Thoughts on the Indian Economy

Thinking about assorted economic issues in India.

Wednesday, May 17, 2006

Education Vouchers-- Some Doubts

The explosive protests against the government's plans to increase reservations in institutions of higher education have spurred debate about Indian education in general. On the topic of reforming K-12 education, one idea floating around is of vouchers for education. The basic premise behind vouchers is that parents have the choice and money to send their kids to private schools instead of being restricted to shoddy public schooling. Since parents have greater choice, schools stay on their toes to maintain standards of education, otherwise parents will just send their kids elsewhere. Proponents say that vouchers will increase competition among schools promoting resulting in an efficient supply of education and thus, producing better educational outcomes for children. The Indian Economy blog presents the following example:

"Let's see how this would play out in the case of a hypothetical "sufficiently poor" family. Abhi and Anu's parents are daily wage earners who need the Rs 10 each kid earns every day to keep the family going. So sending them to school where the tuition fees and other school related expenses are Rs 400 per month per child is out of the question. Their total cost of sending a child to school is Rs 400 plus the foregone earnings of Rs 30 per month. So the government gives vouchers that Abhi and Anu use to pay or the privately run school in their neighborhood that they attend. And on op of that, the government gives the parents Rs 600 every month as long as he kids continue in school. Net cost to the family: zero.All the way to inishing high school, Abhi and Anu continue to receive free schooling and the parents are given an incentive to continue to keep the kids in school. By the time they finish 12th grade, both Abhi and Anu are as properly schooled as any other kid from a middle class family who are not poor."

I believe primary & secondary education is an area where the government has a firm duty to ensure universal quality and access. Yes, that sounds like a lofty goal given decrepitipit state of the public Indian education system right now, but we have to keep in mind that it is the ultimate goal. A fair and sound education system run by the government is not some crazy concept that needs be overhauled by introducing vouchers. The problem is not the concept of the current system, it is implementation. By shifting education mostly into private hands, vouchers change the fundamental nature of the system-- this is not a desirable goal. I present three main reasons why the government should stay in primary & secondary education:

1. Government Control Stays: The whole premise behind introducing vouchers is that the government has failed to deliver so let's take the government out of the education sector. The efforts are misdirected because vouchers will not solve the basic problem plaguing the system-- corruption, laziness, lack of monitoring and quality control. What leads us to believe that the "new" Ministry of Voucher Distribution will not suffer any of those problems that its predecessor the Ministry of Education suffered? Private school's business might not remain so private since the government is essentially funding them through vouchers. And will the school voucher become the new ration card replete with paying bribes to get them and a thriving black market for them? Basically, there is no reason to believe that vouchers relieves the government of any responsibility.

2. Inequality Stays: Say vouchers are introduced. Now armed with money provided by the government, parents can choose whichever private school they want to send their kids to. Private school X has the best reputation and so everyone queues up to X. Obviously, X cannot take everyone but they do have the pick of the crop. They will take the best and the brightest and the rest end up in private school Y. If you believe that peers affect the quality of education that is, the quality of the student body affects quality of education, then students of stronger school X will clearly get a better education than school Y. Yes, it is absolutely true that in the short-run, vouchers will enable a certain amount of children to access education when they previously could not. But it is doubtful that inequality will decrease. Stratification of private schools based on ability and income level is inevitable.

3. Religious schools: Many of us are products of a good old Convent education. Religiously affiliated schools are very common in the private school scene, so what does it mean to use a voucher (comprised of government money) at a Christian or Muslim or Hindu school? The concept of secularism gets somewhat murky in this situation.

The focal point of K-12 reform needs to get rid of leaks in the system not do away with the system itself; a system of government running school which is fine in its conception. Government money must fund the infrastructure of schools that it supposed to. It must enforce drastically grave consequences for teachers (this may sound a tad harsh, but I am not completely against a couple days in jail for teachers caught shirking ) who constantly do not show up for work like they are supposed to.*

* The study of 188 government-run primary schools in central and northern India revealed that 59% of the schools had no drinking water facility and 89% no toilets; and, most alarmingly, a large number of teachers were found to be absent at the time of the survey. On the basis of three surprise visits made to 3,700 randomly-selected schools in 20 Indian states, another study concluded that teacher-absenteeism in India is 25%. That is, at any random time, 25% of the teachers are absent from school. Source: Kaushik Basu's BBC column

Friday, May 12, 2006

Change Brewing in India & China

Two different stories are emerging from India and China these days.

In India, companies are complaining about the availibility of educated, middle-class workers. My brother-in-law, who runs a software company based in Pune, said that he is finding it difficult to fill spots. Applicants don't show up to interviews as they are quickly lured away by higher pay elsewhere. As the pool of talent shrinks, there has been upward pressure on wages in the service sector. Salaries for software engineers have been rising 20% a year, and as much as 50% a year. It is surprising that in a country 0f 1.1 billion people that produces three million college graduates including 400,00 engineers, there would such a shortfall of workers. One of the main reasons is that the economic boom has created opportunities outside the outsourcing industry for young middle class youth, decreasing the labor supply for BPO companies. Also, many companies say that although there is quantity of workers, there is a lack of quality. According to data, only 8% of applicants' English-speaking skills and training is up to par. 20% can be hired, but require extensive training. On the other side of the labor market, poor infrastructure is impending the growth and expansion of firms.

