Friday, November 15, 2019

Ayodhya Verdict Part I: Why it would worry us for years to come

The Supreme Court claims that its Ayodhya verdict is not based on faith and belief of the Hindus but on credible and admissible evidence. But that is clearly not the case and it raises many serious questions for jurists and social scientists to ponder. In Part I of a three-part series, this article looks at some of the key evidence the SC examined to arrive at its conclusions

twitter-logo Prasanna Mohanty        Last Updated: November 15, 2019  | 16:58 IST
Ayodhya Verdict: Why it would worry us for years to come
A week after the Ayodhya verdict was delivered by a five-member bench of the Supreme Court in a widely broadcast event, a heated debate continues: What exactly was the basis of it?
The unanimous Supreme Court (SC) verdict on Ayodhya dispute brings in several factors into play -legal, historical and archaeological evidence, land and revenue records, faith and belief, travelogues, scriptures, the Constitution of India and the rule of law - to decide the title of the site where the Babri Masjid once stood for 464 years until it was demolished in 1992. The verdict is in favour of the "deity of Lord Ram" and the Muslims have been asked to build their masjid elsewhere for which the state (Central or state government) would provide five acres of land.
A week after the verdict was delivered by a five-member bench in a widely broadcast event, a heated debate continues: What exactly was the basis of it? While some experts point at faith and belief of the Hindus, others disagree; a few even express their inability to decipher saying that the verdict contains many contradictions and ambiguities. Questions have also been raised about the application of several legal principles relating to limitations, adverse possessions and other such.
Before exploring all these aspects, here is a reality check on what weighed in the minds of the judges while deciding the case. (Page numbers have been given for easy referencing since the verdict runs into 1,045 pages.)
Also Read: Ayodhya Case Verdict: 'We believe in unity in diversity', says PM Modi on SC ruling
Is it based on legal evidence and the rule of law?
The judges set the ground rules very clearly about deciding the title.
One, they rule out getting into the Mughal era events (the Babri masjid was built in 1528) by saying: "This Court cannot entertain claims that stem from the actions of the Mughal rulers against Hindu places of worship in a court of law today." (page 707)
Then they lay out the rules to play by: "The dispute is over immovable property. The court does not decide the title on the basis of faith or belief but on the basis of evidence. The law provides us with parameters as clear but as profound as ownership and possession. In deciding title to the disputed property, the court applies settled principles of evidence to adjudicate upon which party has established a claim to the immovable property." (emphasis added, page 920)
The following two are the most significant legal evidence the Supreme Court has examined in its "Analysis on title". Both are post 15 August, 1947 - the date set by the Places of Worship (Special Provisions) Act of 1991 for not allowing any change in the religious character of a place of worship "as it existed on that day", except for the Ayodhya dispute.
(1) Placing the idols inside the Babri masjid in 1949
About the placement of the idols in the masjid's inner sanctum in 1949, the verdict says: "...on the night between 22/23 December 1949, when a group of fifty to sixty persons installed idols on the pulpit of the mosque below the central dome. This led to the desecration of the mosque and the ouster of the Muslims otherwise than by the due process of law." (emphasis added, page 913)
A few pages later it says: "The exclusion of the Muslims from worship and possession took place on the intervening night between 22/23 December 1949 when the mosque was desecrated by the installation of Hindu idols. The ouster of the Muslims on that occasion was not through any lawful authority but through an act which was calculated to deprive them of their place of worship." (emphasis added,  page 922)
(2) Demolition of the Babri masjid in 1992
The verdict says: "On 6 December 1992, the structure of the mosque was brought down and the mosque was destroyed. The destruction of the mosque took place in breach of the order of status quo and an assurance given to this Court. The destruction of the mosque and the obliteration of the Islamic structure was an egregious violation of the rule of law." (emphasis added, page 913-914).
