How much does a Bandh Cost

9 Jul

Noted economist Prof. Bibek Debroy has written on how to estimate how much Bandhs cost.  This seems to be in response to figures given by industry associations on the cost of the recent Bandh organised by the BJP and left-parties.  I am pasting the article below:

Price of a bandh

Bibek Debroy Posted online: Fri Jul 09 2010, 04:23 hrs
The DNA of industry chambers is anti-bandh. Perhaps that’s the reason why industry chambers are the only ones who immediately come out with figures on losses from bandhs, to illustrate what a terrible idea a bandh is. For the Bharat Bandh of July 5, we have three sets of figures floating around —CII (Rs 3,000 crore), Assocham (Rs 10,000 crore) and FICCI (Rs 13,000 crore). That’s quite a range. How do industry chambers arrive at such figures, when professional economists and statisticians fear to tread such hazardous ground? First, we arrive at a GDP figure for 2010-11. We know the GDP figure for 2009-10. That happens to be Rs 57,91,268 crore in current prices. Nominal GDP growth will be around 12.5 per cent. Therefore, GDP in 2010-11 will be of the order of Rs 65,15,177 crore. This is spread over 365 days. Per day, GDP is Rs 17,849 crore. That ought to be the loss because of bandh. As far as one can make out, there are three reasons why there is such a range, though principles used are similar. First, sometimes one uses 2009-10 rather than a 2010-11 GDP figure. Second, sometimes one uses real GDP growth rather than nominal GDP growth on the 2009-10 base. Third, there are differences on how much of a day’s GDP is estimated to have been wiped out. Is it 100 per cent or less? Voila, we have the figure, like a rabbit out of a hat!

How many holidays are there in India? There is no simple answer. We have 14 compulsory (gazetted) national holidays, three additional holidays from a list of 12, and restricted holidays, with the last numbering 34 (no exaggeration) for Delhi government offices in 2010. There are state-level variations, especially religious ones, thrown in. But on an average, we are certainly talking about at least 50 holidays.

Since we are fond of making comparisons with China, there are seven national public holidays there. Our favourite country now, the United States, has 11 federal holidays. We clearly have too many holidays. There have been suggestions (such as Pay Commission recommendations) that there should be fewer holidays, perhaps 11. Three national holidays (January 26, August 15, October 2) and eight that an individual chooses and opts for, depending on his/ her religious preferences. There are compelling arguments against religion-based holidays in a secular country. Assuming we should have 11 holidays, we have around 39 in excess. That’s a loss of 39 multiplied by 17,849 or

Rs 6,96,111 crore a year. Or so it would seem, if one uses the kind of calculations the chambers do. This is quite apart from Sundays and/ or Saturdays. It is a separate matter that last Sunday, we went for a film and ate out. Film theatres, restaurants and shops were open.

Yes, we have too many holidays. But the assumption that a country’s GDP machine stops working on holidays is false. This is common sense and obvious. Why is it that in the context of a bandh this becomes less obvious? Let’s look at the CSO’s factor cost contributions of GDP and there are eight of these — agriculture, forestry and fishing, mining and quarrying, manufacturing, electricity, gas and water supply, construction, trade, hotels, transport and communication, financing, insurance, real estate and business services, and community, social and personal services. Bandhs are urban phenomena, even metro phenomena. At best, they spill over into some semi-urban areas. Of those eight listed, agriculture, forestry and fishing, mining and quarrying, electricity, gas and water supply are almost completely outside the purview of any bandh. Of the base of Rs 57,91,268 crore in 2009-10, one has thus shaved off Rs 12,12,348 crore immediately. What is left is still substantial. But even then, there is a problem. Cessation of economic activity on a specific date is often not a permanent loss. It is recouped on the succeeding working day, assuming a bandh is a 6 am to 6 pm type and not more permanent. This recouping effect is also true of visibly disrupted sectors like transport.

GDP computations muddy waters more. GDP is value of goods and services, price multiplied by volume. Even if there is a volume dip for 12 hours on a particular day, will the price decline? To state it differently, will anyone’s wages be deducted for that single day? Therefore, GDP-wise, such bandhs are only pertinent for those whose earnings are affected by a single day’s disruption in urban India — daily wage earners and self-employed (own account enterprises). In urban India, we have around 14 million in the first category and around 21 million in the second category. For the first category, at Rs 100 per day, the loss is Rs 140 crore, assuming a bandh disrupts all urban India and not just states where non-Congress parties dominate. For the second category, there is a further catch. Unlike the first category of daily wage earners, for own account enterprises, economic activity revives post 6 pm and recoups a bit on the day of the bandh itself. Even if one assumes Rs 200 per day (this is actually on the high side) for 21 million self-employed, assumes there is no recouping post 6 pm and universal bandh across states, we have a loss of Rs 420 crore. That’s a total of Rs 560 crore. But because of those caveats, this is the higher end of the range. In all probability, the loss is lower, more like Rs 250 crore. This is far out of line with scary numbers touted by industry chambers.

This isn’t a justification for bandhs. On the contrary, such disaggregation establishes why bandhs are anti-poor. In urban India, unskilled daily wage earners are at the lowest end of the spectrum. Bandhs aren’t distributionally neutral. A Rs 140 crore shock to them is difficult to absorb. A Rs 3,000 crore shock to the rest of the economy (assuming that figure was true) is easier to absorb. Flight and rail disruptions, so evident on electronic media, aren’t the real problem. There is inflation too, proximate reason for the bandh. Inflation has rightly been described as a regressive tax, because of its anti-poor distributional angle. Employment in the organised sector and formal employment in the unorganised sector (this exists too) is relatively protected because of wage indexation to inflation. If one sticks to urban India (rural India is somewhat different), there is also wage indexation for much of informal employment in the unorganised sector, even if it is less than adequate. Think of what has been called the ABCD (ayah, bai, cook, driver) market. Within that urban segment, wage indexation is non-existent for own account enterprises and virtually non-existent for daily wage workers, minimum wage stipulations notwithstanding.

The writer is a Delhi-based economist

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