LETTERS

Issn 0012-9976
Ever since the first issue in 1966,
EPW has been India’s premier journal for Cities at a Standstill result is extensive flooding as rainwater
comment on current affairs
and research in the social sciences.
run-off has no clear outlets. The city’s ne-
It succeeded Economic Weekly (1949–1965),
which was launched and shepherded
by Sachin Chaudhuri,
who was also the founder-editor of EPW.
A s torrential rains pounded in several
areas of Chennai and its fringes,
floods drowning the city within a matter
glect of natural and man-made waterbod-
ies not only causes severe floods but also
contributes to water scarcity during sum-
As editor for 35 years (1969–2004)
Krishna Raj of a few hours now seem like an annual mers. The irony is apparent as a city grap-
gave EPW the reputation it now enjoys. affair. It once again brought up the ques- pling with floods may soon be seeking
Editor tion: Why are our cities never prepared water from neighbouring states or the sea.
S Mahendra Dev for a deluge? What could be the reason? Unfortunately, Chennai is not an iso-
Deputy Editor While climate scientists and environ- lated case, as urban floods have plagued
Pyaralal Raghavan
mentalists strongly argue that the crisis in several major cities across India in the
SENIOR Assistant editors Chennai is a direct consequence of global past decade, including Mumbai,
INDU K
Nachiket kulkarni warming, others attribute the massive Ahmedabad, Hyderabad, Kolkata, Ben-
Assistant editor
devastation to unplanned urban develop- galuru, and Surat. Devastating floods in
Sahba Fatima ment and uncontrolled growth without Kashmir, Mumbai, and Uttarakhand un-
editorIAL Assistant proper hydrological planning. derscore the inadequate management of
Ankit Kawade Despite Tamil Nadu’s extensive network drainage channels in many urban areas.
Editorial Coordinator of waterbodies, including over 43,000 In pursuit of building smart cities,
Shilpa Sawant
tanks, major rivers like Cooum and Adyar, India’s major urban areas have either
copy editor and the Buckingham Canal struggle to neglected or indiscriminately encroached
jyoti shetty
efficiently drain excess rainwater during upon natural reservoirs. Mumbai faces
production
suneethi nair heavy rains. The traditionally absorbent recurrent floods due to garbage and un-
Pallikaranai marsh appears unable to treated sewage choking waterways.
Chief Administrative and Finance Officer
J DENNIS RAJAKUMAR mitigate the impact of flooding. This Bengaluru, Hyderabad, and Guwahati
Advertisement Manager
raises questions about the effectiveness experience frequent floods as rampant
Kamal G Fanibanda of natural drainage systems during ex- encroachments diminish small water-
General Manager & Publisher treme weather events. bodies and their feeding channels.
Gauraang Pradhan Chennai’s original landscape boasted The widespread occurrences of such
editorial: edit@epw.in of numerous lakes and marshy areas, with incidents are a clear warning about the
Circulation: circulation@epw.in more than 600 small waterbodies in the increasing likelihood of regular flooding
Advertising: advertisement@epw.in 1980s, each featuring natural flood dis- across the country. As the planet contin-
charge channels. Unfortunately, a consid- ues to warm in the coming decades, India
Economic & Political Weekly
320–322, A to Z Industrial Estate erable portion of these waterbodies has is expected to receive more rainfall in
Ganpatrao Kadam Marg, Lower Parel deteriorated due to encroachment for ur- fewer rainy days. The critical question
Mumbai 400 013
Phone: (022) 4063 8282 ban development. Many areas that were remains: Are we adequately prepared to
once tanks, lakes, or ponds have given way address these challenges?
EPW Research Foundation to multistorey residential or industrial Certainly, the catastrophic flood in
EPW Research Foundation, established in 1993, conducts
research on fi nancial and macro-economic issues in India. structures. Notable examples include Chennai serves as a wake-up call for both
Director Chennai’s airport situated on the flood- governments and citizens alike. The ap-
J DENNIS RAJAKUMAR plains of the Adyar river and the elevated proach can no longer be business as usual,
C 212, Akurli Industrial Estate
Kandivali (East), Mumbai 400 101
railway tracks running along the Buck- and the memory of such events must not
Phones: (022) 2887 3038/41 ingham Canal. This widespread encroach- fade away.
epwrf@epwrf.in ment has significantly diminished the Constructive urban planning, coupled
Sameeksha TrusT size of major rivers and lakes such as with robust drainage systems, is impera-
(Publishers of Economic & Political Weekly) Cooum, Adyar, Velachery, Mogappair, tive. Governments must take a decisive
Board of Trustees
Deepak Nayyar, Chairman Villivakkam, and Ambattur. stance against encroachments and, where
Shyam Menon, Managing Trustee Despite clear warnings in the “Second feasible, ensure the proper rehabilitation
André Béteille, Master Plan for Chennai Metropolitan of those displaced. Citizens who endured
Deepak Parekh, Romila Thapar,
Dipankar Gupta, N Jayaram, Area, 2026,” the Pallikaranai marshland, the unexpected floods should actively
SUDIPTO MUNDLE which is crucial for drainage, has become support government initiatives to remove
Printed and published by Gauraang Pradhan, for and a major solid waste dumping site. En- encroachments, recognising the impor-
on behalf of Sameeksha Trust and printed at
Modern Arts and Industries, 151, A–Z Industrial Estate, croachment on open spaces, meant to act tance of proactive measures to mitigate
Ganpatrao Kadam Marg, Lower Parel, Mumbai–400 013
and published at 320–322, A–Z Industrial Estate, as buffers against flooding, and the con- future hardships.
Ganpatrao Kadam Marg, Lower Parel, Mumbai–400 013
version of drainage courses into residen- Tamil Nadu has invested significantly in
Editor: S Mahendra Dev (Editor responsible for
selection of news under the PRB Act) tial areas further exacerbate the issue. The river clean-up and sewage infrastructure,
4 december 16, 2023 vol lViii no 50 EPW Economic & Political Weekly

but these efforts face challenges from
civic authorities and the land mafia dis-
rupting the hydrological cycle. A
report by the Standing Committee on
Water Resources (2012–13) revealed wide-
spread encroachments on waterbodies by
municipalities and panchayats. To tackle
this issue, there is a call for urgent legis-
lation to make waterbody encroach-
ments a cognisable offence. The Madurai
bench of the Madras High Court’s land-
mark judgment prohibiting layout or
building plan permissions on waterbody
lands in 2014 is a positive move towards
the restoration of small waterbodies.
It is crucial to recognise that addressing
both water shortage and flooding hinges
on an efficient drainage system. This, in
turn, necessitates the repair, restoration,
and renovation of small waterbodies that
have been significantly encroached upon.
The revival of traditional community
maintenance practices, such as kudimara-
mathu, where stakeholders collectively
manage and preserve common property
resources like small waterbodies, is essen-
tial. This approach proves cost-effective
when compared to alternative methods.
Imposing a ban on all construction in
marshlands is essential. Urban develop-
ment projects must undergo stringent re-
views, considering environmental impact
and community needs. Regular desilting
of waterbodies and drainages is crucial for
efficient water flow. Integrating ponds in
parks and retention areas supports sustain-
able water management. Encouraging river
interlinking within the state diverts excess
water to water-deficient regions. These
measures need urgent implementation to
prevent recurring deluges in Chennai.
P Alli
Chennai
Dangers of Deepfake
Technology
A recent incident involving the mis-
identification of an actress in a viral
video has highlighted the growing menace
of deepfake technology. The “2023 State
of Deepfakes” report from Home Security
Heroes in the United States emphasises
the heightened risk of misidentification
faced by public figures, especially those
in the entertainment industry. Their
Economic & Political Weekly EPW june 17, 2023
december
visibility and potential impact on careers
make them prime targets for deepfake
manipulation.
A survey on deepfake content reveals
a disturbing trend, with adult content
constituting 98% of all online deepfake
videos. Particularly troubling is the finding
that 99% of realistic-looking pornography
targets women. India, notably, ranks 6th
among nations most vulnerable to deep-
fake adult content.
In addressing the challenges posed
by deepfake videos, the existing legal
framework, comprising Sections 66E
and 66D of the Information Technology
(Amendment) Act, 2008 reveals nota-
ble shortcomings. Section 66E, de-
signed to counter privacy breaches, pri-
marily focuses on the unauthorised
capturing or transmitting of the images
of private areas, neglecting the nu-
anced landscape of deepfake video cre-
ation and dissemination.
Moreover, its definition of “private area”
is restrictively confined to physical body
parts, omitting considerations for identity
theft or facial manipulation. This legal
landscape further falters in the face of
technological advancements, as Section
66E fails to explicitly encompass the so-
phisticated realm of deepfake algorithms,
making it challenging to prosecute those
manipulating content. While Section 66D
addresses personation using computer
resources, it leans towards fraud and de-
ception, lacking tailored provisions for the
distinct challenges posed by this techno-
logy. Creating fake personas may not
fall under this section since it involves
cheating without substituting a real
person. Additionally, the prescribed pen-
alties in both sections may prove to be
insufficient to deter individuals engaged
in such activities, considering the severe
harm caused by reputational damage
and its broader societal impact.
In response to the surge of using deep-
fake technology, the union government
issued an advisory to major social media
intermediaries in November 2023. The
government directive mandates swift
action within stipulated time frames
under the Information Technology
(Intermediary Guidelines and Digital
Media Ethics Code) Rules, 2021 against
reported cases of misinformation.
16, 2023
vol lViii
vol no
lViii
24no 50
LETTERS
The Digital Personal Data Protection
Act, 2023 has certain limitations, par-
ticularly regarding identifying deepfake
creators. To address this, it suggests that
the government should establish a body
using blockchain technology to monitor
deepfake content. The 2018 and 2019
Data Protection Bills had provisions re-
lated to monitoring deepfake content. It
empowered the courts to issue an order
to stop and erase such data from the
public domain. The emphasis was on
cases like revenge porn where there is a
potentiality to use deepfake technology.
The 2023 bill omitted the section, a loop-
hole the government should try to remedy.
Moreover, the Indian Penal Code Sec-
tion 416 penalises personation, but it
only applies if the impersonator substi-
tutes a real person. Rule 3 of the Infor-
mation Technology (Intermediary
Guidelines) Rules, 2011 is a potential so-
lution to address the issue of deepfake
videos on online platforms, but it re-
quires an amendment to include clauses
in the privacy policies of these platforms
that explicitly forbid users from upload-
ing any deepfake videos.
In a groundbreaking development, re-
searchers at the University of California,
Riverside introduced the expression
manipulation detection (EMD) frame-
work, far surpassing current standards
for deepfake detection. An effective way
to deal with deepfake technology in In-
dia is through digital watermarking. It
combats deepfake videos by embedding
unique, imperceptible marks during con-
tent creation. Until such mechanisms are
in place, the government can instruct the
intermediaries to notify them immediately
if a video with potentially disruptive con-
tent is uploaded. This would allow the
government to halt the video’s circulation
until its authenticity is verified.
Souvik Roy, Akash Bag
Kolkata
Erratum
In the article “Things You See From
Here: Tel Aviv, October–November 2023”
(EPW, 16 December 2023) by Gadi Algazi,
all instances of "middle-east" should have
been Middle East.
The error has been corrected on the EPW website.
The error is regretted—Ed.
5
LETTERS

6 december
june 16,
17, 2023 vol lViii no 50
24 EPW Economic & Political Weekly
 DECEMBER 16, 2023
The UNSC Resolution and Israel’s US-granted Impunity
The international community must conceive possible diplomatic actions that subvert the hegemonic veto
powers and make Israel comply with legal and moral norms.
T
hat Israel continues its aggression over beleaguered and
besieged Gaza, unyielding to the global calls for an im-
mediate ceasefire, is a measure of the sheer impunity that
it enjoys. The evident source of this impunity was once again
laid bare, with the United States (US) vetoing the United Nations
Security Council (UNSC) resolution calling for a humanitarian
ceasefire. The vote on the resolution was due to the rare instance
of the invocation of Article 99 of the UN Charter by the United
Nations Secretary General. The article mandates that “the Sec-
retary-General may bring to the attention of the Security Council
any matter which in his opinion may threaten the maintenance
of international peace and security.” It should be noted that the
US veto to the UNSC resolution for a humanitarian pause, moved
on 18 October, had delayed such a pause by about five weeks,
which witnessed the catastrophic loss of civilian lives at an un-
precedented pace along with the targeting of hospitals in Gaza
and effective blockade on aid in essential resources, such as wa-
ter, food, fuel and medical supplies, exacerbating the humani-
tarian crisis. The negotiated pause, which also led to the mutual
release of hostages/prisoners, ultimately proved to be just
that—a pause in the spate of death of destruction renewed vig-
orously by Israel from 1 December. The Gazans who have had to
flee to the south are facing intensified aggression in south Gaza
and are being cornered into a life of starvation and disease.
The platitudinous calls from the US Department of State for
maximum restraint to protect civilian lives and its velvet-gloved
admonishments have gone completely unheeded by Israel. Glar-
ing acts of indiscriminate killing of civilians, which include tar-
geting of academicians, journalists along with relief workers
and attacks on civilian infrastructure, including the United Na-
tions Relief and Works Agency (UNRWA) establishments such as
schools and shelters have continued apace. Israel knows fully
well that these calls or admonishments from the US are not be-
ing backed by any actionable intent. After all, while making
murmurs about civilian lives, the US administration has sought
to expedite sending additional ammunition to Israel, bypassing
the normal procedures of the Arms Export Control Act. These
procedures would involve congressional scrutiny where the is-
sues of the nature of the usage of this ammunition and flagrant
violations of humanitarian as well as international legal norms
by Israel could prove to be thorny and put the administration in
an uncomfortable situation and may put conditionalities. It is
being posited that the magnitude of the bombing since October
Economic & Political Weekly EPW DECember 16, 2023 vol lViii no 50
is such that without the expeditious arms supply, Israel would
be forced to cease the aggression within a few days. But the
arms supply is meant to be unconditional, not the concern for
civilian lives.
One wonders what the US secretary of state has on his mind In th
when he mildly rebukes Israel for gaps between its intent to be cha
protect civilian lives and the ground reality. If one looks at the
pattern of the statements made by top Israeli officials—Prime If on
Minister downwards—that have shown utter disregard for raeli of
Palestinian civilians by either implicating the entire population scant d
in the acts of terror or actively dehumanising them, along with the ent
open calls for catastrophic destruction, then it cannot be ac- ising th
cused of having such intent. The ground reality is stark as the then it
commissioner general of UNRWA says that “there is absolutely
no safe place in the Gaza Strip, not even in UN shelters and New
so-called safe zones designated by Israel itself.” Yet, going by the
US rationale for opposing ceasefire, we are to believe that all If on
this is in self-defence and about destroying Hamas and releasing raeli of
hostages held by them. That the plight of hostages is not a priority utter d
for the Israeli government is evident from its reported rejection the ent
of a deal for a five-day ceasefire in exchange for hostages in late ising th
October itself. This disregard has come under criticism from then it
within Israel, with several family members of the hostages calling
for peace and demanding accountability from the Prime Minister.
Without going into the futility of combatting militant forces
like Hamas by creating conditions that contribute to generating
support for it, one may ask: Why are the occupying settlers along
with Israeli armed forces unleashing violence in the West Bank
where Hamas has not been a factor? Why are the claims regarding
armed infrastructure under hospitals—most notably Al-Shifa
hospital—being refuted or doubted by even Western media out-
lets, otherwise sympathetic to Israel in their coverage? Credible
Israeli media outlets such as Haaretz and +972 Magazine have
published detailed studies of the patterns of Israeli bombing,
which point towards the unrestrained and even calculated tar-
geting of civilians. How does this align with the stated goal of
defeating Hamas? The goal, even expressed in so many words
by an Israeli security cabinet member and minister, appears to
be a Nakba-forced displacement of Palestinians from Gaza,
which is almost already achieved in north Gaza. Such a goal
seems to be apparent as on the one hand, Israel appears to be
bent on making the most of the Gaza Strip practically unlivable
and on the other mooting proposals in humanitarian cloak for
7
EDITORIALS
pushing Palestinians as refugees in neighbouring Arab coun-
tries—notably in the Sinai Desert in Egypt. Going by the United
Nations Commission of Experts’ report (s/1994/674), such an
eventuality can be termed as ethnic cleansing which is de-
scribed in the report as “a purposeful policy designed by one
ethnic or religious group to remove by violent and terror-inspir-
ing means the civilian population of another ethnic or religious
group from certain geographic areas.”
Against this backdrop, the US lip service to “two-state solution”
appears tragicomic if not patently deceitful. Israeli officials, most
recently its ambassador to the UK have flatly refused to entertain
any such possibility and some Israeli cabinet ministers have criti-
cised the US for pushing for such a solution. For all its advocacy, the
US too has consistently refused to support a two-state solution
based on the pre-1967 status quo, thus providing a cover to Israel’s
continued occupation or what it calls, “changing facts on the
ground.” The US administration, under sustained public pressure
through protests and also cognisant of its growing international
isolation evident from the UN General Assembly resolution over-
whelmingly calling for an immediate ceasefire (where India, too,
in a welcome move, shifted from its earlier position of abstaining to
support) has started giving signals that it may be distancing itself
from the tight embrace of the current Israeli regime. Emphasis on
8 DECember 16, 2023
the two-state solution and criticism of the “far-right” in Israel
seems to be a part of the democratic strategy of strengthening lib-
eral Zionism and driving a wedge with “conservatives.” However,
in terms of tangible outcomes, such tactics—likely influenced by
domestic political calculations—would not yield anything unless
there is a recognition that across the spectrum, Zionist ideology
undergirding the Israeli state and society does not believe in the
precepts of mutual recognition and peaceful coexistence between
Israelis and Palestinians. These precepts are the core of the rules-
based world order of which the US claims to be the standard bear-
er. But with its intransigent refusal to prevail upon its closest ally to
comply with these very rules, it has intensified the crisis of this or-
der. By its sheer military might and hegemonic status in the global
political economy, it has managed to thwart or deter the efforts to
bring peace and justice to Palestinians. If the countries that have
been overwhelmingly voting for the ceasefire and pre-1967 two-
state solution are indeed serious about it, then they must move be-
yond resolutions and conceive possible diplomatic actions that sub-
vert the hegemonic veto powers and make Israel comply with in-
ternational legal and moral norms. Humanity owes—as a bare
minimum—an immediate gauze of a ceasefire to the Gazan–Pales-
tinian people whose moral fortitude in the face of enormous suffer-
ing keeps alive the hope for lasting peace based on justice.
vol lViii no 50 EPW Economic & Political Weekly
EDITORIALS
A Grim Portrait of Crimes and Deaths in India
The annual NCRB publications provide useful and actionable data on crimes and preventable deaths.
T
he long-awaited annual report of the National Crime
Records Bureau (NCRB), titled “Crime in India 2022,” has
finally been released in December 2023. Published in
three volumes, it provides comprehensive statistics on various
categories of crime registered in India in 2022.
The first volume of the NCRB report includes data on violent
crimes, murder, kidnapping and abduction, crimes against wom-
en, crimes against children, and crimes committed by juvenile
children. The second volume of the report includes data on crimes
against senior citizens, crimes/atrocities against Scheduled Castes
(SCs) and Scheduled Tribes (STs), economic offences, corruption
offences, cyber crimes, offences against the state, crimes com-
mitted by extremists/insurgents/terrorists, and offences relat-
ed to the environment. The third volume covers crimes in rail-
ways, crimes against foreigners, crimes committed by foreign-
ers, and data about human trafficking, custodial crimes, inju-
ries and casualties caused by police firing/lathicharge, arrests,
convictions, acquittals, stolen and recovered property, etc. All
data in the NCRB report is helpfully categorised for 36 states/
union territories and 19 metropolitan cities.
In a cautionary note at the very beginning of the annual report,
the NCRB states that “crime is [a] manifestation of myriad complex
factors.” It also notes that the report merely captures the number of
crimes reported to the police in 2022, and thus, it is not wholly rep-
resentative of the actual number of crimes committed in India. It
also notes that in certain areas, especially in metropolitan cities, an
8 DECember 16, 2023
increase in the cases of reported crime may actually occur due to
better civic awareness and police behaviour, and may not be indic-
ative of an actual increase in the incidents of crime. In spite of
these admitted limitations, the NCRB report is useful for studying
regional patterns and variations and in identifying the problem
areas in Indian society and its law-and-order machinery.
The report shows that a total of 58,24,946 cognisable crimes were
registered in India in 2022, including crimes reported under both
the Indian Penal Code (IPC) and Special and Local Laws. Interest-
ingly, the total number of crimes saw a decline of 4.5% as compared
to 2021. Similarly, the crime rate (incidence of crimes per 1,00,000 of
the population) dropped to 422.2 in 2022, while it was 445.9 in 2021.
One of the central takeaways from the NCRB report, among many
other salient points, is the increase in the number of crimes reported
against the marginalised and vulnerable sections of the Indian pop-
ulation. Crimes against women, children, senior citizens, SCs, and
STs all reported an increase in 2022 as compared to 2021 by 4%,
8.7%, 9.3%, 13.1%, and 14.3%, respectively. These are extremely dis-
turbing trends. An analysis of the spatial concentration and possible
socio-economic correlates of crimes would be more revealing. Most
crimes against women under the IPC were due to cruelty by their
husbands or relatives (31.4%), kidnapping and abduction (19.2%),
assault with an intent to outrage her modesty (18.7%), and rape
(7.1%). The data pertaining to women and the marginalised and
vulnerable sections further emphasises the NCRB’s caution about the
difference between reported crimes and the actual numbers of
vol lViii no 50 EPW Economic & Political Weekly

crimes committed in India. While an increase in the numbers of re-
ported crimes against these sections may be attributable to in-
creased civic awareness, it is also a fact that marginalised groups
face the highest amount of structural barriers and institutional indif-
ference for as much as filing a first information report in a police
station, let alone accessing subsequent levels of legal aid and justice.
Another major takeaway is the staggering increase in the report-
ed instances of cyber crimes in 2022, which registered a 24.4% in-
crease as compared to 2021. Telangana reported the highest
number of cyber crimes in India, followed by Karnataka and Uttar
Pradesh. Cyber crimes include a wide array of crimes related to
tampering with documents, identity theft, personation, violation
of privacy, cyber terrorism, publication and transmission of obscene
material, data theft, cyber stalking and bullying, online banking
frauds, dissemination of fake news, etc. The dramatic increase
in cyber crimes highlights that the internet has emerged as one
of the most intractable mediums for exploiting unsuspecting
groups of people, where the identification and investigation of
the crime proves to be exceedingly difficult due to the continu-
ously evolving nature of sophisticated internet technologies.
Along with its flagship “Crime in India” report, the NCRB also
released the “Accidental Deaths & Suicides in India 2022” (ADSI)
report in December 2023. The term “accidental deaths” refers to
Economic & Political Weekly EPW DECember 16, 2023 vol lViii no 50
EDITORIALS
deaths caused due to traffic accidents, fire accidents, deaths
caused due to forces of nature, etc. The ADSI report also shows a
distressing increase in the number of reported accidental
deaths, which rose from 3,97,530 in 2021 to 4,30,504 in 2022.
The maximum number of casualties under accidental deaths
was reported in the age group of 30–45 years.
The number of suicides also increased from 1,64,033 in 2021 to
1,70,924 in 2022. Maharashtra recorded the highest number of sui-
cides, followed by Tamil Nadu, Madhya Pradesh, Karnataka, and
West Bengal. These five states comprised nearly half of all reported
suicides in India. The trend of daily wage earners reporting the
highest number of suicides at 26.4% continued in 2022 as well,
with housewives, unemployed persons, students, and farmers
comprising 14.8%, 9.2%, 7.6%, and 6.6% of the reported deaths by
suicides, respectively. Another grim finding about suicides in the
ADSI report is that the majority of suicide victims (64.3%) in 2022
had an annual income of less than `1 lakh, revealing an insidious
relation between suicides and adverse socio-economic conditions.
Since the publications of the NCRB are the main and official sourc-
es of crime statistics for various stakeholders, it is hoped that this
data would generate a comprehensive debate and research into the
causes of the rise in crimes against, and suicides among, women
and other marginalised and vulnerable groups in Indian society.
9

From 25 Years Ago
Vol XXXIII, No 50 DECEMBER 12, 1998
An Open Letter to the IMF
Ranjit Sau
At the momentous Hong Kong, September 1997,
meetings of the IMF and the World Bank, Japan
proposed a revolving $100 billion Asian Monetary
Fund (AMF) to stabilise east Asian currencies
against speculative attacks then under way. Japan,
China, Taiwan, Hong Kong and Singapore were to
contribute most of the capital fund, and the weaker
east Asians the rest. All the designated countries
quickly signed on. Since the east Asian currencies
were not yet in free fall, it is likely (no one can say
for sure) that the AMF, if put in place, could have
deterred the currency runs, allowing the countries
time to reform their banking systems at moderate
cost in output and employment, and to reallocate
production toward export and import substitutes.
Economic & Political Weekly EPW DECember 16, 2023
The United States opposed. “Mr Rubin [US
treasury secretary] called up Mr Camdessus [man-
aging director and chairman of the Executive
Board, IMF] at breakfast one morning and told him
that the Japanese proposal would undercut the
Fund’s authority...Mr Camdessus backed down at
Mr Rubin’s insistence and walked away from mon-
ey that Asia could have used.’’ There are other fac-
ets to this story. One, note that the proposed AMF
excluded the US; “but the US did not want to give
up influence in the area”. […] Two, it was perceived
that the AMF “would probably offer aid under much
more relaxed conditions than the IMF does,” and
thus loosen your iron grip over clients. […]
To return to the theme of capital accounts liber-
alisation, let us recognise that the matter involves a
very complex feature of contemporary world capital-
ism, namely, the preponderance of financial mar-
kets over industrial activities where the real goods
and services are produced and most workers are
employed. Demography plays a vital role. In Eu-
rope, Japan and North America population is gray-
ing. The multitude of retired and retiring persons
hold their savings in financial assets, and they are
vol lViii no 50
EDITORIALS
determined to protect these savings from inflation.
Their desire for a stable dollar, euro, pound and yen
in respective home countries is politically more im-
portant today than the pressure for job creation for
the young, which dominated policy for most of the
postwar era. These funds are roaming the globe in
search of higher returns.
By contrast, Asia, outside Japan, is facing a differ-
ent situation; its population is growing relatively fast
and a high fraction of the population is in the labour
force. It can possibly gain from capital imports. But
the foreign money that is seeking investment in Asia
tends to be restless—in a hurry to make a ‘fast buck’
rather than genuine ‘profits’ from long-term invest-
ment in production. And capital markets are operat-
ing to well serve this hot money. Strangely, different
parts of capital markets are working at apparent cross
purposes in the sense that currency trade can, in ef-
fect, erase international flows of real resources. Else-
where I have called it ‘capital cannibalism’, and ex-
plained the ongoing process. Transactions in capital
markets are a precarious cascade of hedges and spec-
ulations; one imprudent move at one point can bring
the entire formation tumbling down.
9

From 50 Years Ago
Vol VIII, No 50 DECEMBER 15, 1973
Class Struggle or Emancipation?
Women’s Emancipation
Movements in Europe and the US
Maria Mies
Any oppressed class or group which tries to change
its position within the social hierarchy has a chance
to succeed only if its demands are radical and uni-
versal. It must not only criticise the actual pattern of
dominance; it must go to the roots of all dominance
of man over man and put up universal claims of
freedom and equality, valid for everybody. During
Economic & Political Weekly EPW DECember 16, 2023
the French Revolution the principles of Freedom,
Equality and Fraternity were put up ostensibly for
all mankind as basic human rights — and not only
for the benefit of the rising bourgeois class. Indeed,
the very fact that these principles were radical and
universal made it impossible for the bourgeoisie,
which had a direct and immediate interest in es-
pousing them, to keep them within its own control.
It could not prevent various categories of the op-
pressed and the downtrodden — the proletariat, the
colonial nations, the negro slaves, and last not least
the women — from making these principles the
base of their liberation struggle in course of time.
It is not surprising, then, that French women
brought forward demands for equal rights for
women for the first time during the revolutionary
periods around 1789 and 1848. They hoped to
make their own revolution within the Great Revo-
lution by joining the struggle on the streets in
vol lViii no 50
EDITORIALS
Paris as well as in the many discussion groups and
republican clubs that had sprung up all over the
country. Large masses of women from the impov-
erished sections of Paris participated actively in
the battle against feudalism. Young women from
Rordeaux formed an ‘Amazone’s Brigade’ to de-
fend the Revolution against its enemies. The bour-
geois women in Paris and in the provinces held
discussions about the shape and the constitution
of the new republic. When, in 1793, the Declara-
tion of the Rights of Man was read in the Convent,
one woman, Olvmpe de Gouges, raised her voice,
and read her famous 17 articles on the ‘Rights of
Women’. She declared: If women have the right to
die on the guillotine they must also have the right
to speak on the tribune. She died on the guillotine
the same year. And, although they had been in the
vanguard of the revolution, women remained ex-
cluded from the political scene.
9
HT PAREKH FINANCE COLUMN
RBI Sharpens Its Focus on
Bank Boards
T T Ram Mohan
L
ast October, the Reserve Bank of
India (RBI) sent a directive to pri-
vate banks that must have made at
least some people sit up. The directive
asked the private banks to have at least
two whole-time directors on their board
of directors within four months.
The directive said, by way of expla-
nation,
Establishment of such a team may also facili-
tate succession planning, especially in the
background of the regulatory stipulations in
respect of tenure and upper age limit for MD
& CEO positions.
It is hard to disagree with the conten-
tion that having whole-time directors in
place makes for orderly succession. How-
ever, the question arises: does the regu-
lator have to tell boards to do something
that seems so elementary?
Unfortunately, yes. Boards in the pri-
vate sector, whether in banking or else-
where, fail to do much that is elemen-
tary. Succession planning is an impor-
tant but greatly neglected function of
the board. It is not hard to understand
why. No chief executive officer (CEO)
wishes to contemplate his exit in the first
place, at least until the retirement age of
70 for private banks in India. “Succes-
sion planning” is thus one of those
unmentionables at the board level. The
RBI has had to tell bank boards that it is
one of seven key themes that boards
must take up for discussion.
The RBI’s directive about whole-time
directors thus points to a governance
failure at private sector banks. It under-
lines once again why leaving matters to
the market is not a sensible thing to do.
The RBI has in the past issued a directive
that requires private bank boards to
send the name or names of candidates
shortlisted by the board six months
before an incumbent is due to leave.
Again, it is elementary that boards
10
should have a successor in place at least
six months before an incumbent is due
to leave. They do not and often scramble
to look for a successor at the last moment.
Directives such as those mentioned
above are part of the RBI’s efforts to get
bank boards to improve their functioning.
Ever since the failure of IL&FS and Yes
Bank, questions have been asked about
the RBI’s alleged failure to respond early
enough to warning signs at these entities.
The RBI seems to have sensed that, what-
ever its own lapses, deficiencies in the
functioning of boards at banks and non-
banking finance companies contributed
to the failures. The RBI has since turned
the heat on bank boards.
In June 2020, the RBI released a dis-
cussion paper on governance in com-
mercial banks in India. The thrust of the
paper was on what are called the assur-
ance functions in a bank, namely risk
management, internal audit and compli-
ance. These functions are intended to
ensure compliance with regulations and
with the policies laid down by the board
of directors. They are also meant to
ensure that risks in a bank are properly
understood and managed. Unless the
heads of the assurance functions carry
out their tasks with a measure of inde-
pendence, the chances of bank failure
will go up.
The discussion paper seemed to think
that the best way to ensure such inde-
pendence was to make the appointment,
performance appraisal and removal of
the heads of the risk, internal audit and
compliance functions the responsibility
of the board. The proposal gave rise to a
discomfiting question: can the CEO be
effective in his or her role if several key
functionaries in the organisation are
outside his or her control? Can the assur-
ance functions be something of a state
within a state in a bank?
December 16, 2023
In the guidelines that followed there-
after, the RBI modified its position some-
what. It said the risk, internal audit and
compliance functionaries could report
either to the MD or the board but that the
performance appraisal and removal of
these persons would be the board’s
responsibility. The intention clearly was
to ensure that the CEO should not influ-
ence the decisions of these functionaries
by being able to decide their compensa-
tion and continuance in office.
Even the RBI’s modified position on the
assurance functions is intrusive regula-
tion. It is doubtful that such a regulation
obtains in many places. But, then, the
RBI has never been a believer in “light
touch” regulation of the sort greatly
favoured in the West until the global
financial crisis (GFC). The pendulum has
swung towards more intrusive regulation
even in the West, evident in the passage
of the Dodd-Frank Act in the US.
In this respect, the RBI has been well
ahead of the regulatory curve. The com-
position of bank boards, for instance,
has been the subject of debate amongst
regulators and policymakers after the
GFC. The RBI has long had in place norms
for the composition of the boards of
banks as well as the composition of the
audit committee and risk management
committee of the board. Appointments
to the posts of chairman and managing
director at banks require the RBI’s prior
approval. The RBI typically approves
terms of three years for these posts;
sometimes it gives approval for a shorter
tenure. There are age limits for the man-
aging director, and chairman and inde-
pendent directors term limits for the
independent directors.
Most regulators limit themselves to
fixing the ratio of variable pay to fixed pay
of the CEO. The RBI regulates the amounts
of both fixed pay and variable pay. There
are instances where the board’s recom-
mendations on pay have been rejected
and the regulator has ended up deciding
the specific amounts for a given year.
The rationale is that executive compen-
sation can be a source of systemic risk,
as the GFC showed. Of late, the RBI has
got down to scrutinising the business
vol lViii no 50 EPW Economic & Political Weekly

models of banks to see whether the risks
a bank is taking are sustainable. In other
banking systems, the matter would be
regarded as the sole prerogative of the
board and the management.
Every year, the RBI submits for the
consideration of a bank’s board a risk
assessment report (RAR) and an overall
risk rating of a bank. These reports do a
good job of highlighting a range of risks
overlooked by boards. In the past, the RBI
left it to boards to do what was required.
It must have found that, in many cases,
boards had failed to act or act adequately.
In recent years, the RBI has set strict time-
lines for action to be taken on the more
serious issues highlighted in the RAR.
Last May, the RBI governor, Shakti-
kanta Das, took the unusual step of having
separate interactions with the boards of
PSBs and private sector banks. The gov-
ernor spoke on the subject of governance
in banks. He outlined a 10-point template
for board directors. A few points are
worth mentioning.
First, independent directors on the
board must exercise the necessary inde-
pendence. Second, the dominance of the
CEO in board discussions points to a lack
of challenge from the board to the CEO.
These inadequacies are not unique to
India. Boards everywhere are seen not
to exercise the necessary independence.
They are especially reluctant to chal-
lenge CEOs who are seen as “stars.” Some
of these very stars were responsible for
catastrophic failures in the GFC, such as
those of the Royal Bank of Scotland and
Lehman Brothers.
Third, the governor urged boards to
set the right culture for the bank, one
that inspired public trust. Where the cul-
ture is deficient, deposits will flee at the
first sign of trouble. It follows that boards
must be careful to avoid missteps that
tend to erode confidence in a bank, such
as appointing the wrong persons as chair-
person or independent director, failing
to discipline the CEO or other senior
executives for violations of norms, etc. If
a bank is seen as deficient in its culture,
confidence will evaporate the moment
there is stress in the banking system.
Fourth, boards must evaluate the
compensation of senior management and
ensure that they are not rewarded for
Economic & Political Weekly EPW December 16, 2023
taking undue risks. Boards do discuss
and approve the pay of the CEO but the
evaluation of senior management is not
as rigorous as it should be.
Two questions arise: Is the RBI’s intru-
sive approach necessary or desirable? If
yes, what concrete steps are needed to
make bank boards more effective?
We have substantially addressed the
first question in what has been outlined
above. All over the world, we have seen
that ineffective boards are part of the
reason for bank failures and banking
crises. The best argument for the RBI’s
approach is that it seems to have worked—
we have managed to steer clear of multi-
ple bank failures of the sort that have
afflicted other economies.
The second question is trickier. The
RBI is placing more and more responsi-
bility on bank boards. But are boards
equipped to handle it? Several issues
need to be addressed.
Board members must be suitably
rewarded for the onerous responsibilities
they are expected to take up. The RBI
allows banks to pay board members a
sitting fee plus a maximum commission
of `20 lakh per annum. Private banks
compensate board members reasonably
well based on these guidelines. Not so
with public sector banks (PSBs). If PSBs
are to attract the right persons, the RBI
must nudge the government to overhaul
compensation for independent directors
on PSBs. It might make a beginning by
specifying a minimum compensation for
bank directors.
The RBI’s norms for the composition
of bank boards are overly prescriptive.
For instance, the RBI insists on expertise
in SMEs, agriculture, etc. As a result, bank
boards fall short in areas such as bank-
ing and risk management. The RBI may
do well to prune the required areas of
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vol lViii no 50
HT PAREKH FINANCE COLUMN
expertise it insists on. Boards will then
have more flexibility in filling positions.
Boards tend to be overwhelmingly
gerontocratic in character. They are a
sort of senior citizens’ club. There is a
strong case for having younger people
on boards. The RBI might consider stipu-
lating that the average age of the board
must fall over time so that boards have
the right mix of youth and experience.
The RBI will also have to think of ways
of getting independent directors to exer-
cise the necessary independence. Today’s
“independent” directors are appointed by
the management or the promoter and they
are beholden to the management and
the promoter for the renewal of their
terms. Yet they are expected to question
and challenge the management and the
promoter. One should not be surprised
that such a miracle seldom happens.
Here is a suggestion. Let the Financial
Services Institutions Bureau (which selects
MDs and whole-time directors for PSBs)
create a pool of independent directors.
Institutional shareholders and retail inves-
tors in a bank should have the right to
select one independent director each from
this pool. Then we have at least two inde-
pendent directors who are not beholden
to the management or the promoter. It is
worth trying out this experiment.
The RBI’s efforts to strengthen board-
level governance at banks are indeed
commendable. However, without ade-
quate incentives for board members and
radical changes in the composition and
selection of bank boards, we may not see
any material change in the quality of
governance. One hopes we do not need
another banking crisis to drive home
this point.
T T Ram Mohan (ttrammohan28@gmail.com)
is a commentator on public affairs.
EPW.
11
COMMENTARY
Assessing the Financial Health
of the Indian Corporate Sector
Palak Godara, Priyanka Sachdeva, Abhinandan Borad
The long-term trend in the
financial soundness of the Indian
corporate sector is examined
using balance sheet information
and the most stressed sectors
are identified. A corporate
vulnerability index is constructed
using financial indicators which
captures various dimensions of
stress in the Indian corporate
sector. The study reveals that
corporate debt vulnerabilities
increased in the aftermath of
the global financial crisis with
a notable reversal after 2016.
The sectoral analysis identified
that there has been a significant
improvement in debt-to-GDP
ratio and debt at risk, notably
after 2016, even as sectoral
idiosyncrasies remain. While
the earlier impact of COVID-19
was reckoned to be severe,
the corporate sector showed
an impressive rebound,
albeit uneven.
The views expressed in this article are those of
the authors and do not represent the views of
the Reserve Bank of India.
Palak Godara (palakgodara@rbi.org.in),
Priyanka Sachdeva (priyankasachdeva@
rbi.org.in) and Abhinandan Borad
(abhinandanborad@rbi.org.in) are with the
Reserve Bank of India.
12
T
he Indian corporate sector1 was
grappling with inherent vulnera-
bilities even prior to COVID-19
owing to the slowdown in the economic
growth, a fallout of which was rising
non-performing assets (NPA) in the
banking sector. The COVID-19 pandemic
exacerbated the financial distress in the
Indian corporate sector, particularly in
the contact-intensive sectors like services,
and micro and small businesses. However,
alongside an agile fiscal-policy response,
the Reserve Bank of India (RBI) unleashed
a series of conventional and unconven-
tional measures, thus softening the blow
of the pandemic on the Indian economy.
These measures included the provision of
large liquidity injections at system-wide
as well as targeted levels; asset classifi-
cation standstill; easing of working capi-
tal financing and deferment of interest;
moratorium on loan repayment; restruc-
turing of advances to micro, small, and
medium enterprises (MSME s); relaxation
in group exposure norms and the liquidity
coverage ratio (LCR) requirements, etc.
Policy measures were found to have played
an important role in supporting corpo-
rate liquidity and mitigating COVID-19-
related stress (Gornicka et al 2021). The
global financial crisis (GFC) hit emerging
economies like India through a sudden
stop of capital flows combined with a
collapse of domestic as well as external
demand. In contrast, the impact of
COVID-19 was heterogeneous across the
sectors as easy liquidity conditions and
easy access to credit helped some firms
to sail through the revenue shock from
the pandemic, while some firms were
more resourceful in finding new sources
of revenues or reinventing their business,
for example, moving their sales online,
switching to different products or adapt-
ing to work-from-home. In this article,
we study the evolution of the financial
december 16, 2023
health of India’s corporate sector prior to as
well as during the COVID-19 pandemic and
identify the most stressed sectors using
balance sheet information; majorly focusing
on indicators of profitability, leverage,
debt repayment capacity and liquidity.
Review of Literature
Predicting financial distress in the corpo-
rate sector has been a matter of extensive
research and numerous studies have at-
tempted to quantify such vulnerabilities in
emerging market economies (EMEs) over
many years. While some of the studies as-
sessed the financial vulnerabilities through
financial ratio analysis, others have used
stress testing including scenario analysis by
changing a variety of economic variables
and determining its impact on the corpo-
rate’s performance. The groundbreaking
work in ratio analysis was done by Beaver
(1966) and Altman (1968), which is still
evolving, and their methods are widely
used for corporate financial distress predic-
tion. Furthermore, academic studies have
constructed statistical models to predict
whether a company will become stressed
or not in the future in order to provide
higher accuracy for prediction.
In the Indian context, academic stud-
ies have used both ratio analysis and
logistic regression for predicting the
likelihood of a corporate default. In one
such study, changes in India’s financial
vulnerabilities were examined using four
solvency ratios, namely interest cover-
age, profitability, liquidity, and leverage
ratios (Lindner and Jung 2014). This
study has highlighted the deterioration
in the financial performance of the non-
financial Indian corporate sector during
the post-GFC period. Jugnu et al (2016)
analysed the credit quality of a compre-
hensive set of listed Indian corporates,
using multiple indicators, from 2001 to
2015. Results suggest that credit quality
declined sharply between 2010 and
2015, creating a pool of risky debt. Fur-
ther, the data suggested that much of the
stress was likely due to a contraction in
aggregate corporate growth since 2011
onwards compounded by a fall in prof-
itability and imbalanced financing pat-
terns coupled with overreliance on debt.
vol lViII no 50 EPW Economic & Political Weekly
 COMMENTARY

In another study, debt at risk (DaR) was Figure 1: Debt-to-GDP Ratio

employed as a measure of corporate dis- (a) Global (All Reporting Countries) (b) India
300 200
tress in India using key financial ratios:
250
debt–equity ratio, interest coverage ratio, 104 150 73 74 72 67 67 67 90
200 88 86 88 85 90 94 67 67 69 84
and return on assets (Dhananjaya 2020). 65 65 75 80 79 81 81 78 69 70 71 75
150

%
100

%
The author applied a fixed-effect panel 84 79 84 85 82 85 88 86 96 95 98 95 97 108 100 70 74 76 77 77 75
100 70 71 65 60 54
regression model to examine the rela- 56 55 50 56
50
50
tionship between corporate vulnerability 68 61 65 65 60 59 60 56 61 61 63 61 62 69 64 43 41 37 37 36 35 34 34 33 32 34 35 38 41 37
0 0
in India and NPAs in public sector banks

3/2008
3/2009
3/2010
3/2011
3/2012
3/2013
3/2014
3/2015
3/2016
3/2017
3/2018
3/2019
3/2020
3/2021
3/2022

3/2008
3/2009
3/2010
3/2011
3/2012
3/2013
3/2014
3/2015
3/2016
3/2017
3/2018
3/2019
3/2020
3/2021
3/2022
(PSBs). The result showed that the stress
in both the corporate and bank balance Households Non-financial corporations General government
sheets rose after 2008 and declining
(c) Corporate debt-to-GDP (end-March 2022)
profitability has significantly affected 180
the debt serviceability of the firms which 156
150
in turn contributed to rising NPA s, nota-
112
bly in PSBs. To assess the resilience of 120
89 97 99
the Indian corporates against COVID-19, 81
(%)