This was repeated a few pages later: "The Muslims have been wrongly deprived of a mosque which had been constructed well over 450 years ago" and "There was no abandonment of the mosque by the Muslims." (emphasis added, page 922 and 923)
The verdict could not have been based on such evidence as it points out that the acts of sneaking in the idols into the masjid and then demolishing the masjid amount to "desecration of the mosque" and constitute "egregious violation of law", respectively.
Is it based on archaeological findings?
In 2003, the Archaeological Survey of India (ASI) had submitted its Allahabad high court-mandated scientific investigation of the disputed site. After analysing the ASI's findings, the verdict says it "must, however, be read contextually with the following caveats":
1.    "While the ASI report has found the existence of ruins of a pre-existing structure, the report does not provide: (a) The reason for destruction of the pre-existing structure; and (b) Whether the earlier structure was demolished for the purpose of the construction of the mosque.
2.    "Since the ASI report dates the underlying structure to the twelfth century, there is a time gap (original emphasis) of about four centuries between the date of the underlying structure and the construction of the mosque. No evidence is available to explain what transpired in the course of the intervening period of nearly four centuries;
3.    "The ASI report does not conclude that the remnants of the pre-existing structure were used for the purpose of constructing the mosque (apart, that is, from the construction of the mosque on the foundation of the erstwhile structure); and
4.    "The pillars that were used in the construction of the mosque were black Kasauti stone pillars. ASI has found no evidence to show that these Kasauti pillars are relatable to the underlying pillar bases found during the course of excavation in the structure below the mosque." (all emphasis added, except the one specified, pages 906, 907)
And then it concludes: "A finding of title cannot be based in law on the archaeological findings which have been arrived at by ASI" because "no evidence is available in a case of this antiquity on (i) the cause of destruction of the underlying structure; and (ii) whether the pre-existing structure was demolished for the construction of the mosque." (emphasis added, page 907).
Is it based on travelogues, gazetteers, land or revenue records?
The verdict examines many travelogues but emphasises chiefly on the accounts of Father Joseph Tieffenthaler, a priest, and Robert Montgomery Martin, an Anglo-Irish author and civil servant, of 18th and early 19th century.
The verdict says the travelogues indicate four things: (i) "...the existence of faith and belief of the Hindus that the disputed site was the birthplace of Lord Ram" (ii) "Identifiable places of offering worship by the Hindus including Sita Rasoi, Swargadwar and the Bedi (cradle) symbolising the birth of Lord Ram in and around the disputed site" (iii) "Prevalence of the practice of worship by pilgrims at the disputed site including by parikrama and the presence of large congregations..." (iv) "The historical presence of worshippers and existence of worship at the disputed site even prior to the annexation of Oudh by the British and the construction of a brick-grill wall in 1857." (page 908)
And then, the verdict adds the following caveats: That "the accounts of the travellers must be read with circumspection"; "their personal observations must be carefully sifted from hearsay - matters of legend and lore" and that "Consulting their accounts on matters of public history is distinct from evidence on a matter of title. An adjudication of title has to be deduced on the basis of evidence sustainable in a court of law, which has withstood the searching scrutiny of cross-examination". (emphasis added, page 908)
About the gazetteers, it says: "Similarly, the contents of gazetteers can at best provide corroborative material to evidence which emerges from the record." (page 908)
Taken together, the travelogue and gazetteers, the verdict concludes: "Title cannot be established on the basis of faith and belief above." (emphasis added, page 908)
The land and revenue records had already been disposed of as of no significance earlier: the revenue records by keeping in mind "the fundamental principle of law that revenue records do not confer title" (page 886) and the land records from the emperor Babar's time being undated, "on the basis of testimony" and about "land free grant" of Rs 302, 3 ana and 6 pai "for meeting the expenses and the salary of "Muezzin and Khateeb", not a title to the land. (page 793)
(The next part of the series will examine how the balance tilted in favour of the "deity of Lord Ram")

