## Wednesday, July 09, 2014

### Economic Survey chapter 2

1. Elementary problem:

The box in page 42 says that Nitrogen, Phosphorus and Potassium are used by plants in the ratio of 4:2:1 and that due to urea subsidy the ratio that gets used in India is 8.2 : 3.2 : 1 and so urea is being overused by 4.2 units per unit of Potassium.

But, what if the 1 for K is too low in absolute terms. In other words instead of reduction in urea, what if we need more of the fertilizers that provide Potassium (K)? Maybe there is additional data that shows that Potassium is sufficiently provided, but that has not been stated.

1. Consider water, which is H_2O. These combine in the proportions of 2:16. If you have 2g of H and 16g of O, you get 18G of water.

If you have 4g of H and 16g of O, you get 18G of water and have 2g of H left over. That's just waste.

2. That's the language of Chemistry. If you prefer the language of Economics, this is a Leontief technology where input proportions are completely rigid. The marginal product owing to an excessive input is 0.

3. I agree with the proportions and the chemistry. But, the adequate proportion can be achieved either by reducing N (as suggested) or increasing K. If increasing K is not necessary (for whatever reason), then I am in full agreement with what is in the report.

When a ratio is off you can either change the numerator or the denominator (duh). Do we need less urea or more potassium?

5. In theory either would work. What's going on in India today is that the price of N is wrong (it is too low). So the adjustment required is for the price of N to go up, the consumption of N to go down, and then the correct proportions will once again materialise.

2. Page 47 refers to PISA as a way of measuring performance, but the govt has opted out of PISA after the year in which it placed 2nd last out of all countries (despite selecting states with decent education like HP and TN). Perhaps, the report should have also pointed out that we should reinstate the survey.

3. The report spends a lot of time in pointing out the problems due to food inflation, the distorted markets and need for liberalization. But, it does not talk about the need for an FDA type food regulator and the pressing problem of poor food quality across the country.

From overuse of pesticides in cereals in Punjab, to banning of fruit exports due to contamination issues, to lack of food quality checks on imports of almonds from California suspected of having Salmonella, to shortage of milk and reconstitution of 50% milk in Delhi NCR in summer due to shortage, to use of Oxytocin injections in animals and vegetables, antibiotic injections in animal meat, to disclosures of antibiotic misuse in Dabur honey, food quality is a HUGE problem that doesn't even get a cursory mention in the report.

Yes, free markets are important and the first step but unfortunately we are also at the point where we need effective food quality regulation and fast.

4. Would love to hear your comments on the retrospective change in LTCG taxation of debt funds. This govt said that it would not make retrospective changes or at least give it some thought. Why are retail investors supposed to take this retrospective change lying down? What is the effective way to protest this high handedness?

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