90 76
61 73
Gornicka et al (2021) conducted a series 50 55
60
of stress tests using balance sheet data. 32 34 43
17 24 25
The findings revealed an asymmetric 30
impact across the sectors with maximum 0
Mexico

Colombia

Malaysia
Türkiye
Poland
Brazil

Saudi Arabia
Argentina

India

Thailand
Indonesia

South Africa

Hungary

Chile
Russia

Emerging market economies

China
impact on the contact-intensive sectors,
construction, manufacturing and MSMEs.
There is a large body of literature on
corporate default modelling based on
accounting data and distance-to-default
or contingent claim models based on
market prices; however, these models Source: BIS total credit statistics.

require default and price information
which are not readily available for a
large set of firms. A World Bank study
extends the concept of debt at risk in
order to develop a corporate vulnera-
bility index (CVI) to track the financial
vulnerabilities of the corporate sector in
the emerging market and developing
economies (Feyen et al 2017). Along sim-
ilar lines, this article deploys CVI in the
context of India which is based on a bal-
ance sheet approach and thus incorpo-
rates non-listed firms as well.
Stylised Facts
The aggregate leverage of all economic
agents, namely government, non-finan-
cial corporations, and households, as
measured through debt-to-GDP ratio, is
lower in India compared to its global
peers2 (Figures 1a and 1b). Globally, the
majority of the debt is owned by non-
financial corporations with a consistent
rise in their debt-to-GDP ratio in the after-
math of GFC, as central banks flooded
their economies with abundant liquidity.
The scenario in the case of India has
however been different with the Indian
Economic & Political Weekly EPW december 16, 2023
corporate sector going through a gradu- economic growth remained uneven, credit
al process of deleveraging during the offtake in the economy remained low on
same period. Further, India is well posi- account of macroeconomic uncertainty.
tioned among its emerging market peers There have been signs of deleveraging by
as the non-financial corporate debt-to- non-financial corporations—growth in
GDP ratio is at 54% for the period ending aggregate debt has moderated to a single
March 2022 (Figure 1c). digit, and debt to equity and debt to assets
The Indian economy embarked on a high ratios have come down over a five-year
growth trajectory in the mid-2000s. Corpo- period preceding the COVID-19-induced
rate profitability soared, and firms in- crisis (Figure 2c, p 14). The enactment of
creased their borrowings to augment ca- the Insolvency and Bankruptcy Code
pacity in anticipation of sustained strong (IBC), 2016 by the Government of India
demand conditions (Figures 2a and 2b, may be one of the important triggers
p 14). This manifested in a credit boom in driving deleveraging of balance sheets by
the economy. The GFC resulted in a brief corporates as assets sold have been used
interruption in the economic growth lead- to compensate creditors. There is empir-
ing to revenue shortfalls. The economy ical evidence for deleveraging among
bounced back quickly, but the momen- firms following the IBC policy as their
tum could not be sustained. Higher rev- reliance on borrowings declined, espe-
enue projections did not materialise cially for weak and large firms (Jose et al
against the backdrop of an unfavourable 2020). High bankruptcy costs may induce
macroeconomic environment which cou- risk-averse promoters to reduce the
pled with delays in project implementa- probability of default by lowering cor-
tions led to cost overruns. Corporate porate leverage and underinvest in risky
profitability was squeezed, and debt ser- projects. Further, slowing GDP growth and
vicing problems began to emerge, result- uncertain outlook may have also contrib-
ing in higher NPAs within the banking uted to restrained demand for credit
system (Economic Survey 2016–17). As the and subdued investments.
vol lViII no 50 13
COMMENTARY
Figure 2: Debt and Profitability of Indian Non-financial Corporations Total debt of firms that are
financially vulnerable in Indicator Y
(a) Y-o-Y Growth in Debt and GDP (b) Profitability (DaRY )=
Total debt of all firms
Debt outstanding
40 25 6 20
Nominal GDP (RHS)
Profit/GDP 18
Using corporates’ balance sheet
20 5
30
Real GDP (RHS) 15 Return on net worth (RHS) 16 information, the DaR is calculated
4 14
20 10 Return on asset (RHS) 12 based on four indicators that
3 10
%

%
10 5 8 capture different dimensions of firms’
2 6
0
0
4 financial stress: liquidity, leverage,
-5 1
0
2
0
profitability and debt serviceability
-10 -10
(Table 1). The firms are classified as

3/2001
3/2003
3/2005
3/2007
3/2009
3/2011
3/2013
3/2015
3/2017
3/2019
3/2021
3/2001
3/2003
3/2005
3/2007
3/2009
3/2011
3/2013
3/2015
3/2017
3/2019
3/2021

financially vulnerable in an indicator if

(c) Leverage (d) Debt Serviceability the value of the indicator crosses its
0.45 1.4 5 specific threshold.
Debt to equity (RHS)
0.40 1.3 4 All these indicators suggest an in-
Debt to assets Interest cover
0.35
1.2
3
crease in DaR in the post-GFC period
Ratio

Ratio

Ratio

1.1 with a notable reversal after 2016

0.30 2
1 (Table 2). Since then, vulnerable debt
0.25 1
0.9 has come off its peak levels.
0.20 0.8 0 In the next step, DaR based on one or
3/2001
3/2003
3/2005
3/2007
3/2009
3/2011
3/2013
3/2015
3/2017
3/2019
3/2021

3/2001
3/2003
3/2005
3/2007
3/2009
3/2011
3/2013
3/2015
3/2017
3/2019
3/2021
more indicators is calculated to assess the
Based on an entire sample of companies for which data was available on CMIE Prowess as on 12 December 2022. financial vulnerabilities of firms across
Sources: CMIE Prowess, CSO; and authors’ estimates. multiple dimensions simultaneously:
The outbreak of COVID-19 pandemic and Corporate Vulnerability Index
Total debt of financially vulnerable
the follow-up lockdown restrictions im- This section discusses the concept of DaR firms as per X or more indicators
pacted corporate profitability and suspend- and construction of CVI for Indian non-fi- (DaR X)=
Total debt of all firms
ed the process of deleveraging. However, nancial corporates starting from end-March
the impact of COVID-19 proved to be tran- 2005. The DaR is calculated as the propor- The CVI is then calculated by taking
sient as the unleashing of pent-up demand tion of corporate debt that is deemed vul- a simple average of DaR  X assuming
alongside subdued easy cost conditions re- nerable according to an indicator Y: equal weights for all indicators:
sulted in corporates generating record Table 1: List of Indicators Used in the Calculation of DaR
profits in the post-pandemic era. Price Dimension Indicator Significance Threshold Criteria for
Vulnerability *
hikes and cost-cutting measures adopted Liquidity Current ratio = current assets/ Measures the ability of the firm Less than 0.5
by corporates helped to mitigate the effect current liabilities to meet short-term obligations
of an increase in raw material costs amid Leverage Debt/equity Measures the financial viability of Greater than 2.5
a company by comparing the debt
supply chain disruptions. Particularly, cycli-
against its ability to raise capital
cal sector companies gained from an up- Profitability Profit after tax/ Sales Measures the firm’s profitability Less than 0
swing in the commodity cycle. The phe- Debt Interest cover ratio = earnings Measures the firm’s ability to meet Less than 1
serviceability before interest and its interest payment obligations
nomenon of deleveraging resumed mo-
taxes/interest expenses
mentum in the post-pandemic period as * The threshold values are chosen based on the most frequently applied tolerance limits of these ratios in financial
companies generated huge profits and literature. The values are also consistent with the limits used in the IMF WP (Lindner and Jung 2014).

raised fresh equity, a part of which was uti- Table 2: Share of Debts Held by Indian Corporates below/above Threshold Values (%)
ICR<1 PAT/Sales<0 Liquidity<0.5 Leverage>2.5
lised for the redemption of debt. This has
March 2005 49.60 27.50 18.81 34.21
resulted in an enhancement of the finan- March 2006 41.92 27.07 20.02 31.60
cial soundness of non-financial corpora- March 2007 33.83 22.51 17.02 30.11
tions with a noticeable improvement in March 2008 33.08 21.29 16.22 25.70
March 2009 44.29 29.05 21.01 29.40
their debt serviceability profile (Figure 2d). March 2010 32.84 24.13 20.69 28.33
Even if the phenomenon of deleverag- March 2011 31.28 25.08 18.31 30.61
ing is prompted by the demand uncer- March 2012 42.50 32.63 18.66 34.84
March 2013 46.22 36.02 19.18 39.58
tainty and reduction in financing cost, March 2014 52.54 37.91 20.49 38.03
stronger balance sheets place the corpo- March 2015 52.79 42.65 18.55 38.62
rates in a comfortable position to under- March 2016 47.56 46.35 21.47 38.11
March 2017 43.33 42.80 20.72 34.99
take capex investments as and when re-
March 2018 41.76 36.44 22.00 31.13
quired with demand pick-up. Against March 2019 42.43 35.34 21.08 31.27
this backdrop, the next section assesses March 2020 46.00 39.56 18.47 30.66
the financial position of the Indian firms March 2021 39.27 36.98 17.72 31.97
Calculations are based on a full set of companies for which data were available in a given time period.
using a corporate vulnerability index. Sources: Prowess; and authors’ estimates.

14 december 16, 2023 vol lViII no 50 EPW Economic & Political Weekly

Figure 3: Intensity of Corporate Vulnerability (DaR for X or More Indicators
and Corporate Vulnerability Index)
70
60
50
40
%
30
20
10
0 0.08
3/2005
3/2006
3/2007
3/2008
3/2009
3/2010
DaR >=1
DaR =4
Calculations are based on a full set of companies for which data were available in a given time period.
Sources: Prowess; and authors’ estimates.
1
ସ bidding during spectrum auctions which
CVI = ෍(DaR ஹଡ଼ )
4
ଡ଼ୀଵ
where 0  CVI  1
The CVI takes the value 0 if no firms are
financially vulnerable based on any indi-
cator, while it takes the value 1 if all the
firms are financially vulnerable based on
all indicators simultaneously. This entire
exercise indicates that corporate sector
vulnerabilities, which have been rising
since the GFC period of 2008, exhibited
moderation post 2016 (Figure 3). At end-
March 2021, 49% of debt was under
“risk” according to at least one indicator;
39% based on two or more indicators; and
25% based on three or more indicators.
Further, the proportion of debt owned by
financially risky firms based on all four
indicators has gradually reduced from a
peak of 5% at end March 2017 to as low
as nearly 2% at the end of March 2021.
Sectoral Analysis
Communication services, transportation
equipment, transportation services, con-
struction and real estate, electricity, and
metals and metal products sectors ac-
counted for a majority of the stressed
debt at end-March 2021 (Figure 4). The
communication sectors exhibited a
sharp increase in debt at risk across all
the indicators at end-March 2021 from
its pre-COVID-19 period (end-March
2019). Further, the debt-to-equity ratio
for the communication industry, which was
largely stable during 2001 to 2010, how-
ever, witnessed steady deterioration
thereafter. The increased debt at risk
for this sector is the result of aggressive
Economic & Political Weekly
Figure 4: Sectoral Contribution to Stressed Debt
100
0.38
0.33
49 0.28
%
39 0.23
Ratio
25 0.18
0.13
2 0
3/2011
3/2012
3/2013
3/2014
3/2015
3/2016
3/2017
3/2018
3/2019
3/2020
3/2021
DaR >=2 DaR >=3
CVI (RHS)
Calculations are based on a full set of companies for which data were available in a given time period.
Sources: Prowess; and authors’ estimates.
has posed trouble in the face of stiff
competition and price war. The sector
was saddled with adjusted gross revenue
(AGR) liabilities on its books. The recent
period witnessed an increase in tariff
hikes and an increase in average reve-
nue per user (ARPU) for the industry.
COVID-19 further increased the reliance
on telecom services which in addition to
various structural reform measures as
well as measures in addressing the li-
quidity requirements of telecom service
providers by the government has eased
stress on their cash flows (Economic Sur-
vey 2021–22). Construction and real estate
have suffered from a demand slow-
down amid heavy investments, which
has contributed to a pile-up of unsold
stocks and the resultant increase in
debt overhang. As construction is sen-
sitive to economic cycles, construction
enterprises and workers were particularly
affected by the sharp decline in economic
activity due to COVID-19, exacerbating
the financial stress in the sector. The
rise in cement, steel and other input
prices due to global supply disruptions
in the aftermath of COVID-19 has exerted
upward cost pressure on construction
and real estate companies. However, the
sector is showing signs of resurgence
amid pick-up in sales driven by a combi-
nation of factors, including accelerated
consumer demand for homeownership
and record low interest rates seen in the
post-COVID-19 period.
Another industry with a significant
contribution to the stressed debt is the
transport sector which incorporates both
EPW december 16, 2023 vol lViII no 50
COMMENTARY
90
80
70
60
50
40
30
20
10
2019 2021 2019 2021 2019 2021 2019 2021
Profitability Liquidity Leverage Debt Terviceability
Communication Tervices Construction BOE Seal Fstate Electricity
Metals and Netal Qroducts Transport Fquipments Transport Tervices
Others
equipment and services. The slowdown
in transport equipment, which includes
automobiles and auto ancillaries, began
as demand took a hit on account of weak
growth prospects. Other factors, includ-
ing the higher cost of ownership due to a
mandatory insurance policy, higher road
taxes and postponement of demand in
the wake of BS-VI transition also dented
demand. The situation was further ag-
gravated after the liquidity crunch in
the NBFCs space caused the drying of
credit for both consumers and dealers.
The passenger vehicle segment is
witnessing high demand in the post-
COVID-19 period, but semiconductor
availability remains a challenge. The
two-wheeler segment is witnessing
some slowdown amid rural distress.
Among transport services, the airline
was already facing challenging times in
the wake of fierce competition with the
advent of low-cost airlines which im-
pacted older carriers, even leading to
the bankruptcy of an airline recently
due to higher operational costs. The
transport services were the hardest hit
as the outbreak of COVID-19 placed full
ban on services as part of containment
measures as well as restricted move-
ment in the face of spreading virus in-
fections. However, the divestment and sale
of the national carrier may be expected
to pave the way for its turnaround. The
inoculation of vaccines and normalisa-
tion of economic activities with the
weathering of the pandemic has revived
passenger and freight traffic. The share
of the metal sector in stressed debt has
come down over the past couple of years
15
COMMENTARY
Figure 5: Debt-profitability Matrix during the period 2005–21 (Figure 6).
25 Sectors such as mining, communication
High vulnerabilty services, transport equipment, chemi-
cals, textiles, transport services and
Electricity
20 metals and metal products exhibit high
levels of concentration of debt with the
top five firms. Further, electricity sector
Debt,(%)

15
companies account for the bulk of debt.
March 2021 (Per cent)
2021
in Total

Chemicals
March

Construction and Seal Fstate Conclusions

Share in total debt,Share

10
Communication Tervices Metals and Netals Qroducts
The performance of the corporate sector
Wholesale and Setail Urading has come under serious scrutiny in the
Transport Tervices Transport Fquipment aftermath of COVID-19 as the GDP
5
Miscellaneous
growth collapsed raising concerns over
Diversified Low vulnerability
Textiles
Nining Food and Bgro Qroducts the health of Indian corporates. The
Machinery
Hotels and Tourism
Consumer Hoods
Construction Naterials
Information Uechnology
COVID-19 pandemic exacerbated the risk
0
-20 -10 0 10 20 30 40 of financial distress in the Indian corpo-
Share in total
Shareprofits,
in TotalMarch
Profits2021 (%)

Sources: Prowess; and Authors’estimates.

March 2021 (Per cent) rate sector, particularly in the contact-
intensive sectors like services, micro
Figure 6: Sector-wise Concentration of Top Five Firms and small businesses. However, along-
(a) Total Sales (b) Total Debt side an agile fiscal policy response, the
100 100
RBI unleashed a series of conventional
Becoming more Becoming more
Share of top 5 firms of sector's debt,
Share of top 5 firms of sector's sales,

90 concentrated 90 concentrated and unconventional measures, thus sof-

80 80
70 70
tening the blow of the pandemic on the
March 2021 (%)
March 2021 (%)

60 60 Indian economy. An analysis of corporate

50 50
40 40
balance sheets suggests gradual delev-
30 30 eraging by non-financial corporations—
20 20
10 Becoming less 10
Becoming less aggregate debt declined, debt to equity
concentrated concentrated
0 0 and debt to assets ratio have come down
0 20 40 60 80 100 0 20 40 60 80 100
Share of top 5 firms of sector's sales, March 2005 (%) Share of top 5 firms of sector's debt, March 2005 (%)
over a five-year period preceding the
COVID-19-induced crisis. While the pan-
Chemicals Communication Tervices Construction BOE Seal Fstate Construction Naterials demic briefly interrupted the process of
Consumer Hoods Diversified Electricity Food BOE Bgro Qroducts deleveraging, momentum resumed in
Hotels BOE Uourism Information Uechnology Machinery Metals BOE Netal Qroducts
the post-pandemic period as compa-
Mining Miscellaneous Textiles Transport Fquipment
nies generated huge profits and raised
Transport Tervices Wholesale BOE Setail Urading
fresh equity, a part of which was utilised
The size of the bubble represents the relative share of sales/debt accounted by each sector. for the redemption of debt. This has result-
Sources: Prowess; and authors’ estimates.
ed in the enhancement of the financial
owing to improved profitability and de- Concentration of sales and debt: In soundness of non-financial corpora-
leveraged balance sheets. this section, we see if there is any change tions with a noticeable improvement in
in the concentration level of large firms their debt serviceability profile.
Debt-profitability matrix: An analysis in different sectors during the period Using the profit and loss statement
of the mapping of sectors,3 in terms of 2005–21. This has been measured and balance sheet information, this ar-
share in total debt and share in total through the share of the top five firms in ticle estimates the profitability, liquidity,
profits indicates that debt and profits the total sales and total debt of that and solvency position of the Indian
lie in different buckets in some cases sector. A similar exercise has not been corporate sector for the period 2005 to
(Figure 5). For instance, sectors such as done for profitability since the computa- 2021 and attempts to assess its fi nan-
communication services, construction tion of shares becomes infeasible when cial health. The analysis based on con-
and real estate and electricity are highly profits are negative. In terms of total structed CVI suggests a trend of declin-
indebted but rank low in the profitabil- sales, the evidence is mixed and a gen- ing vulnerabilities after 2016, even as
ity metric. The hotels and tourism sec- eral increase in the concentration level sectoral idiosyncrasies remain. Fur-
tor witnessed low profitability in the of the top five firms has not been ob- ther, the sectoral analysis revealed
year ended March 2021; however, it was served, barring some sectors. However, that communication services, transporta-
an exceptional year for contact-inten- when measured in terms of total debt, tion equipment, transportation services,
sive services sector due to the outbreak the concentration with the top five firms construction and real estate, electricity
of COVID-19. has generally increased across sectors and metals and metal products sectors
16 december 16, 2023 vol lViII no 50 EPW Economic & Political Weekly
 COMMENTARY

accounted for the majority of the
stressed debt in end-March 2021. How-
ever, these sectors are showing signs of
revival. The communication sector has
received a boost from increased usage
post COVID-19 and various reforms un-
dertaken by the government. The con-
struction sector is seeing a pick-up in
sales driven by a combination of fac-
tors including accelerated consumer
demand for homeownership. Increased
travel demand with the weathering of
the pandemic has resulted in a V-
shaped recovery in the Indian aviation
sector. The share of the metal sector in
stressed debt has come down over the
past couple of years owing to improved
profitability aided by high commodity
prices and deleveraged balance sheets.
notes
1 The corporate sector indicates the non-finan-
cial corporate sector for the purpose of this
article. It includes both listed and non-listed
non-financial corporates for which data was
available on CMIE Prowess.
2 In the case of India, credit to the general gov-
ernment comprises combined liabilities of
the central and state governments. Credit to
households comprises domestic bank personal
loans (including housing loans). Credit to
non-financial corporations comprises domes-
tic bank credit extended to non-financial cor-
porations and cross-border credit from non-
resident banks. (BIS report).
3 Chemicals include drugs and pharmaceuticals,
refineries, fertilisers, organic and inorganic
chemicals, etc. Communication services primarily
include telecommunication services. Consumer
goods include both consumer durables and
non-durables. Electricity includes electricity
generation, transmission and distribution.
Mining includes coal, crude oil, natural
gas and other minerals. Transport equipment
include automobiles and auto ancillaries.
Transport services include air, road and ship
transport services, etc.
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rate Sector Resilience in India in the Wake of the
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Economic & Political Weekly EPW december 16, 2023 vol lViII no 50 17
COMMENTARY
Tackling Existential Threats
through the ‘Nukes-for-Climate
Swap Agreement’
Carlos Alvarado Quesada, Rahul Desarda
Two critical existential threats
are analysed in this article—
nuclear proliferation and
climate change. By depicting
the escalating nuclear arms race
and the geopolitical tensions
fuelled by it, the dangerous
trajectory of current global
policies towards increased
weaponisation is emphasised.
Central to the discussion is the
striking contrast between the
substantial investments in nuclear
weapons and the glaring lack
of funding for climate change
mitigation initiatives. The core
of the article lies in its innovative
proposal—the “nukes-for-climate
swap agreement.” This strategy
advocates for the gradual
reallocation of resources from
nuclear weapons development to
climate change initiatives.
Carlos Alvarado Quesada (carlos.alvarado@
tufts.edu) served as the 48th President of
Costa Rica from 2018–22 and currently teaches
at the Fletcher School of Law and Diplomacy,
Tufts University, Boston.
Rahul Desarda (rahul.desarda@jgu.edu.in)
teaches at the Jindal Global Law School and is
an assistant director at the Mahatma Gandhi
Centre for Peace Studies, O P Jindal Global
University, Sonipat.
18
I
n an address to the United Nations
General Assembly in 1961, United
States (US) President John F Kenne-
dy remarked that “the weapons of war
must be abolished before they abolish us.”
However, the world seems to be moving
in the opposite direction. On 27 October
2023, the US Department of Defense an-
nounced the creation of a nuclear bomb
with a destructive force 24 times greater
than the one dropped on Hiroshima in
1945 (Losey 2023).
This staggering escalation in nuclear
capability is a direct response to China’s
plans to double its nuclear stockpile by
the end of this decade (Hiim et al 2023),
reflecting a stark departure from the
ideal of disarmament that once guided
global policy. The geopolitical land-
scape is shifting under the weight of
these developments, which indicates
a disturbing development of weapon
proliferation and a potential escalation
of global confl ict. This critically under-
mines the vision of a peaceful world
with shared prosperity (Keep and
Heslop 2023).
Twin Existential Threats
Earlier in 2023, Russia unilaterally sus-
pended the Measures for the Further
Reduction and Limitation of Strategic
Offensive Arms Treaty (New START Treaty),
marking a troubling trend towards nu-
clear proliferation rather than reduction
(Williams 2023). The New START Treaty
is crucial because it is the only remain-
ing treaty limiting the world’s two larg-
est nuclear arsenals and is set to expire
in 2026. It helps maintain stability and
predictability in their strategic relation-
ship, reduces the risk of a nuclear arms
race, and mandates verifiable limits. Ad-
ditionally, the verification measures, in-
cluding on-site inspections and data ex-
changes, help to increase transparency
DECember 16, 2023
and confidence between the two coun-
tries (Shumilova 2016).
As reported by the Economist (2023)
in January 2023, the South Korean Pres-
ident hinted that his country could “ac-
quire our own nuke.” This is coupled
with North Korea’s brazen threat to re-
taliate against the presence of American
nuclear submarines in South Korea.
Even Israel, typically veiled in secrecy
regarding its nuclear capabilities, has
witnessed a now-suspended minister
openly discussing the potential use of
such weapons in Gaza (Camut 2023).
The spectre of nuclear proliferation in
West Asia adds another layer of com-
plexity. The US intelligence suggests that
Iran has enough fissile material to build
a nuclear weapon in less than two
weeks, a development with profound re-
gional implications. In response, Saudi
Arabia has voiced its intention to match
any nuclear capability that Iran develops,
setting the stage for a potential arms
race in a region already fraught with
conflict. In fact, the National Security
Strategy report of the US calls for coordi-
nated efforts to lock down nuclear weap-
ons and prevent terrorist acquisition
(White House 2022). This is an extreme-
ly important argument because a state
or regime collapse (always a possibility
in authoritarian states like Iran) in a nu-
clear-armed state can immediately en-
danger global security.
Against this backdrop of nuclear pro-
liferation, the existential threat of climate
change continues unabated. In fact, the
National Security Strategy report recog-
nises climate change as a security threat.
In West Asia, the stability of the region,
already precariously balanced, is further
compromised by the interplay of nuclear
proliferation and climate change. Isra-
el’s ongoing aerial strikes in Gaza, a re-
taliation to deadly attacks from Hamas,
carry with them not only immediate hu-
man costs but also long-term environ-
mental consequences. The land shared
by Israel and Palestine is particularly
susceptible to the ravages of climate
change, with water scarcity and extreme
weather threatening an already fragile
ecological balance (Feitelson et al 2012).
The 2022 United Nations Climate
Change Conference or Conference of the
vol lViii no 50 EPW Economic & Political Weekly

Parties of the United Nations Framework
Convention on Climate Change (UNFCCC)
(also known as COP27) in Egypt under-
lined the slow progress, especially of
powerful nations, in tackling the climate
crisis. As we approach COP28, there is a
consensus that emissions must be drasti-
cally reduced now. The World Meteoro-
logical Organization (2023) noted that a
spate of recent extreme weather events
—record-breaking heat waves across the
US, South America, and Europe, intense
wildfires in Hawaii and Canada, and
devastating floods in South Asia—are a
clear indicator that 2023 is poised to be-
come the warmest year on record. It also
reported that the global mean tempera-
ture for the current calendar year is the
highest ever documented, surpassing the
pre-industrial levels by 1.43 degrees
Celsius, while the Antarctic Sea ice per-
sistently stays at historically low levels.
These events are part of a growing pat-
tern of climate instability that threatens
the very existence of global ecosystems
and human societies (IPCC 2021).
Disparity in Funds
The question of funds, however, remains
the most contentious aspect in dealing
with climate change and nuclear weapons.
While nuclear weapons are dangerous
and expensive, climate change is immi-
nent and lacks funding. According to the
International Campaign to Abolish Nuclear
Weapons (2022), the nuclear-armed states
expended $82.9 billion on the manufac-
turing and maintenance of nuclear weap-
ons in 2022 alone; or as their report states:
“$157,000 per minute.” On the contrary,
funds required for climate change adap-
tation are estimated at $340 billion an-
nually, out of which only 7% are current-
ly being mobilised (UNEP 2022).
Moreover, the opportunity cost of ex-
penditure on nuclear weapons is high.
The redirection of even a fraction of the
funds spent on nuclear weapons could
significantly bolster global efforts to
mitigate climate change. Investments in
renewable energy, sustainable agriculture,
and resilient infrastructure are critical
components of a comprehensive strategy
to combat climate change, and they re-
quire substantial funding. Additionally,
the economic benefits of investing in
Economic & Political Weekly EPW DECember 16, 2023
climate change adaptation are well-doc-
umented. As per the Global Commission
on Adaptation (2019), investing $1.8 tril-
lion annually for a decade could produce
$7.1 trillion in total net benefits.
Gradual Divestment from
Nuclear to Climate Initiatives
The confluence of these factors—ag-
gressive military actions, environmental
degradation, and the impending threat
of a nuclear arms build-up—accentuates
the urgency of re-examining global pri-
orities. This article argues for a bold rea-
lignment—a “nukes-for-climate swap
agreement.” It requires states to gradu-
ally transfer their financial investments
in nuclear weapons to their own climate
change mitigation initiatives.
At its core, the proposal is rooted in
the concept of security realignment as
this approach acknowledges the evolving
nature of global security threats, where
climate change is increasingly seen as a
paramount challenge potentially more
destabilising than the nuclear threat.
The World Economic Forum’s Global
Risks Report (2022) confirms this, rank-
ing environmental threats among the
top risks by likelihood and impact, sur-
passing weapons of mass destruction for
the first time in its history. While this
proposal may seem idealistic given the
current geopolitical situation, it will gain
the most political traction because of its
novelty. It is an innovative approach to
deal with both existential threats because
their consequences and the resources re-
quired to address them are inextricably
linked. Even the skills and technologies
developed in the nuclear sector can be
repurposed for climate action. This re-
purposing is not only economically ben-
eficial but also facilitates a smoother
transition for industries and workforces
entrenched in the nuclear sector.
It is not being proposed that all funds
currently spent on nuclear weapons be
redirected to climate change mitigation.
Instead, the proposal suggests a gradual
transfer of funds invested in nuclear
weapons to climate change initiatives,
which could help create a significant im-
pact over time. The concept of gradually
transferring funds from nuclear pro-
grammes to climate change initiatives
vol lViii no 50
COMMENTARY
offers a balanced and realistic approach.
Moreover, this strategy could potentially
serve as a catalyst for increased climate
finance through other channels, such as
public and private funding sources. Such
a multiplier effect would be crucial in
meeting the ambitious targets set by in-
ternational agreements, like the 2015
Paris Agreement.
Our past experiences show that states
do not overwhelmingly contribute to
common funds for a global crisis. The
underfunded Green Climate Fund of
the UNFCCC illustrates the challenge
(Omukuti et al 2022). Despite pledges,
many countries have failed to meet their
commitments, citing various domestic
and political reasons. The distinction in
the proposed agreement is that states
will be required to transfer the invest-
ment from nuclear weapons to their own
climate change mitigation measures.
Several examples demonstrate the effec-
tiveness of using domestic funds for en-
vironmental initiatives.
For instance, the German Energiewende
(Energy Transition) programme, largely
funded by national resources, has been
vital in reducing Germany’s carbon foot-
print and promoting renewable energy.
Similarly, South Korea’s Green New Deal,
backed by significant national funding,
aims to create eco-friendly jobs and re-
duce greenhouse gas emissions.
More importantly, the nine nuclear-
armed states include some of the world’s
largest emitters of greenhouse gases
such as China, the US, and India (World
Resources Institute 2023). Consequent-
ly, a significant shift in the domestic pol-
icies of any of these nations, prioritising
climate change mitigation over the pur-
suit of nuclear weapons, can have a di-
rect and substantial impact on the global
climate policy arena.
Similarly, it is a matter of political re-
ality that the nine nuclear-armed states
will not totally abolish nuclear weapons
in the foreseeable future. Hence, the
focus must be on non-proliferation and
gradual reduction. The implementation
of this proposal is also practicable be-
cause it is strategically in line with other
existing mechanisms to limit nuclear
proliferation, such as the now-defunct
1987 Intermediate-Range Nuclear Forces
19
COMMENTARY
Treaty and the New START Treaty.
Though limited in scope, both treaties
achieved commendable results because
they did not vest power in a third actor
or even an international organisation,
relying solely on the trust between sov-
ereign nations.
Further, concerted diplomatic efforts
that are aimed at steadily reducing the
financing of nuclear weapons are likely
to bring the states to the negotiating ta-
ble. To avoid an imminent Armageddon,
it is important to start with a non-bind-
ing agreement that can set into motion a
series of discussions that are likely to
yield results. The proposed nukes-for-
climate swap agreement could take in-
spiration from the diplomatic successes
of non-binding agreements, which have
historically served as precursors to more
robust, legally binding treaties. Such
preliminary agreements are instrumen-
tal in building the necessary trust and
consensus among nations, especially on
issues of global significance like nuclear
disarmament and climate change.
The Paris Agreement stands as a tes-
tament to the power of diplomacy in in-
ternational treaty-making. Despite vary-
ing national interests and the complexi-
ties of climate science, diplomats man-
aged to create an inclusive framework
that encouraged participation rather than
coercion. The non-binding nature of the
agreement, paradoxically, allowed for a
more ambitious set of objectives, as coun-
tries were not legally bound but morally
committed to their targets (Bodansky
2016). This flexibility was crucial in se-
curing the signatures of nations wary of
legal repercussions or sovereignty con-
cerns (Rajamani 2016). In crafting the
nukes-for-climate swap agreement, simi-
lar diplomatic ingenuity will be required.
Eventually, however, this agreement
must pave the way for a binding treaty
as international law provides a struc-
tured framework that can guide and le-
gitimise such agreements, ensuring that
they are recognised and respected by
the global community. The successful
integration of the nukes-for-climate swap
agreement into international law will
depend on its ability to align with exist-
ing legal norms and the political will of
states to embrace and enforce these
20
norms. One treaty that deserves special
recognition is the Montreal Protocol on
Substances that Deplete the Ozone Lay-
er. It is the most successful agreement in
international environmental law. It is
ratified universally and has brought about
objective results in effectively curbing
the global issue of ozone depletion
(Benedick 1998). The success of this
treaty is attributed to its clear targets,
timelines, and mechanisms for compliance
and adaptation, leading to a marked de-
crease in the emissions of ozone-deplet-
ing substances (Parson 2003). The Mon-
treal Protocol showcases how interna-
tional cooperation, underpinned by a
robust legal framework, can lead to sub-
stantial environmental improvements.
Its methodologies and compliance mecha-
nisms offer valuable lessons for the
nukes-for-climate swap agreement.
Charting a Path Forward
It is essential to weave together the
transformative potential of the nukes-for-
climate swap agreement into a coherent
vision of a more secure and sustainable
future. This proposal, at its core, is a
radical yet deeply necessary step to-
wards addressing the most daunting ex-
istential threats facing humanity today.
The essence of this agreement lies in its
ability to redirect financial and intellec-
tual resources from the construction
and maintenance of nuclear weapons—
a symbol of destruction and fear—to-
wards combating climate change, a
challenge that symbolises hope and the
possibility of a sustainable future.
This shift is not merely a reallocation
of funds; it represents a profound reim-
agining of national and global priorities.
It could become a living example of
turning “swords into ploughshares” and
is part of a vision that aligns with Gan-
dhian practical idealism, where incre-
mental steps towards peace and envi-
ronmental stewardship can indeed build
a better world.
In achieving the nukes-for-climate swap
agreement, the role of small and non-
nuclear states cannot be underestimated.
Nations such as Costa Rica offer inva-
luable perspectives at the negotiating ta-
ble. Costa Rica’s rich history of disarma-
ment and commitment to environmental
DECember 16, 2023
conservation represents the kind of
guidance that is indispensable in realis-
ing this agreement.
Finally, the nukes-for-climate swap
agreement should be accompanied by
actionable recommendations cutting
across law, policy, and governance to
bring together countries, organisations,
and other stakeholders. Given the com-
plexity of these global crises, policymak-
ing and capacity-building should go
hand in hand. In this regard, the moot
question is—who will lead the negotia-
tions? Certainly, it will need courageous
leadership, including civil society and
public intellectuals.
References
Benedick, R E (1998): Ozone Diplomacy: New Direc-
tions in Safeguarding the Planet, Cambridge:
Harvard University Press.
Bodansky, Daniel (2016): “The Legal Character of
the Paris Agreement,” Review of European,
Comparative & International Environmental
Law, Vol 25, No 2, pp 142–50.
Camut, Nicolas (2023): “Israel Minister Amichai
Eliyahu Calls for Suspension of Benjamin Net-
anyahu over Nuclear Bomb Remarks,” Politico,
https://www.politico.eu/article/israel-minis-
ter-amichai-eliyahu-suspend-benjamin-netan-
yahu-nuclear-bomb-gaza-hamas-war/.
Economist (2023): “Why South Korea Is Talking
about Getting Its Own Nukes,” https://www.
economist.com/asia/2023/01/19/why-south-
korea-is-talking-about-getting-its-own-nukes.
Feitelson, E, A Tamimi, and G Rosenthal (2012):
“Climate Change and Security in the Israeli–
Palestinian Context,” Journal of Peace Re-
search, Vol 49, No 1, pp 241–57.
Global Commission on Adaptation (2019): “Adapt
Now: A Global Call for Leadership on Climate
Resilience,” https://gca.org/wp-content/up-
loads/2019/09/GlobalCommission_Report_FI-
NAL.pdf.
Hiim, H S, M T Fravel and M L Trøan (2023): “The
Dynamics of an Entangled Security Dilemma:
China’s Changing Nuclear Posture,” Interna-
tional Security, Vol 47, No 4, pp 147–87.
International Campaign to Abolish Nuclear Weap-
ons (2022): “Wasted: 2022 Nuclear Weapons
Spending,” https://www.icanw.org/wasted_
2022_global_nuclear_weapons_spending.
IPCC (2021): “Climate Change 2021: The Physical
Science Basis,” Intergovernmental Panel on
Climate Change, https://www.ipcc.ch/report/
ar6/wg1/.
Keep, Joel and David Heslop (2023): “A Farewell to
New-START? Strategic Arms Control under
Pressure amid War in Ukraine,” Global Biosecu-
rity, Vol 5, No 1.
Losey, Stephen (2023): “US to Build New Nuclear
Gravity Bomb,” DefenseNews, https://www.de-
fensenews.com/pentagon/2023/10/27/us-to-
build-new-nuclear-gravity-bomb/.
Omukuti, J, S Barrett, P C L White, R Marchant,
and A Averchenkova (2022): “The Green
Climate Fund and Its Shortcomings in Local
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Vol 22, pp 1225–40.
vol lViii no 50 EPW Economic & Political Weekly

Parson, Edward A (2003): Protecting the Ozone
Layer: Science and Strategy, Oxford: Oxford
University Press.
Rajamani, Lavanya (2016): “Ambition and Differ-
entiation in the 2015 Paris Agreement: Inter-
pretative Possibilities and Underlying Politics,”
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Vol 65, No 2, pp 493–514.
Shumilova, D (2016): “Arms Control Diplomacy
and the New START Treaty: Success or Fail-
ure?,” Il Politico, NUOVA SERIES, Vol 81,
No 3(243), pp 70–83.
UNEP (2022): “Adaptation Gap Report 2022,” Unit-
ed Nations Environment Programme, https://
Economic & Political Weekly EPW DECember 16, 2023
www.unep.org/resources/adaptation-gap-re-
port-2022.
United States Department of Defense (2023): “De-
partment of Defense Announces Pursuit of B61
Gravity Bomb Variant,” https://www.defense.
gov/News/Releases/Release/Article/3571660/
department-of-defense-announces-pursuit-
of-b61-gravity-bomb-variant/.
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loads/2022/10/Biden-Harris-Administrations-
National-Security-Strategy-10.2022.pdf.
Williams, Heather (2023): “Russia Suspends New
START and Increases Nuclear Risks,” Center
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https://www.csis.org/analysis/russia-sus-
pends-new-start-and-increases-nuclear-risks.
World Economic Forum (2022): “The Global Risks
Report 2022,” https://www3.weforum.org/
docs/WEF_The_Global_Risks_Report_2022.
pdf.
World Meteorological Organization (2023): “World
Had Warmest October on Record,” https://pub-
lic.wmo.int/en/media/news/world-had-
warmest-october-record.
World Resources Institute (2023): “Interactive
Chart Shows Changes in the World’s Top 10
Emitters,” https://www.wri.org/insights/in-
teractive-chart-shows-changes-worlds-top-
10-emitters.
21
COMMENTARY
Things You See From Here
Tel Aviv, October–November 2023
Gadi Algazi
What the policy of continuing the
occupation and eliminating the
alternatives has brought about is
precisely despair and a pervasive
sense of having no choice, leading
us to the next round. Those
who now shy away from calling
to stop the war on Gaza—as if
what has happened so far is not
horrible enough—should at least
think about its real, long-term
consequences.
Gadi Algazi (gadi.algazi@gmail.com) is a
historian based in Tel Aviv.
28
T
his is not a war diary. Such a diary
should come from Gaza. These are
a few public posts published in
Hebrew over a few weeks in October
and November 2023. They do not offer a
detached political or historical analysis;1
all were conceived as interventions in an
atmosphere of fear and hate, addressing
primarily fellow Israelis, but read and
commented by Palestinian friends, too.
13 October
My heart breaks at the countless expres-
sions of solidarity in this bleeding country
with the suffering of civilians, the victims
of Hamas—the dead, the bereaved, the
kidnapped and their beloved ones, aban-
doned by the state of Israel, once again,
to their suffering.
And my heart breaks into pieces at the
utter indifference to the terrible suffering
of other people in this bleeding land, to
inflicting thirst for water, bombing, kill-
ing, and displacing Palestinians in the
Gaza Strip. Their disaster is our disaster.
And if you find it hard to imagine what
is happening now in Gaza, to imagine
hundreds of thousands of people des-
perately rushing south with what little
they can carry, think for a moment what
it looks like in one neighbourhood in
Lod/Lydda.2
One Palestinian family of my dear
friends in Lod/Lydda has already had
DECember 16, 2023
15 relatives killed in Gaza. Another fam-
ily has lost 12 relatives. Another neigh-
bour, two. And it is not over yet, not at
all. People are now sitting in front of
their televisions, praying for the living.
16 October
It is easy and reassuring to believe that
the world is divided into civilised people
and barbarians.3 The others do what they
do simply because they are barbarians,
“human animals.” Why do they do this?
Because it is in their race, their DNA, their
culture, their religion, or simply engraved
in their souls: full of death-hatred,
murderous, and that is it.
There are no barbarians as a separate
species, a special category of human
beings. We are all capable of barbaric
acts. As humans, we are capable of a few
more things, kinder ones, but also of
atrocities. This is who we are: humans,
and as such, there is no limit to the
cruelty we are capable of. And there is
no immunity: neither education nor
culture, neither religion nor gender.
Realising this human potential can shake
us to the core. Hence the comforting
statement: “They are capable of anything.”
And we? We have already proven our
ability to do every atrocity imaginable,
and we are perpetrating some right now.
The only thing that the division into bar-
barians and humans does is to make us
forget our own barbarity.
Barbarism is part of our everyday
existence. Yes, we can tell ourselves that
there is a difference between persons who
commit atrocities with their bare hands
and those committing them silently,
from a distance, from behind a desk, or
even through tacit support. Is one worse
vol lViii no 50 EPW Economic & Political Weekly