GDP base year row: What's the problem with re-basing India's growth calculations

The credibility of India's statistical system is at stake because of the commissions and omissions ever since the 2011-12 series was announced in January 2015 and continued through multiple revisions in GDP numbers until now that dent public confidence

twitter-logo Prasanna Mohanty        Last Updated: November 13, 2019  | 15:58 IST
GDP base year row: What's the problem with re-basing India's growth calculations
When the 2011-12 series was released in January 2015, it marked up the GDP growth to take it higher than China's
The November 5 announcement of a revision in the base year for the National Accounts (which provides GDP numbers) from 2011-12 to 2017-18 - which is under active consideration, though not finalised yet -has sparked widespread speculations about the motive and the probable outcome of it.
That is because (a) the economy is on a slowdown for the past five quarters - the GDP growth has fallen from 8.1% in Q4 of FY18 to 5% in Q1 of FY20 - and is expected to fall further and (b) the quality of data has come under greater scrutiny in the past few years with economists and other experts in India and abroad raising serious concerns over political interference and seeking restoration of independence and integrity of the statistical institutions.
Nonetheless, there are sound reasons for a revision in the base year of GDP estimations.
Revision captures structural changes in economy
A revision in the base year is essential for better policymaking. It is meant to track structural changes in an economy and improve or update macroeconomic indicators that reflect the economic performances of a country. Former CSI TCA Anant had first talked about this in January 2018.
What such a revision entails has been explained by the Ministry of Statistics and Programme Implementation (MoSPI) in a note issued on May 8, 2019.
The note says India graduated to the latest international standards, the 2008 System of National Accounts (2008 SNA) evolved by the UN - which was an update from 1993 SNA - while adopting the 2011-12 series. The 2011-12 series incorporated changes in data sources, expanded coverage and improved procedures in accordance with the new standard but further improvements are needed, especially in plugging holes in the MCA21 database that captures corporate sector output and revision in the index of industrial production (IIP).
The note also says that India now subscribes to the IMF's Special Data Dissemination Standards (SDDS) too, which calls for adopting 'double deflators' in GDP estimations by developing new price indexes.
India currently uses single deflator (price index like CPI, WPI or any other) while countries like the USA, Australia, Canada, France, Germany, Italy, Japan, Mexico and Brazil have switched to double deflators - using separate deflator for output and input.
Revising base: From 10 to 5 years
There are no set norms for revising the base year. Pranob Sen, the first Chief Statistician of India (CSI) during 2007-10 and also the chairman of the standard-setting National Statistical Commission (NSC) during 2013-16 who was a part of such exercises in the past, says the 2008 SNA recommends developing countries to revise it every five years to capture the structural changes.
"The frequency of revision depends on the rapidity with which structural changes are taking place in an economy. If an economy is stable, there is no need for revision for a longer timeframe. It is a judgement call," he explains.
When India started its National Accounts series in 1948-49, revisions were carried out every decennially (10 years) to coincide with the Population Census primarily because the latter provided the workforce estimates. The practice continued till 1980-81.
Thereafter, since 1993-94, India started using the results of quinquennial (every five years) employment and unemployment surveys (EUS) for the base year revision, reducing the gap in revisions to five years. This practice was broken in 2009-10 because this year was "not considered a 'normal' year as it succeeded the global slowdown of 2008". Hence, the next base year was fixed for 2011-12.
A revision then should have happened from 2016-17. Why this did not happen is not known. Why 2017-18 is being actively considered is because the last round of employment survey (PLFS) and consumer expenditure survey happened for the year 2017-18.
The 2017-18 employment survey (PLFS) is already out - initially junked but released after the 2019 election results were out - showing a 45-year high in the unemployment rate (6.1%). The consumer expenditure survey has not been released yet.
Credibility of statistical data at stake
Apprehensions about the proposed change are mainly because of the doubts about the quality of official data.
The process of estimating the GDP has become quite opaque quite now. So much so that Arvind Subramanian, who was Chief Economic Advisor (CEA) from 2014 to 2018 preparing the Economic Surveys, wrote in July 2019 that, "Since the underlying data are not available publicly, nobody outside the CSO can "estimate GDP".
The National Accounts division is a part of the MoSPI's Central Statistical Organisation (CSO).
This is a new development. PC Mohanan, former chairman of the NSC, says all datasets used for base year revisions prior to 2011-12 were always in the public domain.
That and much more changed in 2015. Here are a few major such turns of events.
a. Structural change based on highly defective MCA21 dataset