In neighboring China, the story is the same for the manufacturing sector. Chinese government statistics estimate that over the past three years, minimum wages have risen 25% in the big cities. In various provinces around the country, labor shortfalls ranged from 200,00o to 500,000. As Chinese become richer, they are moving away from unskilled jobs. University enrollment has also increased drastically-- from 4.3 million in 1999 to 14 million last year. Another factor behind the shrinking pool of workers is an aging population. There is no doubt that the forces behind India's and China's economic boom, services and manufacturing respectively, are changing. The question is, what are the countries doing about it?

An article entitled Watch out, India in this week's Economist provided some insight into what China might be doing about it. According to the article, China has been experiencing a demand for business process outsourcing (BPO) primarily due to clients who want the lower labor costs available to them in China. The typical salary for a data-entry clerk in Beijing is around $50/month cheaper than in Chennai. Also, companies are attracted to China as a way of diversifying their risk away from India and also, because of better infrastructure in China. To put things in perspetive, however, China is still far away from becoming a dominant force in this area. Compared to India $23.4 billon outsourcing industry, China's is a mere $2 billion. India's education and training system produces a better labor force, superior in English and with better practical training. The article concludes that,

"For the moment, China is likely to capture an increasing share of flow-level BPO tasks, such as data entry, form processing and software testing, while India continues to dominate higher-value functions, such as research and design, which require greater creativity and language skills. However, this will change as more western firms demand support in China and domestic opportunities grow."

The changing face of the manufacturing sector in China and the country's entry into BPO should catalyze policies in India which 1) speed up movement into manufacturing and 2) transition India'a service sector from the world's back-office to more innovative and cutting-edge products. By developing these two sectors, these policies can create viable jobs (and given the youthful nature of India's forecasted labor force, it certainly needs many, many jobs) for not only the well-educated middle-class urban youth, but also the low-skilled, rural population. The general areas to focus on are infrastructure, labor laws and education. These three issues deserve a much longer discussion than I am providing here (although very rich material for future blog entries). Better infrastructure is essential for developing both, large-scale manufacturing as well as high-tech research centers and laboratories. Loosening rigid labor laws will provide a boost to manufacturing. Increased quality and accessibility to primary & secondary education enables and empowers the lowest strata of the Indian economy. High calibre university education which stresses creativity, entrepreneurship and innovation will output a labor force with a potential to really take India's economy into a 8%+ growth phase.

Monday, May 08, 2006

Torn Culture

I have been reading "Dreams from My Father" by Barack Obama, a U.S Senator from Illinois. Some of you may have heard his moving address at the Democratic National Convention in 2004. Since hearing it, I have been interested in Obama, his politics and his probable ascent to become the first black President.

Obama spent some of his childhood years in Indonesia and this experience stuck with him. Many years later, while working as a grasssroots activist in Chicago, he compared a poor black neighborhood called Altgeld to his memories of Djakarta.

"As we walked back to the car, we passed a small clothing store full of cheap dresses and brightly colored sweaters, two aging white mannequins now painted black in the window. The store was poorly lit, but towards the back I could make out the figure of a young Korean woman sewing by hand as a child slept beside her. The scene took me back to my childhood, back to the markets of Indonesia: the hawkers, the leather workers, the old women chewing betelnut and swatting fles off their fruit with whisk brooms.

I'd always taken such markets for granted, part of the natural order of things. Now, though, as I thought about Altgeld and Roseland, Raafiq and Mr. Foster, I saw those Djarkarta markets for what they were: fragile, precious things. The people who sold their goods there might have been poor, poorer even than those folks out in Altgeld. They hauled fifty pounds of firewood on their backs everyday, they ate little, they died young. And yet for all that poverty, there remained in their lives a discernible order, a tapestry of trading routes and middlemen, bribes to pay and customs to observe, the habits of a generation played out every day beneath the bargaining and the noise and the swirling dust.

It was the absence of such coherence that made a place like Altgeld so desperate, I thought to myself; it was that loss of order that had made both Rafiq and Mr. Foster, in their own ways, so bitter. For how could we go about stitching a culture back together once it was torn? How long might it take in this land of dollars?

Longer that it took a culture to unravel, I suspected. I tried to imagine the Indonesian workers who were now making their way to the sorts of factories that once sat long the banks of the Calumet River, joining the ranks of wage labor to assemble radios and speakers that sold on Michigan Avenue. I imagined those same Indonesian workers ten, twenty years form now, when their factories would have closed down, a consequence of new technology or lower wages in some other part of the globe. And then the bitter discovery that their markets have vanished; that they no longer remember how to weave their own baskets or carve their own furniture or grow their own food; that even if they remember such craft, the forest that gave them wood are now owned by timber interests, the baskets they one wove have been replaced by more durable plastics. The very existence of the factories, the timber interestes, the plastics manufacturers will have rendered their culture obsolete; the values of hard work and individual initiative turn out to have depended on a system of belief that's been scrambled by migration and urbanization and imported TV reruns. Some of them would prosper in this new order. Some would move to America. And the others, the millions left behind in Djakarta, or Lagos, or the West Bank, would settle into their own Altgeld Gardens, into a deeper despair."

I have often had similar thoughts about India. Things are changing so quickly. Rapid growth is certainly what India needs; the day each and every citizen is above the poverty line is a joyous one. But what toll are the sweeping changes going to take? Will everyone be included? Perhaps all of this is far-sighted. And growth, one way or the other, is the only thing to focus on...