The Hindu Business Line : Do you know how to measure illiteracy?

THE first volume of Kaushik Basu's Colleted Papers in Theoretical Economics, from Oxford (www.oup.com) is about `development, markets, and institutions'. Accountants normally stay away from economics as much as common people stay away from accountants. Yet, this is a book not to be missed, for the sheer pleasure it offers right from the way chapter are titled. Thus, `the greying of populations' talks about new measures of aging, and `the broth and the cooks' is about surplus labour.

The chapter on the `goals of development' looks at Kautilya's work: "The concern about budgetary discipline is so great that in times of financial shortage the Arthashastra (272) permits the king to exploit the gullibility of the masses and raise funds by `building overnight, as if it happened by a miracle, a temple or a sanctuary and promoting the holding of fairs and festivals in honour of the miraculous deity' and (273) to use `secret agents to frighten people into making offerings to drive away an evil spirit'."

To measure development, Basu takes the focus on to "the per capita income of the poorest 20 per cent of the population" or the quintile income and its growth rate. Another chapter, `on measuring literacy', contends that having a literate member in the household can make a substantial difference, by generating "a positive externality or a kind of public good for illiterate members".

Basu's advice is this: "Distinguish between two types of illiterate persons when assessing the distribution of literacy: a proximate illiterate, an illiterate person who lives in a household with at least one literate member, and hence has access to the public goods; and an isolated illiterate."

When discussing `the market for land', Basu recounts his conversation with a farmer from Midnapore: "On being asked whether he would sell his land if he got double the normal price, he answered in the negative, arguing that he would not sell because he would not know what to do with so much cash and, unlike land, cash was a risky asset.

"I persisted: if he got double the normal price, he could buy another larger plot. That, he regretted, is precisely what is not possible. In that region, he explained, land sales were very few — almost non-existent. So there was no guarantee of his being able to buy back land in the immediate future."

A book that you can pay double its price for!

Treaty knowledge

THAT Australia now has the trifecta with the US is a happy comment from the CEO of the American Chamber of Commerce reported by www.theaustralian.news.com.au on July 4. "We have the double tax treaty, the FTA and the major coup — 10,500 new working visas."

The US is now participating in a new income-tax treaty with Japan that replaces a treaty executed in 1971, writes Sandra M. Spector on www.mondaq.com. And a Tokyo-datelined Reuter's story of July 1 says, "Japan reached a basic agreement with Britain to revise a bilateral tax treaty in a bid to boost investment and promote closer economic ties."

To know why we need tax treaties, I turn to the second edition of Taxation of Foreign Income: India's Double Tax Treaties, by M. B. Rao and Manjula Guru, from Vikas (helpline@vikaspublishing.com). "Unilateral statutory measures are not sufficient to provide adequate relief," explain the authors. "A satisfactory accommodation of the conflicting tax claims is possible only through bilateral treaty arrangements between two countries."

With good things come bad, such as treaty shopping piggybacking on treaties. "Some speculative funds have regarded Korea as a `moneymaking playground' or `paradise of treaty shopping'," rues a recent story posted on http://times.hankooki.com. It speaks of how "some foreign funds could get away with a billion-dollar investment profit without paying a penny in taxes through their paper companies in tax havens." Rao and Guru discuss the menace in a chapter on treaty abuse.

`Shopping' may happen in two ways, viz. direct conduit and stepping stone. In the former, an exemption from tax in the intermediate country is used for a counter-balancing expense. The latter is a case where a company in a country with no treaty relationship makes use of the treaty countries as stepping stones. The book discusses different treaties with India.

There are also chapters on different topics of foreign taxation such as permanent establishment, taxation of royalties, mutual agreement procedure and so on. Useful read.

Professionals in development

WHAT do you call an examination, at specified points of time, of programmes, projects or organisational performance, with an emphasis on impact for people and also on relevance, effectiveness, efficiency, sustainability and replicability? `Evaluation', is Reidar Dale's answer in Evaluating Development Programmes and Projects, from Sage (www.indiasage.com). This is a book about a much-ignored avenue of work by accountants and the accounting body, and so deserves your attention.

Let me turn to a chapter on economic tools of assessment, where the author begins with the discussion of benefit-cost and cost-effectiveness analyses.

For the first, there is an example of how income per household can vary for three alternative crops. But, not all benefits may be equal, nor all costs quantified. "For instance, the households may assign an additional food security value to one or more of the crops, or one of them may have a valued soil-enriching property."

Even for income-generating projects, where financial profitability may be the core aim, financial return needs to be viewed in a broader context, points out Dale. The second, that is, `cost-effectiveness analysis', looks at the efficiency of resource use, and ventures in areas that are not readily quantifiable. The book notes how this approach has very limited applicability in development work, and leads the readers to better `indicators of achievement'.

Essential inputs for professional development.

BooksOfAccount@TheHindu.co.in

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