The 2011-12 series used, for the first time, an untested and as-yet-unknown MCA21 database of the Ministry of Corporate Affairs (MCA) that supposedly captures the output of corporate entities in the manufacturing and services sectors.
A significant change in the structural share of manufacturing and services in the GDP that 2011-12 series reflects is largely attributed to it. The impact is shown below using the 2004-05 and 2011-12 series for comparable years.
The share of manufacturing shot up dramatically - from 14.9% to 17.2% of the GDP in FY14 - and that of the services sector fell equally badly - from 67.4% to 59.9% of the GDP in FY14.
The MCA21 is not the public domain even today.
However, when the NSSO published its findings on the MCA21 dataset in its 'Technical Report on Services Sector Enterprises in India' in April 2019, it shocked the economists and others by its revelations.
It said, "about 45% of MCA units were found to be out-of-survey/casualty while the EC/BR frame had about 18% of such cases". This means, (a) about 45% MCA21 units in the services sector (actually disaggregated data adds up to 45.5%) don't exist on ground, don't operate (closed or dysfunctional) or are not engaged in the activities specified against them and (b) such errors in other datasets - Economic Census (EC) and Business Registers (BR) of the states - was much less at a mere 18%.
The MoSPI issued clarifications in response to this finding in May 2019 but that has done little to remove doubts. The MCA21 units in the manufacturing sectors are not yet tested.
b. Doubtful GDP numbers
When the 2011-12 series was released in January 2015, it marked up the GDP growth to take it higher than China's. That sparked the first doubts among economists who talked of a mismatch between the GDP and other indicators.
This was followed by a second round of doubts when the back series data was released nearly four years late in November 2018. There has been much public drama before that with the Niti Aayog rejecting two earlier revisions which showed a higher GDP growth during the UPA years, even though it has no locus standi or expertise in the matter.
When the Niti Aayog finally allowed the back series, the MoSPI document carried the following graph to show how it had marked down the GDP numbers for the UPA years.
c. Counter-intuitive high growth post-demonetisation and GST
That was followed by a further revision in the GDP numbers a day ahead of the February 1, 2019 budget. The GDP growth for FY17 - the year of demonetisation - was raised from 7.1% to 8.2%, the highest in the decade, and for FY18 - the year of GST introduction - from 6.7% to 7.2%.
Subramanian, in his 2018 book, mentioned the twin shocks of demonetisation and GST and how they damaged the economy. About the former, he wrote, "demonetisation was a massive, draconian, monetary shock" that led to a fall in the GDP for the next 7-8 quarters.
In June 2019, Subramanian wrote a paper for Harvard University saying that India's growth estimate had been exaggerated by around 2.5 percentage points between 2011-12 and 2016-17. When this was rebutted, Subramanian stuck to his guns, wrote another paper pointing out that not only had he said as much in his Economic Surveys, he also made the comment quoted earlier, "Since the underlying data are not available publicly, nobody outside the CSO can "estimate GDP".
What do experts think of base year revision
Sen says the choice of 2017-18 as the new base year is bad because it was "not a normal year" and that 2018-19 could be a better choice. That is because he says, the year 2017-18 saw the impact of the two major economic disruptions - demonetisation announced in November 2016 and the GST in July 2017.
As for the tentativeness in the MoSPI's voice to fix the new base year - while it said on May 8, 2019, that it was working on the 2017-18 base, Pravin Srivastava, MoSPI secretary who also doubles up as the CSI, indicates that this would be fixed in the next few months - Sen says the crucial considerations in the revision are the availability of employment and consumer expenditure surveys. While the first showed 2017-18 to be a bad year for employment (6.1% unemployment rate), the second (not yet made public) might not have been good either.
Mohanan and C Rangarajan, former RBI governor, also think 2017-18 is not a normal year because of the impact of demonetisation and GST. Rangarajan says the government would run into a problem if does chooses a low-income year of 2017-18 and "need to start explaining higher growths in the previous years" that it would lead to.
Mohanan says his main concern is about the MCA21 which substantially raised the share of manufacturing GDP and reduced that of the services GDP. This dataset is not in the public domain yet and the questions that the NSSO's April 2019 report raised about its quality has to be sorted out and settled to the satisfaction of experts before being used again.
MoSPI officials keep mum
Repeated attempts to contact the MoSPI officials and seek their responses (through a personal meeting, phone or mail) to some of the questions and apprehensions that arise out of the proposed revision went unanswered. Srivastava redirected the questions to his two deputies - TK Sanyal (GD) and NK Sharma (ADG) in the Central Statistical Organisation (CSO) - who refused to respond. Anant, who is
now a UPSC member, excused himself citing the UPSC's "tradition" of not making media or public comments.
Further clarity, it seems, would come when the new series is announced by the MoSPI.