than the other? We should better not try
to rank them, especially not if we think
about what we managed to do during
the 20th century; there are no signs that
we have improved since.
So, what can be done? We might
despair and lose faith. We might use the
barbarism of the other as an excuse for our
(denied) barbarism: “If others are allowed
to do this ...” But people are capable of
all kinds of things, and the question is
how barbarisation occurs as a social pro-
cess, and what can be done about it. I am
not interested in the supposed psycholo-
gy of individual killers, but it makes
sense to ask what causes barbarisation.
And in our case, the Jewish Israeli
inhabitants of this bleeding piece of
land, barbarisation is a deep, long-term
process, whose days are longer than
Netanyahu’s, and it did not start with
the siege of Gaza either. Who could have
believed in the terrible, brutal 1970s that
dozens of Palestinians would be killed in
the occupied territories without making
a single headline in the newspapers?
Back then, in the 1970s, it was still
shocking. For how many years has the
terrible water shortage in the Gaza Strip
been going on? After all, already when
the first settlements in Gaza were
planned, after the war of 1967, experts
determined that there was not enough
water in the Strip, and in the meantime,
more than a few children have been
born. And how long did it take us to get
used to the massive bombing of civilians,
only to learn now that this is still not
enough, this is not really serious, not yet
the required thorough “flattening” of the
Gaza Strip? Children (in the West Bank)
are daily detained by soldiers of the
occupying power. I do not think there is
much point in going on with examples.
The barbarisation of the ruling people
is a necessary component of a continu-
ous process of colonisation and dispos-
session. The spokespersons of the Zion-
ist right are right on this: it is impossible
to carry out expropriation and settle-
ment without systematic violence. And
they are also to be believed when they
say that this is a price they are willing
(eager?) to pay. Others understood this
long before us: the Iron Wall4 has long ex-
isted around and within us, it encircles
Economic & Political Weekly EPW DECember 16, 2023
us and has settled in our hearts. You
cannot dispossess an entire nation with-
out it. And of course, Moshe Dayan also
understood this well when he spoke over
Ro’i Rotberg’s grave in 1956: “We are the
generation of colonisation, and without
the steel helmet and cannon muzzle we
cannot plant a tree and build a house.”
Hence Dayan’s promise for the future:
“This is the destiny of our generation.
This is our life choice—to be ready and
armed, strong and harsh, lest the sword
fall from our hand and our lives will be
cut short.”
The conquered and the dispossessed
are also not immune from the barbarisa-
tion process brought about by a colonial
conflict. On the contrary, relative disad-
vantage and continued humiliation in-
tensify it. And it is really not just Hamas
and the recent atrocities, the merciless
killing of civilians and families and the
kidnappings. Even anti-colonial resistance
movements which liberated their people
from a terrible bondage, even movements
that held to enlightened ideals, were not
immune to the process of barbarisation
brought about by dispossession and con-
flict. This is true both with respect to the
Viet Cong fighters and the Algerian lib-
eration movement. After its liberation
from the French, Algerian society was
neither free from the scars, nor from the
forms of brutality and abuse imprinted
on it. Who knows how many years it will
take us, Israelis and Palestinians, once
we shall have finally freed ourselves from
the death grip of this colonial conflict, to
deal with all that was stamped on us dur-
ing it, with the deep wounds that de-
formed our souls.
We are in the midst of a terrible bloody
cycle, and among us there are also some
who wish to continue. For how can it be
otherwise? The barbarisation of the co-
lonial conflict engulfing us, all of us—
prison-wardens and prisoners (and no,
even in the most dire moments it does
not feel the same) continues.
So, what now? Yes, try to retain our
human image—for the sake of all of us.
But this is not merely a moral question, it
is a political one: barbarisation is pro-
duced by dispossession, subjugation and
deprivation, by exploitation, humiliation
and abuse. I know of no other answer
vol lViii no 50
COMMENTARY
than to do everything in our power to
put an end to them and strive for a politi-
cal settlement so that all of us, Israelis
and Palestinians, Jews, and Arabs, can
truly live as human beings, humanly—
in freedom and equality.
19 October
What is going on with Cindy? Last Thurs-
day, Lilach told me she was desperately
looking for her. She is missing, maybe
kidnapped, and Lilach wonders if it is re-
ally better to assume that she was kid-
napped than that she is no longer alive.
By the afternoon, it becomes clear that
Cindy, 67 years old, and her partner, Yigal,
66 years old, were murdered by Hamas
members. My student, Cindy Flash.
Cindy first attended my class in 2004,
together with Lilach. She was older than
the rest of the students in the class (and
what a class it was)—a big smile and
boundless curiosity. On the students’ list,
she was called “Tamar,” but she immedi-
ately corrected me: “Cindy. I will explain
to you later.” She told me that she had
come to the kibbutz from Minnesota as
a volunteer and stayed for love.
I cannot locate the first essay she
wrote. She eagerly completed her BA
programme and wanted to know more
about the Middle Ages. She somehow
found time to come from her kibbutz,
Kfar ‘Aza, to the MA seminars, and when
she finished, she wanted more. We met
in the hallway: Was there perhaps a way
to continue studying after a master’s de-
gree without getting bogged down in
doing a PhD? Perhaps another master’s
degree? An enormous thirst for learning
and a great sense of humour. We would
not talk about politics. Then I was sur-
prised to meet her at Sapir College (a
public college in Israel’s periphery, 4 km
from the border of the Gaza Strip), at a
conference on alternative politics organ-
ised by Zvi Schuldiner—a rare occasion
for open conversations among activists.
It was only then that I learned that
Cindy was not merely employed at the
college—she was the revered coordinator
of the Department of Administration and
Public Policy, a unique department where
they started thinking seriously about
privatisation and the state’s neglect of its
citizens and were analysing the social
29
COMMENTARY
consequences of the state budget with
the students. I did not know that she also
participated in protests, time after time,
against the bombings of Gaza.
She has three daughters and two grand-
children. I did not know her family. Keren,
her eldest daughter, who was also in
Kfar ‘Aza but survived with her family,
is quoted by the Independent:
Whenever there was a military operation,
(she) would always protest. She was there
protesting all the time ... because you don’t
treat human beings like that no matter what
their religious belief is and what their eth-
nicity is. “They were some of the best people
that I have ever known,” Ms Flash said of her
parents. “They were good people. They cared
about other people. They fought for other
people’s rights and other people’s voices.”
… I have no idea what Cindy would say
today, and have no intention of speaking
in her name. I miss her.
28 October
On 7 October, Hamas fighters carried out
a systematic massacre in the settlements
surrounding the Gaza enclave. Even
among the horrific acts of violence that
have marked this bloody conflict, there
are significant differences, and not just in
scale. This was not an outburst of violence
that got out of control, not the work of
warriors seeking revenge for defeat or the
death of their comrades, but a calculated
move designed to strike horror into the
hearts of the survivors, their relatives,
and those around them: terror in its
original meaning, or in its Hebrew version
(in the phrase used by Israeli generals
when referring to the rationale for re-
peated military campaigns on the Gaza
enclave), “etching the consciousness.”
This move was crowned with terrible
success. We, Israelis and Palestinians
alike, will now have to live with its con-
sequences, and we do not yet know
how. It undermines people’s fundamen-
tal trust, not only in the humanity of the
other, but in life itself in general. And it
is not just a single day of horror, a cir-
cumscribed event. It is still spreading,
tearing our insides apart day by day, as
more and more missing people are add-
ed to the list of the victims, and for the
hostages and their families and loved
ones, it keeps unfolding with each day
that passes. From the experience of my
loved ones, I can testify that killing and
30
kidnapping can leave their mark on one’s
soul for decades.
True, this is not the first systematic
massacre in the history of the conflict. It
has been preceded by others, and the list
is long. I am thinking at the moment of
the massacre in (the Palestinian village)
Qibya (in October 1953) and the massacre
in Kafr Qasim (in October 1956)—67 years
ago (both perpetrated by the Israeli army).
Bombing civilians and shelling them are
also a massacre. We should also admit
that even before the horror of 7 October,
there was widespread indifference in Is-
rael to the lives of the Palestinian inhabit-
ants of the Gaza enclave. Nor are such
acts unique to the Middle East5 System-
atic massacres of this kind were carried
out in disintegrating Yugoslavia during
the 1990s, specifically designed to make
people leave, go away with the horror of
destruction, and never return.
Yet even such massacres, unspeakably
cruel, have a context—not one but sever-
al contexts, some of them obvious and im-
mediate, others deep and more distant
(In Israel, a popular argument remains
that all attempts to contextualise the
events of 7 October amount to justifying
such crimes of war). Even the most hor-
rific crimes that human beings are capa-
ble of committing have contexts, and
coping with them requires that we think
about contexts. This does not diminish
the responsibility of the perpetrators.
People act within such contexts and may
take different courses of action; suffer-
ing and oppression can be translated
into all kinds of collective projects. It is
not enough to point out murderous in-
tent and burning hatred, ideological fa-
naticism and indifference to suffering;
the more difficult question, on which the
future and life itself depend, is when or-
dinary people (not the perpetrators, not
the planners) identify with such actions,
agree to them, get used to them or sim-
ply tell themselves that it cannot be oth-
erwise because “they only understand
power” (and this question applies, of
course, to us, Israelis, too).
I think it is pointless to deny that the
wider context is the ongoing occupation
and the hopelessness of life in the closed
Gaza enclave, a place where all the scars
of the (Palestinian) expulsion of 1948
DECember 16, 2023
were opened up by the (Israeli) occupa-
tion of 1967, and no healing is in sight.
We (Israelis) can, of course, hide be-
hind our own self-righteousness and
deny the decades of dispossession dur-
ing which Palestinians have lived as ref-
ugees; we can imagine to ourselves that
there is no connection between colonisa-
tion, dispossession and expulsion, and
the production of deadly hatred; we can
limit ourselves to thinking only about
those who spread an ideology of hatred,
and ignore the reasons that make such
ideas resonate in people’s hearts. We can
also tell ourselves that the Israeli bomb-
ings are simply necessary and quite dif-
ferent from the indiscriminate killing by
Hamas of Israeli residents of the area
surrounding Gaza. We may even say that
it is now necessary to continue killing
Palestinian civilians, families and children,
as if the number of victims so far were
not enough, as if their deaths would bring
relief to the families of those murdered
or kidnapped.
Commentators and generals are once
again promising that a final and total
victory is within reach, and that they
will then be able to make a fresh start
with a clean slate. But we can also recog-
nise that the only way to move forward
is not through more killing but through
seeking a political settlement based on
ending the occupation and on mutual
recognition. Such a peace settlement
cannot be founded on the mass slaugh-
ter of Palestinians, any more than the
liberation of the Palestinians from colo-
nisation and occupation can be founded
on the slaughter of Israeli civilians. De-
colonisation is a necessary element of a
project of human emancipation; it does
not consist in indiscriminate killing, in
counter-ethnic cleansing, in replacing
one tyrannical regime with a new mur-
derous tyranny, or in replacing the bar-
barism of occupation with the barbarism
of the subjugated.
True, there were other political re-
sponses (among Palestinians) to the on-
going (Israeli) occupation and dispos-
session, and there are still other politi-
cal answers among Palestinians now.
People do not freely choose the political
voices and organisations that represent
and authentically express them. They
vol lViii no 50 EPW Economic & Political Weekly

choose among existing alternatives,
and this is true for Israelis as well as
Palestinians. An essential component of
maintaining the “villa in the jungle” (a
popular metaphor in Israel to describe
its place in Middle East) has been a per-
sistent effort (by Israel) to destroy real-
istic political alternatives within Pales-
tinian society under occupation, to
eliminate the forces more closely con-
nected with the suffering of ordinary
people and those seeking a historical
compromise with the Israelis.
This has not been merely the policy of
Prime Minister Netanyahu and (finance
minister) Smotrich (of the radical right),
but a deep, structural process: the more
thoroughly the military “mows the
grass” around the “villa in the jungle”
with blood and fire—the conflict does not
subside, it gets worse and more barbaric.6
Those who thought they could eliminate
the Amal movement in Lebanon got
Hezbollah, those who fought fiercely
against the Palestinian left and Fatah
nationalists got Hamas, and those who
refused to compromise with the Pales-
tinians got the Iranian regime, for which
the Palestinians are really just a pawn in
the regional power game. So much so
that those, who now find it hard to admit
that “crushing Gaza” means the death of
more and more children, tell themselves
that they are actually fighting against
Iran.
No wonder, then, that it is now so dif-
ficult to imagine political alternatives to
killing: what the policy of continuing the
occupation and eliminating the alterna-
tives has brought about is precisely de-
spair and a pervasive sense of having no
choice, leading us to the next round.
Those who now shy away from calling to
stop the war (on the Gaza enclave)—as
if what has happened so far is not horri-
ble enough—should at least think about
its real, long-term consequences. About
what people will remember, about the
ways in which revenge breeds blood re-
venge. And about the children, yes: our
children, and the children in Gaza; and
the future, theirs and ours.
30 October
On 30 October, I circulated an article
by Evyatar Matanya, head of the MA
Economic & Political Weekly EPW DECember 16, 2023
Security Studies Programme and the
Elrom Air and Space Studies Research
Centre at Tel Aviv University. The arti-
cle, titled “The Strategic Goal: The de-
struction of Gaza,” was published in
Makor Rishon on 27 October. It argued
that “etching the consciousness of gen-
erations [of Palestinians] cannot be
done merely by destroying Hamas …”
Matanya suggested that the war should
result in a blow “that will stand before
the eyes of the population in Gaza,
Judea, Samaria (the West Bank), Leba-
non and the entire Middle East.” He
hence suggested “the complete destruc-
tion” of the city of Gaza and the perma-
nent eviction of the Palestinians to the
southern part of the enclave:
The Strip will be reduced to its southern
part forever. No Jewish settlements will be
built on the ruins of Gaza and the northern
part of the Strip; rather, Israel will build the
“7 October Park” in memory of the victims of
the massacre perpetrated by Hamas on that
day, which will become a green lung in the
heart of Gaza—a symbol of a new path that
can be taken in the Gaza Strip.
7 November
Yesterday evening, a Jewish–Arab con-
ference was held on the initiative of the
High Steering Committee for Arab Af-
fairs in Israel, the most important repre-
sentative body of the Palestinian citizens
within Israel. The meeting was held on
Zoom since the police prevented it from
taking place face-to-face, in a hall in
Haifa. About 400 people attended and a
lot of important things were said.
The chairman of the Steering Com-
mittee, Muhammad Barakeh (former MK,
CPI), stated and reiterated:
What happened on the 7th of October can-
not be justified by all the long years of suf-
fering of the Palestinian people. What is
happening in Gaza today cannot be justified
by what happened on the 7th of October.
8 November: An Interlude in
the West Bank
I needed a break, so the following day I
drove with a few activists from Tel Aviv
to the West Bank, to Massafer Yatta—a
hilly arid area south of Hebron. The Pal-
estinian inhabitants of the region live
under the threat of eviction by the army
and constant harassments by armed
settlers. The activists cannot prevent the
vol lViii no 50
COMMENTARY
attacks; they maintain constant presence,
they stay with the inhabitants during
settlers’ attacks, they accompany the people
to their fields, and document the events.
For the settlers, the war is an auspicious
moment. They radicalised their attacks
all over the West Bank and managed to
evict several Palestinian communities.7
On 28 October, armed settlers broke into
one of the houses and told the people
that unless they leave within 24 hours,
they would come again and shoot them.
I went to Susiya. To understand what
settler colonialism means, there are few
better places. The Palestinian inhabit-
ants of Susiya were expelled in 1986
from their original village, which turned
into an archaeological site. So, they
moved to their neighbouring lands, and
for several years survived in improvised
shelters between the “ancient” site and a
new settlement, called Susya. They were
expelled by the military in 1999, but
they returned. In September 2001, they
were expelled again. Then, it was our
turn to organise a mass non-violent pro-
test on the ground and create a fragile
human corridor to allow the people to
return. It was one of the most important
moments of my life. They stayed ever
since. The village grew while the set-
tlers’ outposts surrounding Palestinians
kept multiplying and their attacks in-
creased. In the years that followed, I
moved to work elsewhere, inside Israel,
with indigenous Palestinians who had
been expelled in 1951. They returned to
their land in 1999 and have suffered
brutal repression ever since.
I sat with Nasser Nawaj‘a, who was 15
years old when I first knew him, and now
has four children, and his father Muham-
mad. Nasser is now a known human rights
defender; their family was targeted by the
settlers on 28 October. Nasser’s daughter
Dahlia, 10 years old, cannot leave the
village to go to school. When I woke up
in the morning after the night shift, she
was outside, playing classroom on her
own: she was both teacher and pupil,
her notebooks were on the table, and an
improvised little blackboard behind her.
14 November: Tel Aviv
After a long, long summer, soon the rain
will come. Rain here, rain there. It will
31
COMMENTARY
reach everywhere in this one country.
Reach those who are grieving and those
sitting by the window, missing, hoping
that their loved ones are still alive. It
will reach those trapped under the ruins
in Gaza, the dead, the living, and those
who are still sighing. Somewhere, the
echo of the raindrops might perhaps
even reach the captives and their cap-
tors, the abductees and their kidnap-
pers. Hundreds of thousands in the
bombed enclave will seek to hide from
the pouring rain, because this might be
our rain, the local one, not a long and
patient drizzle, but a strong and fast rain
that instantly turns into streams of mud
and sewage that flow into the sea.
Thirsty people may look for ways to col-
lect something to drink. The mud will
cover the tank chains. And the sea of
Gaza will look at the inhabitants of the
narrow strip of land.
It is whistle-blower time. This is the
time to inform on friends, hunt down the
Arabs, snoop through correspondence,
and search for traitors.
This is the hour of the merchants of
death. The traffickers from out there
will send videos of the abductees to the
wounded families. The abductees will
be shown seated or standing, their eyes
downcast or trying to look directly at the
camera, reciting the required texts or
look defeated. What can be done with
this kind of greeting, of an insidious sign
of life?
The authorities advise to ignore and
not respond. Trust us, we have expertise
in such matters. And they do. The big
dealers of death, the ones here, will sit in
headquarters and studios, the goods are
on the table. We have something to of-
fer—water for the children, electricity
for the premature babies in the hospi-
tals. And how much will you give us in
exchange for a million displaced per-
sons, or more? How much will you give
us for two million hostages? They voted
for Hamas, they protested against Hamas,
they were born only five years ago in a
refugee camp or maybe only two weeks,
two months ago—they are all hostages.
And the truth is, the big traders say, we
are not at all sure that we are even inter-
ested in a deal. We are not done yet. We
still want to keep our hostages, a million,
32
two million people. All they need is two which has now been reprinted by This Week in
Palestine (Ramallah, November 2023), pp 86–91.
pitas per day and some olives, said the
2 Lod/Lydda is a town within Israel. My friends,
great expert in the television studio. like many Palestinian citizens of Israel, are from
The only ones who know what they families torn apart in 1948, some becoming
refugees in Gaza and elsewhere, others internally
want are the evictors. They have been displaced and later gaining Israeli citizenship.
doing this for a long time, and now is the 3 The claim that Palestinians are simply barbari-
time. They come to villages in the West ans, and therefore one can dispense with any
contextualisation of the massacre perpetrated
Bank at night and say, you have 24 hours on 7 October, has become a commonplace in
to leave. The settlers-evictors cut water Israel and elsewhere.
pipes for the Arabs, walk between the 4 Zeev Jabotinsky, one of the master thinkers of
the Zionist right, coined the term in an article
homes with flashlights. They come armed, published in 1923. Jabotinsky argued that given
with and without uniforms, disguised. indigenous opposition, Zionist colonisation could
Sometimes masked, sometimes in plain not proceed peacefully with Palestinian con-
sent. Military power was therefore necessary –
sight. They know what they want. And an unbreachable “Iron Wall” behind which col-
eviction works overtime: the Arab work- onisation could take place.
ers—evict them; the Arab students at 5 It soon became a racist commonplace in Israel
that the atrocities perpetrated by Hamas were
Netanya College—evict them [from the typically Middle Eastern or somehow reflected
dorms], do not let them return.8 And the Arab or Muslim culture. Soldiers were hence
encouraged to “talk Arabic,” that is to kill mer-
voice of expulsion reaches the studios cilessly.
and headquarters: you have bombed, 6 Since at least 2012, “mowing the grass” became
you have threatened them, you have al- a favourite metaphor used by Israeli generals
and strategists to articulate the need to season-
ready pushed the refugees, sons and ally engage in repeated military campaigns.
daughters of refugees further south 7 David Shulman and Margaret Olin, “Susiya,
within the enclave—and now what? November 2–3, 2023,” Touching Photographs,
7 November 2023, https://touchingphoto-
Will you hold back? graphs.com/2023/11/07/susiya-november-
2-3-2023-text-by-david-shulman-photographs-
Notes by-margaret-olin-and-david-shulman/.
1 During the previous military confrontation of 8 “Death to Arabs’: Students Evacuated from
May 2023, I wrote a short historical sketch for Dorms after Hundreds of Rioters Attempt
the benefit of my countryfolk, “The Gaza Camp,” Break-in,” Haaretz, 29 October 2023.
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DECember 16, 2023 vol lViii no 50 EPW Economic & Political Weekly
COMMENTARY
Whither Justice?
The Unfulfilled Promise of
the Forest Rights Act
Milind Bokil, Mohan Hirabai Hiralal
The Scheduled Tribes and Other
Traditional Forest Dwellers
(Recognition of Forest Rights)
Act, 2006 is heralded as a
transformative legislation but in
actual practice, its performance
is dismal, especially in conferring
community forest rights. It is
argued that instead of putting
the onus on the gram sabhas to
file the claims, the Ministry of
Tribal Affairs should address
this issue in a mission mode
and urgently publish the list of
eligible gram sabhas along with
the CFR potential, which would
help in the adequate realisation of
community forest rights.
Milind Bokil (msbokil@gmail.com) is a writer
and sociologist. Mohan Hirabai Hiralal
(mohanhh@gmail.com) is a social activist
associated with the village Mendha-Lekha for
the past 35 years.
26
T
he Scheduled Tribes and Other
Traditional Forest Dwellers (Recog-
nition of Forest Rights) Act, 2006,
popularly called as the FRA, is justifiably
heralded as being one of the most trans-
formative legislations passed in the post-
independence era. As stated in its pre-
amble, it had become necessary to enact
this legislation because (i) the traditional
forest dwellers were integral to the very
survival and sustainability of the forest
ecosystem; (ii) their forest rights on an-
cestral lands and their habitat were not
adequately recognised in the consolida-
tion of state forests during the colonial
period as well as in independent India,
resulting in historical injustice; (iii) it was
necessary to address the long-standing
insecurity of tenurial and access rights
of the traditional forest dwellers as well
as those who were forced to relocate
their dwellings due to state development
interventions; and (iv) their recognised
rights included the responsibilities and
authority for sustainable use and conser-
vation of biodiversity and maintenance
of the ecological balance, and thereby
strengthening the conservation regime
of the forests while ensuring livelihood
and food security of the forest dwellers.
Each of these points detailing the rai-
son d’etre of the FRA is not only impor-
tant from the policy perspective but also
forms a kind of a blueprint for conserv-
ing the forests as well as enhancing the
well-being of the forest dwellers. The
FRA conferred both individual and com-
munity titles. While the individual titles
ensured tenurial security and provided a
means of livelihood to the families, the
community forest rights (CFRs) encour-
aged the productive and sustainable uti-
lisation of the non-timber forest produce
(NTFP) and the right to protect, regenerate,
or conserve/manage community forests
vide Section 3(1)(i). Beginning with the
DECember 16, 2023
village Mendha-Lekha in Gadchiroli dis-
trict of Maharashtra, hundreds of villag-
es in the country acquired these CFRs.
Several studies (many of which have
appeared in Economic & Political Weekly)
have demonstrated the transformative
potential of the FRA towards conserving
the forest ecosystems and enhancing the
livelihood options of forest dwellers.
Implementation of the FRA
While the FRA came with a lot of promise,
in actual practice, its progress has not
been encouraging. Although the act was
passed in 2006, the rules were made only
in 2008, and were further modified in
2012. In the initial years, the focus was on
granting only individual rights. As for CFRs,
initially only a few states like Maharash-
tra, Gujarat, and Kerala took the initiative.
Other states followed suit rather reluctant-
ly. The monthly progress report (MPR)
compiled by the Ministry of Tribal Affairs
(MoTA) indicated that 22,01,842 individ-
ual and 1,10,1990 community titles were
distributed till 30 June 2023, covering an
area of 47,56,040.40 and 1,30,34,016.43
acres respectively—total 1,77,90,056.83
acres (MoTA 2023). The absolute figures
may look impressive but if one compares
them with the CFR potential available in
the country, the discouraging picture im-
mediately becomes apparent.
The CFR Learning and Advocacy
(CFR-LA) group of Maharashtra, which was
formed as part of the National Community
Forest Rights-Learning and Advocacy
process, has published a comprehensive
citizens’ report on the promise and per-
formance of the FRA in 2017, that is, after
10 years of the enactment of the act.
While this report has analysed the per-
formance of CFRs in Maharashtra in
depth, it has also estimated the minimum
CFR potential in India. The absolute
minimum potential has been assumed to
be the area of forestland within revenue
village boundaries and has been com-
puted by totalling the “Forest” column in
the Census 2011 village amenities table.
However, considering that in many
regions, the area traditionally falling
within the boundaries of a gram sabha
lay outside the revenue boundaries, the
mid-range potential was computed by
including the area within a 2 km distance
vol lViii no 50 EPW Economic & Political Weekly
 COMMENTARY

from the adjoining forest. For example, Table 1: Achievement of CFR Potential
in the case of Maharashtra, the absolute Sr No State Potential for Forestland Distributed Remaining Percentage Percentage
CFR—as per the as CFRs up to 30 June Potential of of Potential of Potential
minimum potential was 36,209 sq km, CFR-LA Report, 2023—as per the MoTA CFRs (acres) Achieved by Remaining by
whereas the mid-range potential was 2017 (acres) Report (acres) 30 June 2023 30 June 2023

50,766 sq km (CFR-LA 2017). This meth- 1 Andaman & Nicobar Islands 90,651 0 90,651 0 100
odology has provided the best and most 2 Andhra Pradesh 27,65,367 5,26,454 22,38,913 19 81
viable estimate for the CFRs. The maxi- 3 Assam 5,00,996 NA 5,00,996 0 100
4 Bihar 8,24,940 NA 8,24,940 0 100
mum CFR potential for any region would
5 Chhattisgarh 74,52,000 49,47,210 25,04,790 66 34
be the whole legally notified forest area.
6 Goa 2,07,342 18 2,07,324 0.0087 99.99
In Table 1, the minimum CFR potential
7 Gujarat 31,31,933 12,36,490 18,95,443 39 61
of the country and the performance of 8 Haryana 60,300 NA 60,300 0 100
the FRA in granting the CFRs till 30 June 9 Himachal Pradesh 32,11,000 11,181 31,99,819 0.34 99.66
2023 has been compared. 10 Jammu and Kashmir NA NA NA NA NA
Table 1 is self-explanatory and clearly 11 Jharkhand 51,58,389 1,03,759 50,54,630 2 98
indicates that only about 15% of the CFR 12 Karnataka 59,73,818 36,341 59,37,477 1 99
potential has been realised 17 years after 13 Kerala 21,98,639 7,61,490 14,37,149 35 65
the enactment of the FRA! The state of 14 Ladakh NA NA NA NA NA
Chhattisgarh has the best performance 15 Madhya Pradesh 1,57,20,915 14,63,614 1,42,57,301 9 91
record with 66% of the potential realised, 16 Maharashtra 1,20,50,071 32,89,186 87,60,886 27 73
followed by Gujarat (39%), Kerala (35%), 17 Odisha 57,88,714 3,74,303 54,14,411 6 94
18 Punjab 1,58,917 0 1,58,917 0 100
Maharashtra (27%), Andhra Pradesh
19 Rajasthan 63,09,957 1,58,440 61,51,517 1 99
(19%), Madhya Pradesh (9%), Odisha and
20 Sikkim 9,51,449 0 9,51,449 0 100
Uttar Pradesh (6% each) and Jharkhand
21 Tamil Nadu 19,21,537 0 19,21,537 0 100
(2%). Other states have virtually done
22 Telangana 33,73,527 3,631 33,69,896 0.1 99.9
nothing, although substantial CFR poten- 23 Tripura 8,85,503 552 8,84,951 0.1 99.9
tial exists therein. The situation in the 24 Uttarakhand 35,12,678 0 35,12,678 0 100
North Eastern states has been exceptional. 25 Uttar Pradesh 19,13,577 1,20,776 17,92,801 6 94
The 2023 MoTA report informs us that in 26 West Bengal 14,43,722 572 14,43,150 0 100
Arunachal Pradesh, Manipur, Meghalaya, Total 8,56,05,942 1,30,34,016 7,25,71,926 15.22 84.78
Mizoram, and Nagaland, most of the NA means Not Available.
Source: Authors’ compilation from CFR-LA (2017) and MoTA (2023).
lands are ancestral lands owned by the
tribes. Hence, separate CFR titles have not and verification of claims by the con- The government should not have put the
been accorded. However, some beginning cerned gram sabhas. It is stated that onus on the gram sabhas. Rather, it should
is made in Tripura where 101 CFRs have (i) The Gram Sabhas shall: (a) call for claims
have suo motu carried out the task of re-
been granted by 30 June 2023, covering and authorize the Forest Rights Commit- moving the tenurial insecurity in granting
a total area of 552.40 acres (average 5.2 tee to accept the claims in the Form as pro- the rights from its own record (which is
acres which is quite insignificant). About vided in Annexure-I of these rules and such now considered as the evidence for the
claims shall be made within a period of
Sikkim, it is reported that claims). That alone would have imparted
three months from the date of such calling
There are no forest-dwelling STs and Other of claims along with at least two of the evi-
true justice. If the gram sabhas are the
Traditional Forest Dwellers in the true sense dences mentioned in rule 13, shall be made ultimate empowered authorities (as per
of the terms. Most of the STs of Sikkim hold within a period of three months: Provided Section 5 of the FRA), then publishing a
revenue land in their own name and they are that the Gram Sabha may, if considered nec- list of such gram sabhas is imperative,
not solely dependent on the forest for their essary, extend such period of three months
for both granting the CFR s and perfor-
livelihoods. (MoTA 2023) after recording the reasons thereof in writ-
ing.1 (emphasis added)
mance monitoring.
This and the apathetic treatment by states
like Jharkhand, Uttarakhand, Odisha, It is apparent that this clause leaves con- In Conclusion
Uttar Pradesh, Madhya Pradesh, Tamil siderable uncertainty and ambiguity re- Because competing claims are being made
Nadu, and Karnataka, which have good garding the time taken in the process of on India’s forests by various interests like
forests and substantial forest-dwelling filing the claims. Following the raison mining, infrastructure, wildlife protection,
populations, is extremely unjust and d’etre behind the FRA, the authorities and so on, there is an urgent need to set-
lamentable. should not have expected the gram sabhas tle the community forest rights of the
to file the claims. If, as per Section 4 of the traditional forest dwellers. The efficacy
Ambiguity in Rules FRA, the government recognised and of the FRA in reducing the discontent in
The FRA Rules (made in 2008 and amend- vested the CFRs, then it should have pub- the tribal areas and enhancing livelihoods
ed in 2012) outlined in Section 11 describe lished the list of eligible gram sabhas and is proven beyond doubt. Not just the
the procedure for filing, determination, the potential CFR area in each jurisdiction. respective district administrations but
Economic & Political Weekly EPW DECember 16, 2023 vol lViii no 50 27
COMMENTARY
many civil society initiatives (social or-
ganisations, corporate social responsi-
bility funds, charities, academic institu-
tions) have been active in extending the
benefits of the FRA. There is an urgent need
that the task of recognising and settling
the rights be undertaken on a war-footing
and the full potential of the CFRs ought
to be realised. Local communities are the
best custodians of our forests and biodi-
versity. They could even become rightful
stakeholders in safe and sustainable
28
mining, forest-based industry, wildlife
protection, infrastructure development,
and earning of carbon credits. Fulfilling
the CFR potential is not only the ideal
way to redress the historic injustice
faced by forest dwellers but also to usher
in a process of inclusive development for
all. The MoTA should urgently publish
the list of potential CFR gram sabhas
(with calculated potential forest area)
on their website and develop a monitor-
ing system based on this list.
DECember 16, 2023
Note
1 See https://tribal.nic.in/downloads/FRA/FRA-
ActnRulesBook.pdf.
References
CFR-LA (2017): “Maharashtra: Promise and Perfor-
mance: Ten Years of the Forest Rights Act in In-
dia,” http://www.fra.org.in/document/Maha-
rashtra%20Promise%20and%20Performance.
pdf.
MoTA (2023): “Status Report on Implementation of
the Scheduled Tribes and Other Traditional
Forest Dwellers (Recognition of Forest Rights)
Act, 2006 [for the period ending 30.06.2023],”
https://tribal.nic.in/downloads/FRA/MPR/
2023/(D)%20MPR%20Jun%202023.pdf.
vol lViii no 50 EPW Economic & Political Weekly

The Tax State and the
Conundrums of Public Budgeting
Rajalaxmi Kamath
This article elaborates on two
broad trends that are shaping the
public budgets of nations: (i) the
tensions of globalisation and its
implications on the tax state; and
(ii) the process of financialisation.
It shows that these two lenses can
be employed to understand many
of the proposals in the current
Indian budget, and indeed even
future budgets. They foreshadow
the increasing status quoism and
incrementalism that has come to
mark public budgeting exercises
the world over.
All views in this article are of the author and
do not represent the views of any institution or
government.
Rajalaxmi Kamath (rajalaxmik@iimb.ac.in)
teaches at the Indian Institute of Management
Bangalore.
Economic & Political Weekly EPW DECember 16, 2023
N
ow that the dust has settled over
frenetic budget exercises, per-
haps it is time to ponder over
some larger questions relating to public
budgeting. To begin with, in times to
come what should we be expecting of a
country’s annual budgetary exercise?
How should we view it? For the future,
can we hope for any innovatory remod-
elling of the nation’s public finances? Or
will status-quoism and incrementalism
rule? In analysing these larger ques-
tions, we should remind ourselves that
for a nation, fiscal stress is a rule rather
than an exception. Unlike an individual,
a country cannot and need not aim for
fiscal plenitude. The key question then is
to figure out from where and how this
fiscal stress emanates, and what is being
done about it. For India, the answers to
both these questions have been chang-
ing historically. In tracing the answers
to these questions over time, we can get
a better sense of what to expect from fu-
ture budgetary exercises. In this article,
we restrict ourselves to the receipts side
of the budget, though the division be-
tween the two sides of the budget, re-
ceipts and expenditure, is artificial and
done more for purposes of expediency.
In answering these questions, we
want to foreground two broad trends,
which are shaping tax policies and tax
reform the world over, leading to a cer-
tain convergence in patterns of revenues
vol lViii no 50
COMMENTARY
raised. Indeed, several proposals in the
current and possibly even future budg-
ets can be understood using these two
lenses. We will go into the details of
what they imply both in terms of direct
and indirect tax revenues and other
sources of budgetary revenues. Two ca-
veats are in order. First, though these
lenses are grounded in accounts of the
future of the welfare state—they are
identified by the authors insofar as they
relate to the state budgetary processes
only. Second, these trends are global,
but we focus predominantly on the Indi-
an budgetary processes. To that extent,
we may not do justice to the multidisci-
plinary nuances present in extant schol-
arship regarding these lenses. Both
these lenses have to do, predictably,
with the stresses of globalisation.
The ‘Tax State’ and Tensions
of Globalisation
The “tax state” was a terminology coined
by Joseph Schumpeter (1918) in an older
work, “The Crisis of the Tax State,”1 to
point out a very basic but oft-missed
fact—that the genesis of a nation state
lies in its ability to levy and garner taxes.
They offer the state resources for spend-
ing without the concomitant quid pro
quo to the taxpayer. This is what makes
taxes such a favourite and versatile
source of revenue for the state. The erst-
while political economists, most specifi-
cally J S Mill, cut the Gordian’s knot of
legitimating tax collections of the state
by philosophically embedding it in the
ambit of the “ability to pay” principle
rather than the “benefits” principle. Tax-
es were a coercive function couched as a
sacrifice that defined the legitimacy of
the state. Its certainty was analogous to
21
COMMENTARY
death (the quote attributed to Benjamin
Franklin, written, not surprisingly, at
the time of the creation of the American
Constitution). Taxes define what the
state can and cannot do. In the words of
Edmund Burke, “the revenue of the state
is the state.” This logic spanned ideologi-
cal divides. Marx called taxes the state’s
“source of life,” therefore making the
lens of public revenue a key one in under-
standing the evolution of the state.
For Schumpeter, the transformation
from a feudal to a tax state began with
the rise of the market economy and a
shift in the property from public (or ma-
norial) to private hands. Taxation re-
placed public property income as the
main source of revenue for the state. In-
creasingly, individualistic liberal econo-
mies saw the tax state and the market as
two binary poles, each needing the oth-
er for their existence. Schumpeter with
his emphasis on innovation envisaged a
minimal state with capital formation as
the driving force behind its tax policies.
Vast changes have occurred since
Schumpeter’s coinage of this term.2 The
state today is not minimal. Budget sizes
in all states have increased partly to
meet infrastructure expansion, welfare
programmes, and military expenditure.
Meeting these expenditures in a setting
of international competition is not an
easy task. Modern taxes by their very de-
sign emerged amid closed national bor-
ders. Many of the crucial taxes we see
today, especially taxes like the personal
income tax, and the corporate tax, were
introduced roughly in the time in the
last couple of centuries when the idea of
the nation state reigned supreme. The
Bretton Woods Conference on which the
economic order of most of the post-war
world is based was very clear that de-
spite calling for an end to economic na-
tionalism, there was an explicate recog-
nition that countries ought to regulate
capital flows. This barricading of the mar-
ket for this fictitious commodity, money,
as per Polanyi, gave nation states tremen-
dous latitude in both raising and spend-
ing their own money. Tax policy was thus
an eminently national or a nationalistic
affair.3 This no longer is the case today.
The world has been on a liberalisation
drive for the past four decades, and this
22
has triggered important changes in the
tax state.
A key development has been the emer-
gence of the concept of national compet-
itiveness. Both the Economic Survey and
the budget elaborated in recent years on
the role of the government in creating a
good business environment to enhance
India’s competitiveness. The finance
minister’s budget speeches quote a sig-
nificant jump in India’s Ease of Doing
Business ranking. The fear that high
taxes will erode national competitive-
ness is palpable in all policymaking.
Along with liberalisation, the other cru-
cial development is the emergence of
off-shore capital markets and the rise of
transnational companies (TNCs). TNCs
are more tax-sensitive than their nation-
al counterparts. In terms of actual tax
proposals, this implies the following.
Direct taxes: One of the key advantages
of direct taxes like income taxes is that
the personal approach permits adaptation
to the ability to pay. This however is true
only for personal income taxes and is no
longer the case with respect to corporate
incomes today. Increasing competition
between nation states has given rise to
the following trends the world over.
Falling corporate income tax rates: In
fact, tax reforms the world over have
this common leitmotif. The 2019 budget
widened the lower 25% rate to include
all companies having annual turnover
up to `400 crore. This will cover 99.3%
of the companies. Only 0.7% of the com-
panies will remain outside this rate. This
would have an impact on tax revenues at
least in the short run; therefore, con-
comitantly, the budget proposed to en-
hance the surcharge on individuals hav-
ing taxable incomes from `2 crore to `5
crore and `5 crore and above so that ef-
fective tax rates for these two categories
will increase by around 3% and 7% re-
spectively. The tax on the super-rich is
justified on vertical equity grounds. This
brings us to a second trend:
Increasing distinction being made
bet ween labour income and an
“amorphous” capital income: Labour
and capital can be seen as two separate
DECember 16, 2023
bases; with external pressures attempt-
ing to reduce the tax burden on capital,
while internal pressures to maintain tax
revenue levels can often end up increas-
ing the tax on labour. This affords a
country to be internationally competi-
tive at a low fiscal cost. But there is a
price to be paid in terms of both efficien-
cy and equity. With respect to efficiency,
the problem with this trend, which can
be observed, is that if corporate income
is taxed at significantly lower rates than
the maximum marginal rate on personal
income, it creates strong incentives for rich
taxpayers to save tax by reclassifying
their personal income as corporate in-
come. This makes taxation difficult
wherever labour and capital income ac-
crue jointly, as in unincorporated busi-
nesses or privately held corporations.
The equity issue is that `1 of corporate
income is not liable to the same tax as `1
of personal income—jeopardising hori-
zontal equity. There can be ample justifi-
cation for this in terms of capital being
the mobile base, while labour is relative-
ly immobile, but it can be increasingly
difficult to sell this politically. The prob-
lem is compounded by the increasing
gap between capital and labour incomes,
where it becomes difficult to police the
borders between them. Therefore, some
countries tend to treat the corporate and
individual income tax as an integrated
bloc, with more or less the same lower
rate on both (the recent German tax re-
form brought both top personal income
and corporate income tax rates to the
same lower level). This has led to reve-
nue loss and jeopardised vertical equity.
Compounding this problem is the
fuzzy nature of capital incomes, includ-
ing not only profits, but capital gains, in-
terest incomes, dividends and even mo-
nopoly rents. Schumpeter was clear that
while wages, interest incomes and re-
turn to risk should not be taxed heavily
available at
Gyan Deep
Near Firayalal Chowk,
Ranchi 834 001, Jharkhand
Ph: 09470564686
vol lViii no 50 EPW Economic & Political Weekly

