Unfortunately, the world’s rich countries currently are making things worse. Foreign aid – transfers from rich countries to poor countries – has much to its credit, particularly in terms of health care, with many people alive today who would otherwise be dead. But foreign aid also undermines the development of local state capacity.This is most obvious in countries – mostly in Africa – where the government receives aid directly and aid flows are large relative to fiscal expenditure (often more than half the total). Such governments need no contract with their citizens, no parliament, and no tax-collection system. If they are accountable to anyone, it is to the donors; but even this fails in practice, because the donors, under pressure from their own citizens (who rightly want to help the poor), need to disburse money just as much as poor-country governments need to receive it, if not more so.What about bypassing governments and giving aid directly to the poor? Certainly, the immediate effects are likely to be better, especially in countries where little government-to-government aid actually reaches the poor. And it would take an astonishingly small sum of money – about 15 US cents a day from each adult in the rich world – to bring everyone up to at least the destitution line of a dollar a day.Yet this is no solution. Poor people need government to lead better lives; taking government out of the loop might improve things in the short run, but it would leave unsolved the underlying problem. Poor countries cannot forever have their health services run from abroad. Aid undermines what poor people need most: an effective government that works with them for today and tomorrow.One thing that we can do is to agitate for our own governments to stop doing those things that make it harder for poor countries to stop being poor. Reducing aid is one, but so is limiting the arms trade, improving rich-country trade and subsidy policies, providing technical advice that is not tied to aid, and developing better drugs for diseases that do not affect rich people. We cannot help the poor by making their already-weak governments even weaker.
Read more at https://www.project-syndicate.org/commentary/economic-development-requires-effective-governments-by-angus-deaton#PAIQVrHuh5VHFLBf.99
Wednesday, 9 March 2016
Why Foreign aid is bad?
Sunday, 13 December 2015
Saturday, 5 December 2015
Viability gap funding
Viability gap funding
What is viability gap funding?
There are many projects with high economic returns, but the financial returns may not be adequate for a profit-seeking investor. For instance, a rural road connecting several villages to the nearby town. This would yield huge economic benefits by integrating these villages with the market economy, but because of low incomes it may not be possible to charge user fee. In such a situation, the project is unlikely to get private investment. In such cases, the government can pitch in and meet a portion of the cost, making the project viable. This method is known as viability gap funding.
How does the scheme work?
VGF is typically provided in competitively bid projects. Under VGF, the central government meets up to 20% of capital cost of a project being implemented in public private partnership (PPP) mode by a central ministry, state government, statutory entity or a local body. The state government, sponsoring ministry or the project authority can pitch in with another 20% of the project cost to make the projects even more attractive for the investors. Potential investors bid for these projects on the basis of VGF needed. Those needing the least VGF sup-port will be awarded the project. The scheme is administered by the ministry of finance.
Which are the eligible sectors?
Projects in a number of sectors such as roads, ports, airports, railways, inland waterways, urban transport, power, water supply, other physi-cal infrastructure in urban areas, infrastructure projects in special eco-nomic zones, tourism infrastructure projects are generally eligible for viability gap funding. The government now proposes to add social sectors such as education and health to the list.
How does the government benefit?
The government has limited resources. It can use those funds to build everything on its own, but such public funding will take years to cre-ate the infrastructure that is needed to achieve higher growth. Through viability gap funding, the same amount of funds can be used to execute many more projects through private participation. VGF is in that sense a force multiplier, enabling government to leverage its re-sources more effectively.
What has been the success rate?
The government has so far approved 199 VGF-supported projects in-volving investment of Rs 170,651 crore by the end of December 2009.
Sunday, 29 November 2015
Re-Drawal of the High Risk Area in the Indian Ocean from existing 78 E to 68 E
The International bodies have agreed to India's efforts to push back the High Risk Area (HRA) from 78 degrees East longitude to the 65 degrees East longitude. This will result in huge savings for India's EXIM trade and consumers on account of reduced insurance premium and consequently freight costs.
Piracy off the coast of Somalia / in the Gulf of Aden / Horn of Africa (East Africa) had surged very significantly from 2008 to 2012, leading to innumerable attacks and hijackings of merchant vessels and their crew.
As a part of its counter-piracy measures, the global shipping industry, represented at international confederation levels by bodies such as BIMCO, ICS, INTER-CARGO, INTER-TANKO, OCIMF etc., brought out in 2008 a document known as Best Management Practices (BMP) by, of and for the shipping industry. This was in the form of advisories and guidances for self-protection of merchant ships and their crew from piracy attacks and hijack situations while transiting in those intensely piracy prone waters.
These vulnerable areas were defined as High Risk Area (HRA), characterized by piracy attacks and / or hijackings. In 2008, the HRA line in the Indian Ocean region was designated at East of 65 degrees East longitude which was quite far away from India's West Coast.