Reality Check Part IV:: RBI acts penny-wise-pound-foolish in dealing with NPA crisis

RBI flouts its own directive and defies Supreme Court to protect big corporate defaulters, putting the entire banking system at great risk, while crying foul over farmers' loan waivers - paid for by state governments and relatively inconsequential

twitter-logo Prasanna Mohanty        Last Updated: November 6, 2019  | 11:17 IST
Reality Check: RBI acts penny-wise-pound-foolish in dealing with NPA crisis
The RBI's very same September report also points out a large-scale diversion of agri-credits for non-farm use
In August, the multinational banking and financial services company Credit Suisse warned of a "second wave of NPAs" in India with the banking sector's stressed loans likely to exceed 12% as a debt of Rs 2.4 lakh crore across 16 stressed corporates is being put through the inter-creditor agreements (ICAs). The ICAs, notified by the RBI in July this year, is the only restructuring framework now available to banks before the Insolvency and Bankruptcy Code (IBC) kicks in.
A month later, in September, the RBI released 'Report of the Internal Working Group to Review Agriculture Credit', pointing out an "unprecedented increase" in agriculture loan waivers during 2014-2019 by 10 states, totalling Rs 2.4 lakh crore and blaming it for increasing the agriculture NPAs "sharply" to 8.44% in FY19.
The report dismissed farm loan waivers as "not the panacea" and added: "In fact, they destroy the credit culture which may harm the farmers' interest in the medium to long term and also squeeze the fiscal space of governments to increase productive investment in agriculture infrastructure."
Few can argue against this. But before getting into the blame game, here is a reality check.
Reality check: Who is responsible for growing NPAs?
The following two graphs plot the RBI data on sectoral share of NPAs of the scheduled commercial banks (SCBs) - which include public sector banks (PSBs), private and foreign banks providing banking services in India.
They show that the agriculture's share of total NPAs is 8.5%, on an average, in three years between FY16 and FY18 for which data are readily available, as against an average of 76.7% for the "non-priority sector". The non-priority sector entities are the medium and large industries operating in the manufacturing and services sectors.
In absolute numbers, the agriculture NPA for FY18 was Rs 0.83 lakh crore, while that of the non-priority sector was Rs 7.56 lakh crore - 9 times higher.
A 2018 study by the Delhi-based Institute for Studies in Industrial Development (ISID) sheds more light on the sectoral share of NPAs. It says the NPA problem "primarily originates from the non-priority sector loans". These are of "the large corporate industries" which are also "the large borrowers" operating in metal, cement, textile, paper, mining, food processing and construction sectors, rather than agriculture, services or retail sectors.
Most of these NPAs are in the accounts of the PSBs, as the following graph would make it clear.
Farmers' loan account for about 2.4% of total NPAs
The agriculture NPA also includes loans of big farmers and food and agro-processing units, besides the small and marginal farmers who benefit from the loan waivers. What would then be the share of small and marginal farmers?
Here is a back of the envelop calculation.
All loan waivers announced are for a maximum of Rs 2 lakh - except Tamil Nadu which put "no limit" but waived off only those loans from the Rural Co-operative Credit Institutions (RCCI), which are out of the SCBs' ambit. Since loans of up to Rs 2 lakh account for 39% of the total agriculture credit (eight-year average as per the RBI database), the loan waivers could be assumed to be to this extent in the agriculture NPA of 8.5%.
Further, 29% of loan waivers in value (Tamil Nadu, Rajasthan and Karnataka) have no SCB component. Therefore, the loan waiver would be lesser by this extent too. In fact more should be deducted since the rest seven states have non-SCB loans also - loans from the RCCIs, RRBs, DCCBs and other cooperatives.
Once these two factors are taken into consideration, the actual farmers' loan component comes to 2.4% of the total NPAs of the SCBs.
