Category Archive: India

India appears in this archive as an economy running two experiments at once: withdrawing a long-standing price control in the middle of an inflation spike, and designing technology for its own market rather than importing someone else's. The two stories are usually filed separately. They are the same story about the cost of a decision landing on a household.

Subsidy reform meets inflation

In mid-2010 the government ended decades of administered pricing on petrol and raised the controlled prices of diesel, kerosene and cooking gas. The fiscal case was real: capping pump prices below import cost forces the state to compensate refiners, and that bill grows with every rise in crude.

The timing was the problem. Food price inflation had been in double digits for months, concentrated in exactly the items that dominate a low-income budget. Diesel moves grain, runs irrigation pumps and powers the generators that keep small workshops alive through outages, so an increase propagates through the whole price structure within weeks. The result was a nationwide general strike that stopped the railways — see India: Protestors Blocked Railway Services.

Who a subsidy actually reaches

The distributional argument cuts both ways and is usually reported as though it only cuts one. A universal petrol subsidy is regressive: the largest transfer goes to the household that consumes the most fuel, and that household owns a vehicle. But kerosene and cooking gas are consumed overwhelmingly at the bottom of the distribution, frequently by households with no grid electricity at all, and raising those prices is regressive by identical logic. Treating a subsidy package as one object hides the fact that its components fall on different populations.

Designing to a constraint

The other thread is technological. A touch-screen computing device for students, presented at a claimed thirty-five dollar bill of materials, is interesting less for the number than for the method: designing to a specified job — display course material, take input, hold a charge, survive a school bag — rather than to a feature list. See India Unveils $35 Computer.

The reliable caveat is that hardware cost is the smallest line in an education programme. Teacher training, content in the languages of instruction, repair logistics and electricity are recurring costs that do not fall with volume, and they are where the previous decade's low-cost computing efforts were decided.

What we watch

Monetary policy statements and the underlying inflation series are published by the Reserve Bank of India; national education policy is documented by the Ministry of Education.

Browse also: Economy, World, the July 2010 archive, or the front page.