However, subsequently 2011, the industry body known as the Round Table (headquartered at London, UK), extended the HRA geographical coordinate in the Indian Ocean to East of 78 degrees East longitude, which came upto the west coast of India. This stretching of the HRA had the following serious implications for India:
Additional War Risk Premium (AWRP), on movement of merchant ships in piracy prone areas (High Risk Area) imposed by Insurance providers on vessels carrying Indian EXIM (export-import) cargo (around 22,000 vessels call on Indian ports every year), escalated by about approximately Rs.3,600 crore per year at the peak of the piracy period in 2008 to 2012, to around Rs.1,500 crore per year post the reduction in piracy incidence since mid 2012 onwards. The shipping industry loads this extra AWRP on the freight and transmits it to consumers, as a pass-through charge. This is a huge financial burden for Indian EXIM trade and Indian consumer.
The extended HRA came almost near the Indian coastline upto as close as about 35 nautical miles from the baseline. This was an unwarranted encroachment into India's EEZ (Exclusive Economic Zone).
International maritime traffic density came hugging the Indian coastline to avoid the said HRA related AWRP. This, in turn, led to maritime congestion jeopardizing maritime safety. In fact, this has culminated in three reported instances of maritime collisions between merchant ships and fishing vessels, leading to fatalities of 5 Indian fishermen.
This has also led to proliferation of positioning of armed security guards on board merchant vessels to deter piracy attacks / hijackings. There have been cases of firing by such security guards on Indian fishing boats and their crew and a couple of Indian fishermen have lost their lives.
This has further led to an increase in the presence of unregulated foreign owned and operated floating armouries near India's coastline, potentially jeopardizing Indian maritime security interests.
The Indian Navy and Coast Guard have provided escorting facilities to ships in the Arabian Sea and round the clock security to foil any potential piracy attack. As a result no piracy attack happened in the last 3 years.
Since 2011 India has been consistently taking up, over the past three years, in several global fora, such as the International Maritime Organisation and the Contact Group on Piracy off the Coast of Somalia (CGPCS), the issue of the restoration of the said HRA geographical coordinate from its existing position of East of 78 degrees East longitude to East of 65 degrees East longitude. Efforts were intensified since June 2014. Efforts were intensified and the Indian delegation took up this issue very strongly in the IMO Council meeting in July 2015 and later in the CGPCS. These efforts have now borne fruit.
In view of India's efforts, international bodies (International Chamber of Shipping and others) have now agreed to push back the HRA from 78 degrees East longitude to the 65 degrees East longitude. This shift will come into effect from 01.12.15. The said Round Table proposes to issue fresh advisories to the international shipping community.
This is one of the most significant triumphs for India in the maritime sector on the global stage, in the past several years now, vindicating India's reasoned stance and persistently persuasive soft skills in the matter.
This will result in huge savings for India's EXIM trade and consumers on account of reduced insurance premium and consequently freight costs. It will improve safety of fishermen and fishing boats, and will also improve the security along India's coastline.
Source:http://www.business-standard.com/article/government-press-release/re-drawal-of-the-high-risk-area-in-the-indian-ocean-115100900957_1.html
Piracy off the coast of Somalia / in the Gulf of Aden / Horn of Africa (East Africa) had surged very significantly from 2008 to 2012, leading to innumerable attacks and hijackings of merchant vessels and their crew.
As a part of its counter-piracy measures, the global shipping industry, represented at international confederation levels by bodies such as BIMCO, ICS, INTER-CARGO, INTER-TANKO, OCIMF etc., brought out in 2008 a document known as Best Management Practices (BMP) by, of and for the shipping industry. This was in the form of advisories and guidances for self-protection of merchant ships and their crew from piracy attacks and hijack situations while transiting in those intensely piracy prone waters.
These vulnerable areas were defined as High Risk Area (HRA), characterized by piracy attacks and / or hijackings. In 2008, the HRA line in the Indian Ocean region was designated at East of 65 degrees East longitude which was quite far away from India's West Coast.
However, subsequently 2011, the industry body known as the Round Table (headquartered at London, UK), extended the HRA geographical coordinate in the Indian Ocean to East of 78 degrees East longitude, which came upto the west coast of India. This stretching of the HRA had the following serious implications for India:
Additional War Risk Premium (AWRP), on movement of merchant ships in piracy prone areas (High Risk Area) imposed by Insurance providers on vessels carrying Indian EXIM (export-import) cargo (around 22,000 vessels call on Indian ports every year), escalated by about approximately Rs.3,600 crore per year at the peak of the piracy period in 2008 to 2012, to around Rs.1,500 crore per year post the reduction in piracy incidence since mid 2012 onwards. The shipping industry loads this extra AWRP on the freight and transmits it to consumers, as a pass-through charge. This is a huge financial burden for Indian EXIM trade and Indian consumer.