Surely, if a waiver of 2.4% of NPAs could be damaging to the credit culture, fiscal space and investment, then 97.6% of NPAs would be far more devastating - 97.6 times more. That should be making the RBI very worried. But does it?
State governments pay for farm loan waivers
Even this 2.4% of agriculture NPA could be misleading.
The RBI's very same September report also points out a large-scale diversion of agri-credits for non-farm use. It says that in many states the total agri-credit for agriculture has been found to be far more than their agri-GDP (Kerala - over 180%, Tamil Nadu - 170-180%, Telangana and Punjab - over 100%). This is, apparently, because of very low agriculture interest rates.
The RBI has less to complain about farm loan waivers also because the state governments pay for this entirely from their budgets, while banks write off NPAs on their own which is a reflection of their own failures and incompetency which endangers India's economic wellbeing. At times, the central government helps these banks through recapitalisation. Since FY015, the banks have been recapitalised by Rs 3.82 lakh crore.
The moot question then is: Why such a hullabaloo by the RBI against farm loan waivers?
RBI does not disclose the identity of big defaulters
Defying logic, its own guideline and the Supreme Court's repeated warnings and reprimands, the RBI zealously guards the identity of big defaulters year after year.
Shailesh Gandhi, former member (2009-12) of the Central Information Commission (CIC), says he alone had given 10 orders to the RBI during his tenure to disclose the identity of big defaulters, audit and actions taken reports, in response to RTI complaints. The RBI refused to comply on the pleas of economic interest, commercial confidence and fiduciary relationship with other banks.
In December 2015, the Supreme Court (SC) rejected such pleas, upheld the CIC orders and directed the RBI to comply. The RBI defied again, leading to contempt proceedings. In its April 2019 order, the Supreme Court severely reprimanded it for "continuing to violate the directions by this Court" and issued a warning: "Any further violation shall be viewed seriously by this Court."
A fresh RTI application has been filed by one of the litigants in July. The reply is still awaited.
After the PMC bank scam hit, Gandhi wrote about his experiences with the RBI with this observation: "It is essential for the Reserve Bank of India to understand its primary role of service to citizens and to realise that India will benefit if it transparently does its job of regulating financial institutions."
RBI stops disclosing NPA write-offs as well
That is not all. The RBI has stopped disclosing NPAs being written off.
Its database did have such information until August this year (from FY05 to FY18), under the column "write-off during the year", which has now been taken out.
A saved copy of this datasheet in August is plotted in the following graph.
The writing-off shot up from FY09. During the period of FY05 to FY18, the SCBs wrote off Rs 3.84 lakh crore of NPAs - of which Rs 3.6 lakh crore was by the PSBs.
How much was written off in FY19?
The RBI is not revealing. However, prominent national dailies have said their investigations reveal a whopping Rs 2.54 lakh crore was written off in FY19 and that the SBI admitting (in response to RTI) to writing off Rs 76,000 crore of 220 corporate defaulters who owed more than Rs 100 crore each.
RBI flouts its own directive regarding disclosures
Gandhi draws attention to an interesting RBI circular of 1994, which set out a new scheme, "Scheme on collection and dissemination of information regarding defaulters of Rs 1 crore and above". It asked the banks to file regular reports on the defaulters with a view of sharing with other banks and financial institutions (FIs). The objectives were two:
  • "alert the banks and financial institutions and put them on guard against borrowers who have defaulted" and
  • "publish a list of defaulting borrowers in cases where suits have been filed by banks and FIs", i.e., make the details public.
Had the RBI followed its own scheme or counsel to the banks under its regulatory control, many banks wouldn't have given huge loans to some of the big corporate defaulters, many of whom have now fled the country.