to harness capital formation, rents and
monopoly profits should. But today la-
bour income is comprised primarily of
wages and all the rest are constituted by
capital income. Thus, a major portion of
incomes that are taxed are being taxed
at low rates in purported obeisance to
international competitiveness.
Taxing Multinationals (MNCs)
and Catch Me If You Can
At present, with regard to MNCs, tax
treaties divide profits between the juris-
diction of residence and jurisdiction of
source (market) with residence jurisdic-
tions getting the lion’s share, while mar-
ket jurisdictions struggle especially in the
case of digital enterprises, as the nexus
rules for source countries require the
presence of a fixed place of business and
all residual taxing rights are granted to
resident jurisdictions. Since MNCs can
easily change residence by forming sub-
sidiaries in tax havens, they have an
easy option to avoid paying taxes on
their income.
In the Base Erosion and Profit Sharing
(BEPS) project of G-20 and OECD to ad-
dress MNC avoidance, some effort was
made to relook at the balance of taxing
rights between source and resident juris-
dictions, except in the case of digital en-
terprises (all giant ones included). The
digital economy taxation being handled
by the Task Force on Digital Economy re-
sulted in a 2014 report, wherein a con-
cession to carry out further work was
granted only after persistent pressure
from some countries including India.
The subsequent 2015 report included
three options (Chapter VII of Final Report
in Action 1 of BEPS Project): a source
nexus based on the significant economic
presence (SEP), a final withholding tax,
and an equalisation levy. The report
stopped short of recommending any of
them, but the compromise resulted in
the conclusion that countries wishing to
do so may include any of these three op-
tions in their laws/treaties. India fol-
lowed it up by introducing an equalisa-
tion levy at 6% on digital advertisements
in 2016, and subsequently also amended
IT Law to introduce significant economic
presence as a nexus for taxing MNCs in
India. Since then, a number of countries
Economic & Political Weekly EPW DECember 16, 2023
have taken similar measures, usually re-
ferred to now as digital service tax
(DST). Efforts were also made to intro-
duce a tax based on gross revenue with-
in the EU, but could not succeed due to
lack of consensus. Subsequently, anoth-
er OECD-led exercise has been going on
for several years, wherein a number of
alternate measures have been suggested
under two pillars, to prevent and dis-
mantle DSTs, but are yet to be accepted
by global consensus.
The discussions during and after the
BEPS have, in some ways, also highlight-
ed the need to strengthen source-based
taxation as a means of addressing tax
avoidance, and the idea seems to be
gaining a lot of support in academic cir-
cles.4 Meanwhile, the United States (US)
has already imposed retrospective taxa-
tion for the last several years on the un-
taxed global income of MNC giants by
treating them as controlled foreign cor-
porations (CFC) of the US companies,5 and
also imposed strong measures in its do-
mestic laws to tax global intangible low
tax income (GILTI) and base erosion and
anti-abuse tax (BEAT).6 Similar attempts
by some other countries have not been
that successful. In the meanwhile, the
consensus on source-based taxation is
likely to remain elusive.
To summarise, the downside of these
three trends with respect to direct taxes
is that the tax state is left with very little
room to manoeuvre. The increasing ten-
dency of status-quoism in annual budg-
ets should be seen from this perspective.
This is seen Figure 1 showing the direct
Figure 1: Trend of Tax Receipts as % of GDP
12
10.4 10.1 10.6
10.2 10
10
8
5.6 5.6 5.6 5.5 5.4
6 5.1
5.2
4 4.5 4.8
4.4 4.4
2
0
2011‒12
2012‒13
2013‒14
2014‒15
2015‒16
Gross Taxreceipts
Gross tax Receipts
Direct and indirect tax percentages 2018–22 are an approximation of Corporate + Personal (for direct) and GST + Excise +
Customs (for indirect).
Source: Economic Survey, Vol II, various issues.
vol lViii no 50
COMMENTARY
tax/GDP ratio that has stagnated to-
wards the end.
The revenue losses due to these direct
tax trends have to be compensated for,
either by (i) increasing the indirect tax
base/rates and/or (ii) increasing non-tax
revenues and/or (iii) borrowings and/or
(iv) spending cuts, if everything else fails,
which includes proposals to widen the
tax net. Incidentally, the interchange-
ability of Aadhaar and PAN should be
also seen from the standpoint of widen-
ing the tax net. The move towards hav-
ing more “cesses” should be seen as an
indirect way of hiking tax rates. Cesses
also have the advantage of catering to
the benefits principle, thereby buying in
greater legitimacy. The Figure 2 (p 24)
shows the growing share of non-tax rev-
enues in public receipts before the onset
of the COVID-19 pandemic.
Indirect Taxes
Classic public finance theory tells us that
as a country develops, the mix between
direct and indirect taxes is likely to fa-
vour the former. Incomes are rising, and
literacy levels needed to maintain books
of accounts are higher. Indirect taxes on
goods and services are by nature regres-
sive and their share in the tax basket
will reduce. However, international com-
petitiveness is turning this logic on its
head. Indirect taxes are now being seen
as “globalisation-proof.” The indirect tax
reform through the goods and services
tax (GST) also needs to be seen in this
context. It can be seen from Figure 1,
which gives the direct–indirect tax mix
11 10 10.2
11.4
11.2 11.2
5.9 6
5.6 5.5
5
5.6 5.3 4.9 4.7
4.9
4.6
2016‒17
2017‒18
2018‒19
2019‒20
2020‒21
2021‒22
Directtax
Direct Tax Indirect Tax
Indirect tax
23
COMMENTARY
Figure 2: Net Receipts of the Centre
25
20
15
0.51
0.42
10 0.41 1.98
0.37 1.99
1.37
1.22
5 9.44
8.16 9.04
6.3
7.42
0
2011‒12 2012‒13 2013‒14 2014‒15
NetTax
Net taxRevenue
revenue
Source: Economic Survey, Vol II, various issues.
for India. We shall not go into the raison
d’être of GST here. It would suffice to say
that levying GST in India should not be
compared to levying it in smaller states.
The problem of implementing the GST in
India would be akin to levying a value
added tax (VAT) in the whole of the
European Union. Taxes like GST, despite
being regressive, have turned out to be
important tools in the tax arsenals of
countries because they spread their net
far, guaranteeing a wide and growing
tax base. In the case of the Indian GST
experiment, we shall restrict ourselves
to discussing the issue of composition levy
to underscore the challenges of making
the GST a truly “one nation, one market”
tax. The composition levy scheme was
an issue contentiously debated in the
GST council meetings because by design
GST favours scale, formalisation and ver-
tical integration. The composition levy
was aimed at benefiting the small trad-
ers in the unorganised/informal sector.
Implementation of the composition
levy scheme in the GST and its unin-
tended consequence on the informal
sector: To be designed as a “seamless”
tax, the GST has to cast a wide tax net. At
the same time, a differential impact vis-
à-vis the big/medium firms and the
small/micro firms especially in a largely
informal economy like India’s cannot be
lost sight of. Such small, micro and in-
formal units with a turnover of up to `75
lakh (`5 lakh in some states) are covered
by the composition levy. This scheme al-
lows them to pay GST at a fixed rate of
24
0.69 0.58
1.13
1.16
2.08
0.65
2.36
3.27
0.63 1.93
2.73
2.51
14.26
13.17 13.57
12.42
11.01
2015‒16 2016‒17 2017‒18 2018‒19 2019‒20 2020‒21
Non Tax Revenue
Non-tax revenue Non Debt Capital
Non-debt Reciepts
capital receipts
turnover. By the provisions in the act,
those who opt for composition levy cannot
make any sale of goods or services to
other states, restricting their business
activities to a small territory, that is,
within the state. It will still be a burden
for them to maintain books of accounts
and will cost them to maintain account-
ants and staff. They will not be given an
input tax credit. They are restricted
from the supply of exempted goods and
cannot make business through the e-
commerce platform as they are not eligi-
ble to deduct TCS (tax collected at source).
Thus, once bits and pieces of the econo-
my start getting exempted, the seamless
tax chain across the entire value addi-
tion chain envisioned by the GST falls
through, retaining the complexity.
More importantly, the key assumption
being made under this provision is that
so long as firms are small and informal,
they can take advantage of the composi-
tion levy scheme, but as they expand
they get into the formal GST tax-rate
structure. The problem with this as-
sumption is that with the geographical
curtailment of their businesses, this as-
sumption of growth seems unable to
hold its ground. Apart from pursuing a
policy to allow interstate transactions to
composition levy business firms by
amending the law, the only other policy
option before the government relating
to the broader MSME (micro, small and
medium enterprises) sector is of credit
access and other specific problems relat-
ed to this sector. Therefore, the tax and
credit sops given to the MSME in the
DECember 16, 2023
current budget sector should be seen
from this perspective.
0.39
Non-tax Receipts
3.48
In view of the factors elaborated above
with respect to the growth of tax reve-
nues (both direct and indirect), and the
fear that high taxes will undermine na-
tional competitiveness, it becomes high-
18.2
ly probable that the forthcoming budg-
ets will see an increasing reliance on
non-tax revenues, disinvestments, divi-
dends (the controversial Reserve Bank
2021‒22 of India surpluses), greater access to
small savings via pension funds (its tar-
geting to informal sector workers, for
example) and borrowings of various
hues (including dollar-denominated bor-
rowings). This explains the unprecedent-
ed target of `1,05,000 crore of disinvest-
ment receipts for the financial year
2019–20, which has come down in sub-
sequent years, partly due to difficulties
in its realisation. The government may
still opt for the strategic sale of PSUs.
And lastly, there has been an overall eas-
ing of FDI norms.
We now come to the second lens, also
related to globalisation, to understand
the trends in public revenues.
Blurring of Production, Trade and
Finance with Financialisation
It is high time India not only gets integrat-
ed into global value chain of production of
goods and services, but also become part of
the global financial system to mobilise glob-
al savings, mostly institutionalised in pen-
sion, insurance and sovereign wealth funds.
—From the transcript of the Speech of the
Finance Minister, Budget 2019–20.
Since the early 2000s, scholars of
many of the advanced economies have
pointed to “how an increasingly autono-
mous realm of global finance has altered
the underlying logics of the industrial
economy …”7 Financialisation, as it has
been called, is seen as (i) a regime of ac-
cumulation where profits occur primari-
ly through finance and not through
trade and production, even for the non-
financial firms; (ii) increased primacy of
shareholder value in running businesses;
and (iii) encroachment of finance in the
everyday lives of people where each one
is supposed to become an “investing”
vol lViii no 50 EPW Economic & Political Weekly

subject. A lot of work coming from the
global North points out to the concomi-
tant retreat of the welfare state and its
complicit role in the financialisation pro-
cess. How does this pan out to the global
South and states like India, deserve at-
tention. The process of financialisation
and proliferation of the mass investment
culture in the West will have the intend-
ed consequences of the greater potential
supply of international capital of various
hues⸺the pension funds, insurance
funds, wealth funds, mortgage funds
and the rest. There has been talk of
Global Investors Meet using the National
Infrastructure Investment Fund (NIIF)
as the anchor to get these global finan-
cial players together. External borrow-
ings by the country are not a new phe-
nomenon, but what is changing is the
rendition of that story. The emphasis on
the quality of this funding is being
glossed over. Portfolio capital, specula-
tive capital—angel funding, vulture
funding—all seem to be getting brack-
eted together as global finance.
FDI norms in sectors like aviation, me-
dia, insurance and single brand retail
have been eased to absorb these poten-
tial financial flows. There is a slow but
steady percolation of this trend of finan-
cialisation of pension funds in India for
the informal sector, new financial in-
struments like infrastructure investment
trusts and real estate investment trusts.
The notion of start-ups (as being differ-
ent from “business”) and the emphasis
on start-up valuations reflect the spread
of the culture of financialisation even in
developing economies.
Data, digitisation and financialisa-
tion: Surprisingly, one aspect of finan-
cialisation that has received scant atten-
tion from its scholars is the growing ac-
cent on digitisation. The link between
digitisation, creation of data and finan-
cialisation is fairly direct. If you can
quantify something, you can put a value
to it. Therefore, it is not surprising to
see the annual budget speeches men-
tion processes like payment systems
and pay ment cards that may have been
considered mundane earlier. Cash, in
that sense, is the analogue version of
transactions, which will be discouraged,
Economic & Political Weekly EPW DECember 16, 2023
and, in that regard, India seems to have
taken the lead.
To summarise, the trend of financiali-
sation in the global North has made the
global South a “receptacle” of this pro-
cess. Not to speak of there being a mi-
metic effect of this phenomenon even in
the developing economies of the global
South. This has repercussions not only
with regard to private investments but
also with regard to budgetary decisions
as has been illustrated above.
In Conclusion
It is not terribly surprising that status quo
and/or incremental, marginal changes will
be the feature of public budgets. Whether
it is even appropriate to ask for innovation
and change in national budgets today
when stasis and incrementalism are the
norms the world over is the moot ques-
tion. Given the two predominant global
trends of national competitiveness and fi-
nancialisation, nation states are finding
themselves increasingly hemmed with
regard to raising conventional public re-
sources through taxes, especially direct
taxes. They are therefore forced to rely on
indirect taxation that is considered to be
globalisation-proof, or on borrowings of
several hues. Global funds are on the
lookout for public investments in the deve-
loping economies to diversify their risks,
adding to the allure of such borrowings.
vol lViii no 50
COMMENTARY
To conclude, a true budgetary innova-
tion would require an integral view of
the budget, both the revenue and ex-
penditure sides of it. Unfortunately, even
the public finance theory often ends up
treating the two as dichotomous. How
can public expenditures be harnessed to
increase public revenues is not an easy
question to answer, but perhaps, it may
be the only question worth asking in
these tumultuous times.
Notes
1 Older to his magnum opus, Capitalism, Social-
ism and Democracy (1942), the study appeared
a year before his appointment as the finance
minister in the newly formed coalition govern-
ment of the Austrian Republic.
2 An excellent review of Schumpeter’s arc on his
writings on public finances is given in Mus-
grave (1992).
3 Genschel (2005).
4 https://econfip.org/policy-brief/taxing-multi-
national-corporations-in-the-21st-century/#,
viewed on 15 August 2019.
5 Internal Revenue code 965 introduced by the
Tax Cut and Job Applications Act (TCJA), 2017
imposed a tax of 8% to 15.5% on earnings of
controlled foreign corporations from 1985 to
2017 by deeming their mandatory repatriation.
6 Both these measures were introduced by the
TCJA (2017).
7 Van der Zwan (2014).
References
Genschel, P (2005): “Globalization and the Trans-
formation of the Tax State” (TranState Work-
ing Papers, 10), Bremen: SFB, 597.
Musgrave, R A (1992): “Schumpeter’s Crisis of the Tax
State: An Essay in Fiscal Sociology,” Journal of
Evolutionary Economics, Vol 2, No 2, pp 89–113.
Van der Zwan N (2014): “Making Sense of Finan-
cialization,” Socio-economic Review, Vol 12,
No 1, pp 99–129.
25
PERSPECTIVES
Socio-economic Correlates of
Early Marriage of the Girl Child
Empirical Evidence from India
Manoj Kumar Agarwal, D K Ojha, Sunanda Mishra
The study focuses on the early
marriage of the girl child in
India using the fifth round of the
National Family Health Survey.
There are only nine states where
maximum cases of a woman
being married off as a child are
reported, with West Bengal and
Bihar taking the lead. Using
multivariate logistic regression,
it is found that the cases of early
marriage of the girl child are
more prevalent among women
having a lower level of education
and belonging to the poorest
wealth quintile.
Manoj Kumar Agarwal (mk.agarwal.lu@gmail.
com) is director, Population Research
Centre, Department of Economics, University
of Lucknow. D K Ojha is deputy director
general (E & S), Ministry of Petroleum &
Natural Gas, Government of India.
Sunanda Mishra (sunnda1507@gmail.com)
is research investigator, Population
Research Centre, Department of Economics,
University of Lucknow.
38
T
he United Nations Sustainable
Development Goal 5 seeks to
end all kinds of discrimination
against women and girls, including
child, early, and forced marriage. There-
by, it is important to address this issue in
the present scenario so as to attain the
set target. Early marriage synonymously
referred to as child marriage as defined
by the United Nations Children’s Fund
(UNICEF 2020) is the formal or informal
unison of an individual before the age of
18. This practice undoubtedly impacts
both sexes, but girls are more likely to
face the negative repercussions of early
marriage (Lebni et al 2020). Recognising
that the burden of early marriage falls
disproportionately on girls, the United
Nations Population Fund defines child
marriage as any union formed prior to
the girl being physically, biologically, and
psychologically prepared to handle the
responsibilities of marriage and parent-
hood, which is often before the girl is 18
years old (Kyari and Ayodele 2014). It is
reported that every year close to 12 mil-
lion girls are married before attaining
the age of 18 years (Paul et al 2019). To
provide further context, statistics show
that one in three girls in developing na-
tions marry before the age of 18 and one
in five girls marry before the age of 15
(Efevbera et al 2020). Furthermore, it
has been demonstrated in many instanc-
es that the young girl is likely to be mar-
ried to a mature man who is more than
twice her age (Kyari and Ayodele 2014).
The motivation behind picking a pro-
spective groom is not age but rather so-
cial, religious, and financial factors, ac-
cording to a report on early childhood
marriage, which outlines the justifica-
tion of this practice (Adedokun et al
2012). This is supported by research
december 16, 2023
findings documenting that spouses are
typically 12 years older in monogamous
unions, 15−20 years older in polygamous
unions, and maybe several decades older
in certain rare situations (Kyari and
Ayodele 2014). However, in the past
30 years, there has been a decline in the
practice of girl child marriage under the
age of 15, but as indicated by a large
number of child marriage cases under
the age of 18, this practice is still com-
mon in South Asian countries (Raj et al
2018) as 30% of girls growing up in
South Asia experience early marriage as
compared with 25% in Latin America
(UNICEF 2020). In the absence of any
measures being taken, more than 150
million additional girls will have to
become child brides by 2030 before they
attain 18 years of age (UNICEF 2019).
Now if we see this issue in the Indian
context, then the problem is a complex
one owing to the difficulty in tracing the
origin of child marriage in the ancient
period (Gopal and Paul 2008). Minor girls’
marriages in India are usually arranged
by their parents, local authorities, or
extended family members, sometimes
with their consent and sometimes with-
out (Raj 2010). The National Family
Health Survey (NFHS)-5 findings reveal
that every fourth woman surveyed be-
tween the age group of 20−24 in India is
married before she turned 18. According
to a review of the research, the three
main factors influencing the marriage of
girls are the households’ high levels of
poverty, engrained cultural beliefs, and
the assumption that marriage provides
protection (Nour 2009; Mehra et al 2018).
It is reported that girls from poor house-
holds are twice as likely to be married
off as compared to girls from wealthier
households (Lloyd and Mahmood 2004)
owing to the fact that poor households
have fewer opportunities and resources
to invest in alternative options, especially
for their girl child (Parsons et al 2015).
Other than this, the marginalised house-
holds are generally victims of being in-
fluenced by their own conventional no-
tions, wherein they believe that once the
boy starts earning, the family would want
more dowry, so they marry their daughters
vol lViii no 50 EPW Economic & Political Weekly

when they are young (Randhir and
Neha 2019). In addition, there have been
occasions when girls were married off
while they were still very young because
of a deeply held cultural idea that daugh-
ters could endure harassment; and as a
result, girls may be married off early re-
gardless of their age (Singh 2022).
Poor health outcomes (Mehra et al
2018), lack of decision-making power,
impact on mental health (Raj et al 2019),
violation of child rights (Basha 2016)
and decreased opportunities for educa-
tion (Randhir and Neha 2019; Raj et al
2019) are some of the consequences of
early marriage of the girl child. Studies
have found that early marriage jeopard-
ises girls’ opportunity to attend school
after marriage, exposing them to so-
cial and health consequences (Delprato
et al 2015). In a survey of young mothers
aged 15 to 24, it was observed that more
than 60% had only an elementary edu-
cation (Adedokun et al 2012). In terms of
negative health repercussions, women
who marry at a young age have more
children to nurture at young age and
have larger families overall than women
who marry later. Young women give
birth to a greater number of children
owing to the lack of awareness regarding
contraception and other maternal health
services (UNICEF 2019; Ahmed et al 2013).
The mortality rate among married females
between the ages of 15 and 19 is double
that of girls who marry after the age of
20, owing to unwanted and repeated
pregnancies at a young age (Ahmed et al
2013). This becomes one of the
most significant drivers of population
growth, rising healthcare expenses, and
squandered opportunities for human
advancement (Kyari and Ayodele 2014).
Talking about mental health, girls who
marry before the age of 15 are 50%
more likely to suffer from intimate
partner violence as compared to those
who marry later (WHO 2018). Addition-
ally, studies have found that females
who get married before the age of 18
mostly become a victim of psychologi-
cal illnesses like depression and anxiety,
and evidence suggests that they are
also more likely to be dependent on
alcohol, drugs, and nicotine (Marphatia
et al 2022).
Economic & Political Weekly EPW december 16, 2023
Based on this background, it can
be stated that the implication of early
marriage of the girl child is more severe
in the Indian context, as despite the
decline in the number of child marriage
cases in all states, the pace of change
is gradual (Goli et al 2015). Although
the detrimental effects of child mar-
riage have received significant atten-
tion in a number of earlier studies (Paul
2020), only a few have concentrated
specifically on the socio-economic im-
pact. Thus, in this article, we attempt to
investigate the socio-economic co-vari-
ants leading to the early marriage of
the girl child across India using a
nationally representative cross-section
sample survey data.
Methods
Data Source
The present article is primarily based on
the data of the fifth round of the NFHS
conducted during 2019−21. The NFHS-5
is a nationally representative large-scale
sample survey giving cross-sectional
estimates of 6,36,699 households, 7,24,115
women aged 15−49 years and 1,01,836
men aged 15−54 years. NFHS-5 is vital
in providing recent estimates pertaining
to population, health and demographic
indicators. In the present study, the
sample is confined to women married
before the age of 18 in India. The total
sample size of such women in the survey
is 25,964.
Outcome Variable
The female marriage age is the outcome
variable in our study, which is dichoto-
mous in nature, which is coded as 0 if
the female marries after the age of 18
and 1 if the female marries before the
age of 18.
Predictor Variable
In this study, the major predictor factors
are socio-economic correlates. Using the
determinants, we have attempted to
establish an association between the
early marriage of a girl child and the
socio-economic characteristics that led
to the practice of early marriage. Ac-
cording to the existing literature, the
socio-economic, demographic, and other
vol lViii no 50
PERSPECTIVES
confounding variables considered in
the study include place of residence,
religion of the female’s household, caste,
education, wealth quintile, and children
ever born (Paul et al 2019; Raj 2010; Roy
and Chouhan 2021).
Statistical Analysis
Simple cross-tabulation and binary lo-
gistic regression are used to perform an
analysis of the data. To determine the
prevalence of child marriage, the age of
the female at the time of first marriage
is considered which is cross-sectionally
presented using the socio-economic
background of the women. All the statis-
tical analysis was done, using STATA
version 16 (Stata Corp LLC College Station,
TX, US). The binary logistic regression
model used for the analysis is expressed
in the following form:
Log [P/1-P] = β0 + β1X1+ β2X2+ β3X3
+ β4X 4+ β5X5+ β6X6+ ui
where P = probability of female getting
married before attaining 18 years of
age (coded as “0”), 1-P = probability of
female getting married after 18 years
(coded as “1”); X1 = place of residence
(1 = Urban, 2 = Rural); X2 = Religion
(1 = Hindu, 2 = Muslim, 3 = Christian,
4 = Sikh, 5=Others); X3=Caste (1=Sched-
uled Caste, 2=Scheduled Tribe, 3=Other
Backward Class, 4 = Forward Class);
X4 =Educational Attainment (1=Illiterate,
2= Primary, 3 = Secondary, 4 = Higher);
X5=Wealth Quintile (1=Poorest, 2=Poorer,
3 = Middle, 4 = Richest); X6 = Children
ever born (1 = more than 3, 2 = more
than 2); β0 is the intercept term and ui
represents the unknown coefficients. The
results of the binary logistic regression
model are presented using the adjusted
odds ratio at 95% level of significance.
The application of sample weight has
also been taken into consideration.
Furthermore, p-values are used to
denote the level of significance.
Results
Prevalence of child marriage by states
and mean age of marriage of women:
A statewise distribution of early marriage
of the girl child shows that in a majority
of states, the proportion of females being
39
PERSPECTIVES
Figure 1: Prevalence of Child Marriage across States in India, NFHS-5 (2019−22) Figure 4: Mean Age of Marriage of Women
18.6 18.5
18.4

54.4
51.4
51.1
60 18.2

46.8
18.1

45.9
44.1
43.7
18.0
50

39.4
38.9
38.2
37.8
37.3
36.9
36.9
36.8
36.7
35.6
35.3
17.8

33.3
31.0
40

29.0
17.6

26.9
17.5

26.2
26.1
25.2
24.0
23.1
17.4
21.6
21.1

30
20.5
20.3
20.0
18.6

17.2
12.7
12.7

20 17.0
Focused States India Non-focused States
4.4

10 Source: Authors calculation using National Family Health

Survey, 2019−22.
0
Chhattisgarh

Maharashtra

Rajasthan
Nagaland

Nct of Delhi

Odisha

Assam

Bihar
Lakshadweep

Puducherry

Punjab

India
Kerala

Mizoram

Gujarat

Manipur

Dadra & Nagar Haveli

Andaman & Nicobar Isl
girl child marriage is between 35%−50%
followed by 11 other states having a
prevalence rate of girl child marriage
of less than 25%.
According to our findings, the mean
age at which a girl child is married in
Source: Authors’ calculation using National Family Health Survey, 2019−22.
India is 18.1 years, which is the same as
Figure 2: Prevalence of Child Marriage in Focused have the lowest proportion of females the age at which women can legally be
and Non-focused States, NFHS-5 (2019−22) being married before 18 years (12.7%), married. When it comes to the focused
120
18 years and above Less than 18 years followed by Uttarakhand (20.3%) and states’ category, the average age of mar-
100
Punjab (20.5%). riage was found to be 17.5, with West
38.2 31.0
80 46.5 Our findings defy the widely held Bengal and Tripura having the lowest
60 belief of the north−south divide in India mean age of marriage in the category of
40
68.9
as it is observed that the practice of child focused states. In the category of non-
61.8
20
53.4
marriage is prevalent throughout the focused major states, Jammu and Kashmir
0
country regardless of the social differ- and Himanchal Pradesh have turned
India Non-focused States Focused States
ences. For instance, we find West Bengal out to be better performing states with a
Source: Authors’ calculation using National Family Health
Survey, 2019−22. to be a state which reports the highest mean age of marriage around 19.6 and
number of child marriage 19.5, respectively (Figure 4).
Figure 3: Statewise Pattern of Child Marriage in India,
NFHS-5 (2019−22) cases despite not being a poor
performer on other metrics of Prevalence of child marriage by socio-
gender development. On the economic and demographic character-
contrary, states like Uttar istics of women: As already discussed,
Pradesh and Chhattisgarh have in India, 38.2% of women are married
reported a lesser number of aged less than 18 years. However, the
cases of early marriage of the prevalence of early marriage of the
girl child even though they girl child is significantly higher among
perform poorly on gender- women residing in rural areas (40.3%)
based parameters. Overall, we as compared to their urban counterparts
find that there are nine states (31.1%). If we consider the scenario in
where the incidence of early the context of focused states, a similar
marriage of the girl child is pattern is observed across a region-wise
more prevalent. These states sample where 47.7% females are mar-
are considered focused states ried before turning 18 in rural areas and
Child Marriage (No of State) in our study (Figure 2). 39.2% females less than 18 years are
Less than 25% (n = 11)
25%–35% (n = 8) Figure 3 illustrates the married in urban areas. In the focused
35%–50% (n = 14)
More than 50% (n = 3) prevalence of child marriage state category, the practice of early mar-
across states, where we find riage of the girl child is common among
The map is only for representational purposes and does not, in any way,
represent national boundaries. Source: Authors’ calculation using National
that Bihar, West Bengal and Muslim and illiterate women belonging
Family Health Survey, 2019−22. Tripura are the three states to the poorest wealth quintile.
married before attaining legal age is less where the prevalence of child marriage Regarding caste group, the rate of
than the proportion of girl child marriage is more than 50%, prompting suitable early marriage of the girl child is high-
in India, of 38.2% (Figure 1). Among the action. Further, a majority of states are est among women belonging to the
major states, Himachal Pradesh and Kerala such (n = 14) where the prevalence of Schedules Caste wherein nearly half of
40 december 16, 2023 vol lViii no 50 EPW Economic & Political Weekly
 PERSPECTIVES

the women are married off as children wise distribution of the prevalence of attainment, 62.2% women married off
(50.1%), followed by women belonging girl child marriage is found to be 52.9% as children are illiterate, while only
to other Backward Class category (46.3%). and 47.7% among Muslims and Hindus, 17.7% women married during their
In the focused state category, a religion- respectively. Concerning educational childhood have a higher educational at-
Table 1: Prevalence of Child Marriage by Socio-economic Characteristics tainment. In terms of wealth quintile,
of Women in India, NFHS-5 (2019−22) women belonging to the poorest
Focused States p-value India p-value (58.9%), poorer (53.5%) and middle
(n= 44,858) (n=69,196)
Residence 0.00 0.00
(44.5%) wealth quintiles have a sub-
Urban 39.2 31.1 stantially higher prevalence of child
Rural 47.7 40.3 marriage as compared to women be-
Religion 0.00 0.00
longing to richer (33.2%) and richest
Hindu 47.7 37.8
Muslim 52.9 41.5 (24.4%) wealth quintiles. Regarding the
Christian 36.7 32.3 children ever born, in the focused
Sikh 26.6 18.9
states’ category, the women married
Others 39.7 34.8
Caste 0.00 0.00 before attaining legal age have more
Scheduled Caste 50.1 40.6 than three children ever born in 89.9%
Scheduled Tribe 41.6 40.4 of cases, whereas the sample reporting
Other Backward Class 46.3 36.2
Forward Caste 41.9 34.7 more than two children ever born is
Educational attainment 0.00 0.00 44.8% (Table 1).
Illiterate 62.2 55.0
Primary 60.1 51.7 Socio-economic Correlates of
Secondary 48.5 39.2
Higher 17.7 11.3 Early Marriage of the Girl Child
Wealth quintile 0.00 0.00 Multivariate logistic regression analysis
Poorest 58.9 52.4
reveals that the place of residence has
Poorer 53.5 45.1
Middle 44.5 37.0 no significant impact upon the adoption
Richer 33.2 28.5 of the practice of early marriage of girl
Richest 24.4 17.9
child in focused states (Table 2). Com-
Children ever born 0.00 0.00
More than 3 89.9 85.6 pared to Hindu women, the odds of a
More than 2 44.8 34.7 female being married as a child are lower
p-values are derived using Pearson’s chi-squared tests.
Source: Authors’ calculation using National Family Health Survey, 2019−22.
among women practising Sikh religion
(OR = 0.43; 95% CI: 0.22–0.82; p = 0.00).
Table 2: Socio-economic Correlates of Early Marriage of the Girl Child
The likelihood of women being married
Focused States p-value India p-value
Place of residence
before 18 years in the Schedule Tribe
Urban ® category (OR = 0.72; 95% CI: 0.66–0.79;
Rural 0.94 0.18 0.91*** 0.00 p = 0.00) is less than women belonging
Religion
to Schedule Caste.
Hindu ®
Muslim 1.01 0.78 0.85*** 0.00 Females being married as a child is
Christian 0.89 0.14 0.82*** 0.00 inversely proportional to their educa-
Sikh 0.43** 0.01 0.55*** 0.00 tional attainment, as with the increase
Others 0.87 0.14 1.05 0.49
Caste in educational level, the likelihood of
Scheduled Caste ® early marriage of the girl child decreases.
Scheduled Tribe 0.72*** 0.00 0.84*** 0.00 Odds ratio pertaining to educational
Other Backward Class 0.98 0.50 1.07*** 0.00
Forward Caste 0.88 0.01 1.03 0.29
attainment show that women with
Educational attainment primary (OR = 0.91; 95% CI: 0.82–1.01;
Illiterate® p = 0.07), secondary (OR = 0.70; 95%
Primary 0.91* 0.07 0.95 0.10
Secondary 0.70*** 0.00 0.66*** 0.00
CI: 0.64–0.75; p = 0.00) and higher edu-
Higher 0.24*** 0.00 0.19*** 0.00 cation (OR = 0.24; 95% CI: 0.21–0.27;
Wealth quintile p = 0.00) are less likely to get married
Poorest ®
as children in comparison to illiterate
Poorer 0.89*** 0.00 0.85*** 0.00
Middle 0.76*** 0.00 0.71*** 0.00 women. In the wealth quintile category,
Richer 0.56*** 0.00 0.54*** 0.00 the likelihood of early marriage of the girl
Richest 0.43*** 0.00 0.38*** 0.00 child decreases with the increase in
Children ever born
More than 3 ® wealth status. Women belonging to the
More than 2 0.11*** 0.00 0.12*** 0.00 richest (OR = 0.43; 95% CI: 0.37–0.51;
p-values are derived using Pearson’s chi-squared tests.
®- Reference category.
p = 0.00) and richer wealth quintiles
Source: Authors’ calculation using National Family Health Survey, 2019−22. (OR = 0.56; 95% CI: 0.50–0.62; p = 0.00)
Economic & Political Weekly EPW december 16, 2023 vol lViii no 50 41
PERSPECTIVES
are less likely to get married early as
compared to women belonging to the
poorest wealth quintile.
Discussion
The neglect of child brides in India is a
direct manifestation of our collective
failure to defend young brides’ human
rights; their stifled voices push them into
marriage before the age of 18, which
forms the basis for further prejudice and
complacency against them (Thomas
2007). Women who are married as
children impede their decision-making
power in the marital household, and
alongside, they are more likely to drop
out of school, which increases the illiter-
acy rate among them (Parsons et al
2015). Our study attempts to make a
comprehensive analytical assessment
of the socio-economic factors that con-
tribute to the early marriage of the girl
child. Previous studies have attempted
to assess the socio-economic correlates
of child marriage (Roy and Chauhan
2021; Asna-ashary et al 2020; Efevbera
et al 2019; Modak 2019), however, there
is a paucity of literature that investigates
the socio-economic correlates in the
context of early marriage, particularly of
the girl child.
Our study finds that in the majority of
states in India, the percentage of women
being married off as children is less than
the national average. There are only
nine states (focused states) that have a
percentage of the proportion of girls
being married before 18 years above the
national average. The implementation
of the Prohibition of Child Marriage Act,
2006, which declares marriage of an in-
dividual under the age of 18 to be a penal
offence, has resulted in a decrease in the
number of occurrences of female child
marriage over the years. Studies report
that laws that prohibit the marriage age
of girls can influence public attitudes
and political debates (Arthur et al 2018).
Socio-economic correlates such as
place of residence, religion, caste, and
educational achievement are key deter-
minants influencing female child mar-
riage (Modak 2019). According to the
socio-demographic data in the current
study, the prevalence of early marriage
of a girl child is higher in rural areas
42
than in urban areas; however, this is
refuted by our statistical analysis, which
finds no significant association between
place of residence and early marriage of
a girl child. Our findings contradict the
conclusions of Indonesian research, which
found that a young female’s place of resi-
dence is a substantial predictor of early
marriage (Marshan et al 2010).
The article also concludes that the
prevalence of early marriage of the girl
child is significantly associated with the
Schedule Tribes. This finding is consist-
ent with a study conducted in selected
Indian states which finds that the prob-
ability of child marriage of daughters
is 6.7 percentage point higher in Sched-
uled Tribe families as compared to
another caste category (Mishra and
Banerjee 2020). In this study, we found
that educational attainment is a major
predictor of young female marriage. A
significant inverse relationship between
educational attainment and young girl
marriage is established. Women with
lower levels of education had a higher
likelihood of getting married than
women with higher levels of education.
These findings are consistent with many
studies conducted in different settings
(Santhya 2010; Sandhu 2017; Envuladu
2016; Raj 2017). Early marriage prevents
girls from finishing their education. In
his study, Envuladu et al (2016) found
that 82.4% of married females were
forced to drop out of school since they
were married while being enrolled at
school. The findings of Raj et al (2017)
provide credence to this, establishing
that after marriage, the decisions relat-
ing to her education are no longer under
her control; rather, the decision-maker
in this scenario is the husband or in-
laws, who are frequently unsupportive
of her school attendance.
Our analysis highlights that women
belonging to the poorest wealth quintile
are at the highest risk of getting married
at an early age as compared to women
belonging to the richest and richer
wealth quintiles. A similar finding is
reported in studies conducted by Paul
(2020), and Roy and Chouhan (2021).
Marginalised families are of the opinion
that with the increase in the age of
brides, the demand for dowry also
december 16, 2023
increases. Poor households see the early
marriage of the girl child to be economi-
cally beneficial in the short run. However,
in the long run, it does not improve the
economic status as the young bride
misses out on her opportunity to work
and contribute economically. Marrying
women at an early stage leads to an
increase in the number of children ever
born as found in our study. These findings
are in line with the study conducted by
Pandya and Bhandari (2015) and Yaya
et al (2020). It is reported that women
who are married before 18 years of age
are eight times more likely to have more
than three children as compared to
women married above 18 years of age.
The study is not free from limitations
as the data used is self-reported and may
be subject to some bias. Furthermore,
we could not assess the relationship
between the number of children ever
born to a woman getting married before
18 years and the child and mothers’
nutritional status owing to our limitation
to explore only the socio-economic cor-
relates leading to child marriage. We
have only explored the socio-economic
status of the women while ignoring the
socio-economic status of the husband’s
family. It is assumed that the family
of the bride and groom share the same
socio-economic background. Despite its
shortcomings, the study might still be
beneficial for stakeholders and policy-
makers in their attempts to prevent
the early marriage of the girl child. The
results provide a firm foundation for the
Indian government’s proposal to raise
the marriageable age, particularly for
women, from 18 to 21 years. It can serve
as a significant measure to get them on
an equal footing with men.
Conclusions
According to the study’s findings, girls
in India are married on average when
they are 18.1 years old, which is exactly
the same as the legal age for women to
get married. Only nine states, which we
have referred to as focused states in our
study, record incidences of early mar-
riage of the female child, where she is
married before the age of 18 years. How-
ever, the majority of states in India
report a marriage age of above 18 years.
vol lViii no 50 EPW Economic & Political Weekly

The socio-economic correlates of females
being married during their childhood
reveal that there is a significant association
between a woman’s educational level and
the wealth quintile to which she belongs.
A higher level of education reduces a
woman’s likelihood of getting married
as a child. Raising the household’s eco-
nomic status can have a significant impact
on abandoning the idea of child mar-
riage since it is most frequently reported
among women in the lowest wealth
quintile. It is advised that policies be de-
veloped that are centred on women and
prioritise the stringent implementation
of laws that forbid the institution
of underage marriage, particularly of
females. In addition, governments should
pay more attention to rural and margin-
alised communities, where the majority
of female child marriages occur.
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BOOK REVIEW
How Law Shapes
the Reservation Policy
Ashwini Deshpande
T
he architecture of India’s reserva-
tion policy in education and jobs,
more than that of any other gov-
ernment policy, has been shaped by a
series of court judgments and constitu-
tional amendments, which have sequen-
tially determined the overarching rules
as well as the minutiae of its implemen-
tation. The actual execution of the
declared percentage of quotas—22.5%
for the Scheduled Castes and Scheduled
Tribes (SCs and STs), with the later addi-
tional 27% for the Other Backward
Classes (OBCs) and 10% for economically
weaker sections (EWS)—across a variety
of institutional settings is far more com-
plex than might appear at first sight. The
SC, ST, OBC (and now EWS) reservations
are “vertical” reservations that are mu-
tually exclusive. Additionally, there are
“horizontal” or interlocking reservations
that cut across these vertical categories:
reservations for women, individuals with
a disability, children of war widows, and
sportspersons, based on domicile. Working
out the implementation of the plethora
of categories is already extremely com-
plicated; the controversies surrounding
reservation further compound the chal-
lenges in its execution.
Demystifying Reservations
Abhinav Chandrachud’s eminently reada-
ble book takes us through the minutiae of
implementation rules in very useful ways
that lift the fog from a confusing web of
acronyms and categories. It demystifies
and clarifies reservation-related terminol-
ogy and processes for readers interested
in understanding and engaging with the
myriad nuances of India’s reservation policy.
In the process, it also asks critical pano-
ramic questions, such as: Which groups
deserve to be eligible? Should reservations
be group or class-based? What is “merit”?
How should seats be rationed among
“meritorious” candidates? What does ine-
quality of opportunity in India look like
36
These Seats Are Reserved: Caste, Quotas and
the Constitution of India by Abhinav Chandrachud,
New Delhi: Penguin Viking, 2023; pp xviii + 247, `599.
and how can reservations remedy it?
Should reservations be provided at the
entry level (for students, at the undergrad-
uate level, and for jobs, at the entry level),
or should seats be reserved at all levels?
And many more.
Answers to these tricky questions often
lead to conundrums and contradictions.
For instance, in the context of reserva-
tion in promotions, take this example. X
is from a reserved category and Y is not.
Y is senior to X in their current position.
X gets promoted to the next level due to
reservation in promotion and becomes
senior to Y. When Y gets promoted to the
same next level, will Y regain the origi-
nal seniority vis-à-vis x? Under the older
“catch-up rule,” the answer to this ques-
tion was yes, because of the understanding
that reservation in promotion would/
should not confer “consequential seniority”
on reserved category candidates. However,
the 85th constitutional amendment (to
Article 16[4A]) effectively ended this
catch-up rule and accorded consequential
seniority to the reserved category candi-
dates who got accelerated promotion. This
was highly controversial but got passed
in Parliament nearly unanimously.
We learn that courts routinely ask
for crucial (non-existent) data, which
is needed for moving from the larger
principle to actual institutional practice.
Thus, we find that the court’s decree on
many matters rests on establishing cer-
tain essentials that, in fact, are extremely
difficult to establish.
Even if hard evidence on the socio-
economic status of each caste/tribe was
in abundance and not marked by ambi-
guity, the actual implementation of
the reservation policy is anything but
straightforward. First is the question of
the denominator. What is the base to
december 16, 2023
which 22.5% reservation for SCs and STs
(or the additional 27% for OBCs or 10% for
EWS) should be applied? In a university,
say for faculty positions, should quotas
be applied separately to each depart-
ment, or a group of departments, or the
entire university? What if a department
has a faculty strength of three? There
are nationally mandated quotas and state
quotas. How does an institution work
out the actual 22.5% seat allocation?
The nuts and bolts of this allocation
are complex. There is the L-shaped
13-point roster (for organisations with up
to 13 positions) and the 200-point roster
(for organisations with more than 13 po-
sitions) in government employment that
outline how individual positions get des-
ignated as reserved or unreserved, and if
the former, for what exact category. This
is also linked to the “carry forward rule”
that specifies how the reservation status
of seats, not filled in a given year, are
treated in the next year. What happens to
candidates from eligible categories, who
qualify in the open selection list, called
“meritorious reserved candidates” (MRC):
are they counted as a part of the quota or
not? It depends on what the category is.
Where Is the Data?
When socio-economic data are neither
sufficiently nuanced and comprehensive
nor timely, any evidence-based policy
relying on outdated or non-existent data
is bound to run into hurdles. Nowhere is
this more obvious than in the reservation
policy. What happens when individuals
migrate, convert to another religion, or
marry outside caste/tribe? Do they keep
their reservation status? Many court judg-
ments include a line about adherence
to caste/tribe custom, but how does one
determine that? The interweaving of
caste/tribe and religion produces curi-
ous situations. For instance, while Chris-
tian and Muslim Dalits are not eligible for
reservation, STs who were not originally
adherents of Hinduism, get reserved status
if they convert to Hinduism. All these
questions cannot be settled by survey data;
but without data, all we get by way of
“evidence” are claims and counterclaims.
Take this example. When the govern-
ment wants to reserve posts in government
departments for STs, SCs, and OBCs,
vol lViII no 50 EPW Economic & Political Weekly

it has to satisfy the following requirements:
(i) it cannot violate the 50 percent rule, bar-
ring exceptional circumstances; (ii) it must
exclude the “creamy layer” from the reser-
vation; (iii) it must obtain quantifiable data
that the community for which the reserva-
tion is being provided is inadequately repre-
sented in the department; (iv) it must ensure
that efficiency in services will not be com-
promised; and (v) for OBC s, the government
must have quantifiable data that the commu-
nity for whom reservations are being provided
is backward. (p 113, emphasis added)
At what socio-economic level does a
group cease to be “backward”? What is
needed is evidence on discrimination—
as long as individuals are discriminated
against due to their group/social identity,
they need to be provided compensatory
discrimination. But where is the latest,
large-scale data? Most importantly—a
question that Chandrachud does not
ask—why should adherence to an amor-
phous, imprecise concept called “custom”
be essential to determining eligibility for
compensatory discrimination?
At various points, the book discusses
the “50 percent rule,” which comes from
the understanding that reservations should
be confined to a minority of positions
and should be exceptional. However, as
Chandrachud shows, the implementation
of quotas in the interlocking positions
often means that, in practice, the 50%
rule gets violated. He also rightly ques-
tions why the 50% rule should be seen
as sacrosanct. If comprehensive and
disaggregated caste data were to reveal
groups that require compensatory dis-
crimination are more than 50% in any
given population, sticking to this arbi-
trary rule would undermine the princi-
ples underlying reservation. In other
words, it is an empirical question that
can only be settled with data. Also,
with the 10% EWS quota, the 50% rule/
norm is already breached.
The book starts with the pre-inde-
pendence period and traces the evolu-
tion of the caste system all the way to
the present. The writing is crisp, suc-
cinct, jargon-free, and full of examples,
which makes the formidable subject
matter considerably less daunting. It also
reveals the massive quantum of work the
courts have done towards implementing
a policy that appears deceptively simple
and is often criticised for being mechan-
ical and rigid. The book reveals that the
inner gears that drive the reservation
engine are, in equal measure, admirable
in their complexity and baffling due to
internal contradictions that take years
to be sorted due to ongoing legal battles.
BOOK REVIEW
The book focuses on the critical role
of the judiciary and the executive in
shaping the reservation policy, which
does not give the reader an adequate
sense of the massive opposition to the
policy among the public and antipathy
among administrators that collectively
either continuously tries to undermine
and disrupt the policy, or dilute the
focus away from the most marginalised
and stigmatised groups by expanding
the number of beneficiary groups.
Despite the various unanimous Parlia-
ment bills and strong judgments, reser-
vations are strongly contested by pow-
erful elites, who have no qualms about
embracing hereditary privilege or gain-
ing entry into institutions on the basis
of their networks, social capital, and
money, but decry the death of merit
when they are compelled to share elite
positions with beneficiaries of caste-
based reservations.
Ashwini Deshpande (ashwini.deshpande@
ashoka.edu.in) teaches at Ashoka University,
Sonipat. She is the author of Grammar
of Caste: Economic Discrimination in
Contemporary India (Oxford University Press,
2011 [hardback] and 2017 [paperback]) and
Affirmative Action in India (Oxford University
Press, 2013).

