀂙 The MODROBS, TAPTEC and R&D schemes of
AICTE, as well as of MHRD, have served to
modernize the infrastructure and remove
obsolescence, promote work on thrust areas, and
R&D programs in Technical Institutions.
􀂙 Technical Education perceived as a Business
opportunity by some.
􀂙 Severe shortage of qualified and competent faculty
especially in (hi-tech) ICT.
􀂙 While there are islands of excellence these are
rather few in number.
􀂙 Lack of interest among graduating engineers to
pursue teaching careers .
􀂙 Lack of interest for pursuing research degree
􀂙 Lack of availability of Ph.Ds in Engineering for
faculty positions .
􀂙 Lack of adequate industry-institute interaction.
􀂙 Mismatch between education and training
(knowledge and skills) received by graduates, and
job requirements.
􀂙 Inadequate manpower needs assessment and
manpower planning.
􀂙 The widely prevalent affiliating system in our
universities precludes timely curriculum updating
and introduction of innovative reforms.
􀂙 The recent boom in IT industry caused a
disproportionate increase in admission capacity in
this area, at the expense of other disciplines.
􀂙 While the admission capacity at the UG degree
level has been on the rise, a corresponding
growth at the PG level has not taken place.
Table I
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Page 9 of 10
􀂙 For setting up quality Indian institutions –sponsored
off-shore campuses.
􀂙 IT tools are becoming available for Technology-
Enhanced Learning, for widening the reach of
Technical Education.
􀂙 Distance Education possibilities for Continuing
􀂙 Networking of technical institutions, at different
levels, for mutual benefit, sharing of resources,
undertaking major projects.
􀂙 Networking of technical institutions with R&D labs
and industry.
􀂙 Schemes such as TDB, CORE, promoting industryinstitute
􀂙 Many alumni are offering substantial support to their
Alma Maters.
􀂙 The role of Technology and Technology Education
for national development and prosperity is widely
􀂙 In the emerging GATS scenario, Quality concerns
need to be addressed urgently.
􀂙 Competition from international players.
􀂙 The non-uniformity in the distribution of Technical
Institutions in the country, causing regional
imbalances, and inter-state migration of students.
􀂙 The Technical Institutions in the rural and
industrially-backward areas are not as popular with
students, leading to unfilled capacity in these
􀂙 The tendency of our students to prefer IT-related
courses, and to shun other disciplines.
􀂙 The tendency of research scholars to prefer
computer-based research over experimental
􀂙 The ration of diploma programmes to degree
programs is on the decline (much unlike other
􀂙 The Science-base in the country is getting weaker,
which will have an adverse impact on our capacity
for technology development .
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􀂙 Analytical Capabilities
􀂙 Design Capabilities—
􀂕 ability to handle open-ended problems
􀂕 ability to handle poorly-defined
􀂕 creativity and innovation
􀂙 Decision-making, including problem solving
􀂙 Graphical communication skills
􀂙 Discipline, work ethic.
􀂙 Most real-life problems require contributions
from Engineers
􀂙 National policies recognize role of S & T
􀂙 Business recognizes role of Technology
􀂙 Ambition of bright youth to become
􀂙 Globalisation offers opportunities for
acquisition of state-of-the art technologies.
􀂙 Inability to work in a Team
􀂙 Inter-disciplinary knowledge
􀂙 Practical orientation (academics)
􀂙 Commercial orientation
􀂙 Introspective nature, modesty
􀂙 Oral and written communication skills
􀂙 Integrative skills
􀂙 Ability to employ IT
􀂙 Obsolescence (remedy: Continuing Education)
􀂙 Inter-personal skills
􀂙 Public perception and recognition
􀂙 Competition from Scientist, Economists,
Financial Experts, Administrators in high-level
decision-making bodies.
􀂙 Quantitative expansion in Technical Education
without simultaneous Quality assurance
􀂙 Industrial development entails depletion of
natural resources and environment degradation –
Engineers are held are responsible for these.
􀂙 Problem-solving abilities
􀂙 Analytical skills
􀂙 Communication skills—
􀂕 oral, written, graphic
􀂙 Ability to relate to practical aspects of
􀂙 Inter-personal skills.
􀂙 Management skills
􀂙 Decision-making skills.
􀂙 Learnability : learning to learn, on one’s own
􀂙 Yen for life-long learning – continuous
􀂙 Ability to muster knowledge from
neighbouring disciplines.
􀂙 Ability to work in a team.
􀂙 Exposure to commercial disciplines.
􀂙 Creativity and Innovation.
􀂙 Integrative skills.
Table II
Table III
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30 September – 4 October 2002, Hobart
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Tangible / Intangible
Alumni Communication Support
Industrial and
Economic Development
Manpower Development
Government R&D
Social and Economic
Manpower Development
Society R&D
Consultancy Technology Solutions
CEP Up to date Workforce
R&D Products, Processes
Manpower Development Competent Workforce
Employment Livelihood, Prosperity
Career Development
(Faculty, Staff)
Manpower Development
Student (Education, Training)
Prof. R. Natarajan
All India Council For Technical Education, New Delhi, India