Bangladesh Part II: What can India learn from Bangladesh's microfinance institutions?

Remarkable improvements in social and economic status of the rural poor in the past few years have put the country on a higher growth trajectory and ensured that growth does not breed inequality

twitter-logo Prasanna Mohanty        Last Updated: November 4, 2019  | 11:05 IST
What can India learn from Bangladesh's microfinance institutions?
Bangladesh's microfinance operations began in the 1970s in which the Grameen Bank - which won the Nobel Peace prize along with its founder Muhammad Yunus in 2006.
Bangladesh has not only achieved structural transformation with manufacturing and exports driving its growth in output (GDP) and employment but, it has also seen a remarkable rise in social indicators, income levels and entrepreneurship in rural areas in which microfinance institutions have played a predominant role.
A World Bank study of 2014, which looked at the long-term impact of micro-credit programmes, concluded that they helped rural households earn more and consume more, thereby accounting for more than 10% of the total reduction in extreme poverty in a decade between 2000 and 2010. This has helped Bangladesh avoid an increase in income inequality that many developing countries have witnessed.
How did Bangladesh do it?
Bangladesh's microfinance operations began in the 1970s in which the Grameen Bank - which won the Nobel Peace prize along with its founder Muhammad Yunus in 2006 "for their efforts to create economic and social development from below" through micro-credit programmes - and BRAC (earlier known as Bangladesh Rural Advance Committee) played predominant roles and were later joined by others likes the Association of Social Advancement (ASA), transforming the rural social and economic landscape completely.
A Singapore Management University paper of 2008 sheds light on how the Grameen Bank and BRAC, in particular, did it.
For one, it says Yunus built a self-sustaining system of lending and borrowing without collaterals and with minimal default -achieving a repayment rate of 97% on an average. He focussed on village women and organised them to take collective responsibility for the business. Every member was not necessarily borrowing; some were depositing their surplus for lending.
Yunus went on to fund and establish a wide range of business enterprises, both for-profit and non-profit with a social mission - starting from knitwear to software. His efforts "ended up promoting a wave of entrepreneurial activity at the rural level, effectively changing the structure of the Bangladeshi economy". It is the Grameenphone, the telecom major that Yunus started, which brought telecom revolution to rural Bangladesh.
Similarly, the BRAC has played a critical role in transforming rural Bangladesh. Founded by the Magsaysay winner Fazle Hasan Abed, it progressed from rebuilding remotest villages where government aid did not reach to enter healthcare and contributed significantly to reducing child mortality. Abed also funded and established many enterprises running silk production, dairies, hatcheries and others to create employment and income for the rural poor.
Prof Selim Raihan of the University of Dhaka says more than 75% of the microfinance institutions have been found to be engaged in social development programmes with a major focus on education, healthcare, water and sanitation, women empowerment and (economic) development.
Why did no such transformation happen in India despite a huge presence of microfinance institutions?
That would call for a study. Prof Nisha Taneja of the ICRIER says it is remarkable the way these institutions connected at the ground level in Bangladesh, won people's trust and disincentivised default. It is replicable in India, she says, but that would require vision and commitment.
Women empowerment and social change
Women have been at the centre of Bangladesh's microfinance institutions.
Prof Kaushik Basu highlights this aspect while explaining Bangladesh's economic boom. He writes that starting with the efforts of microfinance institutions like the Grameen Bank and BRAC, and more recent work by the government, Bangladesh has made significant strides in educating girls, giving women a greater voice in the households and the public sphere.
A 2019 study by the World Bank says the country has made important strides in many dimensions of gender equality, creating opportunities for women and girl from all walks of life - reducing fertility rates, achieved gender parity in schooling and paved the way for millions of women to work in garments sector - in the past decade. So much so that today girls have a better chance than boys of completing school and survive to the age of 60.
It further says that the labour force participation rate for women (FLFP) of 15 years and above has risen from 26% in 2003 to 36% in 2016 "in contrast to most other South Asian countries, where these rates fell". For example, in 2017 the FLFP for India was 27.2% while that for Bangladesh was 33%, according to the UNDP's 2018 updated Human Development Indices and Indicators.
The share of women in Bangladesh's national parliament (with 50 seats reserved for them) has also increased and remains above the regional average of 19.4% in 2017 at 20.3%. Women's representation for the same year in India was 11.6%.
More women now own land and exert more economic control over agricultural land other assets like cattle, houses and non-agricultural land in Bangladesh. "There is marked improvement in society's attitude toward women's asset ownership, which bodes well for women going forward," says the World Bank report - reasoning that women's economic empowerment is linked to poverty reduction as they invest more in children and communities.
All these get reflected in the improvement in health and other indicators.
The UNDP's 2018 report says Bangladesh's life expectancy at 72.8 years is better than India's 68.8 years (in 2017) and so is its infant mortality rate (under 5 years) at 34.2 against India's 43 (in 2016).
Even in key education indicators, Bangladesh scores over India.
When the Global Hunger Index (GHI) by Severity report was released in October, Bangladesh continued to march over India. It scored 25.8 (and ranked 88 among 117 countries) while India's score stood at 30.3 (rank 102).
The GHI measures the level of hunger and under-nutrition on a scale of 0 to 100. Lower the score lower the severity of hunger and malnutrition. Both Bangladesh and India, however, continue to be in the "serious" category.
The graph below traces the movement of the GHI scores of Bangladesh and India since 2000.
Another important report came out in October - the World Bank's first human capital index (HCI) - in which too Bangladesh piped India.
This index measures the productivity of the next generation of workers relative to the benchmark of complete education and full health. An economy in which the average worker achieves both full health and full education potential scores a value of 1.
This is not surprising as Bangladesh has been devoting considerable resources for its social sector developments - on education, health, sports, women's welfare etc. - raising it from 4.4% of the GDP in FY10 to 9.8% in FY19.
Remittance as a driver of growth
Another key driver has been remittances from Bangladeshis working abroad. This has grown three times from $4.8 billion in FY06 to $15 billion in FY18. It has remained above 5% of the GDP for the past many years as the following graph shows.
The dip in FY19 is because the data is up to March 2019 while the full fiscal year runs till 30 June 2019.
Prof Raihan says Bangladesh saw a large growth in remittances over the last four decades. It now exceeds other types of foreign exchange inflows, particularly official development assistance and net earnings from exports.
These remittances are sent by the Bangladeshi migrant workers abroad (about 0.55 million), especially in the Middle East, the USA, the UK and other European and Asian countries. It has ensured stability in the balance of payment, which, in turn, has helped Bangladesh in maintaining healthy forex reserves.