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Economic & Political Weekly EPW december 16, 2023 vol lViII no 50 37
The Path to a World without War
Relevance of a Global Social Contract?
Jawahar Bhagwat
T
he doomsday clock set up in 1947
after World War II and the bomb-
ings of Hiroshima and Nagasaki
is now only one and a half minutes away
from the midnight hour. The Ukraine
proxy conflict with Russia on one side
and Ukraine supported by the North
Atlantic Treaty Organization (NATO) on
the other threatens to escalate into a world
war and a possible nuclear conflagration.
Many intellectuals, scientists, and a few
politicians, including Jawaharlal Nehru,
have endeavoured to promote the cause
of disarmament, especially a nuclear
weapons-free world.
Sundeep Waslekar, the president of the
think-tank “Strategic Foresight Group”
and author of the books—The New World
Order; An Inclusive World: In Which the
West, Islam and the Rest Have a Stake;
Cost of Conflict in the Middle East co-
authored with Ilmas Futehally; Eka
Dishecha Shodh; and Big Questions of Our
Time, co-authored with Ilmas Futehally—
delves into the discourse of many con-
cerned scientists, academics, and intel-
lectuals regarding the state of the world
and the rush towards increasingly so-
phisticated weapons, which are threaten-
ing global peace.
Threat of Human Extinction
The author commences his discourse in
Chapter 1 titled “Approaching Midnight:
The Threat of Human Extinction” by em-
phasising the existential threat hanging
over the world like the Sword of Damocles
due to the spiralling arms race. This,
according to the author, is exacerbated by
the burgeoning interface between artificial
intelligence (AI), nuclear weapons, and
biotechnology that can lead to a global
war involving weapons of mass destruc-
tion by accident or intent. The chapter
details the evolution of various weapons,
including low-yield nuclear weapons and
Economic & Political Weekly EPW december 16, 2023
book reviewS
A World without War: The History, Politics
and Resolution of Conflict by Sundeep Waslekar,
Gurugram: HarperCollins India, 2022; pp 324, `599.
hypersonic missiles. The author argues
that these weapons “deployed in hair-
trigger alert positions make the world’s
future unpredictable.” Waslekar also
draws attention to the deployment of
killer robots and the recommendation
of AI experts to introduce a new treaty
banning lethal autonomous weapon
systems. He also states that using AI in
decision support systems to launch in-
tercontinental ballistic missiles, hyper-
sonic, and other missiles may also in-
crease the threat of war. The author
notes that there is a propensity to use
technology for evil rather than good,
and he supports this with the use of AI
to launch a cyberattack to render the
nuclear weapons capacity of the enemy
ineffective, which could, however, re-
sult in the rival adopting a pre-emptive
attack. Waslekar correctly highlights
the many close calls regarding the use
of nuclear weapons averted just in time
by fortunate human interference that
took place after World War II to support
his argument. However, when mention-
ing the threat of bioweapons, he mainly
talks about China and fails to mention
bioweapon laboratories supported by
the United States’s (US) Pentagon in
various locations worldwide.
Similarly, he talks about the “deep
state” (interest groups) in certain countries
influencing state policy without any
accountability to the public, only with
reference to Russia and Ukraine and
ignores the accountability of the US
towards world peace by its expansion of
the NATO (a process that was set in
motion in 1994 according to official US
vol lViII no 50
archives, but had already agreed upon
by President George W Bush even in
1990), and massive military spending
(40% of the total world defence expendi-
tures and more than the following 10
countries put together according to the
Stockholm International Peace Research
Institute data from 2022). According to
the official US National Security Archive,
President Bill Clinton attempted to have
his cake both ways, expanding NATO
and partnering with Russia at the same
time resulting in Boris Yeltsin’s “cold
peace” blow-up at Clinton in Budapest
in December 1994. William Perry, Presi-
dent Clinton’s Secretary of Defense,
almost resigned on the issue of NATO
expansion. He, however, held on, but
later regretted that he “didn’t fight
more effectively for the delay of the
NATO decision.” As he wrote in 2015,
“The descent down the slippery slope
began, I believe, with the premature NATO
expansion,” the “downsides of early NATO
membership for Eastern European nations
were even worse than I had feared.”
The author’s statement,
It proves that so long as leaders like Biden
govern major countries, we can hope for
stability, but a future Trump or a future
Hitler can dismantle the arms control
regime in a jiffy and invite Armageddon,
does not reflect objectivity, particularly
in light of the refusal of the US to even
discuss Russia’s draft treaties for a new
security architecture in Europe and is an
insistence on an open door for Ukraine
into NATO, a continuation of the policies
set up in motion by President Clinton in
the early 1990s in direct contravention of
the promises given to Mikhail Gorbachev
to elicit his support in disbanding of the
Warsaw Pact, dismantling of the Berlin
Wall, and reunification of Germany. The
author also does not explicitly mention
that all Russian withdrawals from arms
control treaties were precipitated by the
US abrogating its treaty obligations first.
Menace of Nationalism
Chapter 2, titled “Dark Times: Menace
of Nationalism,” highlights the rise of
nationalism. The author argues that war
is a matter of human choice, and we
33
BOOK REVIEW
should not have implicit faith in our
leaders. He states that the Hindu principle
of Vasudhaiva Kutumbakam, or one world,
one family necessitates the elimination
of lethal weapons. To support his argu-
ment, he invokes Swami Vivekananda,
the Buddhist philosophy of non-violence,
Islamic scholars, including Ayatollah
Khamenei and the Parliament of the
World’s Religions. Waslekar discusses
the contributions of Ronald Reagan and
Gorbachev in signing various arms con-
trol agreements and by Willy Brandt in
initiating the policy of “détente.” The
author criticises Donald Trump and
Vladimir Putin, who, he argues, are
allies in furthering violent nationalism.
He discusses nationalism in some nuclear
weapons-armed countries such as the
US, China, Russia, the United Kingdom
(UK), and North Korea. Israel, a de facto
nuclear weapons state, is strangely left
out of the discourse.
It is inexplicable how the author
mentions the “Russki Mir Foundation,” an
organisation to spread Russian culture and
language, as an instrument to spread
strident Russian nationalism but ignores
the US Congress-funded so-called non-
governmental organisation, “National
Endowment for Democracy,” which is
known for interfering in the internal
affairs of other countries and support of
colour revolutions. Similarly, he does not
mention the US-controlled World Bank
and the International Monetary Fund
which are simply an expression of US
nationalism to enrich the US at the
expense of other countries, as brought
out by Michael Hudson in his book,
Super Imperialism.
He quotes Albert Einstein, Rabindranath
Tagore, Sydney Harris, Erich Fromm,
and others in stating that nationalism is
a disease. Waslekar states,
So long as our mental frameworks, national
pride and institutional arrangements are
organised in such a way … we will continue
to live in the shadow of an apocalypse.
The counter to the author’s argument is
that as long as certain nations try to
coerce others into adopting their values or
what is called “the Liberal Delusion” by
John Mearsheimer, political leaders in the
affected countries will always utilise this to
galvanise forces against this interference.
34
So, the powers of nationalism can
only be softened by a policy of non-
interference and mutual respect. The
author’s arguments in this chapter are
diluted by his failure to mention the
involvement of the US in triggering
Russian nationalism and the Ukraine
conflict, as written about by Western
academics and intellectuals like Stephen
Cohen, John Mearsheimer, Jeffrey Sachs,
and Noam Chomsky, who have been
largely ignored by the mainstream media
controlled by corporate interests.
War, a Choice
In Chapter 3, titled “In Twilight Hours:
War, a Choice,” the author advocates
that we need to move from “confronta-
tion to cooperation and compassion.” To
support his hypothesis, he gives the ex-
ample of Switzerland, Iceland, and Uru-
guay, countries which have eschewed
wars. Waslekar analyses the influence of
Thucydides and Kautilya and quotes the
latter to state that “for the master strate-
gist war, in effect, is the option of last
resort.” He criticises the realist theory of
international relations propounded by
Hans Morgenthau.
Waslekar quotes extensively from
Einstein and M K Gandhi and the Russel–
Einstein manifesto calling for the legal
abolition of war. Waslekar also cites
another book, On Human Conflict: The
Philosophical Foundations of War and
Peace published in 2019 by American
philosopher Lou Marinoff to support his
hypothesis that war is not innate to human
nature. The chapter concludes with the
author stating that if wars are avoided,
the advancement of human civilisation
could be assured.
Where Peace Dares
A scene from the 1983 television film,
The Day After, is the introduction to
Chapter 4 titled “Dawn on the Horizon:
Where Peace Dares.” In this chapter, the
author enumerates the effects of a nu-
clear war. His main argument is that it will
affect the entire planet, and he wonders
whether ordinary people realise the rami-
fications of a nuclear conflict. According
to Waslekar, most people are seduced
by “weaponised hyper-nationalism.” He
states that ordinary people should be
december 16, 2023
more worried about the effect of a nu-
clear holocaust, ignoring the reality that
even in the advanced nations, the top 1%
have been getting richer and the rest of
the population, including the poor, worse
off. Struggling to meet their basic needs,
they have little time for activism. While
supporting his advocacy of leaders mobi-
lising support for past glory/illusion of
creating a great nation, he gives the
examples of Pope Urban II, Niccolo
Machiavelli, Adolf Hitler, and Slobodan
Milosevic. Missing from the list is the
example of the US, which has been the
initiator or supporter of the greatest
number of conflicts since World War II
and into the 21st century. He repeats
what was stated by Paul Kennedy in
his 1988 book, The Rise and Fall of the
Great Powers, that “no empire, no state,
lasts forever—however grandiose the
arsenal it may possess,” expectedly
leaving out any analysis of its relevance
to the US.
This prescient observation was not
popular when Kennedy made it because
the intellectual world seemed enraptured
by Francis Fukuyama’s end-of-history
thesis. Kennedy’s cogent argument, not
popular at the time, was that the US was
likely to fall into the same trap as other
great powers before it because they
could not afford the military expendi-
tures they were incurring. The chapter
describes various peace movements and
their role in influencing treaties on the
limitation of nuclear weapons signed
first between John F Kennedy and Nikita
Khrushchev and later between Reagan
and Gorbachev. Walsekar states that
such peace movements are essential if
disarmament is to take place.
Shaping Peace, Preventing Wars
An ode to his alma mater Oxford Univer-
sity is the beginning of Chapter 5, “Before
Daylight: Shaping Peace, Preventing Wars.”
His idea is that this university was and is
a place for the discussion of ideas, and
that civilisation is a collaborative effort.
Waslekar rightfully gives an example of
the Arab world 1,000 years ago serving
as a protector of ideas and innovations
from different civilisations. He then
states that this moved to Europe because
the Mongols ransacked Baghdad in the
vol lViII no 50 EPW Economic & Political Weekly

13th century. The author then discusses
the evolution of the concept of “Federa-
tion of States” by Dante Alighieri, Émeric
Crucé, and Charles-Irénée Castel.
Waslekar then invokes Immanuel Kant’s
idea of “perpetual peace” to reiterate his
thesis that rulers, especially authoritarian
rulers (like the kind found in Russia and
China), support wars, while the people
want peace. However, he contradicts
himself in this chapter by admitting that
even popular democracies like the US,
the UK, India, Israel, and France, which
are democracies, have waged wars with
popular support. His understanding of
democracy is either idealistic or incom-
plete and does not take into account the
influence of oligarchies who control the
electoral process by virtue of electoral
funding and the mainstream media. This
has been documented by various political
scientists commencing with C Wright
Mill’s 1956 book, The Power Elite, and
more recently, J A Winters and Benjamin
Page’s Oligarchy in the United States
(2009) and Salvador Santino F Regilme,
Jr’s Constitutional Order in Oligarchic
Democracies: Neoliberal Rights versus
Socio-Economic Rights (2019).
Waslekar analyses Gandhi’s and
Einstein’s proposed federation of inter-
national states, the functioning of
the League of Nations, and the United
Nations (UN). He states that the latter
has not been fulfilling its core responsi-
bility of peace and security in relation to
the pursuit of its development agenda.
The author convincingly argues that the
UN is in urgent need of reform due to the
veto power held by the members of the
security council. He ends the chapter on
the note that a global contract is necessary
as a replacement for the societal social
contract within national boundaries.
Global Social Contract or
Mutual Respect?
In the concluding chapter, “Mooring at
Last: A World without War,” the author
elucidates his vision of a “global social
contract.” He reiterates the known
argument that nuclear weapons make
it impossible to differentiate between
civilian and military targets. Waslekar
advocates that the general population
must force their leaders to agree to
Economic & Political Weekly EPW december 16, 2023
eliminate all weapons of mass destruc-
tion (WMD), and to agree to rules of war
when using conventional weapons. To
support his views, he gives the example
of the spread of viruses/biotechnology
and the opinions expressed by well-known
academics such as Stephen Hawking
and others about the warnings regard-
ing AI, because both technologies could
be used to reinforce WMD.
Here again, his argument is weakened
by his analysis that the Gates Foundation
is an eminent institution that gave a pro-
phetic warning regarding the pandemic
in 2019, and this warning was largely
ignored. Independent researchers, includ-
ing the European Union-hosted COVID-19
summit in 2023, have criticised the
involvement of private entities in the
management of the pandemic and in the
production of vaccines. The author
advocates that his global social contract
would require a supranational architec-
ture requiring direct communication
with people around the world and ex-
pressing the general will of humanity.
This would mean dual loyalty of an indi-
vidual—to the state and another to pre-
serve our civilisation. What the author
fails to state or chooses to ignore is that
the internet is either controlled by Big
Tech or by governments, as in the case
of China. Even in India, internet servic-
es are shut down by the government
when necessary.
Waslekar proposes a third Hague
Conference to consider the elimination
of all WMD. He acknowledges that his
ideas may seem utopian in the present,
but offers the example of President
Kennedy and Russian leader Khrushchev,
whose ideas for disarmament could
have transformed the world. However,
he fails to mention that their discourse
was bound by mutual respect and an ac-
knowledgement of the balance of power,
EPW Index
An author-title index for EPW has been prepared for the years from 1968 to 2012. The PDFs of the Index
have been uploaded, year-wise, on the EPW website. Visitors can download the Index for all the years
from the site. (The Index for a few years is yet to be prepared and will be uploaded when ready.)
EPW would like to acknowledge the help of the staff of the library of the Indira Gandhi Institute for
Development Research, Mumbai, in preparing the index under a project supported by the RD Tata Trust.
vol lViII no 50
BOOK REVIEW
which resulted in the resolution of the
Cuban crisis. Notwithstanding that, he
subtly acknowledges the danger that a
peace plan may encounter, as in the
case of the assassination of President
Kennedy. This principle is missing from
the geopolitical rivalry between the
collective West and Russia/China today.
For example, Ukraine backtracked
from the draft agreement with Russia
in April 2022 at the behest of the US
and the UK.
Despite all its generalisations and a
perspective influenced by the main-
stream Western media, the book is a
welcome academic exercise and an ad-
dition to the literature on disarma-
ment. Its argument would have been
more convincing if the author had also
considered the views of “cancelled” (or
boycotted by the mainstream media/
academia) Western academics/intellec-
tuals, as Noam Chomsky put it in a
recent interview. Similarly, the author’s
analysis of Russia and China is not
compelling as it fails to take into
account their leadership’s logical reac-
tion to the flagrant violation of the bro-
ken promise “not one inch Eastwards”
and the written “One China” policy of
50 years ago, respectively.
In spite of that, this book is recom-
mended reading for all politicians,
bureaucrats, and military officers deal-
ing with the nuclear/WMD command
structure and disarmament issues, and
also university students majoring in
international relations/peace and con-
flict studies for its broad overview of
the philosophy of war, dangers associ-
ated with WMD, and international arms
limitation treaties.
Jawahar Bhagwat (jawahar.bhagwat@gmail.com)
is a visiting faculty at the Northern Arctic
Federal University, Russia. He served in the
Indian Navy for over 25 years.
35
SPECIAL ARTICLE
India’s Human Development Index
An Analysis of the Post-reform Story
M A Oommen, Parma Chakravartti
The human development index initiated by the United
Nations Development Programme has gained universal
acceptance as a measure of human progress. This study
constructs a comparable time series of HDI for 15 major
states of India for the period 1991–2018. We find both
β- and σ- convergence for all the states, with the
non-income indices playing a major role in convergence,
and a slowdown in the speed of convergence during
the post-fiscal reform regime since 2005. Although the
trajectories of HDI of different states tend to converge
over time, the gap between the levels of HDI of
low- and high-performing states has not been
reduced significantly.
M A Oommen (maoommen09@gmail.com) is an honorary professor,
Centre for Development Studies and a distinguished fellow, Gulati
Institute of Finance and Taxation, Thiruvananthapuram. Parma
Chakravartti (parma@iegindia.org) is at the Institute of Economic
Growth, University of Delhi, Delhi.
44
T
his study constructs a time series human development
index (HDI) to measure the human development of
15 major states in India from 1991 to 2018 and separately
examines the convergence path of the series before and after
the implementation of the Fiscal Responsibility Budget Manage-
ment Act (FRBMA), 2003.1 Interstate disparity in human devel-
opment will imply unequal availability of essential services
like education and health across the states, generating hori-
zontal inequity. Now that India has travelled through the era
of the Millennium Development Goals from 2000 to 2015 and
stepped into the more transformative 2030 agenda of 17 Sus-
tainable Development Goals from 2016 onwards, it is timely to
analyse the path of basic human development indicators for
Indian states over the years.
There has been considerable research that explores the
relationship between human development and growth in India
(Indrayan et al 1999; Dholakia 2003; Ghosh 2006; Mukherjee
et al 2014; Mehrotra and Parida 2021). Although some evidence
of convergence in cross-sectional HDI in the Indian context has
been reported, these studies refer either to a few data points or
rely on secondary data on HDI taken directly from published
reports. Based on two data points, 1999–2000 and 2007–08,
the India Human Development Report (IHDR 2011) finds conver-
gence in HDI across the country and with convergence in edu-
cation index (EI) and divergence in health index (HI). Almost
similar results have been reported by Chaurasia (2019), using
data from the Global Data Lab from 1990–2015. Roy and
Bhattacharjee (2009) consider three data points—1981, 1991,
and 2001—and find that although the low HDI states are grow-
ing faster than the high HDI states, the cross-sectional disper-
sion of HDI is not decreasing over time. By and large, the stud-
ies on convergence analysis of HDI of Indian states are based
on indices’ value provided by various published reports or on
discrete data points. In the absence of time series data, these
studies fail to analyse the overall trend in cross-sectional dis-
persion of HDI known as σ-convergence. This study assumes
significance in this context.
Data and Methodology
HDI is currently computed using the method followed in the
United Nations Development Programme’s Human Development
Report (HDR) of 2010, that is, the geometric mean of normalised
indices for each of the three dimensions: health, education
and a decent standard of living. Basically, we follow the same
method using the variables and data set as explained below.
december 16, 2023 vol lViii no 50 EPW Economic & Political Weekly

For the health dimension, infant mortality rate (IMR) and life
expectancy at One year of age (LE1) are taken. Data on IMR is
taken from the Sample Registration System (SRS) bulletin
(Office of the Registrar General and Census Commissioner
1991–2019) and LE1 is compiled from SRS-based Abridged
Life Tables (Office of the Registrar General and Census Commis-
sioner 1991–95, 2014–19). Since IMR represents infant (less than
one year age) deaths, using IMR in the health dimension cannot
capture the variations in the adult mortality rate, and therefore,
LE1 is added to generate an index that balances different aspects
of health attainments for a population. We followed the 2001
National Human Development Report’s (NHDR) (Planning Com-
mission 2002) indicators for measuring the HI to capture the
health attainments for the entire age group of the population.
For the EI, we consider the literacy rate for seven years and
above (7+LR) from the census, the EPWRF (1995–96, 2005–06)
reports (based on various rounds of the National Sample Survey
Office reports) and the Periodic Labour Force Survey and
adjusted intensity of formal education (AIFE) (Ministry of
Statistics and Programme Implementation 2017–19). The indi-
cators for EI also follow NHDR 2001 (Planning Commission 2002).
While the adult literacy rate captures only the literacy level for
the population aged 15 years and above, the 7+LR indicates the
social preference for acquiring literacy at an early age in life.
On the other hand, AIFE lays emphasis on the formal system of
education unlike the adult literacy rate, which reflects the
importance of the non-formal education system.
The intensity of formal education (IFE) is obtained by taking
the weighted average of the share of class-wise enrolment in
total enrolment in Classes I–XII with weights increasing by the
classes. Following the Planning Commission (2002), we calculate
AIFE by multiplying the gross enrolment ratio (GER) for Classes
I–XII with IFE to take into account the population enrolled in
the age group of 6–18 years. Data on GER for Classes I–XII and
dropout rate (DOR) are compiled from “Education in India”
(MoHRD 1990–96), selected “Educational Statistics” (MoHRD
1997–2007), “Statistics of School Education” (MoHRD 2008–11),
“Unified District Information System for Education” (UDISE)
(MoHRD 2012–16) and UDISE+ (MoHRD 2017–18).2
For the standard of living index (SLI), per capita net state
domestic product (PCNSDP) is taken from the Ministry of
Statistics and Programme Implementation (2017–19). Table 1
shows the indicators under each dimension along with their
goalposts.3 The goalposts used for LE1 are similar to the goal-
posts used for life expectancy at birth (LEB) by HDR, UNDP
(1990–2020). IMR of 89 per 1,000 live births was very high for
India in 1990, and it can grow worse if it reaches 100, this
Table 1: HDI Indicators and Their Goalposts
Dimension Indicator
Health LE1
IMR
Education 7+LR
AIFE
Standard of living PCNSDP at constant prices
(2011–12 prices)
Source: Authors’ calculations based on sources mentioned in the “Data and Methodology”
section.
Economic & Political Weekly EPW december 16, 2023 vol lViii no 50
SPECIAL ARTICLE
number is considered as the maximum for IMR. Any right poli-
cy would opt only for zero IMR and therefore it is considered
as the minimum goalpost.
For 7+LR, 100 is applied as the maximum goalpost and zero
as the minimum. For AIFE, we have taken zero as the mini-
mum and nine as the maximum since one of the states, that is,
Himachal Pradesh, showed a maximum of 8.11 for boys in
2005. Therefore, we have considered nine as achievable IFE.
We have applied `2,00,000 as the maximum and `1,000 as the
minimum for PCNSDP since 1991–2018, the maximum PCNSDP
of `1,69,409 was observed for Haryana in 2018–19 and the
minimum of `9,297 was observed for Bihar in 1992–93. Using
the goalposts, the dimension indices are computed as
 –—ƒŽƒŽ—‡ െ ‹‹—ƒŽ—‡
‹‡•‹‘‹†‡š ൌ  ... (1)
ƒš‹—˜ƒŽ—‡ െ ‹‹—˜ƒŽ—‡
The dimension index is computed for each of these indicators.
The health dimension consists of two indicators, and there-
fore, two indices are obtained using equation (1). Using the
arithmetic mean of the resulting indices, we arrive at the HI. A
similar method is applied to obtain the EI. Directly using the
log PCNSDP and applying equation (1), we obtain the income
index or SLI. Finally, HDI is computed by taking the geometric
mean of the education, health and income indices. After con-
structing the time series of HDI, the following method is ap-
plied to analyse the convergence path as well as the speed of
convergence of the HDI series.
We test convergence using its two main concepts—β-
convergence and σ-convergence—as given in Sala-i-Martin
(1996). Initially, we use the concept of absolute convergence,
which is achieved if the states converge to the same steady
state. On the other hand, conditional convergence occurs if a
state converges to its own steady state. We estimate the follow-
ing pooled regression to test the absolute convergence:
୪୭୥ୌୈ୍౪శ౐ ି୪୭୥ୌୈ୍౪
αȽ൅ȾŽ‘‰  ୲ ൅ɂ୲  ... (2)
୘
The left-hand side shows the annualised growth rate of HDI
between t and t+T, and logHDIt is the logarithm of HDI at the
initial year t. T in the denominator is the length of the time
period. If we find β < 0, HDI exhibits absolute β-convergence.
States are said to be converging in the sense of σ if the disper-
sion measured by the standard deviation of their log HDI tends
to—decrease over time. That is, if σt+T < σt, where σt is the stand-
ard deviation of the log(HDIi,t) across i (states), the states are
said to be following a σ-convergence path. We use the non-lin-
ear regression estimate of the following form to find the speed
of absolute convergence:
୪୭୥ୌୈ୍౪శ౐ ି୪୭୥ୌୈ୍౪ ଵିୣషౘ౪
αȽǦሺ ሻŽ‘‰  ୲ Ϊɂ୲  ... (3)
୘ ୘
b is the speed of convergence to the steady state of HDI. Negative
Minimum Maximum
b would imply non-convergence and positive b would mean
20 85
0 100 convergence. As an explanation for the speed of convergence,
0 100 the study considers one of the concepts of conditional conver-
0 9 gence, that is, club convergence, to test if the states with similar
1,000 2,00,000 structural characteristics converge to the same level of HDI.
Club convergence is said to occur if the states with identical
structural characteristics and similar initial conditions converge
45
SPECIAL ARTICLE

to one another in the long run (Galor 1996). We apply Phillips share of GSDP during 2005–18, compared to 1991–2004, as
and Sul’s method (2007) to identify clusters of states with shown in Table 2.
respect to HDI. The analysis is based on 15 major states: Andhra The effect of this reduced health and education expenditure
Pradesh, Assam, Bihar, Gujarat, Haryana, Karnataka, Kerala, as a share of GSDP is reflected in the speed of convergence of
Madhya Pradesh (MP), Maharashtra, Odisha, Punjab, Rajasthan, HDI during 2005–18 (Table 3). Table 4 gives the value of
Tamil Nadu, Uttar Pradesh (UP) and West Bengal, which β-coefficient and the speed of convergence of HDI, SLI,5 HI and
account for over 90% of India’s population. EI. Figure 1 (p 47) shows the scatter plot for β-convergence of
HDI, besides the income index and non-income index. Also, the
The Convergence Path of HDI β-convergence of the sub-indices of the non-income index, namely
We evaluate β-convergence for the period 1991–2018 and also EI and HI, are shown in the same figure. The vertical axis in
for the sub-periods of 1991–2004 and 2005–18. The sample is Figure 1 shows the annual growth rate of the HDI, income
divided in a manner to compare the convergence path during index, non-income index, EI and HI between the time periods
pre- and post-fiscal consolidation period for Indian states. The Table 3: Absolute β-convergence and the Speed of Convergence of HDI
issue of fiscal sustainability of states was raised by the Twelfth Dependent Variable Independent Variable β coefficient Speed of Convergence (b
from Equation 2)
Finance Commission (TFC) because of the deteriorating debt
Growth in HDI between
position of the states (Department of Expenditure 2002). The
1991 and 2004 Log(HDI 1991) -0.027*** (0.005) 0.0008 (0.002)
debt to gross state domestic product (GSDP) ratios reached
2005 and 2018 Log(HDI 2005) -0.025*** (0.003) 0.0005 (0.001)
above 35%, coupled with high interest payments to revenue
1991 and 2018 Log(HDI 1991) -0.021*** (0.002) 0.0007 (0.001)
receipts ratios of over 22% during 2002–03. The pressure on
Growth in SLI between
the state’s fiscal deficit was building up due to the servicing of
1991 and 2004 Log(SLI 1991) 0.008 (0.008) -0.0004 (0.002)
high-cost debt having high interest rates of 13% and above,
2005 and 2018 Log(SLI 2005) -0.011** (0.004) 0.0015 (0.002)
high subsidies, salaries, pensions, sluggish growth in tax–GDP
1991 and 2018 Log(SLI 1991) -0.003 (0.006) 0.0001 (0.001)
ratios and inadequate increase in central transfers to states.
Growth in HI between
The TFC offered debt relief through a debt-swapping scheme
1991 and 2004 Log(HI 1991) -0.040*** (0.004) 0.0067 (0.001)
carrying lower interest rates and a debt write-off scheme
2005 and 2018 Log(HI 2005) -0.033*** (0.002) 0.0033 (0.003)
which was directly linked to achieving revenue balance by the
1991 and 2018 Log(HI 1991) -0.027*** (0.001) 0.0047 (0.003)
state governments by 2008–09. The TFC recommended that
the state governments should enact state-level fiscal responsi- Growth in EI between

bility legislations (FRL) to avail of the debt-relief scheme to 1991 and 2004 Log(EI 1991) -0.025*** (0.006) 0.0018 (0.002)

eliminate revenue deficit and reduce fiscal deficit (FD) to 3% of 2005 and 2018 Log(EI 2005) -0.036*** (0.006) 0.0019 (0.003)

GSDP by 2008–09 (Department of Expenditure 2002). Follow- 1991 and 2018 Log(EI 1991) -0.023*** (0.001) 0.0016 (0.002)
*, ** and *** indicate significance at 10%, 5%, and 1% levels, respectively. Standard error is
ing the stipulated condition, 21 states enacted the FRBM Acts represented in parentheses.
by the beginning of 2005–06 and 14 out of the 15 major states Source: Same as Table 1.

under this study have implemented FRBMA in their states.4 Table 4: Comparison of HDI Ranks between 1991, 2005, and 2018
States reduced their FD–GSDP ratio during 2005–18 compared HDI Rank Range 1991 2005 2018
Classification
to 1991–2004. The average of FD–GSDP ratio during 1991–2004—
which was 3.3% for the 15 major states—was reduced to Low Less than Haryana, Gujarat, Madhya Pradesh, –
0.06 Karnataka, Uttar Pradesh,
2.3% during 2005–18. Instructively, this was followed by a West Bengal, Bihar
reduction in both health and education expenditure as a Andhra Pradesh,
Table 2: Average Health and Education Expenditures as a Share of GSDP Assam, Rajasthan,
Bihar, Uttar Pradesh,
Items Health Expenditure as % GSDP Education Expenditure as % GSDP
Madhya Pradesh
Year 1991–2004 2005–18 1991–2004 2005–18
and Odisha
Andhra Pradesh 1.25 1.09 3.63 3.21
Assam 0.79 1.07 3.90 4.42 0.06 to Punjab, Punjab, Madhya Pradesh,
Medium 0.11 Tamil Nadu and Karnataka, Uttar Pradesh,
Bihar 1.42 1.07 5.49 4.87
Maharashtra Gujarat, Haryana, Bihar
Gujarat 0.62 0.56 2.42 1.82 West Bengal,
Haryana 0.52 0.46 2.10 2.03 Andhra Pradesh,
Karnataka 0.61 0.54 2.05 1.93 Assam, Rajasthan,
Kerala 0.76 0.76 2.76 2.45 Odisha
Madhya Pradesh 0.91 0.84 2.93 2.97 High 0.12 to Kerala Kerala, Haryana,
Maharashtra 0.51 0.44 2.31 2.15 0.17 Maharashtra, Karnataka, Gujarat,
Odisha 0.84 0.79 3.12 2.99 Tamil Nadu West Bengal,
Punjab 0.70 0.58 2.26 1.99 Andhra Pradesh,
Rajasthan 0.93 0.92 3.05 3.05 Odisha,
Tamil Nadu 0.70 0.62 2.32 2.04 Rajasthan, Assam
Uttar Pradesh 0.81 1.09 2.78 3.38 Very high 0.18 and – – Kerala, Tamil Nadu,
West Bengal 0.87 0.79 2.81 2.73 above Maharashtra and
All states 0.76 0.72 2.72 2.57 Punjab
Source: RBI (1991–2020). Source: Same as Table 1.

46 december 16, 2023 vol lViii no 50 EPW Economic & Political Weekly
 SPECIAL ARTICLE
Figure 1: β-convergence of HDI log(EI) and log(HI) at time
(a) 1991–2004 (b) 2005–18 (c) 1991–2018
0.10
1991. The middle and bottom
0.06 0.08
OD OD OD panels show the same variables
0.09 MP
MP
RJ
HR
MP in 2005 and 1991, respectively.
0.07
AS GU
PB
0.06 UP
Figure 1 confirms the β-con-
RJ
UP
0.06
RJ
AP 0.04
AP KA BR vergence of HDI and non-
KA AP KA
WB
AS WB
MH TN AS GU income index over time during
0.04 HR
TN
BR GU MH
0.04 WB TN
MH all three periods: 1991–2004,
HR
0.03
KL KL
PB 2005–18, and 1991–2018. In-
PB
0.01 0.02 KL come index, which shows di-
-4.50 -4.00 -3.50 -3.00 -2.50 -2.00 -3.00 -2.50 -2.00 0.02
log(HDI) -4.50 -4.00 -3.50 -3.00 -2.50 -2.00 vergence during 1991–2004,
log(HDI) log(HDI)
0.02 -1.00 takes a converging trend during
0.018

KL GU
2005–18 and 1991–2018. Altho-
GU 0.016 ugh HDI seems to converge over
TN
WB TN KL
-1.50 MH
0.014
TN
KL
time, the speed of convergence
WB
0.01
RJ AP
MH WB
KA GU
AP MH
KA has slowed down during 2005–
HR HR 0.012 BR HR
OD
KA
AP MP
RJ 18, compared to 1991–2004, as
MP -2.00 RJ OD
PB
AS
OD
MP 0.010 shown in Table 3. Odisha, MP,
BR UP UP
AS
UP BR 0.008 UP, and Rajasthan—which have
AS PB
0.00
-0.80 -0.70 -0.60 -0.50 -0.40 -0.30
a lower rank with respect to
-2.50 0.006
log(income index) 0.010 0.015 0.020
log(income index)
0.025 -0.80 -0.70 -0.60 -0.50 -0.40 -0.30 HDI—show a high growth rate
log(income index)
0.10 0.06 of HDI during 1991–2004 vis-à-
OD
0.07
OD
vis 2005–18, with Bihar as an
0.08 BR
MP
OD 0.06 MP exception (Appendix Table A1
0.06 RJ PB 0.05 UP
[p 51]). HDI is found to be posi-
RJ UP HR RJ
UP
AS 0.04 AS
0.04 BR tively (0.3 units) and signifi-
KA AS
KA MH
0.04 MP
AP WB AP KA
WB cantly correlated to the social
AP WB GU 0.03 HR PB
TN
BR
GU GU
MH TN sector expenditure as a share
0.02 HR MH 0.02
PB KL TN of GSDP in India in this study
KL 0.01 KL
0.00
0.01
(Appendix Table A5, p 52),
-3.50 -3.00 -2.50 -2.00 -1.50 -1.00
-2.50 -2.20 -1.90 -1.60 -1.30 -1.00
log(non-income index)
log(non-income idex)
0.00
-3.50 -3.00 -2.50 -2.00 -1.50 -1.00
where social sector expendi-
0.04 0.040
log(non-income index) ture is a sum of health and ed-
0.03 ucation expenditure. Hence,
RJ
0.03 0.030 BR
BR RJ the slowdown in the speed of
MP
UP AS UP convergence of HDI growth
OD PB OD
0.02
0.02
AP
0.020 RJ WB
MP AS
HR
during 2005–18 could be asso-
HR AP
BR HR MH UP OD
KA KA
PB
ciated with the fall in the aver-
KA TN MH
0.01
PB
0.010
AP GU
AS MH
KL 0.01
GU
WB
age health and education ex-
GU MP
WB
TN
KL
penditure of states as a share of
KL TN

0.00 0.000
GSDP compared to 1991–2004,
-1.30 -1.10 -0.90 -0.70 -0.50 -0.30 -1.00 -0.80 -0.60 -0.40 0.00
-1.40 -1.20 -1.00 -0.80 -0.60 -0.40 -0.20
as shown in Table 2.
log(education index) log(education index)
log(education index) The sub-indices analysis of
0.08 0.03 0.05
OD
HDI for all three periods—
OD
1991–2004, 2005–18 and 1991–
0.06 0.04 MP
0.02
RJ
BR
2018—shows HI to be a signifi-
MP AP
GU 0.03 cant sub-index leading to the
0.04 HR KA PB UP
TN convergence of HDI as the speed
UP 0.02 AS KA WB
KA WB 0.01 MH AP of convergence of HI is much
RJ RJ BR TN
0.02 GU MH WB GU MH
AS
BR AP TN 0.01 HR PB higher than the other two
HR PB KL
0.00
KL KL indices, EI and SLI, for all three
0.00 0.00
-1.70 -1.20 -0.70 -0.20
-0.70 -0.50 -0.30 -0.10 -2.00 -1.50 -1.00 -0.50 0.00 periods (Table 3).6 During
log(health index) log(health index) log(health index) 2005–18, EI shows a minor in-
Source: Same as Table 1.
crease in the speed of conver-
1991–2004 Figure 1(a), 2005–18 Figure 1(b) and 1991–2018 gence (0.0019) compared to 1991–2004 (0.0018), and SLI shows
Figure 1(c), respectively. The horizontal axis in the upper panel a significant increase in the speed of convergence (from -0.0004
is the log(HDI), log(income index), log(non-income index), during 1991–2004 to 0.0015 during 2005–18). But HI shows a
Economic & Political Weekly EPW december 16, 2023 vol lViii no 50 47
SPECIAL ARTICLE
Figure 2: β-convergence of IMR Index
(a) 1991‒2004 (b) 2005–18 (c) 1991–2018
0.00 -0.03
MP -0.02
HR AS
AS
-0.01 BR UP
PB RJ -0.04 WB BR RJ
AP AS RJ UP
MH BR -0.03 KL HR
GU OD
-0.02 KL UP GU GU
AP MP
TN -0.05 AP
KL HR
MP PB
-0.03
KA PB KA
OD -0.04
MH -0.06 MH WB OD
-0.04 WB KA
TN
TN
-0.05 -0.07 -0.05
-2.00 -1.50 -1.00 -0.50 0.00 0.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50
log(IMR) log(IMR) log(IMR)
Source: Same as Table 1.

Figure 3: σ-convergence of HDI

0.6 0.14
0.6

0.5 0.13 0.5

sd of log(non-income index)
sd of log(income index)

0.4
sd of log(HDI)

0.4 0.12

0.3

0.3 0.11
0.2

0.2 0.1 0.1

1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017

1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017

1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0.25 0.40 β-convergence does not ensure σ-conver-
0.35
gence, although the former is a necessary
condition for the latter. β-convergence
0.20
0.30 will generate σ-convergence in HDI if the
sd of log(health index)
sd of log(education index)

dispersion between the states is reduced

0.25
0.15 over time. Figure 3 shows a downward
0.20 trend in the cross-sectional standard de-
viation for the log of HDI, the log of non-
0.15
0.10 income index, and the log of education
0.10 and health indices for the 15 states from
1991–2018. The log of income index shows
0.05 0.05
an increase in dispersion between the
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017

1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017

states over the years till 2008 and a fall in

Source: Same as Table 1.
dispersion post 2008. Interestingly, even
significant slowdown in the speed of convergence from 0.0067 when the income index shows an upward trend in cross-sec-
during 1991–2004 to 0.0033 during 2005–18. tional standard deviation, HDI shows the opposite trend domi-
The slowdown in the speed of convergence of HDI growth nated by the non-income index.
during 2005–18 can be attributed to the slowdown in the speed
of convergence of HI during the same period. The reduced speed HDI Rank and Club Convergence
of convergence in HI growth was not compensated by an increase We find evidence of both β- and σ-convergence of HDI during
in the speed of convergence in the growth of the other two 1991–2018, with a slower speed of convergence during 2005–18
sub-indices (EI and SLI). The speed of convergence of HI has vis-à-vis 1991–2004. We classify the ranks following the UNDP
been possibly affected by the divergence of IMR index during 2014 HDR (UNDP 1990–2020) method, which is based on fixed
2005–18, which we have shown in Figure 2(b). The states having cut-off points, derived using the quartiles of the distribution of
high IMR—MP, UP and Odisha—were able to reduce their IMR the component indicators over 1991–2018. Based on this, HDI
at a higher rate compared to the states with low IMR during with a value less than 0.06 is classified as low human develop-
1991–2004, as compared to that during 2005–18 (Figure 2). ment; HDI in the range 0.06–0.11 is considered medium; HDI in
48 december 16, 2023 vol lViii no 50 EPW Economic & Political Weekly