The extended HRA came almost near the Indian coastline upto as close as about 35 nautical miles from the baseline. This was an unwarranted encroachment into India's EEZ (Exclusive Economic Zone).
International maritime traffic density came hugging the Indian coastline to avoid the said HRA related AWRP. This, in turn, led to maritime congestion jeopardizing maritime safety. In fact, this has culminated in three reported instances of maritime collisions between merchant ships and fishing vessels, leading to fatalities of 5 Indian fishermen.
This has also led to proliferation of positioning of armed security guards on board merchant vessels to deter piracy attacks / hijackings. There have been cases of firing by such security guards on Indian fishing boats and their crew and a couple of Indian fishermen have lost their lives.
This has further led to an increase in the presence of unregulated foreign owned and operated floating armouries near India's coastline, potentially jeopardizing Indian maritime security interests.
The Indian Navy and Coast Guard have provided escorting facilities to ships in the Arabian Sea and round the clock security to foil any potential piracy attack. As a result no piracy attack happened in the last 3 years.
Since 2011 India has been consistently taking up, over the past three years, in several global fora, such as the International Maritime Organisation and the Contact Group on Piracy off the Coast of Somalia (CGPCS), the issue of the restoration of the said HRA geographical coordinate from its existing position of East of 78 degrees East longitude to East of 65 degrees East longitude. Efforts were intensified since June 2014. Efforts were intensified and the Indian delegation took up this issue very strongly in the IMO Council meeting in July 2015 and later in the CGPCS. These efforts have now borne fruit.
In view of India's efforts, international bodies (International Chamber of Shipping and others) have now agreed to push back the HRA from 78 degrees East longitude to the 65 degrees East longitude. This shift will come into effect from 01.12.15. The said Round Table proposes to issue fresh advisories to the international shipping community.
This is one of the most significant triumphs for India in the maritime sector on the global stage, in the past several years now, vindicating India's reasoned stance and persistently persuasive soft skills in the matter.
This will result in huge savings for India's EXIM trade and consumers on account of reduced insurance premium and consequently freight costs. It will improve safety of fishermen and fishing boats, and will also improve the security along India's coastline.
Source:http://www.business-standard.com/article/government-press-release/re-drawal-of-the-high-risk-area-in-the-indian-ocean-115100900957_1.html
Tuesday, 17 November 2015
Lorentz Curve and Ginni coefficient
Understanding Income Distribution
In Economics there are two things that are used to measure income distribution: Lorenz Curves and Gini Coefficients. The way it works is the United States is broken into 5 income levels (a quintile), and then we determine the percent of the wealth that lies in each quintile. From these numbers, we plot it on a graph and get a Lorenz Curve. Here is an example:
The 45 degree line represents a country that each person owns exactly the same amount of wealth, and a perfectly vertical line down the far right of the graph would represent a country where 1 person owns 100% of the nations wealth. When plotting the Lorenz Curve for a country, it typically falls somewhere in the middle. The closer the curve is the the 45 degree line, the more equal its income distribution is.
Gini Coefficients
Gini Coefficients are calculated as the area between the Lorenz Curve and the 45 degree line. We use this number to compare each country (as well as populations within a country). As a general rule, countries the have a Gini Coefficient between a .50-.70 are considered to have a high level of inequality whereas a country who’s Gini Coefficient falls between a .20 and a .35 is said to have a rather equal distribution.
If a country has a Gini Coefficient below a .20 you run into a problem where there is not a lot of competition and there is not a great incentive to work. There needs to be some incentive for workers to want to do better, to want to move up and accumulate more wealth. If that condition does not exist, a country will run into big problems. Typically you see low Gini Coefficients in communist societies or very socialist societies.
If a country has a higher Gini Coefficient, there are several problems that could develop:
- The rich tend to save more and not invest it
- There is an inefficient allocation of assets
- High crime rates and greater need for private property protection
- Social unrest
- There is an inefficient allocation of assets
- High crime rates and greater need for private property protection
- Social unrest
The higher the Gini Coefficient, the more likely the above problems are to occur. Gini coefficients have a tendency to creep higher as time progresses.
The United States: Now and Then
We often hear in the media that income distribution in the United States has become out of line and you hear calls for higher taxes on the wealthiest Americans. Then you hear claims that raising taxes is class warfare, so what is the truth?
Below is a graph of several historical Lorenz Curves for the United States:
As you can see, the curves have been moving outward for the last 30 years. Here are some historical Gini Coefficients:
1970: .394
1980: .403
1990: .428
2000: .462
2010: .469
1980: .403
1990: .428
2000: .462
2010: .469
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