Bangladesh Part I: India struggles but Bangladesh's GDP rides high on manufacturing, export boom

Much like China and other Asian giants - but unlike India - Bangladesh has achieved structural transformation with manufacturing and exports driving its growth in output (GDP) and employment

twitter-logo Prasanna Mohanty   New Delhi     Last Updated: October 30, 2019  | 09:48 IST
India struggles but Bangladesh's GDP rides high on manufacturing, export boom
Export contributes a great deal to Bangladesh's growth, contributing 14% to 20% to its national GDP.
One fine day India woke up to the realisation that Bangladesh had overtaken it in GDP growth rate when the Asian Development Bank (ADB) updated its Asian Development Outlook (ADO) report in September 2019 - though this was clear from its earlier April 2019 report too.
What the update did was to revise Bangladesh's GDP growth for 2019 upward from 8% to 8.1% and downward for that of India from 7.2% to 6.5%. Further, it retained Bangladesh's growth forecast for 2020 at 8% but downgraded India's from 7.3% to 7.2%.
The official data of both the countries, using their own fiscal calculations, however, show Bangladesh overtaking India in FY18, as shown in the following graph.
That is because of differences in their calculations. Bangladesh's 'fiscal year' calendar is from July 1 to June 30 but that of India is from April 1 to March 31. The ADB uses 'financial year' and counts fiscal years of both countries differently - for example, for it Bangladesh's FY19 ended on 30 June 2019 but that of India will run till 31 March, 2020.
Bangladesh growing rich faster and more equal than India
ADB's report shows Bangladesh is growing richer at a faster rate than India. Its per capita GDP growth overtook India's in 2017 when it clicked 6% growth compared to India's 5.8%. It would continue to grow faster in 2020 too - at 6.6%, compared to India's 5.9%.
Bangladesh is also catching up fast in income with its per capita GNI for 2017 reaching $1,470 against India's $1,800. The same for some of the other Asian countries are: South Korea - $28,380; China- $8,690; Sri Lanka - $3,850 and Pakistan - $1,580.
Bangladesh's income inequality is also less than India's
As per the UNDP's 2018 Human Development Indices and Indicators, its Gini coefficient, which measures income inequality (0 representing absolute equality and 100 absolute inequality) for the period of 2010 to 2017 was 32.4, against India's 35.1. The same for other Asian countries are: South Korea - 31.6, China - 42.2, Sri Lanka - 39.8 and Pakistan -30.7.
It should, however, be kept in mind that Bangladesh is a much smaller country with a population of 161 million - against India's 1,351 million - and a GDP size of $274 billion - against India's $2.7 trillion - as per the World Bank data for 2018.
What has driven Bangladesh's spectacular growth in recent years?
Prof Selim Raihan of the University of Dhaka lists four major drivers and a minor one: (a) exports of readymade garments (RMG) (b) inward remittances (c) sustained growth in agriculture (d) growth in microfinance and (e) public investment in big infrastructure projects. Other experts list 'women empowerment' as well.
Structural transformation: Manufacturing and export-led growth
A distinguishing feature of Bangladesh's boom is strong growth in its manufacturing (industrialisation) and exports, unlike India's but very much like Japan, China, South Korea and other Asian economies.
A study by the ADB found Bangladesh to be among the Asian countries with the highest increase in their manufacturing share and output (GDP) growth during the 1970s-2010s, along with Bhutan, Cambodia, Malaysia, South Korea and Thailand. Its manufacturing has grown by a simple average of 10.2% during the past 14 years (FY06 to FY19). Analysis of data shows the services sector contributes most to the output in both Bangladesh and India while their agriculture is rapidly declining.
For the purpose of comparability, the construction's share has been deducted from India's services sector since it is a sub-sector of Bangladesh's industry, not services.
As the graph makes it clear, Bangladesh's manufacturing has taken off in a big way and contributes nearly a quarter to its GDP while in India's case it is still less than a fifth.
Consequently, Bangladesh's manufacturing is also providing more jobs. Agriculture remains the top job provider but services are fast catching up in both the economies.
Garment sector leads the high manufacturing and export growth
History talks of the dominance of Dhaka's Jamdani muslin in world trade during the Mughal era, drawing in pots of gold and silver to the subcontinent from Europe. Since it required great skill, it was "costly and could be afforded by only the very rich".
Now Bangladesh's garments, both readymade and knitwear, are redefining its economy. Prof Raihan says Bangladesh has emerged as the second-largest exporter of garments after China and constitutes about 45% of its manufacturing GDP and 7% of total GDP. It is also the largest labour-intensive manufacturing sector employing 5 million people, 80% of whom are women, and the fastest-growing sector. It has contributed more than 80% to Bangladesh's total export since FY13.
Export contributes a great deal to Bangladesh's growth, contributing 14% to 20% to its national GDP. The sudden dip in export for FY19 is because the data is up to March 2019 while the fiscal year ends in June.
What caused its garment sector to boom?
The country's status as a Least Developed Country (LDC) in the UN list - set to graduate to 'developing country' in 2014 - has helped in availing zero-tariff preferences offered by advanced markets like the European Union, China and Canada (India too accords such benefits).
Prof Nisha Taneja of the ICRIER points at a few critical other factors: (a) success in upgrading its RMG sector in the global value chain through backward linkages (b) establishment of large scale firms and (c) flexible labour market and low wages. Contrasting the scene with India's, she says though India too has developed strong backward linkages, its rigid labour laws and decades of restricting RMG production to small scale units inhibited growth of large scale units or achieve economy of scale.
Economist Prof Kaushik Basu has attributed this boom to discarding of the Industrial Dispute Act (IDA) of 1947. Both India and Pakistan inherited it from the British but Pakistan's military regime repealed it in 1958. This law, he says, has done more harm than good to India by restringing the ability of firms to contract workers and expand labour force.
Sustained agriculture growth
Another key to Bangladesh's success is its incredible resilience in the face of decreasing arable land, population growth, flood, drought and salinity induced by climate change to improve its agricultural output. It is fast-moving to achieve self-sufficiency in food production - producing 41.3 million ton (MT) in FY18 against the target of 41.57 MT.
The agriculture sector has been grown at an impressive (simple average) rate of 3.5% in the past 14 years since FY06, with the fisheries growing the fastest (simple average of 6.3%), contributing 3.6% to its national GDP and 25% to the agriculture GDP.
It is interesting that Bangladesh's services have been contributing more than 50% to national GDP and about 40% to employment and yet finds only a passing mention in its Economic Review of 2019 - which runs into 15 chapters and 271 pages.
The following graph highlights the top sub-sectors and their contributions to output.

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