the range 0.12–0.17 is high; and 0.18 and above is grouped as
very high human development.
Comparing the HDI across states between 1991, 2005, and
2018, it is seen that Kerala stood on a high pedestal from the
very beginning and consistently maintained its top HDI posi-
tion in the country. The state, in fact, moved from high human
development in 1991 to very high human development in 2018.
Tamil Nadu and Maharashtra, which were at the medium level
in 1991, moved to the high category by 2005 and further moved to
a very high level of HDI in 2018. Punjab (a consistently high per
capita state), although at the medium HDI level in 1991, contin-
ued to stay at the same level in 2005 but managed to reach a
very high level of human development by 2018. MP, UP, and Bihar
with a low HDI status in 1991 remained in the same position
even in 2005. However, their ranks improved to the medium
HDI category in 2018. Also, Haryana, Gujarat, Karnataka, West
Bengal, Andhra Pradesh, Assam, Rajasthan, and Odisha, with
low HDI in 1991, improved their human development to medi-
um category by 2005. These states further improved and
moved to the high HDI category by 2018. We see MP, UP, and
Bihar, which were at the low range of HDI, have moved to the
medium level in 2018.
Although we find the states to converge with respect to
both β- and σ- coefficients, it is important to note that medium
category states stay far from the very high HDI states. We find
evidence of clustering of states across different levels of HDI,
especially when we compare 2005 with 2018 in Table 4. The
club convergence of HDI is also supported econometrically
(Table 5) with minor differences from Table 4 in terms of the
members within each club. We find clusters of HDI that can be
grouped into three categories: club 1 comprising Haryana,
Kerala, Maharashtra, Punjab, and Tamil Nadu; club 2 with
Andhra Pradesh, Gujarat, Karnataka, MP, Odisha, Rajasthan;
and club 3 with West Bengal, Assam, Bihar and UP (Table 5).
Table 5: Club Convergence Results
Clubs Club 1 Club 2
HDI club Haryana, Kerala, Andhra Pradesh, Gujarat,
members Maharashtra, Karnataka, Madhya
Punjab, Tamil Nadu Pradesh, Odisha, Rajasthan
(4.406) and West Bengal
(1.935)
The value of t-statistics is represented in parenthesis. A t-statistic larger than -1.65
indicates convergence.
Source: Same as Table 1.
Bihar, UP and MP, despite high growth performance in HDI
in recent times, remain far away from the level of HDI values of
the top-ranked states like Kerala, Tamil Nadu, Maharashtra,
and Punjab. We find that states having a similar initial endow-
ment are found to be converging to the same level during the
long span of 28 years. The catching-up process of states from
low to higher levels of HDI demands substantive policy initia-
tives to ensure horizontal equity.
Conclusions and Policy Implications
We find both β- and σ-convergence of HDI growth for 15 major
states with non-income indices playing a major role in conver-
gence during 1991–2004, 2005–18, and 1991–2018. The speed
of convergence has slowed down during the post-FRBM regime
Economic & Political Weekly EPW december 16, 2023
SPECIAL ARTICLE
(2005–18) compared to the pre-FRBM regime (1991–2004). We
followed the NHDR 2001 indicators (Planning Commission 2002)
for measuring the HI to capture the health attainments for the
entire age group of the population. There has been a slowdown
in the speed of convergence of the HI during 2005–18 compared
to 1991–2004, which played a significant role in slowing the
speed of convergence of HDI during 2005–18. The reduced speed
of convergence in HI during 2005–18 could not be compensated
by an increase in the speed of convergence in the other two
sub-indices, education and standard of living. The reduced so-
cial sector expenditure of the states as a share of GSDP during
2005–18 compared to the pre-FRBM regime may be considered
a significant factor in slowing down the speed of convergence
of HDI during 2005–18, as these expenditures are found to be
positively and significantly correlated with HDI. The need to
step up interventions to improve the health situation of this
federal polity by the union and states comes up very strikingly.
The growth of HDI in 15 major Indian states started to
converge over time from 1991–2018, but the gap between the
levels of HDI of the states having low- and high-performing HDI
has not been significantly reduced. The disparity in the levels
of HDI between the fastest-growing HDI states (Bihar, UP and
MP) and the top-ranked HDI states (Kerala, Tamil Nadu, Maha-
rashtra, and Punjab) does not show a significant reduction in
2018 compared to 1991. It is reasonable to hypothesise that
Kerala’s public policy in favour of the poor—well exemplified
in J Drèze and A Sen (1989, 1995, 2002, 2013)—has contributed
in helping the state to hold on to its continued top position.
This calls for relevant policy interventions and decisions not
only by individual states, but also by the union as well.
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vol lViii no 50 49
SPECIAL ARTICLE
In sum, a reduction in regional imbalances leads to im-
proved horizontal equity between the states, although the gap
between the well-performing and poor-performing states is
wide and demands a strong policy intervention. One of the im-
portant objectives of finance commissions at the union and
state levels is to alleviate horizontal inequity between states to
enable them to provide basic and standard quality of public
notes
1 The year of implementation of FRBMA varies,
but by 2005–06, it was enacted in almost
all states.
2 Frequent changes in educational reports, along
with variations in methodology, render com-
parisons difficult.
3 The goalposts are set to convert the indicators
in different units into indices between zero
and one.
4 FRBMA was implemented by Karnataka in
2002–03, Kerala in 2003–04, Tamil Nadu in
2003–04, UP in 2004–05, West Bengal in 2010 and
in the rest of the states during 2005–06.
5 SLI and income index are synonymously used.
6 Values of HI, EI and SLI across states over the
years are documented in Appendix Tables A2,
A3 and A4 (pp 51–52), respectively.
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vol lViii no 50 EPW Economic & Political Weekly
 SPECIAL ARTICLE
Appendix A: Value of Constructed Indices on Human Development, Health, Education and Standard of Living
Table A1: Human Development Index 1
States 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Andhra Pradesh 0.036 0.037 0.033 0.042 0.041 0.044 0.046 0.048 0.050 0.053 0.056 0.069 0.066 0.071
Assam 0.034 0.038 0.034 0.046 0.048 0.049 0.050 0.050 0.055 0.052 0.047 0.043 0.062 0.066
Bihar 0.020 0.021 0.018 0.024 0.021 0.024 0.024 0.025 0.025 0.028 0.027 0.029 0.030 0.033
Gujarat 0.048 0.056 0.046 0.062 0.060 0.064 0.065 0.066 0.069 0.070 0.070 0.076 0.083 0.085
Haryana 0.054 0.053 0.047 0.057 0.056 0.059 0.062 0.062 0.064 0.070 0.069 0.081 0.082 0.088
Karnataka 0.048 0.051 0.041 0.059 0.063 0.064 0.067 0.068 0.071 0.077 0.074 0.085 0.085 0.092
Kerala 0.119 0.120 0.107 0.132 0.129 0.130 0.134 0.133 0.134 0.142 0.135 0.156 0.151 0.160
Madhya Pradesh 0.015 0.022 0.017 0.026 0.025 0.028 0.031 0.029 0.035 0.037 0.039 0.044 0.043 0.049
Maharashtra 0.063 0.070 0.063 0.077 0.080 0.085 0.089 0.088 0.091 0.096 0.094 0.105 0.097 0.119
Odisha 0.015 0.020 0.017 0.025 0.026 0.029 0.029 0.031 0.035 0.034 0.039 0.044 0.044 0.057
Punjab 0.069 0.069 0.059 0.074 0.071 0.078 0.079 0.081 0.084 0.084 0.080 0.086 0.087 0.096
Rajasthan 0.026 0.027 0.023 0.031 0.030 0.034 0.038 0.038 0.041 0.046 0.049 0.052 0.053 0.060
Tamil Nadu 0.063 0.068 0.054 0.072 0.073 0.073 0.078 0.080 0.082 0.086 0.082 0.101 0.102 0.110
Uttar Pradesh 0.019 0.022 0.019 0.026 0.026 0.028 0.030 0.029 0.030 0.033 0.031 0.039 0.042 0.046
West Bengal 0.047 0.046 0.038 0.051 0.052 0.054 0.059 0.060 0.063 0.065 0.066 0.077 0.079 0.085
States 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Andhra Pradesh 0.073 0.080 0.082 0.089 0.097 0.099 0.103 0.141 0.149 0.113 0.119 0.122 0.127 0.137
Assam 0.062 0.067 0.070 0.071 0.075 0.078 0.072 0.090 0.094 0.101 0.107 0.114 0.114 0.121
Bihar 0.034 0.038 0.041 0.046 0.053 0.061 0.064 0.067 0.074 0.081 0.087 0.094 0.088 0.092
Gujarat 0.087 0.093 0.098 0.104 0.110 0.119 0.121 0.128 0.134 0.137 0.141 0.145 0.157 0.165
Haryana 0.086 0.093 0.102 0.103 0.113 0.121 0.127 0.135 0.144 0.155 0.160 0.171 0.168 0.172
Karnataka 0.091 0.102 0.107 0.112 0.119 0.124 0.130 0.128 0.132 0.141 0.147 0.148 0.158 0.168
Kerala 0.157 0.171 0.176 0.184 0.192 0.194 0.198 0.197 0.205 0.207 0.211 0.217 0.219 0.227
Madhya Pradesh 0.052 0.060 0.064 0.070 0.077 0.080 0.082 0.086 0.093 0.097 0.102 0.110 0.103 0.104
Maharashtra 0.118 0.130 0.131 0.135 0.142 0.151 0.156 0.159 0.166 0.173 0.179 0.187 0.186 0.189
Odisha 0.056 0.062 0.064 0.070 0.076 0.079 0.083 0.086 0.089 0.091 0.101 0.106 0.118 0.128
Punjab 0.094 0.102 0.103 0.119 0.120 0.129 0.139 0.149 0.158 0.166 0.173 0.182 0.177 0.180
Rajasthan 0.062 0.064 0.070 0.074 0.079 0.087 0.093 0.098 0.101 0.103 0.108 0.112 0.121 0.127
Tamil Nadu 0.118 0.128 0.134 0.139 0.149 0.154 0.157 0.165 0.170 0.174 0.182 0.189 0.185 0.190
Uttar Pradesh 0.046 0.050 0.060 0.062 0.065 0.070 0.074 0.075 0.081 0.083 0.086 0.089 0.097 0.097
West Bengal 0.085 0.097 0.102 0.100 0.109 0.113 0.117 0.119 0.121 0.125 0.130 0.129 0.141 0.149
All India 0.075 0.081 0.087 0.092 0.098 0.104 0.106 0.112 0.118 0.122 0.128 0.133 0.135 0.139
Source: Same as Table 1.
Table A2: Health Index
States 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Andhra Pradesh 0.587 0.594 0.605 0.615 0.627 0.642 0.659 0.673 0.689 0.692 0.705 0.723 0.732 0.748
Assam 0.493 0.502 0.510 0.522 0.537 0.554 0.571 0.575 0.584 0.613 0.628 0.647 0.651 0.670
Bihar 0.560 0.565 0.574 0.582 0.605 0.629 0.653 0.662 0.670 0.672 0.675 0.697 0.713 0.729
Gujarat 0.606 0.612 0.618 0.630 0.639 0.662 0.679 0.696 0.708 0.717 0.730 0.747 0.732 0.760
Haryana 0.588 0.606 0.615 0.618 0.632 0.645 0.666 0.677 0.685 0.712 0.715 0.73 0.747 0.746
Karnataka 0.628 0.640 0.644 0.653 0.673 0.688 0.705 0.722 0.730 0.740 0.746 0.766 0.762 0.772
Kerala 0.841 0.839 0.850 0.857 0.857 0.851 0.858 0.859 0.861 0.862 0.864 0.873 0.874 0.889
Madhya Pradesh 0.465 0.477 0.489 0.502 0.519 0.546 0.564 0.581 0.593 0.604 0.618 0.636 0.64 0.638
Maharashtra 0.704 0.712 0.719 0.726 0.736 0.752 0.769 0.772 0.781 0.792 0.799 0.810 0.811 0.812
Odisha 0.473 0.484 0.497 0.508 0.530 0.553 0.578 0.600 0.613 0.627 0.648 0.662 0.682 0.692
Punjab 0.677 0.676 0.681 0.69 0.704 0.724 0.746 0.758 0.773 0.785 0.792 0.806 0.804 0.811
Rajasthan 0.54 0.547 0.558 0.57 0.590 0.613 0.629 0.646 0.657 0.661 0.676 0.688 0.704 0.710
Tamil Nadu 0.693 0.694 0.707 0.729 0.745 0.765 0.778 0.784 0.786 0.794 0.801 0.814 0.822 0.830
Uttar Pradesh 0.485 0.497 0.509 0.52 0.540 0.552 0.574 0.596 0.614 0.626 0.638 0.655 0.667 0.660
West Bengal 0.691 0.693 0.700 0.709 0.720 0.733 0.730 0.732 0.739 0.755 0.767 0.773 0.782 0.794
All India 0.578 0.585 0.596 0.607 0.623 0.640 0.657 0.669 0.682 0.690 0.702 0.719 0.726 0.733
Source: Same as Table 1.
Table A3: Education Index
States 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Andhra Pradesh 0.371 0.38 0.299 0.38 0.371 0.382 0.402 0.412 0.425 0.439 0.456 0.537 0.486 0.509
Assam 0.423 0.473 0.412 0.533 0.533 0.531 0.551 0.56 0.597 0.552 0.494 0.431 0.58 0.605
Bihar 0.283 0.324 0.262 0.319 0.315 0.322 0.343 0.332 0.321 0.336 0.329 0.332 0.347 0.361
Gujarat 0.493 0.52 0.4 0.533 0.5 0.508 0.52 0.526 0.54 0.561 0.532 0.569 0.582 0.565
Haryana 0.448 0.473 0.382 0.467 0.457 0.463 0.489 0.49 0.489 0.524 0.496 0.565 0.54 0.574
Karnataka 0.456 0.471 0.35 0.475 0.462 0.455 0.468 0.485 0.498 0.534 0.517 0.57 0.554 0.571
Kerala 0.684 0.681 0.574 0.701 0.667 0.663 0.675 0.671 0.673 0.709 0.651 0.74 0.704 0.733
Madhya Pradesh 0.374 0.411 0.32 0.422 0.401 0.424 0.448 0.445 0.445 0.471 0.48 0.546 0.497 0.539
Maharashtra 0.521 0.549 0.448 0.566 0.565 0.562 0.581 0.575 0.586 0.622 0.594 0.65 0.575 0.661
Odisha 0.389 0.429 0.316 0.407 0.408 0.424 0.403 0.436 0.474 0.462 0.481 0.519 0.478 0.551
Punjab 0.474 0.477 0.401 0.488 0.469 0.492 0.501 0.522 0.539 0.533 0.499 0.536 0.527 0.557
Rajasthan 0.316 0.35 0.279 0.359 0.345 0.375 0.415 0.405 0.417 0.453 0.469 0.509 0.464 0.494
Tamil Nadu 0.552 0.587 0.45 0.595 0.561 0.552 0.573 0.584 0.584 0.598 0.566 0.661 0.652 0.672
Uttar Pradesh 0.327 0.371 0.303 0.368 0.355 0.359 0.391 0.384 0.374 0.405 0.379 0.454 0.462 0.474
West Bengal 0.508 0.467 0.352 0.479 0.466 0.464 0.491 0.489 0.491 0.494 0.493 0.536 0.548 0.556
All India 0.423 0.446 0.357 0.452 0.439 0.447 0.462 0.464 0.468 0.49 0.477 0.526 0.52 0.541
(Contd....)

Economic & Political Weekly EPW december 16, 2023 vol lViii no 50 51
SPECIAL ARTICLE
Table A3: Education Index (Concluded)
States 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Andhra Pradesh 0.507 0.536 0.531 0.562 0.593 0.583 0.587 0.784 0.804 0.594 0.600 0.591 0.593 0.622
Assam 0.577 0.608 0.619 0.609 0.610 0.609 0.542 0.667 0.682 0.691 0.691 0.702 0.686 0.697
Bihar 0.380 0.395 0.415 0.445 0.485 0.512 0.508 0.521 0.565 0.607 0.647 0.657 0.586 0.584
Gujarat 0.569 0.589 0.601 0.624 0.631 0.645 0.632 0.640 0.648 0.646 0.640 0.635 0.686 0.684
Haryana 0.549 0.562 0.599 0.597 0.627 0.646 0.649 0.674 0.698 0.716 0.721 0.743 0.704 0.712
Karnataka 0.552 0.599 0.606 0.620 0.640 0.637 0.652 0.619 0.623 0.648 0.660 0.628 0.664 0.687
Kerala 0.708 0.760 0.756 0.775 0.796 0.799 0.799 0.784 0.808 0.807 0.811 0.812 0.807 0.812
Madhya Pradesh 0.548 0.597 0.614 0.643 0.664 0.651 0.637 0.636 0.666 0.672 0.681 0.693 0.640 0.641
Maharashtra 0.637 0.676 0.657 0.674 0.687 0.699 0.700 0.706 0.718 0.730 0.741 0.751 0.736 0.737
Odisha 0.529 0.550 0.544 0.572 0.601 0.592 0.592 0.580 0.579 0.579 0.609 0.608 0.646 0.682
Punjab 0.530 0.565 0.561 0.636 0.621 0.644 0.667 0.697 0.717 0.737 0.753 0.771 0.743 0.742
Rajasthan 0.501 0.504 0.531 0.538 0.549 0.570 0.580 0.590 0.596 0.597 0.603 0.604 0.635 0.650
Tamil Nadu 0.671 0.704 0.715 0.712 0.733 0.714 0.706 0.733 0.743 0.747 0.760 0.769 0.738 0.738
Uttar Pradesh 0.476 0.496 0.571 0.572 0.571 0.589 0.588 0.575 0.592 0.597 0.595 0.586 0.615 0.615
West Bengal 0.536 0.598 0.615 0.588 0.624 0.623 0.645 0.650 0.654 0.659 0.664 0.647 0.687 0.697
All India 0.530 0.562 0.582 0.598 0.614 0.625 0.620 0.634 0.652 0.655 0.666 0.664 0.660 0.667
Source: Same as Table 1.

Table A4: Standard of Living Index

States 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Andhra Pradesh 0.622 0.613 0.63 0.638 0.646 0.656 0.649 0.67 0.676 0.689 0.697 0.698 0.713 0.724
Assam 0.625 0.623 0.626 0.627 0.628 0.629 0.629 0.625 0.629 0.631 0.632 0.64 0.649 0.653
Bihar 0.456 0.441 0.441 0.457 0.421 0.459 0.445 0.452 0.456 0.479 0.462 0.482 0.466 0.485
Gujarat 0.598 0.648 0.638 0.669 0.671 0.695 0.692 0.702 0.696 0.679 0.689 0.702 0.728 0.736
Haryana 0.693 0.697 0.701 0.71 0.709 0.726 0.723 0.728 0.736 0.746 0.755 0.763 0.777 0.789
Karnataka 0.67 0.671 0.682 0.688 0.694 0.708 0.716 0.738 0.744 0.743 0.743 0.751 0.752 0.768
Kerala 0.647 0.658 0.674 0.688 0.694 0.7 0.702 0.713 0.725 0.728 0.736 0.747 0.757 0.773
Madhya Pradesh 0.55 0.559 0.575 0.574 0.58 0.588 0.594 0.602 0.617 0.597 0.607 0.593 0.609 0.612
Maharashtra 0.66 0.683 0.699 0.698 0.714 0.717 0.724 0.727 0.741 0.732 0.735 0.745 0.756 0.768
Odisha 0.596 0.589 0.597 0.603 0.609 0.592 0.615 0.618 0.627 0.62 0.629 0.625 0.649 0.67
Punjab 0.722 0.727 0.731 0.733 0.736 0.746 0.747 0.754 0.76 0.763 0.763 0.763 0.771 0.776
Rajasthan 0.595 0.617 0.597 0.624 0.626 0.643 0.66 0.663 0.659 0.647 0.663 0.635 0.684 0.676
Tamil Nadu 0.623 0.631 0.645 0.664 0.669 0.674 0.688 0.694 0.703 0.711 0.706 0.705 0.715 0.734
Uttar Pradesh 0.558 0.557 0.558 0.563 0.565 0.58 0.574 0.571 0.579 0.579 0.578 0.58 0.586 0.592
West Bengal 0.568 0.57 0.58 0.589 0.599 0.609 0.621 0.63 0.641 0.645 0.656 0.659 0.668 0.678
All India 0.621 0.628 0.633 0.642 0.652 0.662 0.666 0.674 0.686 0.689 0.694 0.698 0.71 0.721
States 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Andhra Pradesh 0.733 0.751 0.771 0.774 0.784 0.795 0.799 0.799 0.808 0.825 0.846 0.858 0.875 0.882
Assam 0.656 0.661 0.667 0.675 0.690 0.696 0.702 0.704 0.710 0.718 0.741 0.751 0.763 0.774
Bihar 0.477 0.505 0.511 0.535 0.541 0.565 0.581 0.585 0.590 0.594 0.600 0.614 0.630 0.646
Gujarat 0.759 0.771 0.790 0.795 0.817 0.834 0.844 0.863 0.874 0.890 0.905 0.918 0.936 0.952
Haryana 0.801 0.818 0.829 0.840 0.859 0.868 0.880 0.890 0.903 0.911 0.930 0.946 0.958 0.969
Karnataka 0.784 0.801 0.821 0.832 0.830 0.846 0.850 0.858 0.873 0.880 0.899 0.921 0.938 0.950
Kerala 0.790 0.804 0.819 0.829 0.845 0.855 0.865 0.876 0.883 0.891 0.904 0.918 0.930 0.943
Madhya Pradesh 0.617 0.631 0.636 0.655 0.669 0.676 0.689 0.702 0.708 0.714 0.728 0.749 0.754 0.761
Maharashtra 0.791 0.813 0.830 0.831 0.845 0.863 0.868 0.876 0.886 0.895 0.907 0.923 0.934 0.946
Odisha 0.676 0.695 0.708 0.720 0.719 0.728 0.732 0.741 0.753 0.754 0.765 0.791 0.800 0.813
Punjab 0.782 0.798 0.810 0.817 0.825 0.833 0.840 0.847 0.856 0.861 0.869 0.880 0.889 0.897
Rajasthan 0.684 0.702 0.707 0.719 0.726 0.750 0.764 0.768 0.776 0.786 0.798 0.806 0.813 0.824
Tamil Nadu 0.758 0.784 0.794 0.803 0.820 0.843 0.855 0.863 0.872 0.881 0.895 0.906 0.918 0.931
Uttar Pradesh 0.599 0.610 0.618 0.628 0.636 0.647 0.654 0.659 0.666 0.669 0.681 0.699 0.709 0.716
West Bengal 0.687 0.700 0.712 0.717 0.730 0.739 0.744 0.750 0.752 0.755 0.764 0.775 0.789 0.810
All India 0.732 0.744 0.755 0.757 0.768 0.779 0.783 0.789 0.798 0.809 0.821 0.834 0.844 0.854
Source: Same as Table 1.

Table A5: Regression Result of Log HDI

loghdi Coef z P>z
logsse_gsdp 0.344 1.910 0.057
logsct_gsdp 0.271 4.290 0.000 available at
gsdp_gr 0.021 4.250 0.000
Number of observations = 405
Number of groups =15 Delhi Magazine Distributors Pvt Ltd
R-sq:
within = 0.2186 110, Bangla Sahib Marg
between = 0.7190
overall = 0.0923 New Delhi 110 001
loghdi is log of HDI, logsse_gsdp is the log of ratio of social secor expenditure to GSDP,
logsct_gsdp is the log of the ratio of share in central taxes to GSDP and gsdp_gr refers to Ph: 41561062/63
growth of GSDP at constant prices (2011–12 prices).
Source: Same as Table 1.

52 december 16, 2023 vol lViii no 50 EPW Economic & Political Weekly
SPECIAL ARTICLE
Movement of Remunerations in Business Group Firms
vis-à-vis Stand-alone Firms during Adverse Conditions
Nitya Nand TRIPATHI
While examining Indian business group firms’ behaviour
towards employee wages, salaries, and top executives’
remuneration, this paper investigates financial resource
management differences between business group firms
and stand-alone firms and explores the management
decisions during the global financial crisis and the
COVID-19 pandemic. Using financial information for
32,384 firm-years from non-financial companies listed
on the Indian stock exchange (2003–22), we employed
unbalanced panel data and various statistical tools.
Results showed business group firms prioritising
employee welfare over stand-alone firms. Management
decisions varied during the economic crisis and the
pandemic. The empirical outcomes provide directions
for framing policies to address employees’ welfare
during adverse economic conditions.
Nitya Nand Tripathi (nityanand18@gmail.com) teaches at IBS IFHE,
Hyderabad, at the Department of Finance and Accounting Management.
Economic & Political Weekly EPW december 16, 2023 vol lViII no 50
B
usiness group firms are globally common, significantly
contributing to economic activity. In emerging and
advanced markets, business group firms operate with
diversified horizontal and vertical affiliations, playing vital
roles in economic growth. They optimise internal and external
resources, enhancing economic efficiency. Economic crises
disrupt economies, causing income instability and adverse
outcomes. COVID-19 froze economies, while the global financial
crisis (GFC) of 2008–09 led to declining product demand and
profitability. Research shows management reduces costs dur-
ing adverse conditions (Trevor and Piyanontalee 2020). This
paper explores business groups and stand-alone firm interac-
tions, focusing on business differences, wages, and remunera-
tions during crises (Figures 1 and 2, Appendix A, p 68).
To investigate the objectives or research questions, this paper
uses unbalanced panel data and employs various empirical
methodologies, namely test statistics (t-test), ordinary least
squares (OLS), and random- and fixed-effects estimators. The
OLS estimation produces estimators that can be biased and
inconsistent when unobserved effects correlate with inde-
pendent variables. These types of econometric challenges can
be resolved by using random- and fixed-effects estimators. We
have also evaluated robustness using quantile regressions to
support the main empirical findings.
This paper contributes to four strands of the literature. Studies
on the movement of wages and salaries and the remunerations
in business group and stand-alone firms during the GFC and
the COVID-19 pandemic in the Indian landscape are scant.
First, we add to the debate on the magnitude of differences in
financial resources between business group and stand-alone
firms. Second, we found no literature discussing the movement of
top executives’ remunerations and employees’ salaries during
the GFC of 2008–09 and the COVID-19 pandemic. Third, we
provide empirical evidence that the management behaves
differently under adverse economic and health conditions,
respectively. This paper will, therefore, provide a platform
for management with respect to implementing policies at dif-
ferent levels of economic and health conditions, respectively.
The empirical evidences from this paper suggest, first, that
business group firms manage their capital and other financial
resources differently from stand-alone firms. The magnitude of
differences between business group and stand-alone firms is
presented in Figures 1 to 8. Second, the study reveals the positive
movement of wages and salaries and negative changes in
remunerations in business group firms. Third, a negative
61
SPECIAL ARTICLE
impact of the GFC on wages, salaries, and remunerations was
noted. Fourth, during the COVID-19 pandemic, Indian corpora-
tions behaved differently from what they did during the GFC,
showing a positive relationship with wages, salaries, and
remunerations. The quantile regression findings support the
main estimated empirical results.
Literature Review and Research Questions
The paper examines three aspects: (i) the characteristics of
business group firms, (ii) research on the remunerations of top
executives and employees’ wages and salaries, and (iii) the
compensations (that is, remunerations, wages, and salaries)
during the GFC and the COVID-19 pandemic, which have shaken
the labour market and profitability of corporations across
the globe.
Indian firms can be classified into two groups—business
and stand-alone groups. The country’s organisational struc-
ture differs from other nations, with many large listed compa-
nies being business group firms, majority-owned or controlled
by founding families. These firms are prominent globally,
found in countries like South Korea, Brazil, Italy, India, and
Sweden (Ray and Chaudhuri 2018). Existing research focuses
on business group firms’ value-creation strategies and finan-
cial performance. These firms operate independently in multi-
ple industries, engaging in internal borrowing and lending
(Jian and Wong 2010). Indian business group firms especially
have high ownership and valuable assets, and are better
equipped for capital structure decisions during crises than
stand-alone firms. Top executives’ remuneration is perfor-
mance-based, ensuring the retention of productive employ-
ees (Arya and Mittendorf 2005). This paper developed the fol-
lowing research questions after considering the above argu-
ments.
(i) Do business group firms maintain their financial resources
differently from stand-alone firms?
(ii) Do business group firms pay more wages and salaries to
employees than stand-alone firms?
(iii) Do business group firms disburse more remuneration to
top executives than stand-alone firms?
The literature uses principal–agent model and standard
economic theory to explain top leaders’ compensation and
incentives. The executives aim to maximise shareholder wealth,
connecting effective remuneration incentives to reducing moral
hazard due to ownership separation. Corporations design effi-
cient remuneration packages to motivate and resolve moral
hazards, establishing a positive relationship between remunera-
tion and firm performance (Conyon and He 2012; Ozkan 2011).
During adverse economic conditions like financial crises or
pandemics, chief executive officers (CEOs) and top executives
manage earnings (Assenso-Okofo et al 2020; García-Sánchez
et al 2021). They inflate earnings, leading to changes in remu-
nerations and perks (Rusmin et al 2013; Xu and Ji 2016). To
manage the earnings during such times, compensation con-
tracts focus on upfront earning targets rather than actual
outcomes. Economic or financial crises lead to declining product
demand, thereby affecting earnings and profitability.
62
Management implements cost-cutting measures, renegotiates
prices with suppliers, reduces staff benefits, wages (salaries), and
postpones recruitment and training. These strategies align
with downsizing tactics to lower costs and manage earnings
during downturns (Cascio 2014; Maley 2019; Srinok and
Zandi 2021; Kusa et al 2022). The “economic logic” of curtailing
workplace expenditures improves organisational performance
during challenging economic conditions like GFCs or pandemics
(Cascio 2005; Ogbonnaya et al 2022).
Although the COVID-19 pandemic was a catastrophic public
health crisis and not a financial one, it disrupted the global
economy and corporate earnings. Due to the pandemic, the
economy halted and production discontinued, severely affecting
corporate revenues. This was a situation when firms had to
face the pressure of a substantial decline in the earnings
due to the pandemic, which led them to engage in and
search for earning management strategies that are more
income-increasing (Chen et al 2022; Franceschetti 2020). On
the other hand, the management might misuse the pandemic
as an opportunity and may claim big losses to boost smoothing
the earnings in future years; this strategy was adopted during
the Asian financial crisis of 1997 and the GFC of 2008 (Baik et
al 2020; Lassoued and Khanchel 2021; Al-Faryan 2021; Hill et
al 2016). As we have seen, two major economic turbulences
have had substantial adverse impacts on employment world-
wide. The literature suggests that such a downturn had a
major impact on top executives’ and CEOs’ remunerations and
employees’ salaries. In this paper, we intend to investigate the
direction of remunerations and wages between these two sce-
narios (financial crisis and pandemic). This paper developed
the following research questions considering the literature
discussed above:
(iv) Did the wages and salaries move in the same direction dur-
ing the GFC of 2009 and the COVID-19 pandemic?
(v) Did the top executives’ remunerations move in the
same direction during the GFC of 2009 and the COVID-19
pandemic?
Research Questions and Methodology
We empirically studied employees’ wages and salaries and top
executives’ remunerations at four levels. First, we tested the
existence of a difference in financial management between
business groups and stand-alone firms. Second, we analysed
the movement of wages and remunerations within them.
Third, we tested the movement of remuneration and salaries
when firms operated under business group and stand-alone,
respectively, during the financial crisis. Fourth, we investigated
the impact on wages and remunerations during the COVID-19
pandemic in the two types of firms.
To examine the research questions, we used unbalanced
panel data and employed various empirical methodologies,
namely test statistics (t-test), OLS, and random- and fi xed-ef-
fect estimators. The OLS estimation produces estimators that
can be biased and inconsistent when unobserved effects cor-
relate with independent variables. These types of econometric
challenges can be resolved by using random- and fixed-effects
december 16, 2023 vol lViII no 50 EPW Economic & Political Weekly
 SPECIAL ARTICLE

estimators. We used test statistics to investigate research
question; (i) equations (1) and (2) to test research questions
(ii) and (iv); and equations (3) and (4) to test research ques-
tions (iii) and (v). The definitions of variables are listed in
Table 1. All variables used in this study were obtained from
the literature (Michaelides et al 2019; Hill et al 2016). The
equations used are as follows:
otherwise. Further, this paper uses six models in Tables 3 and 4
(p 64). Models I, II, and III of Table 3 exhibit the empirical
findings of research question (ii) and Models IV, V, and VI of
Table 3 display the empirical findings of research question (iv). In
the same manner, Models I, II, and III of Table 4 show the empiri-
cal findings of research question (iii) and Models IV, V, and VI of
Table 3 present the empirical findings of research question (v).

LNEMPi,t = a0+ a1 Lnsalesi,t+ a2 GP * CRI * Lnsalesi,t Data and Descriptive Statistics

+ a3ROA i,t+ a4 Sizei,t+ a5 TBQi,t+ a6Leveragei,t+ a7OCFi,t
Financial data were obtained from the Prowess database of the
+ a8Liquidity i,t+ a9 GDUMi+ a10 FINCRIt+ εi,t …(1)
Centre for Monitoring Indian Economy (CMIE) from 2003 to
LNEMPi,t=a0+a1Lnsalesi,t+ a2 GP * PAN * Lnsalesi,t
2022. We used 32,384 firm-years (that is, annual observations)
+ a3ROA i,t+ a4 Sizei,t+ a5 TBQi,t+ a6 Leveragei,t+ a7 OCFi,t
for this study and considered only those firms listed from 2008
+ a8Liquidity i,t+ a9 GDUMi+ a10 DUMPANt+ εi,t …(2)
to 2022 (that is, during the financial crisis and pandemic peri-
LNREMi,t=a0+a1 Lnsalesi,t+ a2 GP * CRI * Lnsalesi,t
od). We used six control variables, which have been used in
+ a3ROA i,t+ a4 Sizei,t+ a5 TBQi,t+ a6Leveragei,t+ a7 OCFi,t
different empirical studies (Michaelides et al 2019; Hill et al
+ a8Liquidity i,t+ a9 GDUMi+ a10 FINCRIt+ εi,t …(3)
2016; De Massis et al 2015). We used two dependent varia-
LNREMi,t=a0+a1 Lnsalesi,t+ a2 GP * PAN * Lnsalesi,t
bles—LNEMP and LNREM. Our main independent variables
+ a3ROA i,t+ a4 Sizei,t+ a5 TBQi,t+ a6 Leveragei,t+ a7OCFi,t
were Lnsales, GDUM, FINCRI, and DUMPAN. We expected
+ a8Liquidity i,t+ a9 GDUMi+ a10 DUMPANt+ εi,t …(4)
GDUM, FINCRI, and DUMPAN to have different relationships
where i reflects firms and t time. Yit= (LNEMP and LNREM) are with dependent variables. Furthermore, we expected GDUM,
the dependent variables. We calculated LNEMP as the natural FINCRI, and DUMPAN to exhibit different relationships with
logarithm of employees’ salary expenses incurred by the firm dependent variables. We also expected a positive linkage of
each year and LNREM as the natural logarithm of the total Size, ROA, TBQ, and OCF with the dependent variables but a
remuneration of top executives each year. Lnsales indicates the negative relationship of leverage and liquidity with the
natural logarithm of total sales each year. GP*CRI* Lnsales is dependent variables.
derived as the interaction between business group firm (GDUM), Table 1 presents the descriptive statistics. The average
FINCRI (financial crisis), and Lnsales. GP*PAN*Lnsales is derived wages and salaries and remunerations were `837.24 million
as the interaction between business group firm (GDUM), PAN and `25.63 million, respectively. The average sales were
(pandemic period), and Lnsales. ROA is calculated as profit af- `17,430.2 million, profit after tax was `564.5 million, and mar-
ter tax divided by total assets. Size is calculated as the natural ket capitalisation was `10,504.6 million. The leverage, ROA,
logarithm of total assets each year. TBQ is calculated as the liquidity, TBQ, and OCF values were 30%, 4%, 2.06 times,
sum of market capitalisation, total debt, and preferential capi- 1.21 times, and -6%, respectively.
tal divided by the total assets of the firm. Leverage is expressed
as total debt divided by the total assets of the firm. OCF is cal- Empirical Findings
culated as the net operating cash flow divided by the total as- We tested research question (i) using test statistics, and
sets of the firm. Liquidity is calculated as current assets divid- the results are presented in Table 2. Business group fi rms
ed by current liabilities. GDUM is a dummy variable that as- paid more wages and remunerations to their employees and
sumes a value of 1 if the firm belongs to a business group and 0 Table 2: Test Statistics (t-test) (` million)
otherwise. FINCRI is a dummy variable that captures the recent SA BG
Mean Mean Difference t-value F-value
financial crisis and assumes a value of 1 between 2009 and
Wages and salaries 536.7 1,280.6 -743.9 -29.1a 2.0a
2012 and 0 otherwise. DUMPAN is a dummy variable for the Remunerations 146.7 417.9 -271.1 -44.8a 4.5a
pandemic that assumes a value of 1 if the year is 2020 and 0 Sales 17,430.2 25,156.5 -7,726.4 -4.3a 1.9a
PAT 564.5 1,392.4 -827.9 -21.3a 2.4a
Table 1: Descriptive Statistics (` million) Share capital 405.7 755.4 -349.7 -18.6a 1.5a
Variable Mean Maximum StdDev Minimum Reserve and surplus 4,136.7 11,444.1 -7,307.4 -27.5a 2.6a
LNEMP 4.84 9.68 2.08 0.51 LTD 4,486.2 11,020.6 -6,534.4 -10.0a 1.9a
LNREM 1.40 5.86 2.38 2.95 TA 10,504.6 28,410.2 -17,905.6 -28.42a 2.31a
Lnsales 7.51 15.82 2.06 2.66 Market capitalisation 10,417.6 28,996.2 -18,578.6 -25.3a 3.1a
Wages and salaries 837.24 15,940 2,290.3 0.6 CA 3,544.5 8,183.4 -4,638.8 -27.6a 1.9a
Remunerations 25.63 349.61 55.08 0.51 Inventory 1,089.6 2,768.8 -1,679.2 -30.4a 2.4a
Total assets 17,737.87 4,10,545.6 56,330.86 41.8 Cash 677.6 1,200.2 -522.6 -14.1a 1.4a
Market capitalisation 17,922.71 4,56,278.78 65,569.37 7.81 CL 3,356.4 8,608.3 -5,251.9 -27.8a 2.1a
Net operating cash flow 1,273.14 33,233.3 4,709.5 -2,524.3 Leverage 0.2859 0.3091 -0.0232 -5.22a 1.41a
Current assets 5,418.44 1,02,367.6 15,024.33 6 ROA 0.0368 0.0464 -0.0096 -2.21a 17.48a
Leverage 0.3 12.53 0.39 0 Liquidity 2.3076 1.6844 0.6232 16.11a 2.28a
Tobins Q 1.2146 1.2035 0.0111 0.3 3.42a
Return on assets 0.04 64.94 0.38 -2.93
OCF -0.1267 0.0389 -0.1656 -7.84a 9.06a
Liquidity 2.06 193.58 3.43 0 The stand-alone (SA) firms and the business group (BG) firms have financial information
Tobins Q 1.21 203.36 3.24 0 for 19,302 and 13,082 firm-year from the period of 2003 to 2022; superscript a shows that
The financial information is displayed for 32,384 firm-year from 2003 to 2022. differences are statistically significant at 1% level.

Economic & Political Weekly EPW december 16, 2023 vol lViII no 50 63
SPECIAL ARTICLE

top executives than stand-alone firms, and the mean differ- The estimated coefficients of Lnsales were positively related
ences were statistically significant at the 1% level (Figures 1 to employees’ wages and salaries (LNEMP) in all models and
and 2). The statistical outcomes showed that business group were statistically significant at the 1% level. These findings
firms were financially stronger than stand-alone fi rms, and revealed that the revenue volume was positively related to
the differences were also statistically significant at the 1% employees’ wages and salaries, and as revenue increases, the
level. However, stand-alone firms maintained more liquidity firms’ expense in human resources to fulfil the demand for
than business group firms because, during the adverse period, the product and services also increases. The estimated coeffi-
these firms may have faced difficulty in raising funds, cient of GDUM was positively related to LNEMP, which
whereas business group firms could manage the funds from revealed that business group firms behave more positively
within the associated firms. The findings indicated that towards their employees than stand-alone firms. Models I, II,
business group firms maintained financial resources differ- and III (represent research question [i]) show the linkage
ently from stand-alone firms. Further, this paper also provides between FINCRI and wages and salaries. The coefficients
a visualisation effect on the major components of financial of FINCRI were negatively related to LNEMP, suggesting that
information (Figures 1–8). firms reduced their wages during the fi nancial crisis. How-
Empirical results obtained using equations (1) to (4) are ever, the coefficients of GP*CRI*Lnsales were positively related
presented in Tables 3 and 4. For the pooled estimation, we to wages. These findings propose that business group firms
used OLS and random- and fixed-effects estimators. All mod- were more generous during the financial crisis than stand-
els were statistically significant at the 1% level, and we did alone firms. On the other hand, models IV, V, and VI (repre-
not find the multicollinearity problem because the variance sent research question [iv]) present the linkage between
inflation factor of each coefficient was <4.0 in each estima- DUMPAN and wages and salaries. The empirical findings
tion. We used the Durbin–Watson statistic to examine the au- revealed that firms did not reduce their wages during
tocorrelation between the residuals and regression analysis. the pandemic period. However, the relationship between
No autocorrelation problems were identified in any model. GP*PAN*Lnsales was negatively related to wages, which indi-
Table 3 presents the empirical findings obtained using cates that during the lockdown period, the revenue volume
equations (1) and (2) to test research questions (ii) and (iv). Table 4: Empirical Results
Models I, II, and III present the empirical results of research question (iii) and Models IV, V, and VI exhibit the
Table 3: Empirical Results empirical findings of research question (v).
Models I, II, and III show the empirical results of research question (ii) and Models IV, V, and VI display the Models
empirical findings of research question (iv). Variables I II III IV V VI
Variables Models Intercept -4.282a -7.787a -8.470a -4.318a -7.686a -8.336a
I II III IV V VI (-93.62) (-87.32) (-26.72) (-96.56) (-86.8) (-26.32)
Intercept -2.114 a -2.843a -2.734a -2.145a -2.821a -2.692a Lnsales 0.279a 0.251a 0.271a 0.285a 0.258a 0.277a
(-89.2) (-79.91)(-26.58) (-92.37) (-79.4) (-26.23) (25.9) (17.88) (18.2) (26.61) (18.43) (18.66)
Lnsales 0.439a 0.445a 0.446a 0.440a 0.446a 0.447a GP*CRI* Lnsales 0.023a 0.015a 0.014a
(78.7) (94) (92.31) (79.11) (94.53) (92.8) (3.94) (3.51) (3.39)
GP * CRI * Lnsales 0.002 0.003b 0.003c GP*PAN* 0.000 -0.007 -0.008
(0.62) (1.96) (1.92) Lnsales (0.03) (-0.96) (-1.03)
GP * PAN * Lnsales -0.014b -0.012a -0.012a
Size 0.494a 0.970a 1.082a 0.484a 0.945a 1.059a
(-2.54) (-4.88) (-4.84)
(42.93) (61.79) (64.38) (42.12) (59.93) (62.58)
Size 0.478a 0.541a 0.546a 0.475a 0.532a 0.536a
Leverage -0.703a -0.316a -0.250a -0.698a -0.317a -0.251a
(80.11) (101.6) (100) (79.57) (99.42) (97.7)
(-27.37) (-11.4) (-8.75) (-27.27) (-11.47) (-8.79)
Leverage -0.227a 0.008 0.015c -0.225a 0.008 0.015
ROA 0.063b 0.053b 0.067a 0.067b 0.054b 0.068a
(-17.06) (0.86) (1.66) (-16.93) (0.83) (1.6)
(2.39) (2.52) (3.09) (2.56) (2.58) (3.14)
ROA 0.005 -0.010 -0.010 0.007 -0.010 -0.009
(0.39) (-1.48) (-1.43) (0.51) (-1.38) (-1.34) Liquidity -0.029a -0.009a -0.005c -0.028a -0.009a -0.005c
Liquidity -0.037a -0.012a -0.011a -0.037a -0.012a -0.011a (-9.6) (-3.16) (-1.83) (-9.44) (-3.18) (-1.84)
(-24.05) (-13.36) (-12.32) (-23.9) (-13.39) (-12.36) TBQ 0.026a 0.019a 0.017a 0.026a 0.020a 0.017a
TBQ 0.018a 0.004a 0.003a 0.018a 0.005a 0.004a (8.41) (6.35) (5.62) (8.55) (6.52) (5.74)
(11.19) (3.73) (3.26) (11.52) (4.59) (4.13) OCF 0.015a 0.002 0.004 0.014a 0.003 0.004
OCF 0.013a -0.001 -0.001 0.013a -0.001 -0.001 (2.71) (0.55) (0.76) (2.68) (0.57) (0.78)
(4.74) (-0.55) (-0.89) (4.65) (-0.66) (-1) GDUM -0.053a -0.671a 0.000 -0.007 -0.614a 0.000
GDUM 0.186a 0.173a 0.000 0.199a 0.195a 0.000 (-2.21) (-8.42) (00) (-0.31) (-7.84) (00)
(15.05) (4.36) (0) (17.13) (4.95) (00) FINCRI -0.122a -0.065a -0.053b
FINCRI -0.111a -0.101a -0.099a (-3.92) (-2.85) (-2.29)
(-6.91) (-13.41) (-13.26) DUMPAN 0.697a 0.425a 0.359a
DUMPAN 0.327a 0.268a 0.264a (11.85) (9.79) (8.21)
(10.7) (18.86) (18.62) F-Value 2413a 14.48a 2449a 14.37a
F-value 12,871a 59.6a 12,907a 59.87a Adj-R2 0.427 0.316 0.712 0.431 0.318 0.712
Adj-R2 0.799 0.712 0.960 0.799 0.714 0.961 DW test 0.681 0.699
DW test 0.283 0.287 Hausman test 590.48a 579.04a
Hausman test ( χ 2) 217.77a 218.86a (χ2)
Firm-year 32,384 32,384 32,384 32,384 32,384 32,384 Firm-year 32,384
Model OLS Random Fixed OLS Random Fixed Model OLS Random Fixed OLS Random Fixed
F and Y fixed No Yes Yes No Yes Yes F and Y fixed No Yes Yes No Yes Yes
Superscripts a, b, and c show that the findings are statistically significant at 1%, 5%, and 10% Superscripts a, b, and c show that the findings are statistically significant at 1%, 5%, and 10%
levels, respectively. levels, respectively.