Indian Economy Overview

India has been one of the best performers in the world economy in recent years, but rapidly rising inflation and the complexities of running the world’s biggest democracy are proving challenging.
India’s economy has been one of the stars of global economics in recent years, growing 9.2% in 2007 and 9.6% in 2006. Growth had been supported by markets reforms, huge inflows of FDI, rising foreign exchange reserves, both an IT and real estate boom, and a flourishing capital market.
Like most of the world, however, India is facing testing economic times in 2008. The Reserve Bank of India had set an inflation target of 4%, but by the middle of the year it was running at 11%, the highest level seen for a decade. The rising costs of oil, food and the resources needed for India’s construction boom are all playing a part.
India has to compete ever harder in the energy market place in particular and has not been as adept at securing new fossil fuel sources as the Chinese. The Indian Government is looking at alternatives, and has signed a wide-ranging nuclear treaty with the US, in part to gain access to nuclear power plant technology that can reduce its oil thirst. This has proved contentious though, leading to leftist members of the ruling coalition pulling out of the government.
As part of the fight against inflation a tighter monetary policy is expected, but this will help slow the growth of the Indian economy still further, as domestic demand will be dampened. External demand is also slowing, further adding to the downside risks.
The Indian stock market has fallen more than 40% in six months from its January 2008 high. $6b of foreign funds have flowed out of the country in that period, reacting both to slowing economic growth and perceptions that the market was over-valued.
It is not all doom and gloom, however. A growing number of investors feel that the market may now be undervalued and are seeing this as a buying opportunity. If their optimism about the long term health of the Indian economy is correct, then this will be a needed correction rather than a downtrend.
The Indian government certainly hopes that is the case. It views investment in the creaking infrastructure of the country as being a key requirement, and has ear-marked 23.8 trillion rupees, approximately $559 billion, for infrastructure upgrades during the 11th five year plan. It expects to fund 70% of project costs, with the other 30% being supplied by the private sector. Ports, airports, roads and railways are all seen as vital for the Indian Economy and have been targeted for investment.
Further hope comes from the confidence of India’s home bred companies. As well as taking over the domestic reins, where they now account for most of the economic activity, they are also increasingly expanding abroad. India has contributed more new members to the Forbes Global 2000 than any other country in the last four years.

Recent Growth Trends in Indian Economy

India’s Economy has grown by more than 9% for three years running, and has seen a decade of 7%+ growth. This has reduced poverty by 10%, but with 60% of India’s 1.1 billion population living off agriculture and with droughts and floods increasing, poverty alleviation is still a major challenge.
The structural transformation that has been adopted by the national government in recent times has reduced growth constraints and contributed greatly to the overall growth and prosperity of the country. However there are still major issues around federal vs state bureaucracy, corruption and tariffs that require addressing. India’s public debt is 58% of GDP according to the CIA World Fact book, and this represents another challenge.
During this period of stable growth, the performance of the Indian service sector has been particularly significant. The growth rate of the service sector was 11.18% in 2007 and now contributes 53% of GDP. The industrial sector grew 10.63% in the same period and is now 29% of GDP. Agriculture is 17% of the Indian economy.
Growth in the manufacturing sector has also complemented the country’s excellent growth momentum. The growth rate of the manufacturing sector rose steadily from 8.98% in 2005, to 12% in 2006. The storage and communication sector also registered a significant growth rate of 16.64% in the same year.
Additional factors that have contributed to this robust environment are sustained in investment and high savings rates. As far as the percentage of gross capital formation in GDP is concerned, there has been a significant rise from 22.8% in the fiscal year 2001, to 35.9% in the fiscal year 2006. Further, the gross rate of savings as a proportion to GDP registered solid growth from 23.5% to 34.8% for the same period.

Indian Economy 2009

After several years of rapid growth, 2009, will prove a testing year for India.

Inflation Inflation continues to pose a threat. Inflation peaked at 12% in early August ‘08. Inflation, is being caused by rapid growth (demand pull factors) but, also the cost push inflation factors (rising oil prices). Hopefully, the fall in oil prices and higher interest rates will reduce inflation without causing too much of a slowdown.

Economic Growth. After reaching growth of 9.8% in 2007/08, growth is expected to slow down to 7%. This might not be a bad thing as it will avoid inflationary pressures building further. However, some worry the global credit crunch could reduce growth much more.

Global Recession and Indian Economy. It appears that Europe, Japan and the US are entering into recession. Falling house prices, crisis in the financial system, and lower confidence could lead to a sharp downturn, with the worst still to come.

Many argue, that India’s growth is not so dependent on growth in the West. However, the Indian stockmarkets have been hit by the global crisis. India’s growing service sector and manufacturing sector would be adversely impacted by a global downturn. However, I still feel that India’s economic success is not dependent on growth in the West, and at worst India’s growth rate will be less than hoped for.

The Indian government still have a target of 10% growth for 2010/11, but, I think this could prove unrealistic.

Challenges for Indian Economy in 2009
Getting inflation under control
Spreading the benefits of growth more equitably.
Completing investment projects which are essential for long term development of economy.
Dealing with global financial uncertainty, which will make capital flows and exports more difficult.
Sensex in 2009
After falling in 2008, the Sensex could offer one of the best returns for global stockmarkets. India’s strong economic growth will buck the global trend for lower growth.

Indian Rupee 2009
The Indian Rupee has had a surprisingly weak year. The Rupee has fallen from 39 Rupee to 1$ in January 2008, to 44 Rupee in September. Real interest rates in India are still negative, but, if the Indian inflation rate is reduced, and the government resist the temptation to go all out for growth, the Rupee may rebound, at least against the dollar, which will face more difficulties in 2009

Indian Economy 2010

Indian Economy 2010
More on Indian Economy

Indian economy set to grow despite downturn – Indian Reuters
Indian economy – wikipedia
Problems facing Indian economy