64 december 16, 2023 vol lViII no 50 EPW Economic & Political Weekly
 SPECIAL ARTICLE

plummeted. Hence, it had a negative impact on wages in findings suggest that business group firms take more care of
business group firms compared with stand-alone firms, which their employees than stand-alone firms during normal eco-
reveals that if any components of the salary are linked to nomic conditions, the financial crisis, and the pandemic that
sales, then that amount would be reduced from the salary covers research questions (ii) and (iv).
during the pandemic period. The control variable ROA was Table 4 presents the empirical findings obtained using equa-
positively related to LNEMP but was not statistically signifi- tions (3) and (4) to test research questions (iii) and (v). The
cant, indicating that wage expenses are not linked to the prof- coefficients of Lnsales were positively associated with LNREM
itability of the firm. On the other hand, variable size and TBQ in all the estimated models, and all findings were statistically
were positively linked with LNEMP, and the coefficients were significant at the 1% level. The empirical outcome shows that
statistically significant at the 1% level. Thus, firms increase the magnitude of sales was strongly related to the remunera-
their expenses on wages as the size of the firm increases and tions, as it shows that as the sales volume increased, it impacted
its market value increases; however, leverage and liquidity the remunerations positively. However, the estimated coeffi-
were negatively associated with LNEMP, which indicates that cients of GDUM were negatively related to LNREM; these find-
high liquidity and leverage do not support an increase in the ings appear inconclusive, as we do not find consistent results
disbursements of employees’ wages and salaries. Overall, the in all the models. Models I, II, and III (representing research
Table 5: Quantile Regression Results question [iii]) discuss the movement of remu-
This table reports quantile results, dependent variable is the natural log of employees’ wages and salaries (Lnemp). nerations during the GFC. The coefficients of
Quantile FINCRI are found to be negatively related to
Variables 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 the remunerations. The results show a decline
Panel A: Interest of variables, that is, interaction between group dummy, Lnsales and financial crisis
dummy (GP*PAN*Lnsales) and financial crisis dummy (FINCRI) in the remunerations across all firms. Fur-
a
Intercept -3.598 -2.826 -2.366 -2.105 a a a a
-1.888 -1.663 a -1.419 a -1.107 a -0.659 a thermore, this paper examines the link
(-69.57) (-77.47) (-82.88) (-69) (-68.08) (-58.1) (-42.21) (-33.82) (-17.33) between GP*CRI*Lnsales and LNREM. The
Lnsales 0.502a 0.499a 0.495a 0.482a 0.463a 0.443a 0.410a 0.364a 0.287a
(59.77) (70.68) (68.55) (68.39) (61.24) (60.16) (53.04) (47.86) (27.09) estimated coefficients of GP*CRI*Lnsales
GP*CRI* 0.010 c 0.008 b 0.005 c -0.002 -0.003 -0.004 c -0.001 -0.003 0.002 were positively linked with LNREM, which
Lnsales (1.73) (2.14) (1.72) (-0.78) (-1.34) (-1.65) (-0.48) (-1.18) (0.59) indicates that during the crisis period, the
Size 0.461a 0.438a 0.422a 0.430a 0.443a 0.454a 0.477a 0.508 a 0.566a
(48.5) (55.77) (54.6) (61.24) (58.68) (58.99) (58.55) (62.76) (54.33)
top executives’ remunerations were linked to
Leverage a a a a
-0.222 -0.382 -0.398 -0.376 -0.331 -0.312 -0.304 -0.285 -0.284 a a a a a the sales volume, and business group firms
(-4.92) (-9.48) (-11.12) (-10.78) (-11.08) (-11.56) (-16.27) (-16.36) (-18.73) paid more incentives or remunerations to
ROA 0.025 0.017 0.011 0.008 0.004 0.000 -0.021 -0.038 -0.013
(0.23) (0.2) (0.19) (0.15) (0.06) (0) (-0.19) (-0.39) (-0.2)
their top executives than stand-alone fi rms.
Liquidity -0.064a -0.066a -0.065a -0.062a -0.058a -0.054a -0.046a -0.037a -0.033a Furthermore, this study investigated the
(-10.09) (-13.96) (-14.25) (-13.99) (-14.72) (-15.46) (-14.32) (-14.37) (-10.6) movement of remuneration during DUMPAN;
TBQ 0.009a 0.016a 0.025a 0.033a 0.045a 0.062a 0.076a 0.088a 0.097a
the outcomes in models IV, V, and VI (repre-
(6.05) (5.04) (4.53) (5.04) (4.61) (7.83) (7.67) (7.46) (6.64)
OCF 0.035 0.022b 0.021a 0.015a 0.010b 0.009a 0.010a 0.013a 0.008b senting research question [v]) exhibited a
(1.23) (1.98) (2.69) (2.67) (2.08) (3.4) (3.86) (3.15) (2.14) positive relationship with LNREM. The re-
GDUM 0.355a 0.287a 0.235a 0.193a 0.159a 0.154a 0.116a 0.075a 0.027c
sults reveal that during the pandemic period,
(13.3) (16.41) (15.92) (14.89) (14.68) (13.85) (10.39) (6.36) (1.77)
FINCRI -0.161 a -0.153 a a a a
-0.143 -0.092 -0.087 -0.072 -0.077 -0.057 -0.100 a a a a firms did not make any adverse decisions to
(-4.17) (-6.24) (-6.6) (-4.7) (-5.48) (-5.09) (-4.29) (-3.51) (-4.32) reduce the remuneration of their top execu-
Panel B: Interest of variables that is, interaction between group dummy, Lnsales and pandemic dummy
tives. Importantly, this paper does not find
(GP*PAN* Lnsales) and pandemic dummy (DUMPAN)
Intercept -3.649a -2.855a -2.401a -2.141a -1.904a -1.693a -1.450a -1.122a -0.698a any conclusive result that top executives’
(-66.48) (-68.96) (-71.9) (-65.96) (-56.99) (-53.48) (-41.73) (-32.6) (-15.33) remunerations establish any link between
Lnsales 0.502a 0.498a 0.497a 0.485a 0.460a 0.448a 0.414a 0.365a 0.291a GP*PAN*Lnsales and LNREM. On the other
(54.56) (62.58) (71.02) (66.45) (58.24) (57.78) (57.63) (45.39) (28.05)
GP*PAN* -0.016 -0.016a -0.016a -0.017a -0.015a -0.015a -0.013a -0.008 -0.003 hand, the estimated coefficients of control
Lnsales (-1.51) (-2.69) (-3) (-3.73) (-3.31) (-3.38) (-3.26) (-1.61) (-0.38) variables, that is, size, ROA, and TBQ were
Size 0.461a 0.434a 0.419a 0.425a 0.442a 0.448a 0.472a 0.506a 0.562a positively related to LNREM, which suggests
(45.7) (51.21) (57.78) (55.24) (54.75) (56) (58.54) (61.06) (53.44)
Leverage -0.209a -0.358a -0.399a -0.361a -0.323a -0.304a -0.297a -0.292a -0.275a that as the performance of the firms improves
(-4.08) (-8.15) (-11.07) (-9.87) (-9.74) (-11.57) (-17.37) (-19.29) (-18.66) at that point in time, the top executives’
ROA 0.026 0.017 0.011 0.008 0.004 0.000 -0.017 -0.034 -0.013 remunerations increase. However, leverage
(0.25) (0.17) (0.18) (0.14) (0.06) (0) (-0.17) (-0.4) (-0.17)
Liquidity -0.064a -0.067a -0.065a -0.060a -0.058a -0.052a -0.045a -0.038a -0.032a and liquidity did not support the positivity in
(-11.03) (-13.04) (-14.35) (-14.09) (-13.84) (-15.2) (-12.44) (-12.59) (-8.86) LNREM, indicating that whenever the firms
TBQ 0.009a 0.017a 0.026a 0.035a 0.050a 0.065a 0.078a 0.090a 0.100a created more leverage and liquidity, it re-
(5.03) (5.16) (4.54) (4.28) (4.47) (5.97) (6.96) (7.46) (6.47)
OCF 0.032 0.023c 0.021b 0.015b 0.012b 0.008b 0.011a 0.013a 0.008c
duced the remunerations. Finally, this paper
(1.24) (1.85) (2.44) (2.29) (2.44) (2.53) (4.09) (2.78) (1.83) does not support the notion that business
GDUM 0.382 0.322a 0.255a 0.199a 0.168a 0.158a 0.123a 0.081a 0.031b group firms behave differently in terms of
(17.96) (23.38) (18.84) (14.9) (15.52) (14.32) (11.96) (7.6) (2.09)
DUMPAN 0.390a 0.365a 0.338a 0.347a 0.328a 0.324a 0.286a 0.237a 0.200a
remuneration than stand-alone firms. How-
(5.06) (8.62) (8.35) (14.27) (10.77) (10.68) (11.82) (7.05) (4.67) ever, during the GFC, business group firms
Firm-year 32,384 protected the top executives’ remuneration
Economic & Political Weekly EPW december 16, 2023 vol lViII no 50 65
SPECIAL ARTICLE

through a link to sales volume. Lastly, during the COVID-19 Panel A of Table 6 presents the findings for research question
pandemic, the Indian landscape corporations showed encour- (ii). The estimated coefficients of Lnsales were positively
aging movement towards its top executives by not reducing related to LNEMP in all quantiles, and all coefficients were
their remunerations (research questions [iii] and [v]). statistically significant at the 1% level. However, the magni-
tude of the coefficients decreased with an increase in the
Robustness Check quantile; the coefficients for 0.10 and 0.90 quantiles were
We examined the robustness of our findings using the fi xed- 0.502 and 0.287, respectively. These coefficients indicate
effects quantile panel data approach. We evaluated the robust- that wages in the higher quantiles incurred fewer increments
ness of all our research questions; the quantile estimations in their wages and salaries than those in the lower quantiles.
(that is, 0.10, 0.20, 0.30, 0.40, 0.50, 0.60, 0.70, 0.80, and The coefficients of GP*CRI*Lnsales indicated that firms
0.90) are presented in Table 5 (p 65) (equations 1 and 2) and under the quantiles of 0.10, 0.20, and 0.30 established a posi-
Table 6 (equations 3 and 4). tive linkage between LNEMP and GP*CRI*Lnsales, whereas
Table 5 presents the relationship between Lnsales, those under the quantile 0.6 reported a negative relation
GP*CRI*Lnsales, GDUM, FINCRI, and LNEMP. Equations (1) with GP*CRI*Lnsales. These outcomes suggest that firms un-
and (2) tested research questions (ii) and (iv), respectively. der the quantiles of 0.10, 0.20, and 0.30 pertained to busi-
ness group firms receiving more wages during the financial
Table 6: Quantile Regression Results crisis than stand-alone firms. Finally, all
This table reports quantile results, dependent variable is the natural log of top executive remunerations (Lnrem).
Quantile
quantiles reported negative relations with
Variables 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 LNEMP during the financial crisis; however,
Panel A: Interest of variables, that is, interaction between group dummy, Lnsales and financial crisis dummy (GP*PAN*Lnsales) and business group firms provided positive sup-
financial crisis dummy (FINCRI)
Intercept a a a a a
-7.038 -6.697 -5.114 -4.125 -3.547 -3.159 -2.816 -2.471 -2.068 a a a a port to their employees through various
(-75.44) (-76.22) (-59.5) (-69.51) (-68.01) (-69.42) (-72.56) (-59.74) (-45.69) employee benefits. Panel B of Table 5 presents
Lnsales 0.229a 0.387 a 0.371a 0.313a 0.261a 0.222a 0.199a 0.177a 0.180a the findings for research question (iv). The
(8.95) (14.55) (19.25) (18.53) (16.73) (14.57) (15.53) (14.38) (13.71)
GP*CRI* Lnsales 0.126a 0.027 a 0.005 0.005 0.004 0.003 0.004 0.005 0.003 main empirical investigation of this panel
(7.06) (2.8) (0.65) (0.86) (1) (0.73) (0.96) (1.21) (0.82) examined the impact of DUMPAN and
Size 0.541a 0.539 a 0.490a 0.479a 0.495a 0.513a 0.518a 0.523a 0.508a GP*PAN*Lnsales on LNEMP. The coefficients
(21.04) (20.27) (25.8) (30.83) (34) (38.8) (43.52) (44.46) (41.87)
Leverage -1.134a -1.103 a -1.092a -1.022a -0.939a -0.820a -0.721a -0.633a -0.523a of DUMPAN were positively related to
(-8.11) (-9.05) (-11.92) (-14.92) (-13.51) (-12) (-14.28) (-17.84) (-15.19) LNEMP, which explains that there was no
ROA 0.026 0.008 0.285 0.478 0.778c 0.880c 1.084a 1.132a 0.996a reduction in wages and salaries during the
(0.41) (0.03) (0.71) (1.13) (1.72) (1.74) (2.79) (3.24) (2.8)
Liquidity -0.019a -0.040 a -0.057a -0.046a -0.042a -0.035a -0.032a -0.024a -0.012a pandemic; it also explores whether business
(-2.61) (-6.11) (-7.51) (-6.96) (-7.76) (-10.72) (-9.5) (-6.24) (-3.83) group firms eased the wages and salaries of
TBQ 0.024a 0.025 a 0.017a 0.019a 0.025b 0.035a 0.053a 0.067a 0.092a their employees if any incentive or wages
(7.54) (7.06) (4.75) (2.49) (2.42) (2.94) (3.55) (4.82) (3.99)
OCF -0.023a 0.006 0.034a 0.046a 0.035a 0.035b 0.012c 0.008 0.006c were linked with the sales for the firms falling
(-6.41) (0.75) (5.17) (6.36) (3.36) (2.35) (1.66) (1.22) (1.76) under the quantiles of 0.30 to 0.70. The em-
GDUM -0.068 0.112 c -0.139a -0.084a -0.049b -0.053a -0.040b -0.044a -0.081a pirical findings in this table support those
(-0.95) (1.75) (-3.96) (-3.24) (-2.23) (-2.83) (-2.49) (-2.95) (-4.87)
FINCRI -0.200b -0.110 -0.095c -0.092b -0.106a -0.132a -0.122a -0.128a -0.151a
in Table 3.
(-2.61) (-1.27) (-1.79) (-2.54) (-3.61) (-4.87) (-5.35) (-5.47) (-6.41) Table 6 presents the relationship between
Panel B: Interest of variables, that is, interaction between group dummy, Lnsales and pandemic dummy (GP*PAN* Lnsales) and pandemic Lnsales, GP*CRI*Lnsales, GDUM, FINCRI,
dummy (DUMPAN)
Intercept -7.136a -6.706a -5.111a -4.139a -3.578a -3.185a -2.858a -2.530a -2.124a and LNREM. Equations (3) and (4) tested
(-74.95) (-80.52) (-53.93) (-67.21) (-67.44) (-69.04) (-73.09) (-57.76) (-42.07) research questions (iii) and (v), respectively.
Lnsales 0.253a 0.395a 0.373a 0.314a 0.259a 0.224a 0.202a 0.185a 0.180a Panel A of Table 6 presents the findings for
(11.31) (17.31) (20.62) (20.71) (18.29) (16.87) (17.79) (16.47) (16.5)
GP*PAN* Lnsales 0.100a -0.042a -0.025a -0.017b -0.015b -0.015b -0.019a -0.019a -0.017b research question (iii). The empirical find-
(4.1) (-3) (-2.82) (-2.13) (-2.41) (-2.25) (-3.3) (-3.38) (-2.62) ings revealed that sales volume was positive-
Size 0.522a 0.518a 0.477a 0.47a 0.491a 0.507a 0.512a 0.515a 0.506a ly related to remunerations. Business group
(25.24) (21.82) (26.29) (32.57) (37.51) (41.03) (49.25) (46.77) (45.45)
Leverage -1.186a -1.121a -1.071a -1.008a -0.908a -0.808a -0.710a -0.632a -0.526a firms established a negative relationship with
(-8.37) (-9.68) (-13.18) (-13.21) (-12.09) (-12.49) (-14.11) (-18.23) (-16.55) remunerations compared with stand-alone
ROA 0.025 0.007 0.282 0.519 0.852c 0.960b 1.078a 1.183a 0.971a firms. The estimated fi ndings of FINCRI
(0.53) (0.03) (0.67) (1.2) (1.86) (2.05) (3.01) (3.61) (3.05)
Liquidity -0.017a -0.037a -0.057a -0.047a -0.040a -0.035a -0.031a -0.024a -0.013a revealed a negative relationship with remu-
(-2.68) (-5.65) (-7.01) (-6.58) (-7.32) (-9.66) (-8.01) (-5.85) (-3.71) nerations. The major results showed that the
TBQ 0.024a 0.027a 0.018a 0.019b 0.026b 0.036b 0.058a 0.071a 0.103a top executives of business group firms
(6.57) (6.46) (4.58) (2.57) (2.47) (2.59) (3.63) (4.76) (4.43)
OCF -0.023a 0.005 0.034a 0.043a 0.037a 0.034b 0.011 0.007 0.005
received lower remunerations than those of
(-5.22) (0.58) (5.72) (5.75) (3.45) (2.2) (1.44) (1.15) (1.25) stand-alone firms, and all categories of firms
GDUM 0.094 0.222a -0.092b -0.058b -0.032c -0.038c -0.024 -0.024 -0.069a reduced the remunerations or incentives of
(1.57) (3.75) (-2.41) (-2.26) (-1.64) (-1.95) (-1.5) (-1.43) (-3.53)
DUMPAN 1.098a 1.240a 0.851a 0.656a 0.600a 0.516a 0.483a 0.463a 0.393a
their top executives during the GFC. Panel B
(5.66) (10.55) (13.57) (12.52) (14.26) (13) (13.21) (13.83) (8.86) of Table 6 shows that during COVID-19, the
Firm-year 32,384 remunerations of top executives were not
66 december 16, 2023 vol lViII no 50 EPW Economic & Political Weekly
 SPECIAL ARTICLE

condensed in any of the quartiles of the firms. The findings in
Table 6 support those in Table 4.
In Conclusion
This paper analysed the behaviour of business group firms
compared to stand-alone firms with regard to employee wages,
top executives’ remunerations, and their response during the
financial crisis and COVID-19. The relationship between sales
and wages/remunerations in business group firms during
these periods was also examined using quantile regression.
Results showed that business group firms were more positive in
managing employee wages compared to stand-alone firms. Dur-
ing the financial crisis, all firms reduced their wages, but during
the pandemic, business group firms maintained or increased wag-
es. The relationship between wages and sales during the financial
crisis was positive for business group firms but turned negative
during the pandemic. Regarding the top executives’ remunera-
tions, business group firms exhibited a negative relationship, indi-
cating lower remunerations compared to stand-alone firms. Dur-
ing the financial crisis, a reduction in remunerations was observed,
but business group firms were able to increase it since they
tied some portion of remuneration to sales. However, during
the pandemic, the remunerations remained stable.
This suggests that business group firms were more generous
to employees during economic challenges than stand-alone
firms. Additionally, business group firms managed differently
during the financial crisis and the pandemic—reducing wages
during the former but maintaining them during the latter due
to increased demand and supply challenges.
The quantile regression supported these findings. The paper
holds essential policy implications, suggesting that top execu-
tives’ contracts should consider both firm performance and
economic conditions. Remunerations can be decreased during
adverse economic situations, but the firm should be cautious
about reducing employees’ salaries beyond profitability to
minimise unemployment. Further research could explore
remunerations and salaries across different industries and
corporate governance variables, examining their impact on
various board subcommittees. Additionally, financial firms in
different economies could be studied to gain broader insights.

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Economic & Political Weekly EPW december 16, 2023 vol lViII no 50 67
SPECIAL ARTICLE

Appendix A
Figure 1: Average Employees Wages and Salaries (Business Group versus Figure 2: Average Directors’ Remuneration (Business Group versus
Stand-alone) Stand-alone)
2 500
90
80
70

Remuneration (಺ million)
2 000
Wages and salaries (಺million)

Business group firms salaries

60
1 500 50
Total salaries Business group firms remuneration
40
1 000 Total remueration
30
20
500
Stand-alone firms salaries 10
Stand-alone firms remuneration
0
0

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Years Years
Financial crisis year 2009–12 and COVID-19 pandemic year 2020–21. Financial crisis year 2009–12 and COVID-19 pandemic year 2020–21.

Figure 3: Aversge Sales (Business Group versus Stand-alone) Figure 4: Average Profit after Tax (Business Group versus Stand-alone)

60,000 3 000

50,000 2 500
Sales (಺ million)

40,000 2 000
Business group firms sales PAT (಺million) Business group firms PAT
30,000 1 500
Profit after tax (PAT)
20,000 Sales
1 000
Stand-alone firms sales
10,000 500

0 Stand-alone firms PAT

0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Years Years
Financial crisis year 2009–12 and COVID-19 pandemic year 2020–21. Financial crisis year 2009–12 and COVID-19 pandemic year 2020–21.

Figure 5: Average Total Assets (Business Group versus Stand-alone) Figure 6: Average Market Capitalisation (Business Group versus Stand-alone)

60,000 80,000
70,000
50,000
60,000
MCAP (಺million)

40,000 50,000
TA (಺million)

Business group firms TA

Total asests (TA)
30,000 40,000
Business group firms MCAP
30,000
20,000
20,000
10,000 10,000 Market capitalisation
Stand-alone firms TA Stand-alone firms MCAP (MCAP)
0 0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Years Years
Financial crisis year 2009–12 and COVID-19 pandemic year 2020–21. Financial crisis year 2009–12 and COVID-19 pandemic year 2020–21.

Figure 7: Average ROA (Business Group versus Stand-alone) Figure 8: Average Leverage (Business Group versus Stand-alone)

16 0.40

14
Business group firms ROA 0.36
Debt to equity ratio (LEV)

12 Business group firms LEV

10 0.32
ROA (%)

Return on assets (ROA)

8 Leverage (LEV)
0.28
6
4 0.24
2 Stand-alone firms LEV
0 Stand-alone firms ROA 0.20
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Years Years
Financial crisis year 2009–12 and COVID-19 pandemic year 2020–21. Financial crisis year 2009–12 and COVID-19 pandemic year 2020–21.

68 december 16, 2023 vol lViII no 50 EPW Economic & Political Weekly
SPECIAL ARTICLE
A Tale of Two Countries
Why Economic Reforms Produced Different Outcomes in
China and India
Nitya Nanda
Economic reforms produced different outcomes in China
and India. This is because, despite the direction of
reforms being very similar, the resultant policy regimes
in the two countries were very different. China retained
important roles for the public sector and the
government, particularly in matters of planning and
policy coordination, but India tended to leave everything
to the market. Initial conditions, including health,
education, and the structure of the economy were
favourable for higher growth in China. In addition,
certain policies of India made some essential inputs and
services relatively expensive, affecting its
competitiveness in a liberalised economy.
The author gratefully acknowledges the valuable comments and
suggestions received from an anonymous referee.
Nitya Nanda (director@csdindia.org) is with the Council for Social
Development, New Delhi.
Economic & Political Weekly EPW december 16, 2023 vol lViII no 50
D
ue to similarity in their economic size, population,
geographical location and level of initial conditions and
economic development, China and India have been
popular comparators in the field of economic research (Wu 2012).
However, when it became quite apparent in the 1990s that both
the countries were posting relatively higher growth rates of
gross domestic product (GDP), they became the subject of intense
debate at the global level. Both countries, by then, had under-
taken substantial economic reforms and most experts attributed
these reforms as the underlying factors behind their faster
economic growth. Most experts were also quite optimistic that
both were poised for a higher growth trajectory (Panagariya
2004; Srinivasan 2006; Basu 2009). In fact, Panagariya (2004)
expressed the view that India had the potential to show better
growth performance compared to China. Around the same time,
Bardhan (2003), however, observed that China was ready for a
great leap and India was lagging behind.
With time, however, it was becoming apparent that China was
growing much faster than India. While it is noteworthy that
Chinese data was, strictly speaking, not comparable to those of
other countries, even alternative estimates show that Chinese
manufacturing growth rates were substantially higher during the
second half of the last century (Nagaraj 2005). In particular, China
was emerging as a major global industrial power and was captur-
ing a higher share in global merchandise trade with every passing
month, but the Indian share virtually stagnated. With this, China
came to be known as the world’s factory and the largest exporter
of high-technology manufactures (Chandra 2012). However,
those still willing to bet on India highlighted its capability in
information technology (IT) and it became almost like a cliché
to reckon India as the world’s software developer or the world’s
back office (Nagaraj 2017; Otchia and Otsubo 2022). So much
so that when Chinese President Xi Jinping visited India in 2014,
he observed, “the ‘world’s factory’ and the ‘world’s back office’
could together drive global economic growth” (Nair 2014).
Looking at the current situation, it may sound unbelievable
today, but China’s GDP was lower than that of India until 1987
(Figure 1, p 54), and Chinese per capita income was lower than
that of India even in 1990 (Figure 2, p 54).1 Currently, China’s
GDP as well as per capita GDP are more than five times higher
than those of India. Between 1960 and 1978, the year China
initiated its economic reforms, both were growing with similar
speed, despite the fact that India had its worst growth experience
53
SPECIAL ARTICLE

Figure 1: GDP of India and China, 1960–2021 could not reach at its peak, but India could (current billion $)
(a) 1960–91 (b) 1991–2021
400 20,000
not reach even 3% (Figure 3). Trade between
China and India has seen phenomenal
350 18,000
growth but it resembles “colonial pattern
16,000
300 of trade” as Indian exports are dominated
14,000
250
China by primary products and imports are domi-
12,000
nated by manufactured and intermediate
200 10,000
goods. If one goes by the theory of inclusive
150 8,000 and extractive institutions developed by
100
6,000 Acemoğlu and Robinson (2012), India had a
4,000 better potential due to its better developed
50
India 2,000 and inclusive institutions, as some experts
0 0 argued. However, China performed far bet-
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990

1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
ter possibly due to factors like better com-
Source: World Bank Global Development Indicators. petitive environment and higher state ca-
Figure 2: Per Capita Income of India and China, 1960–2021 (current $) pacity (Kimya 2018).
(a) 1960–91 (b) 1991–2021 Given this, it is imperative to examine why
400 14,000
India the two countries posted very different
350 12,000 performances even though both countries
300 went for market-oriented economic reforms.
10,000
In India, there has been a strong voice in
250
8,000 favour of more reforms, in particular, more
200 deregulation of the financial sector and
6,000
150 dismantling of the public sector enterprises,
4,000 even though it was well recognised that India
100
China always had a more liberalised and more
50 2,000 vibrant financial sector. Even now, the
0 0
Chinese financial sector is quite small com-
pared to the size of the economy. Given this,
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990

1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021

Source: World Bank Global Development Indicators.

questions arise: Is the differential perfor-
Figure 3: Share in Global Manufacturing of China, India and Select Countries (%)
mance of these countries due to the magni-
35 tude of reforms being higher in China that
India failed to adopt or implement? Or is it
30 due to the nature of reforms being different
in the two countries? Another aspect to note
25
is that reforms are not absolute measures
20 as they need to be assessed with respect to
the initial conditions. Hence, depending on
15 initial conditions, more or less reforms can
have different implications. A country with
10
a more restrictive environment can remain
5 more restrictive or less liberal even with more
market-oriented reforms. It is also pertinent
0 to note that performance can also be deter-
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

mined due to institutional and social factors

China Germany India Japan and not just the economic policy regime.
Korea US Euro A. The paper discusses these issues in the
Source: World Bank Global Development Indicators. analytical framework of structuralist eco-
during 1965–80 (Nanda 2021). It is quite obvious that the nomics which views the economic system not just as a set of
economic reforms of 1978 in China led to substantial speeding variables determined in the market but essentially as a socio-
up in the Chinese economic performance. However, the Indian economic process. Since the countries compared here are quite
economic reforms in 1991 failed to provide a similar growth dissimilar in terms of their structure and macroeconomic policy
impetus to the Indian economy. orientation, structuralist economics provides a better analytical
Meanwhile, while there are indications that India is suffering framework, in particular, because China still remains a highly
from deindustrialisation, today China accounts for more than government-regulated economy. Among the basic character-
30% of global manufacturing which even the United States (US) istics of this framework is that it takes a historical structural
54 december 16, 2023 vol lViII no 50 EPW Economic & Political Weekly

perspective, looks at the system in totality, adopts a multidimen-
sional approach and looks at an economy as a part of the global
economy. As mentioned earlier, while there are many factors
that can be accounted for the superior economic or industrial
performance of China, this paper focuses on industrial policy
and closely related issues.
The next segment of the paper looks at the economic structure
and whether differences therein could have impacted the eco-
nomic performance of China and India. This is followed by a
discussion of the industrial policies followed in the two countries,
in particular, the policies and actions related to infrastructure
development, pricing of essential inputs like energy and finance
to industry, state involvement in industrial development and
development finance. Thereafter, it examines whether China’s
approach of coordinated economic management or state-led
economic development made any difference. Then it discusses
how they followed different approaches to attract foreign direct
investment (FDI) with different outcomes they generated and
finally, it looks at the trade policy followed in China and India,
in particular, their approach to trade liberalisation.
Economic Structure as a Determinant
It is quite possible that in 1991, the economic conditions prevailing
in these countries could have also been responsible for their diver-
gent economic performance. In 1991, both India and China had
similar levels of GDP and per capita GDP. Nevertheless, their eco-
nomic structure was not quite similar. In 1990, the share of agricul-
ture in China was 26.8% as against 30.7% in India. The share of
industry in China was 41.2% as against 32.2% in India, while the
shares of the service sector were 32.2% and 47.2%, respectively
(Nayyar 2019). This could have been possible due to the fact that
right from the 1950s, Chinese manufacturing growth rates were
about one and a half times that of India’s (Nagaraj 2005).
Agriculture always has a tendency to post a lower growth
rate compared to industry and services as has been shown by the
Indian growth experience (Nanda 2021). Hence, a higher
share of agriculture in the GDP of India was a disadvantage as
relatively lower growth in agriculture could pull down the
overall GDP growth. Moreover, when China embarked on eco-
nomic reforms, it had already achieved a high share of manu-
facturing in GDP at 40%, but when India initiated economic
reforms in 1991, its share of manufacturing in GDP was a mere
16% (Table 1). Hence, China had an economic structure that
was far more conducive to higher economic growth.
Table 1: Key Socio-economic Indicators of China and India
1978 1991
China India China
Per capita GDP (current $) 156.4 205.7 333.1
Adult literacy rate (%) 65.5 40.8 78
Tertiary school enrolment 0.7 4.9 3 6
(% gross)
Life expectancy 66 54 69
Infant mortality rate (%) 54.2 106.4 42
Share of manufacturing 40.0 17.0 36
in GDP (%)
Share of manufacturing in 17.3 13.0 21
employment (%)
Source: World Bank Global Development Indicators.
Economic & Political Weekly EPW december 16, 2023
SPECIAL ARTICLE
India also had a higher share of the service sector in GDP.
But services were mostly non-tradable. As a result, the Indian
economy was less prepared to embark on an export-led growth
path that China with a much higher industrial sector could
take advantage of. Taking advantage of this, China went on to
produce more than 40% of global industrial production, while
the Indian manufacturing sector stagnated. Since 2008, the
share of the manufacturing sector in GDP has been shrinking
in India—it shrunk from 19.7% in 1990 to 14.9% in 2017. The
share of the manufacturing employment in India also shrunk
from 12.6% in 2011 to 12.1% in 2017 (Nanda 2021).
India also had a much higher share of services even in 1991.
Estimates of service sector income are always problematic as a
part of it might contain income from rent-seeking activities, which
can be unproductive, and can also have adverse implications.
Given this, even after liberalisation, private entrepreneurs
showed more interest in the service sector compared to the
manufacturing sector. Hence, post-liberalisation, only IT and
IT-enabled services could venture into foreign markets. India’s
performance in the export of other services remains quite poor
(Nanda 2019). Moreover, even within the IT sector exports, In-
dian companies concentrated more on the arbitrage of skilled
human resources rather than developing IT products. As a re-
sult, despite having an early advantage, India could not devel-
op IT products for the global market.
The service sector cannot grow beyond a point without a
vibrant manufacturing sector (Nanda 2019; Chang 2022). There
is no credible evidence that manufacturing and a range of
services tend to co-locate (Kuan 2017). Even though India has
exported IT services, it could not create much of backward
linkages within India due to its inability to develop the com-
puter hardware sector and the sector does not need much of
other goods. IT sector itself could not grow faster due to its
inability to develop forward linkages within India. China,
though a late starter in the IT industry, has now taken advan-
tage of its experience in the industrial sector to develop a
vibrant IT sector as well.
Industrial Policy
Broadly speaking, industrial policy refers to the strategic efforts
made by a country’s government to promote industrialisation.
There is, however, no unanimity on what constitutes industri-
al policy. While it can be sector-specific, often macroeconomic
policies are also considered to be part of industrial policy.
Structuralist economics believes that economic development
2019
comes through structural change with technological and
India China India industrial upgrading and this can happen only through inter-
303.1 10,143.8 2,072.2 ventionist industrial policy. It is also well known that the di-
48 97 74 vergence of economic performances between China and India
54 29
is largely due to the former’s superior performance in the in-
58 77 70 dustrial or manufacturing sector; hence, this becomes crucial-
86 6 28 ly important to analyse. Under this, different aspects of state
16 27 13 actions are discussed which can have a bearing on industrial
performance. FDI policy and trade policy, which are often con-
15.8 28.1 11.8
sidered part of industrial policy, have been discussed separately,
mainly to give these important issues sufficient attention.
vol lViII no 50 55
SPECIAL ARTICLE

Infrastructure development: The higher share of the industrial Figure 4: Mid-grade Motor Gasoline Prices in India, China and US, 2009–19
($/litre)
sector of China was also a reflection of its massive push for the 1.6
construction of infrastructure—railways, roads, ports, power
plants, etc—which continued even after economic reforms.
1.2
Post-reforms, China continued to build infrastructure with
government investment. However, in 1991, India thought it was
0.8
better to give such responsibility to the private players and the
government virtually stopped investing in infrastructure. The
private sector was not yet ready due to the inherent risks in- 0.4

volved, and the absence of a proper financing mechanism and

regulatory environment. As a result, private investment was 0
too little and too late. When the government realised it, it was 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

too late. Finally, the government decided to invest in infra- India China US
Source: International Energy Agency.
structure, but a decade was lost and the country was strug-
gling with poor infrastructure (Nagaraj 2003). Construction Figure 5: Industrial Electricity Prices in India, China and US, 2000–22
(US cents/Kwh)
of power plants picked up in India only around 2010 and until 16
recently, India was in deficit in power production. 14
China built huge railway networks and new roads while 12
India’s railway network remained largely unchanged, and 10
road construction started picking up only after a decade since 8
1991. The only two major railway projects that were approved in 6
2006 were the western and eastern dedicated freight corri- 4
dors. But 17 years down the line, Table 2: Infrastructure Status 2
of China and India
none of them is operational. This is 0
Infrastructure Infrastructure
reflected in the World Bank logistics Country
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Rank
performance index. While India’s 2010 2018 2010 2018
India China US
infrastructure index remained the China 3.54 3.75 27 20 Sources: Rao et al (2009); US Energy Information Administration; and authors’ estimate
same between 2010 and 2018, China’s India 2.91 2.91 47 52 using data from various sources including Beyer (2020); Statista.com; China Energy Portal
(https://chinaenergyportal.org).
status has improved substantially.
OECD 3.67 3.68
As a result, India’s rank has worsened Source: World Bank Logistics not available, it is quite clear that Chinese industrial electricity
from 47 in 2010 to 52 in 2018, while Performance Index. prices were almost at par with those in the US for a long time,
China’s rank has improved from 27 in 2010 to 20 in 2018. What while Indian prices were much higher. In 2008, China faced an
is noteworthy is that China’s infrastructure index was higher electricity shortage and in 2009, the energy producers and the
than the Organisation for Economic Co-operation and Develop- wholesale users were allowed to negotiate directly, and as a
ment average in 2018 which was lower in 2010, and this could consequence, industrial electricity prices started rising in China,
happen only due to the involvement of the state (Table 2). but they were still substantially lower compared to the prices
prevailing in India. In more recent years, Chinese industrial
Pricing of essential inputs: For higher competition, one of the electricity prices are approaching the US level once again, but
important factors is the availability of inputs at competitive prices remain high in India (Figure 5). This is of course partly
prices. While most of the material inputs are available from the because the Indian currency has depreciated. In purchasing
global market, for many inputs, countries have their own policies power parity (PPP) terms, prices in India were twice as high
that affect the prices of goods and services used as inputs. as those in China and four times as high as in the US in 2007
Among these, energy and credit are two inputs that are used in (Rao et al 2009). In 2018, the gap widened further as they
all industries and the availability of these at competitive prices were two and a half times higher than Chinese and six times
is crucially important for the competitiveness of industries. higher than the US prices (Beyer 2020).
Compared to India, China maintained much lower prices Unlike petroleum products, India is not highly dependent on
of petroleum products (Figure 4). China’s dependence on im- foreign sources for coal which is the dominant fuel for its elec-
ported fuels is also much less compared to India. For example, tricity generation. Hence, there is no obvious reason for elec-
until 1993, China was self-sufficient in oil (Nanda 2008b). This tricity prices to be very different from those in China and even
ensured that China could maintain a low and stabilised price the US. Electricity for residential and agricultural use is subsi-
regime for fuels. India is not only dependent on imports for dised in India, but that is true for China as well. The US of
much of its oil supply, but the government (both at the centre course keeps industrial electricity prices lower than residential
and in the states) treated it as a major source of revenue. electricity prices. Hence, if not the US, then India could have
Similarly, electricity price, especially for industrial use, has maintained the industrial electricity prices at the Chinese level.
also remained higher in India compared to China, the US and Electricity for industrial and commercial use is very expensive
many other countries. While Chinese data for some years are in India affecting its competitiveness adversely.
56 december 16, 2023 vol lViII no 50 EPW Economic & Political Weekly

Figure 6: Lending Rates, Real Interest Rates and Interest Rate Spreads in
China and India
25
20
15
10
5 share of public administration and defence in GDP was about
0
1978
1980
1982
1984
1986
1988
1990
1992
1994
-5
-10
CHN-LR IND-LR
CHN-LR = Lending rates in China, IND-LR = Lending rates in India, CHN-RR = Real interest
rates in China, IND-RR = Real interest rates in India, CHN-IS = Interest rate spreads in China,
IND-IS = Interest rate spreads in India.
Source: World Bank, Global Development Indicators; RBI (2023).
China has also been able to ensure credit facilities for its
bourgeoning industry at lower interest rates compared to
India both in terms of nominal lending rates as well as the real
interest rates. Even the interest spreads were lower in China in
most of the years (Figure 6). This indicates that Chinese banks
were not offering lower interest rates by offering low deposit
rates which could depress the overall savings in the country. In
India, even though the government still own major banks, the
interest rates are higher. Though many private banks have
come into operation, lending rates of private banks have been
consistently higher than those of the government-owned banks
(RBI 2023). Since interest spreads are also higher, interests on
deposits have also been relatively low, influencing people to
channel their savings into unproductive assets like gold and
land impacting economic growth adversely, and also affecting
competitiveness through higher land prices.
Importance of public sector: In the post-reform period, both
China and India have given substantially more importance to the
private sector. Yet they have quite different approaches to the
public sector enterprises (PSEs). In the 1991 budget speech that
initiated economic reforms in India, the finance minister declared,
“the portfolio of public sector investments would be reviewed
so as to concentrate the future operations of the public sector in
areas that are strategic for the nation, require high technology
for the economy, and are essential for the infrastructure.”
Hence, there was a clear indication that the scope of the public
sector in economic space would shrink substantially.
On the contrary, Deng Xiaoping, the Chinese leader and the
chief architect of China’s economic reforms observed in 1980
that “whatever the proportion of the private investment will be,
this will cover only a small percentage of the Chinese econo-
my. It will by no means affect the socialist public ownership of
the means of production.” Thus, it was a clear indication that
though the private sector was encouraged, the public sector
was expected to retain a prime space in the economy. A similar
sentiment was expressed even by the current Chinese leader,
President Xi, as he declared in 2016 that PSEs must become
“stronger, better and bigger” (Huang and Véron 2022). Much of
the Chinese reforms in this regard were focused on the township
Economic & Political Weekly EPW
SPECIAL ARTICLE
and village enterprises (TVEs), which formed the leading sector
in the industrial economy, were left to fend for themselves and
forced to compete with each other, which, in a sense, mimicked
market competition (Bardhan 2003).
During the 1990s, the share of PSEs in GDP was about 18% in
India (Nagaraj 2014). However, in the 2010s, the share of the
public sector in GDP was about 19.2% (Sinha 2022). As the
12.6% during this period (DEA 2023), the share of PSEs was just
about 5.6% during this period. When China initiated its eco-
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
nomic reforms in 1978, the output share of PSEs in GDP was
about 56%, which came down to 40% in 1992 (Hu and Khan
CHN-IS IND-IS CHN-RR IND-RR 1997). While some experts still believe that the share remains
almost the same (Guluzade 2020), a more credible estimate pegs
the figure for 2017 to be between 23% and 28% (Zhang 2019).
In 1978, when China initiated economic reforms, its PSEs ac-
counted for 77.6% of industrial output in China, which dropped
to 28.8% in 1996 and further to 19.75% in 2017. In the same
year, PSEs’ total investment in industrial fixed assets accounted
for 38.5% of all domestic companies but accounted for about
52% of the market capitalisation of the two stock exchanges in
China (Lin et al 2020). The share of PSEs in the total market
capitalisation of the Bombay Stock Exchange (BSE) in 2010 was
26.36% (Sharma 2019), which declined to about 7% in 2020 in
both BSE and National Stock Exchange (https://dipam.gov.in/
market-capitalisation-cpses#).
Privatisation of PSEs has been an important agenda of the
government in India since 1991, but China made a deliberate
choice to keep the largest concerns under state control, even as
many smaller PSEs were liquidated or privatised (Huang and
Véron 2022). In the Fortune 500 list of 2019, China had as
many as 124 companies and 91 of them were PSEs. These 91
PSEs accounted for 78% of the revenue and 84% of the assets of
these 124 companies. It is quite clear that Chinese PSEs led the
industrialisation process in China even though foreign and
private companies played an important role. In comparison,
only seven Indian companies were on the list, four from the
public sector (Indian Oil, ONGC, SBI and Bharat Petroleum),
and three from the private sector (Reliance Industries, Tata
Motors and Rajesh Exports).
Studies have found that PSEs have been favourable to long-
term growth and in the Chinese economy they played a pro-
growth role through several channels, including stabilising
growth, promoting technical progress by investing in riskier
areas of technology and paying higher wages that are favourable
to move towards a more sustainable growth model (Lo and Li
2011; Qi and Kotz 2020). In a competitive and globalised envi-
ronment, it is extremely difficult for a private company from a
developing country to compete with well-established compa-
nies and thrive (Nanda 2021).
Development finance: Historically, development finance played
a crucial role in a large number of countries across the world.
India established a multiple of them who also played an important
role, particularly during 1950–65 and 1980–90 (Nayyar 2015).
But post-1991, India considered its development finance
december 16, 2023 vol lViII no 50 57
SPECIAL ARTICLE
institutions (DFIs) to be redundant and they experienced a fast
and secular decline. The importance of DFIs in India and the
damage that the decline of these institutions caused was rec-
ognised even earlier (Nagaraj 2005). In China, the finance and
banking system is heavily controlled by the government and
most of the important banks are under government ownership.
The experience of China shows that the state-owned banks
played a crucial role in industrial development in the country
in recent decades (Wen 2016). But China established its develop-
ment finance institution, namely China Development Bank (CDB),
entirely government-owned, in 1994. The CDB performed an
effective and valuable role in the industrialisation surge that
began in the early 1990s. In 2000, the outstanding loans of
Indian DFIs (ICICI, IFCI, IDBI and SIDBI) were 7.4% of Indian
GDP which declined to 0.8% in 2010. In contrast, the outstanding
loans of CDB as a percentage of Chinese GDP increased from
6.8 to 11.2 during the same period (Nayyar 2015).
Coordinated Economy
The Chinese economic system is now very often characterised
by “state-led capitalism,” indicating a major role of the state in
the process. In this context, China represents a coordinated
economy characterised by an integrated policy system that has
been crucial to its success (UNCTAD 2022). In 1991, India moved
from a “mixed yet planned and state coordinated and supported”
economy to a “private sector-led” economy, while China moved
from a “centrally planned and public sector led” to a “mixed
yet planned and state coordinated and supported” economy!
In a sense, China adopted the development model dumped by
India in 1991 and yet succeeded, but India went for a neo-liberal
model and stagnated! Bardhan (2003) observed that China
was a better socialist earlier and is also a better capitalist now, but
in reality, neither India was a socialist earlier (Nanda 2021),
nor China is a capitalist now (Chandra 2012).
China retained a major role in the National Development and
Reform Commission (NDRC)—the government planning agency
(Wen 2016). This has given it a better ability to deal with the
changing global scenario like the rise of protectionism and the
emerging scope for green industries. China adopted a policy of
voluntary restraint wherein it strategically tried to reduce exports
of low-value goods to increase exports of high-value goods, includ-
ing green goods (Nanda 2008a). For example, the NDRC played a
major role in China’s emergence as the leader in solar photovoltaic
manufacture. The NDRC took up a mission-oriented programme
in 2007 for industry involvement in technology development and
facilitated firms entering into the production of raw silicon, and
access finance from government banks (Hopkins and Li 2016).
During 1950–65, India’s performance was reasonably good but
it slowed down during 1965–80 which was mainly due to non-
economic or external shocks: wars, droughts, oil shocks, political
instability, etc (Nanda 2009a). However, India failed to make a
proper assessment of this. As a result, India excessively discounted
its earlier policy regime and undervalued the role of the govern-
ment and coordination, leading to the adoption of economic
reforms that discarded the role of the government and put exces-
sive reliance on the private sector that proved to be misplaced.
58
There is also some evidence to infer that China followed
countercyclical macroeconomic policy which is often taboo in
mainstream economic thinking. In the aftermath of the global
financial crisis, China undertook fiscal and monetary stimulus
measures on a huge scale, mostly in investment in infrastructure.
This increased the debt–GDP ratio but helped the economy
maintain output and employment. In India, similar measures
were adopted at a later stage and on a lower scale. However,
India followed a public–private partnership approach which
did not work well, and as a result, many infrastructure pro-
jects remained incomplete, but banks got saddled with higher
non-performing assets (Nagaraj 2020).
China also followed a bottom-up approach in terms of encour-
aging different sectors. It started from agricultural development,
and moved up the industrial ladder, from light to heavy industries,
from manufacturing to financial capitalism, and established
its first stock exchange only in 1990. The PSEs were engaged in
heavy industries to provide critical materials for industries
and infrastructure development (Wen 2016). India followed a
different cycle—including early emphasis on heavy industry
but early discounting of it and early financial development.
Foreign Direct Investment Policy
Foreign investment played an important role in the industrial
development of China both in terms of bringing technology
and providing linkages to global markets. But it exercised sub-
stantial caution before opening up further and even discour-
aged FDI in some sectors, if found unproductive (UNCTAD
2022). Till the late 1990s, China forced foreign companies to
form joint ventures with its PSEs and also forced them to disclose
the details of technology and this ensured that the Chinese
could well absorb the technologies (Chandra 2012). Their rela-
tively weak IPR regime was also helpful in the process (Barpu-
jari and Nanda 2013). Apart from technology, collaboration with
foreign companies also helped Chinese companies access valu-
able information on foreign markets and management issues.
In contrast, India’s strategy was making its investment regime
more and more liberal in all sectors of the economy, including
a reduction in direct taxes on profits. While investors would like
to maximise profits after tax, if the basic competitiveness fac-
tors remain unfavourable, and the investors do not expect to
make profits, such tax concession has no value and cannot work
as an incentive, whereas, if the competitiveness factors are favour-
able, then they will not be deterred by higher tax rates. As
against India’s acquisition-dominated FDI inflow, a larger part
of FDI received in China was greenfield-type, which produces
substantially better development outcomes (Nanda 2009b). The
FDI that China received was much higher in terms of scale as
compared to India, and more importantly, while China re-
ceived much of it in the manufacturing sector, India got it
more into the service sector. In fact, much of the FDI India re-
ceived in recent years came to e-commerce companies that
promoted imports into India (Nagaraj 2020)
Interestingly, round-tripping of investment was an important
part of FDI in both countries. However, in the case of China, it
was done with the help of enterprises owned by expatriate
december 16, 2023 vol lViII no 50 EPW Economic & Political Weekly
 SPECIAL ARTICLE
Figure 7: Applied and Bound Tariffs and Share in Global Exports the kind of commitment it was going to have. As a
80
result, it also reduced its manufacturing tariffs
70
gradually to maintain them below the binding rates
by 2002 but did not continue with tariff reductions
60 thereafter. As a result, in 2008, China’s average ap-
plied tariff on manufactured goods was marginally
50
higher than that of India even though China’s aver-
40 age binding tariff on manufactured goods was almost
one-fourth of that of India.
30
Another interesting aspect is that when China’s
20 average manufacturing tariffs fell below 10% in
2002, it occupied a share of about 5% of global mer-
10 chandise trade, but when India brought its average
0
manufacturing tariff below 10% in 2006, its share
was just about 1%. India’s tariff cut in the manufac-
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
CHN-APD IND-APD CHN-BND
turing sector was too sharp and too soon. Moreo-
IND-BND CHN-EXS IND-EXS ver, by 2006, both China and India reached similar
CHN-APD = Average applied duty rates in China, IND-APD = Average applied duty rates in India, levels of manufacturing tariffs though China initiat-
CHN-BND = Average bound duty rates in China, IND-BND = Average bound duty rates in India,
CHN-EXS = Share of China in global exports, IND-EXS = Share of India in global exports. ed its internal reforms in 1978—about 13 years
Source: World Bank, Global Development Indicators. ahead of India. Hence, compared to India, China’s
Figure 8: Merchandise Trade and Current Account Balance private sector was given more time to prepare for external sec-
40 tor liberalisation after it initiated internal reforms.
It is also interesting to note that when China initiated major cuts
20
in import duty, it was already experiencing substantial trade
0 surplus on a consistent basis both on the merchandise trade ac-
count as well as the current account, but India continued to reduce
-20
import duties even though it was having trade deficit on both
-40 the accounts (Figure 8). In that sense, China’s trade liberalisation
was on the basis of strong evidence that it achieved international
-60
competitiveness. However, India’s trade liberalisation was carried
-80
out on the premise that it would improve competitiveness.
Initial trade liberalisation, most often, leads to a higher level
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018

of economic activities as it involves duty cuts of raw materials,

CHN-MTB IND-MTB CHN-CAB IND-CAB
intermediate goods or components due to the concerns of inverted
CHN-MTB = Merchandise trade balance of China, IND-MTB = Merchandise trade balance of India,
CHN-CAB = Current account balance of China, IND-CAB = Current account balance of India. duty structure. This makes policymakers believe that further
Source: World Bank, Global Development Indicators. liberalisation would bring higher growth. But in reality, further
Chinese in Hong Kong and Macau who were already linked to liberalisation, especially involving final goods, often leads to a
global markets, and this helped China access global markets decline in economic growth, when domestic competitiveness
and technology. In the case of India, it was done through shell issues are not addressed. In terms of the broader trade and indus-
companies owned by Indians in tax havens and there was no trialisation approach, while China followed a mixed strategy
benefit in terms of market or technology (Chandra 2012). Both of export promotion and import substitution at the same time
countries also promoted outward FDI, but while this helped (UNCTAD 2022), India followed an elusive export-led industriali-
China access raw materials abroad, a relatively substantial sation strategy in the post-reform period. An important aspect
part of Indian outward FDI went to developed countries where of this that is often ignored is how the major partner countries
access to raw materials was not a motive. treat their imports. The Chinese export boom started with faster
growth in exports of textiles which was facilitated by the fact
Trade Liberalisation that the US offered exceptionally high quotas for textiles
There were also substantial differences in the way these coun- exports in 1979 under the multi-fibre arrangement (MFA) that
tries effected trade liberalisation. In 1991, India cut down its governed the world trade in textiles (Chandra 2012).
tariffs on manufacturing goods drastically and continued to
reduce them. As a result, at the end of the Uruguay Round of Concluding Remarks
trade negotiations, it was already substantially below the aver- China and India both initiated economic reforms in the same
age binding tariff level. However, India continued to reduce its direction, but the resultant policy framework they achieved
tariffs, and by 2008, it fell below 6% though its average bind- differed substantially. While both countries gave more importance
ing tariff level was as high as 35.59% (Figure 7). China’s WTO to private and foreign investment, China retained a substantial
accession negotiations were a long-drawn process and it knew role in the government sector. In China, the government retained
Economic & Political Weekly EPW december 16, 2023 vol lViII no 50 59
SPECIAL ARTICLE

its role in infrastructure building and went ahead with deter-
mination; in India, private investment was given more impor-
tance which was uncertain. Post-reforms, India virtually
dismantled its development finance institutions, but China
created a new one. China’s tariff cuts were relatively gradual
and major cuts occurred only after they occupied a substantial
share of the global market. Indian cuts were drastic and oc-
curred when its share was small. In a broader sense, China’s
post-reform policy framework resembled the pre-reform policy
regime of India. Moreover, at the time of reforms, China
achieved the economic structure of an industrialised economy
(high share of manufacturing in GDP), but India’s economy was
predominantly agrarian.
China achieved a high level of competitiveness due to
cheaper transportation costs (both direct and indirect),
better infrastructure and lower electricity and fuel prices,
lower bank interest rates, etc. Access to better technology and
well-endowed natural resources added to its competitiveness
strength. As against India’s liberal FDI policy, China carefully
regulated entry and operations of FDI and also used its
outward FDI strategically. Due to this, China was able to
attract huge investments—both domestic and foreign—that
propelled it to a higher growth trajectory. India’s approach
of reducing taxes on profits and increasing taxes on inputs
was a bad policy mix which also reduced its ability to invest
in infrastructure.

Note
1 If we consider that China overestimated its
GDP, then possibly the Chinese GDP was lower
even for a longer period.
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CURRENT STATISTICS EPW Research Foundation

Wholesale Price Index Foreign Trade

The year-on-year WPI-infl ation rate declined to -0.5% in October 2023 The trade deficit widened to $31.5 bn in October 2023 compared to $26.3 bn a year
from 8.7% registered a year ago and -0.3% a month ago. The index for ago. Exports increased by 6.2% to $33.6 bn from $31.6 bn and imports by 12.3% to
primary articles grew by 1.8% compared to 11.2% reported a year ago and $65.0 bn from $57.9 bn. Oil imports stood higher at $17.7 bn and non-oil imports
3.7% a month ago. The rate of inflation for food articles decreased to 2.5% at $47.4 bn compared to $16.3 bn and $41.6 bn a year ago. During April–October
from 8.5% a year ago. The index for fuel and power declined by (-)2.5% 2023–24, the cumulative exports decreased by (-)7.0% to $244.9 bn and imports
against 25.4% a year ago and that for manufactured products fell by (-)1.1% by (-)8.9% to $392.0 bn against their respective values of $263.3 bn and $430.5 bn
compared to 4.4%. reported during the same period last year.

Consumer Price Index Index of Eight Core Industries

The CPI-inflation rate rose to 5.6% in November 2023 from 5.9% reported a The index of eight core industries grew by 12.1% in October 2023 compared to
year ago and 4.9% a month ago. The consumer food price index grew by 8.7% 0.7% registered a year ago. Production of coal increased by 18.4%, petroleum
compared to 4.7% a year ago and 6.6% a month ago. The CPI-rural inflation rate refinery products by 4.2%, steel by 11.0%, cement by 17.1% and electricity
decreased to 5.8% and the urban inflation rate to 5.3% from 6.1% and 5.7%, generation by 20.3% against their respective growth rates of 3.8%, -3.1%,
respectively, registered a year ago. According to Labour Bureau data, the CPI for 5.8%, -4.2% and 1.2% a year ago. Growth rate in crude oil segment increased
agricultural labourers (CPI–AL) stood at 7.1% in October 2023 compared to 7.2% a to 1.3% from -2.2% a year ago and natural gas to 9.9% from -4.2%, while the
year ago and the CPI for industrial workers (CPI–IW) at 4.5% against 6.1%. production of fertilisers stood at 5.3% compared to 5.4% .

Movement of WPI-Inflation Rate January 2022–October 2023 Merchandise Trade October 2023
Year-on-Year in % October 2023 Over Month Over Year April–October
60
($ bn) (%) (%) (2023–24 over 2022–23) (%)
Fuel and Power Exports 33.6 -2.6 6.2 -7.0
Imports 65.0 20.8 12.3 -8.9
40 Trade balance -31.5 62.4 19.6 -12.0
Data is provisional. Source: Ministry of Commerce and Industry.
Primary Articles
20
Trade Balance January 2022–October 2023
$ billion
1.8%
0 7

-1.1% -2.5%
Manufactured
Products 0
-20 Non-Oil -$11.7 bn
Jan F M A M J J A S O N D Jan F M A M J J A S Oct* Oil
2022 2023 -7
* Data is provisional; Base: 2011–12 = 100.
-14
Trends in WPI and Its Components October 2023* (%) -$19.8 bn
-21
Financial Year (Averages)
Weights Over Month Over Year 2020–21 2021–22 2022–23
-28
All commodities 100 0.4 -0.5 1.3 13.0 9.4
Total Trade Balance
Primary articles 22.6 1.2 1.8 1.7 10.2 10.0 -$31.5 bn
-35
Food articles 15.3 1.3 2.5 3.2 4.1 7.3 Jan F M A M J J A S O N D Jan F M A M J J A Sep Oct
Fuel and power 13.2 0.7 -2.5 -8.0 32.5 28.1 2022 2023
Oil refers to crude petroleum and petroleum products, while non-oil refers to all other commodities.
Manufactured products 64.2 0.0 -1.1 2.8 11.1 5.6
*Data is provisional; Base: 2011–12=100. Source: Ministry of Commerce and Industry.
Movement of Index Values of Components of IIP January 2022–October 2023
Index Value
Movement of CPI Inflation January 2022–November 2023
210
Year-on-Year in % Electricity 203.8
15 168
141.8
126
12
Mining 127.4
Consumer Food 84
8.7%
9
Manufacturing
5.6% 42
6 CPI
Miscellaneous 0
4.4% Jan F M A M J J A S O N D Jan F M A M J J A S Oct*
3 2022 2023
* October 2023 are quick estimates; Base: 2011–12=100.
0
Index for Eight Core Industries October 2023* (%)
-3 Weights Over Over Financial Year (Avgs) in %
Jan F M A M J J A S O N D Jan F M A M J J A S O Nov*
2022 2023 Month Year 2021–22 2022–23
* Data is provisional. Source: National Statistical Office (NSO), Ministry of Statistics and Programme Implementation,
Base: 2012=100. Infrastructure industries 40.27@ 2.8 12.1 10.4 7.8
Coal 10.3 16.7 18.4 8.5 14.8
CPI: Rural and Urban November 2023* (%)
Latest Over Over Financial Year (Avgs) Crude oil 9.0 4.7 1.3 -2.6 -1.7
Month Index Month Year 2021–22 2022–23 Natural gas 6.9 4.5 9.9 19.2 1.6
CPI Combined 186.3 0.5 5.6 5.5 6.7 Petroleum refinery products 28.0 1.5 4.2 8.9 4.8
Rural (2012=100) 188.2 0.6 5.8 5.4 6.8 Fertilisers 2.6 3.1 5.3 0.7 11.3
Urban (2012=100) 184.2 0.4 5.3 5.6 6.4 Steel 17.9 0.1 11.0 16.9 9.3
CPI: Occupation-wise# Cement 5.4 9.4 17.1 20.8 8.7
Industrial workers (2016=100) 138.4 0.7 4.5 5.1 6.1 Electricity 19.9 -1.1 20.3 8.0 8.9
Agricultural labourers (1986–87=100) 1241 1.2 7.1 4.0 6.8 (Base: 2011–12=100); *Data is provisional; @ The revised eight core industries have a combined weight of 40.27% in the IIP.
* Provisional; # October 2023; Source: NSO (rural and urban); Labour Bureau (IW and AL). Source: Ministry of Commerce and Industry.
Comprehensive current economic statistics with regular weekly updates are available at: http://www.epwrf.in/currentstat.aspx.

Economic & Political Weekly EPW december 16, 2023 vol lViii no 50 69
 CURRENT STATISTICS EPW Research Foundation
India’s Quarterly Estimates of Final Expenditures on GDP
2021–22 2022–23 2023–24
` Crore | At 2011–12 Prices Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Private final consumption expenditure 1822102 (17.6) 2121839 (14.2) 2426098 (10.8) 2333501 (4.7) 2182357 (19.8) 2298123 (8.3) 2478700 (2.2) 2399515 (2.8) 2312601 (6.0) 2370094 (3.1)
Government final consumption expenditure 403808 (-2.1) 346501 (11.7) 350565 (5.8) 474406 (11.8) 411243 (1.8) 332450 (-4.1) 348329 (-0.6) 485284 (2.3) 408300 (-0.7) 373513 (12.4)
Gross fixed capital formation 1077836 (61.0) 1209609 (12.4) 1179221 (1.2) 1412108 (4.9) 1297588 (20.4) 1325580 (9.6) 1273453 (8.0) 1538071 (8.9) 1400832 (8.0) 1471938 (11.0)
Change in stocks 28895 (974.6) 31402 (655.9) 29902 (618.9) 33964 (613.8) 31050 (7.5) 30591 (-2.6) 29868 (-0.1) 35954 (5.9) 32256 (3.9) 34154 (11.6)
Valuables 22035 (481.3) 134378 (156.6) 73595 (44.5) 48751 (-51.7) 34959 (58.7) 108206 (-19.5) 45595 (-38.0) 37330 (-23.4) 27633 (-21.0) 103901 (-4.0)
Net trade (Export–Import) 15631 -46285 -91258 -65580 -86460 -146624 -97506 -6264 -258496 -285849
Exports 765031 (46.1) 826729 (25.1) 825929 (27.8) 888144 (22.4) 915111 (19.6) 927872 (12.2) 917492 (11.1) 994047 (11.9) 844252 (-7.7) 968011 (4.3)
Less imports 749401 (44.8) 873014 (26.6) 917188 (19.7) 953723 (6.7) 1001571 (33.6) 1074495 (23.1) 1014998 (10.7) 1000311 (4.9) 1102748 (10.1) 1253860 (16.7)
Discrepancies -59256 (-173.6) -145787 (-293.2) -117350 (-388.8)-124790 (-758.1) -126452 (113.4) -70326 (-51.8) -55812 (-52.4) -128375 (2.9) 114019 (-190.2) 106561 (-251.5)
Gross domestic product (GDP) 3311050 (21.6) 3651659 (9.1) 3850772 (5.2) 4112360 (4.0) 3744285 (13.1) 3878000 (6.2) 4022625 (4.5) 4361515 (6.1) 4037144 (7.8) 4174312 (7.6)

India’s Overall Balance of Payments (Net): Quarterly

2022–23 ($ mn) 2023–24 ($ mn) 2022–23 (` bn) 2023–24 (` bn)
Item Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1
Current account -17964 -30902 -16832 -1356 -9214 -1387 [-2.1] -2466 [-3.8] -1384 [-2.0] -111.6 [-0.2] -757 [-1.1]
Merchandise -63054 -78313 -71337 -52587 -56596 -4867 -6249 -5864 -4326.1 -4652
Invisibles 45090 47411 54505 51231 47382 3480 3783 4481 4214.5 3895
Services 31069 34426 38713 39075 35125 2398 2747 3182 3214.5 2887
of which: Software services 30692 32681 33541 34370 33928 2369 2608 2757 2827.4 2789
Transfers 22874 24773 28467 24762 22866 1766 1977 2340 2037.1 1880
of which: Private 23065 24991 28641 25080 23073 1780 1994 2354 2063.2 1897
Income -8853 -11788 -12675 -12606 -10609 -683 -941 -1042 -1037.1 -872
Capital Account 22055 1461 28887 6540 34374 1702 [2.6] 117 [0.2] 2375 [3.4] 538.0 [0.7] 2826 [4.0]
of which: Foreign investment -1238 12741 6641 4691 20812 -96 1017 546 385.9 1711
Overall balance 4595 -30379 11069 5579 24432 355 [0.5] -2424 [-3.7] 910 [1.3] 459.0 [0.6] 2008 [2.8]
Figures in square brackets are percentage to GDP.

Foreign Exchange Reserves Variation

1 December 2 December 31 March Month Year Financial Year So Far Financial Year
Excluding gold but including revaluation effects 2023 2022 2023 Ago Ago 2022–23 2023–24 2018–19 2019–20 2020–21 2021–22 2022–23
` crore 4596784 4188110 4340297 100352 408675 -49507 256488 68050 668976 590416 302585 102680
$ mn 551860 515029 528083 11989 36832 -44586 23777 -14168 56831 94535 21435 -31532

Monetary Aggregates Variation

Outstanding Over Month Over Year Financial Year So Far Financial Year
` Crore 2023 2022–23 2023–24 2020–21 2021–22 2022–23
Money supply (M3) as on 17 November 23933963 196487 (0.8) 2534042 (11.8) 906192 (4.4) 1590203 (7.1) 2044615 (12.2) 1649151 (8.8) 1850031 (9.0)
Components
Currency with public 3253867 52159 (1.6) 160249 (5.2) 57929 (1.9) -22569 (-0.7) 402080 (17.1) 283860 (10.3) 240747 (7.9)
Demand deposits 2449084 54858 (2.3) 257023 (11.7) -20931 (-0.9) 128486 (5.5) 257428 (14.8) 217872 (10.9) 107606 (4.9)
Time deposits 18156648 88046 (0.5) 2113115 (13.2) 856929 (5.6) 1487683 (8.9) 1376262 (10.9) 1136326 (8.1) 1482361 (9.8)
Other deposits with RBI 74364 1424 (2.0) 3655 (5.2) 12265 (21.0) -3397 (-4.4) 8844 (23.0) 11093 (23.4) 19317 (33.1)
Sources
Net bank credit to government 7475375 90974 (1.2) 862613 (13.0) 135133 (2.1) 309842 (4.3) 890012 (17.9) 627255 (10.7) 687904 (10.6)
Bank credit to commercial sector 16361791 200665 (1.2) 2682423 (19.6) 1062847 (8.4) 1932155 (13.4) 629822 (5.7) 948055 (8.1) 1813115 (14.4)
Net foreign exchange assets 5056049 45506 (0.9) 484245 (10.6) -282259 (-5.8) 144283 (2.9) 777810 (20.5) 275217 (6.0) 57703 (1.2)
Banking sector’s net non-monetary liabilities 4991191 140949 (2.9) 1497967 (42.9) 10727 (0.3) 797731 (19.0) 253594 (8.4) 202476 (6.2) 710963 (20.4)
Reserve money as on 1 December 4425143 42467 (1.0) 274932 (6.6) 81325 (2.0) 38384 (0.9) 570276 (18.8) 468904 (13.0) 317873 (7.8)
Components
Currency in circulation 3349858 36967 (1.1) 127865 (4.0) 88277 (2.8) -28663 (-0.8) 406451 (16.6) 279953 (9.8) 244805 (7.8)
Bankers’ deposits with RBI 999701 4193 (0.4) 136713 (15.8) -13738 (-1.6) 69224 (7.4) 154979 (28.5) 177859 (25.4) 53751 (6.1)
Other deposits with RBI 75584 1308 (1.8) 10354 (15.9) 6786 (11.6) -2177 (-2.8) 8844 (23.0) 11093 (23.4) 19317 (33.1)
Sources
Net RBI credit to Government 1169687 53184 (4.8) -148810 (-11.3) -132099 (-9.1) -281438 (-19.4) 107495 (10.8) 350910 (31.9) 529 (0.0)
of which: Centre 1147982 58218 (5.3) -158217 (-12.1) -142773 (-9.9) -302394 (-20.8) 106606 (10.8) 352626 (32.2) 1404 (0.1)
RBI credit to banks & commercial sector 1503 5405 (-138.5) 163860 (-100.9) 381344 (-70.1) 95945 (-101.6) -168464 (83.9) -174344 (47.2) 449259 (-82.6)
Net foreign exchange assets of RBI 4883617 107360 (2.2) 479733 (10.9) -38595 (-0.9) 296262 (6.5) 608998 (17.0) 243079 (5.8) 144876 (3.3)
Govt’s currency liabilities to the public 31939 0 (0.0) 2555 (8.7) 1371 (4.9) 1654 (5.5) 565 (2.1) 1100 (4.1) 2272 (8.1)
Net non-monetary liabilities of RBI 1661603 123481 (8.0) 222407 (15.5) 130696 (10.0) 74038 (4.7) -21682 (-1.6) -48160 (-3.5) 279065 (21.3)

Scheduled Commercial Banks’ Indicators ( ` Crore) Variation

Outstanding Over Month Over Year Financial Year So Far Financial Year
(As on 17 November) 2023 2022–23 2023–24 2020–21 2021–22 2022–23
Aggregate deposits 19651777 138449 (0.7) 2354423 (13.6) 832041 (5.1) 1607863 (8.9) 1546019 (11.4) 1351801 (8.9) 1578601 (9.6)
Demand 2307178 54627 (2.4) 256314 (12.5) -21882 (-1.1) 126748 (5.8) 244190 (15.1) 211553 (11.4) 107684 (5.2)
Time 17344599 83822 (0.5) 2098109 (13.8) 853923 (5.9) 1481115 (9.3) 1301831 (10.9) 1140247 (8.6) 1470917 (10.2)
Cash in hand 89833 -984 (-1.1) -22608 (-20.1) 26515 (30.9) -430 (-0.5) 3487 (4.0) -4822 (-5.3) 4337 (5.0)
Balance with RBI 910823 -7033 (-0.8) 96253 (11.8) 131133 (19.2) 100916 (12.5) 6507 (1.2) 140744 (25.9) 126470 (18.5)
Investments 6069868 7418 (0.1) 983256 (19.3) 357664 (7.6) 654720 (12.1) 715177 (19.1) 266422 (6.0) 686200 (14.5)
of which: Government securities 6069047 7293 (0.1) 983258 (19.3) 357611 (7.6) 654726 (12.1) 722935 (19.3) 266546 (6.0) 686143 (14.5)
Bank credit 15620554 194745 (1.3) 2672741 (20.6) 1056499 (8.9) 1945319 (14.2) 578649 (5.6) 1044026 (9.6) 1783921 (15.0)
of which: Non-food credit 15580294 174326 (1.1) 2684720 (20.8) 1059270 (8.9) 1924964 (14.1) 569159 (5.6) 1050270 (9.7) 1819026 (15.4)

Capital Markets 8 December Month Year Financial Year So Far 2022–23 End of Financial Year
2023 Ago Ago Trough Peak Trough Peak 2020–21 2021–22 2022–23
S&P BSE SENSEX (Base: 1978–79 = 100) 69825.60 (11.6) 64975.61 62570.68 (6.7) 59106.44 69825.60 51360.42 63284.19 49009 (63.7) 57362 (18.4) 58992 (0.7)
S&P BSE-100 (Base: 1983–84 = 100) 21569.39 (13.7) 20005.02 18973.60 (6.6) 17644.91 21569.39 15562.65 19137.18 14689 (68.2) 17423 (20.1) 17602 (-0.7)
S&P BSE-200 (1989–90 = 100) 9285.82 (14.8) 8563.25 8085.65 (6.4) 7406.09 9285.82 6602.62 8144.55 6211 (71.1) 7412 (20.9) 7389 (-2.0)
CNX Nifty-50 (Base: 3 November 1995 = 1000) 20969.40 (12.7) 19443.50 18609.35 (6.5) 17398.05 20969.40 15293.50 18812.50 14507 (67.9) 17153 (19.7) 17360 (-0.6)
CNX Nifty-500 18703.50 (17.6) 17259.70 15911.10 (5.6) 14601.95 18703.85 12950.75 16003.95 12149 (73.7) 14652 (22.2) 14558 (-2.3)
Figures in brackets are percentage variations over the specified or over the comparable period of the previous year. | (-) = not relevant | - = not available | NS = new series | PE = provisional estimates
Comprehensive current economic statistics with regular weekly updates are available at: http://www.epwrf.in/currentstat.aspx.

70 december 16, 2023 vol lViii no 50 EPW Economic & Political Weekly

Economic & Political Weekly
POSTSCRIPT
CINEMA, POLITICS | CASTE, VIOLENCE
In Memory of a Charred
Village
A researcher looks back at the Kilvenmani
massacre, 55 years on.
Deivendra Kumar A
T
his article explores the current socio-economic and
political conditions of Kilvenmani, an agrarian village
located in present-day Nagapattinam district, earlier
part of Thanjavur district of Tamil Nadu. It examines the
village after the massacre of Dalits, which happened on
25 December 1968, through field notes gathered during my visit
in 2020. The year 2023 marks 55 years of this atrocity. This
article was inspired by a discussion with one of my professors
during my master’s programme at the Central University of
Tamil Nadu. It was on the Tamil film, Asuran (The Demon,
2019), and the debate it generated among film buffs regarding
the depiction of the Kilvenmani massacre. My professor added
that Kilvenmani is located near the university campus, hardly
30 kilometres away in Nagapattinam district. This compelled
me to visit the village to explore and witness the actuality of
caste which resulted in the atrocity where 44 Dalits were
burned alive.
Accompanied by my friend, John J Akash, a self-taught photo-
grapher and writer, I started my day-long trip to Kilvenmani.
On our way, I found it ironic that in Thiruvarur—a temple town
regarded as the abode of Shaivism and the birthplace of the
trinity of Carnatic music—almost all junctions of the villages had
statues of E V Ramasamy, better known as Thanthai Periyar,
the patriarch of Dravidianism, and a proponent of anti-caste
and anti-religious ideologies. Crossing Thiruvarur and a few
EPW december 16, 2023 vol lViii no 50 73
 POSTSCRIPT
CASTE, VIOLENCE

villages, such as Neelapadi, Illuppur, and Thevur, we noted the
accuracy in Asuran’s depiction of the Kilvenmani massacre.
The film highlighted the struggle of Dalits in their re-
trieval of panchami land. On 25 December 1968, 44 Dalits,
including women and children, were burned alive by the
henchmen of feudal landlords for demanding land rights
and a wage hike. The Communist Party of India (Marxist)
was the backbone and driving force in mobilising Kilvenmani is
the agricultural labourers to demand their wage caught in a time
hikes and agitating against their exploitation by capsule, where
the feudal landlords. most of the villagers delta belt, the people of the village are also positioned
We entered Kilvenmani by crossing an arch built are landless.
to mark its 25th anniversary and to memorialise
the martyrs of this massacre. I started conversing with people
around there, particularly some old people who could recall
and share their memories of the incident. Apart from listening
to their heart-wrenching memories of the massacre, I found
that the village is still under the clutches of casteism and
the hegemonic power of dominant–intermediate caste
groups. I asked an old woman for some water to drink, and
she asked, “Neenga enna aalunga, neenga enga kitta thanni
kudippeegala?” (“What caste are you?; would you take water
from us?”). I was surprised by her question, and nodded to
show my willingness. I gulped the water that she brought.
Most of the villagers I interacted with complained that the
government has failed to initiate schemes and programmes
meant to improve the socio-economic conditions in the village. I
observed a few concrete houses amid many thatched-roofed
and tile-roofed houses, which were built under the chief
minister’s solar-powered green house scheme. The family
members, successors of the martyrs, and the survivors of the
massacre are struggling to survive in their own village because
of various adverse social, economic, and political conditions.
Kilvenmani is caught in a time capsule, where most of the
villagers are landless, a few are landowners, while others en-
gage in agriculture as daily wage labourers. Issues such as
the Cauvery water dispute in the delta regions, followed by
diminishing agricultural activities, led to the forced migra-
tion of many of the villagers to other districts of Tamil Nadu
as daily wage labourers. Palani, in his late 60s, shared that
the family members and the successors of both the landlord,
Gopalakrishnan Naidu, and his henchmen lead affluent lives
in the nearby Irinjur village.
After entering the village through the memorial arch, an
old Communist Party office can be seen inside. I asked for the
way to Ramaiahvin Kudisai (Ramaiah’s hut), where 44 Dalit
agricultural labourers were burned alive. I reached the
premises of the hut which had been made into a memorial in
subsequent years, painted in red and white, installed with a
single stone red granite sculpture carved in the shape of a
plantain bud, engraved with the names of the 44 martyrs in
black granite. Adjacent to this, an extended new memorial
called Manimandapam is also built in the shape of a star, with
44 carved pillars and raised fists representing the martyrs.
74
Even after 50 years of this macabre carnage, I observed that
various forms of caste discrimination were still practised in
Kilvenmani. The settlement of the Dalit communities is on the
street where the incident happened, and it shares a similarity to
the “colony”—a dedicated residential area for Dalit communities
as separate inhabitants followed in the villages across Tamil
Nadu. Other communities, who are landowners and belong to
dominant–intermediate caste groups, have homes
away from this Dalit settlement. Apart from the
Communist Party, which is predominant in this
with other Dalit and non-Dalit political parties, which
are either progressive and stand for social justice,
or endorse caste-ridden identity politics, respectively.
As the setting sun started painting the sky with hues of
red and orange in Kilvenmani, we embarked on our return
journey to the university. We stopped for tea on our way
and discussed the depiction of the Kilvenmani massacre in
Tamil films of the 1980s and 1990s, extending to contemporary
times. Films such as Kann Sivanthaal Mann Sivakkum (If the
Eye Turns Red the Earth Shall Turn Red, 1983) based on the
1977 Sahitya Akademi award-winning novel, Kuruthipunal
(River of Blood) written by Indira Parthasarathy, the film
Aravindhan (1997), the dialogue in the prison scene mentioning
Kilvenmani in the film, Virumaandi (2004), and the docu-
mentary, Ramaiahvin Kudisai (Ramaiah’s Hut 2006), on the
plight of the survivors of this carnage are examples of forthright
representation. Apart from the film, Asuran, which started me
on this journey, the lyrics, Vidigindra Pozhuthilum Posungidum
Uyir (A Life Charred as Dawn Approaches) and Kudisaikkul
Kathari Erindha Naan Yaar (Screaming and Charred in My
Hut, Who Am I?), in the song, Naan Yaar (Who Am I?) from
Pariyerum Perumal (2018), also bear witness to the massacre
in contemporary times.
Deivendra Kumar (deivendrakumara@gmail.com) is a research scholar at
the Department of Communication, University of Hyderabad.
december 16, 2023 vol lViii no 50 EPW Economic & Political Weekly
 POSTSCRIPT
CINEMA, SCIENCE

The Portrayal of Science and Scientists

in Oppenheimer
Positing that science is deeply intertwined with society, the movie challenges the four Mertonian norms.

Santosh Kumar

C
hristopher Nolan’s Oppenheimer (2023) has achieved four Mertonian norms concerning the structure of science—
considerable success at the box office in India and universalism, communism, disinterestedness, and organised
abroad. While it ostensibly portrays the biography of scepticism—and posits that science is deeply intertwined
J Robert Oppenheimer—the celebrated American scientist, with society. Nolan emphasises Oppenheimer’s personal and
also known as the father of the atomic bomb—the movie is professional life events, particularly his communist girl-
more than a biographical account, prompting a deeper insight friend’s suicide, as a result of his contending obligations.
into its depiction of science and scientists. The movie demonstrates that Oppenheimer consistently
The movie begins with a scene of anxiety and visual repre- applied his value judgments in his scientific creations, blurring
sentations of fire after a bomb blast, illustrating a young the duality between fact and value in his scientific practice. This
Oppenheimer’s inner turmoil. Following his professor Patrick underscores the notion that scientific facts cannot be created
Blackett’s refusal of permission for Oppenheimer to attend a without value, and vice versa. STS advocates for comprehending
lecture by the visiting scientist Neils Bohr, he contemplates a scientific facts in relation to human affairs, which inherently
shocking act of revenge—poisoning the professor by injecting involve values and culture. This stands in contrast to a popu-
an apple with potassium cyanide. This particular scene left many lar narrative, which portrays science as universally objective.
audiences, including Oppenheimer’s followers, and Nolan’s choice of The film is centred around the secret laboratory
even his grandson, baffled, questioning Nolan’s using an apple established in Los Alamos under Oppenheimer’s
intentions behind portraying Oppenheimer’s attempt injected with leadership, to create the atomic bomb for “nation-
to commit murder. In my view, this single scene al interest.” Unlike the functional perspective of
potassium cyanide as
encompasses the movie’s plot and highlights an science, the movie provides the context in which
a means of revenge
intriguing perspective in the field of science and science is developed. It emphasises the role of pow-
technology studies (STS). Oppenheimer’s struggle
holds symbolic erful nations as competitors in the scientific realm.
with anxiety and the surreal vision of fire raises significance rooted This context raises issues regarding the universal
questions about the perception of such experiences in Christian theology characteristics of science. Science does not re-
in today’s world. If someone today were to report similar vi- main true exclusively in space or time, as exemplified by the
sions, the general advice would likely be to seek psychiatric existence of both American and Soviet science. The purpose
help, attributing such experiences to mental instability. behind the creation of the atomic bomb was to achieve last-
Nolan’s choice of using an apple injected with potassium ing peace by eliminating the possibility of future wars. The
cyanide as a means of revenge holds symbolic significance dialogue, “We are in a race against the Nazis. And I know
rooted in Christian theology—where the apple represents a what it means if the Nazis have a bomb,” reflects the inter-
cardinal mistake made by Adam, leading to the world’s cur- twining of science and nation. From an STS perspective,
rent state. The injection of potassium cyanide, a product of science appears to thrive in a cocoon of state protection and
scientific thinking, transforms the apple into a tool of retri- competition with enemy states, as exemplified by the antag-
bution, blurring the lines between science/technology and onistic relations between the Union of Soviet Socialist
personal emotion. Throughout this scene, Oppenheimer con- Republics and the US, which spurred the advancement of
tinually makes value judgments, further illustrating the in- science in the 20th century, including the science of atomic
terplay of scientific objectivity and subjective motivations. bombs. The Cold War era witnessed immense resources being
We later learn that the apple is almost eaten by Bohr, and funnelled into the scientific endeavours of both nations.
not by Blackett. This adds heft to the analogy of this new, Another important aspect addressed by STS is the tripartite
objectively and subjectively discovered version of the apple relationship between science, industry, and state; this is
as an atomic bomb. Initially, Oppenheimer’s intent was to reflected in dialogues throughout the movie. The connection
use the bomb against the Nazis to satisfy the United States’s between US’s industrial might and scientific innovation lies
(US) collective sentiments and halt the war. However, in reality, within its secret laboratory. The movie presents a critical view
the bomb was deployed against Japan, illustrating that once of the dominant connotations of peace and war in society.
an atomic bomb is invented, it no longer remains solely in the The period surrounding World War II saw scientists taking
hands of its inventors. The movie’s depiction challenges all on roles akin to soldiers; we see Oppenheimer wearing an
Economic & Political Weekly EPW december 16, 2023 vol lViii no 50 71
 POSTSCRIPT
CINEMA, SCIENCE | CINEMA, POLITICS
army uniform. However, the dropping of the atomic bomb
did not ensure everlasting peace. Instead, it perpetuated tension
and a chain reaction, both on an atomic and international level.
The priority shifted from combating poverty, disease, and
health issues to striving for superpower status by allocating
substantial national resources to nuclear bomb development.
The science of atomic bombs, initially pursued for national
interest and protection, later found civil applications in
nuclear energy and the radioactive treatment of cancer.
Notably, the production of science no longer resides solely
within the realm of science but rather falls under the purview of
elites, including military, industrial, and political leaders,
who decide which scientific endeavours are deemed worthy.
C Wright Mills, a renowned sociologist, contends that democracy
in the US is merely an illusion, as the decision-making power lies
in the hands of these elites, as evidenced by the movie’s
portrayal of the army general and political leadership. The
scene depicting the atomic bomb’s potential to destroy the world
72
reflects the paradoxical nature of science, which may begin with
certainty, but ultimately operates with uncertainty and proba-
bility in the technoscientific realm. Additionally, Oppenheimer’s
role in selecting target cities for bombing further blurs the
line between scientific creation and moral responsibility.
The Indian STS scholar, Shiv Viswanathan, argues that
Oppenheimer is “the scientist who does extraordinary science
but banal science studies.” Watching Oppenheimer can spark
our interest in the perspectives presented by Hollywood con-
cerning STS. Through its intricate exploration of science and
scientists, the film challenges prevailing notions of univer-
salism in science and delves into the complexities of moral
dilemmas and decision-making power in the scientific realm.
Its rich narrative and attention to historical context offer an
engaging and captivating viewing experience, further demon-
strating the growing influence of STS on popular cinema.
Santosh Kumar (santoshkn17@gmail.com) is a senior research fellow at the Centre for
the Study of Social Systems, Jawaharlal Nehru University, New Delhi.
december 16, 2023 vol lViii no 50 EPW Economic & Political Weekly
 POSTSCRIPT
CINEMA, SCIENCE | CINEMA, POLITICS

Riding the La Poderosa

Politics, Youth, and Motorcycle Diaries in Kerala
Communism and a particular bike have become important tropes that directly impact society, politics, and
youth culture in Kerala.

Sayant Vijay, Nidhin Shibu, Anandhu S

I
n 1952, Ernesto “Che” Guevara embarked on a life-chang- transmission of such movies? Film studies professor Louis D
ing journey across South America on a motorcycle he Giannetti states in his book, Understanding Movies (1972),
called “La Poderosa.” This journey eventually led him to that ideology is a body of ideas reflecting the social needs
join the Cuban Revolution and become a revolutionary icon. and aspirations of an individual, group, class, or culture. The
Che’s journey and his revolutionary exploits had a significant term is generally associated with politics and party plat-
impact on young people across the world. Idolising Che’s forms, including film-making. In modern times, films have
journey, the youth in Kerala went on their own version of a the capability of affecting the belief systems of the general
motorcycle journey in the hopes of “finding themselves,” and public. Then, has the Malayalam film industry used the
achieving a sense of personal fulfilment and glory. tropes of Guevara’s story and adventure to instil a particular
La Poderosa serves as a powerful symbol of freedom, ad- belief system in the minds of the youth in Kerala?
venture, and self-discovery, along with pride and self-liberation Motorcycle Diaries captures the rebellious nature of Guevara
for the youth. In India, bikes manufactured by Royal Enfield, and his friend, Alberto Granado. The film explores themes
Java, and other brands became an alternative for La Poderosa. of rebellion, self-discovery, and transformative journeys.
In the landscape of Kerala, Che lives on through All these films have Che defies his family’s expectations and abandons
murals, banners, and paintings. However, there ex- a particular bike medical studies to embark on a life-changing trip.
ists a question regarding how much of Che’s story His encounters with the working class expose him to
that these young
and journey impacts the society in Kerala, espe- life’s harsh realities, shaping his revolutionary ide-
protagonists ride,
cially the youth, in transmitting a leftist ideology. als. This journey is also a catalyst for self-discov-
Analysing the political environment of colleges in
which is very similar ery. Che gains awareness of his strengths and weak-
Kerala, it is easy to note that the prevailing belief to “La Poderosa” nesses, ultimately finding his purpose as a social
system always leaned towards the left. With the Left Demo- justice advocate. Motorcycle Diaries exemplifies cinema’s
cratic Front (LDF) government winning back-to-back elec- power to shape public attitudes. It beautifully captures Che’s
tions, which is a rare feat in modern Kerala politics, the ques- transformation from an impulsive youth to a dedicated lead-
tion is: How much of that success comes from the ideological er fighting for justice.
72 december 16, 2023 vol lViii no 50 EPW Economic & Political Weekly
 POSTSCRIPT
CINEMA, POLITICS | CASTE, VIOLENCE

Malayalam films from the 1990s and 2000s —like Any data on the prevailing ideological belief systems in Kerala
Aniyathipraavu, Niram, Nandanam, Mozhi, Oru Vadakkan shows that the youth is heavily influenced by communist ideol-
Veeragatha, Devaasuram, and Perumazhakkalam—addressed a ogy. So, cinema’s role in persuading or affecting people’s beliefs
range of themes, including social issues and women empower- and attitudes cannot be understated. While this is true in most
ment. Rebellious heroes were a part of the industry, but they parts of India, in Kerala, one can see a strong relationship
did not have a vision for an egalitarian society like Che. The between films and society, each influencing the other. Since
protagonists of Malayalam films of the 2010s espoused rebel- 2016, these new-generation communist films with new, young
lion, journeying to understand reality and discover their own actors have reached the pinnacle of popularity. This trend has
selves. The protagonist begins their journey with a rebellious led to the rise of college students believing in the communist
attitude, always in strife with elders and other respected ideology, turning the college politics landscape into a Students’
members of society. However, through a series of trials and Federation of India-dominated arena. The credit for this
tribulations, they become more respectful and transform partially goes to films that have introduced Che to the young
themselves into ideal human beings. Che’s journey ended with people and instilled in them the urge to adopt a communist
a new decision that inspired him to challenge economic ineq- lens, understand ground realities, and fight inequities, while
uities and social repression across Latin America. Likewise, simultaneously going on a journey of self-discovery.
the Malayalam film protagonists’ journeys ended with them
Sayant Vijay (sayant.vijay@res.christuniversity.in), Nidhin Shibu, and Anandhu S are
becoming reformed individuals who left a strong and posi- research scholars at Christ (deemed to be university), Bengaluru.
tive impact on their fictional worlds.
The year 2013 was significant not just for cinema in Kerala
but also for youth culture. It saw the release of Neelakasham
Pachakadal Chuvanna Bhoomi, where a young communist,
rebel, and student protagonist travels from Kerala to Naga-
land in search of his girlfriend. Despite its romantic motiva-
tion, the journey is analogous to Che’s in Motorcycle Diaries.
Since then, the youth, communism, and a particular bike
have become important tropes that directly impact society,
politics, and youth culture in Kerala. This fi lm influenced
the Malayalam film industry so much that it gave rise to a
separate genre, which can be termed as “new-generation
communist movies.” Films such as Iyobinte Pusthakam (2014),
Oru Mexican Aparatha (2017), Comrade in America (2017),
and Sakhavu (2017) are some popular and successful Malay-
alam films which celebrate the journey and transformation
of a young communist. These films feature a young protagonist
who believes in the communist ideology and has the urge to
fight against social inequalities and hegemonic systems. All
these films have a particular bike that these young protago-
nists ride, which is very similar to “La Poderosa”—a symbol
and statement not only for the movie’s heroes but also for the
youth in Kerala. The sales of this particular bike grew expo-
nentially in Kerala, especially among college students who
saw themselves as the “macho” rebels of society.
With increasing communist references and glorifying a
rebellious nature and self-discovery in Malayalam films,
especially with famous stars featuring in lead roles, it would
be an understatement to say that this did not impact people’s
belief systems, manifesting in changes in the state’s electoral
politics. The Congress (or the United Democratic Front) gov-
ernment in Kerala ended in May 2016 after five years of rule;
the communist LDF came into power thereon and continues
to remain in power. In the 2016 assembly elections, the LDF
won 91 out of 140 seats, and the voter turnout was 77.35%. In
the 2021 assembly elections, the LDF won 99 seats, and the
voter turnout was 75.60%.
Economic & Political Weekly EPW december 16, 2023 vol lViii no 50 73