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Distribution: weekly

  • Let no one go hungry

    Context

    The impact of the lockdown, effected from midnight of March 24, has been particularly severe on migrant workers. The state must utilise FCI stock for those who have ration cards and those who don’t.

    India’s labour force and impact of lockdown on it

    • Nearly one-fifth of India’s labour force consists of internal migrants.
    • As per the 2011 census, a quarter of the urban population consists of migrants.
    • These tend to be predominantly male, from the less developed northern states, in the lower-income strata, and dependent on daily wages or precarious livelihoods.
    • The impact of the lockdown has been particularly severe on migrant workers.
    • Uncertainty and reverse migration: Due to uncertainty over the duration of the lockdown, and about their own livelihoods and food security, the lockdown has led to massive reverse migration from cities back to villages.
    • Further, due to the absence of train and bus services, many of these workers took to simply walking back.
    • The ground reality of inadequate preparation or insufficient provision means that neither their anxiety nor plight is assuaged.
    • Migrant workers tend to depend on public eating places or community arrangements for food.
    • Under a lockdown, there is simply no choice for them, except to depend on the government’s efforts or charitable organisations.

    Utilising the grain stocks with the FCI

    • The government has a large stock of wheat and rice procured over the last three years.
    • Stock in excess of buffer norm: The buffer norm for April 1 is 21.4 million tonnes, against which the country had about 7 million tonnes on March 1: This comprises 27.5 million tonnes of wheat and 50.2 million tonnes of rice.
    • In most districts of India, the Food Corporation of India and state agencies have a storage capacity of more than the three months requirement of the public distribution system.
    • The warehouses are spread across all the districts in every state.
    • The government has already announced that an additional quantity of five kg of foodgrains will be provided, free of cost, to all ration card holders for the next three months.
    • Most of the unorganised labour and families migrating back from their place of work will probably have their ration cards in the villages itself.
    • So, it should not be much of a problem for them to find food during the period of lockdown.

    What should the state do to feed those who do not have ration cards

    • For those who do not have ration cards in the villages, it is the right time to use this extra stock of foodgrains.
    • Using school and Anganwadi infrastructure: In villages, primary schools have facilities for cooking mid-day meals for children. Some Anganwadi also have this facility. This infrastructure can be used to provide cooked meals to those who do not have ration cards in the villages.
    • The government can easily offer to meet their requirement of wheat and rice over the next three weeks and panchayats can be asked to meet a part of the expenditure required to purchase vegetables, spices and cooking oil.
    • The village panchayats which take up such a feeding programme must be provided Rs 20 per person per day from State Disaster Relief Fund for the expenditure on vegetables, cooking oil, spices, which are not covered by the PDS.
    • In some villages, the local community may also be willing to help the panchayats to feed such people.
    • Efforts must also be made by the panchayats to raise donations in kind from the local community for rabi pulses like chana (chickpea), masoor (lentil), matar (field pea) which are available in plenty in pulse-growing states.

    How to feed those who are stuck in the cities

    • A number of labourers and self-employed: In urban areas, as per the Periodic Labour Force Survey, there were about 6 crore casual labourers and four crore self-employed persons in 2017-18.
    • Even after the reverse migration to villages, there would still be millions of them who are stuck in cities at their place of work.
    • These are people who do not have any savings or source of income which can sustain them during the period of the lockdown. These people living in slums, in the poorer areas of cities, are in need of urgent assistance for food, at least for the next three weeks.
    • The most distressed at present are those stuck in the cities, or who have been walking hundreds of kilometres to reach their homes in small towns and villages.
    • Allocating funds form relief funds: The district collectors should be allocated funds from the State Disaster Relief Fund to provide them with food and open all community buildings en route for them.
    • Engaging various players: The states must engage NGOs, factories and charities including religious organisations to raise funds for meeting the expenditure on milk, eggs, cooking oil and vegetables, and even soaps and sanitisers.
    • More than 67,000 NGOs are registered with the Niti Aayog on their NGO Darpan platform — which was created to bring about a greater partnership between the government and the voluntary sector and to foster transparency, efficiency and accountability.
    • This is the time to use such a platform.
    • The Centre can easily provide free rice and wheat to the NGOs from its stock and the NGOs can provide cooked meals in urban areas for the next three weeks.
    • For one crore individuals, for three weeks, the government needs to provide just about 75,000 tonnes of rice. Since the milling of wheat would be difficult due to the closure of flour mills, only rice can be provided at this stage.

    Conclusion

    The rabi harvest is expected to be a bumper one. The utilisation of the FCI stock — for not only the ration card holders but also the non-ration cardholders, and for providing food to the poor stuck in urban areas — is the most appropriate use of the foodgrain stock with the government. This is urgent and must be done.

  • Restarting the economy after lockdown

      (This newscard is the excerpt from an article published in the TOI, authored by former RBI governor Raghuram Rajan. It discusses a series of reformative measures to boost our economy once the lockdown restrictions are eased.)

    Context

    • Economically speaking, India is faced today with perhaps its greatest emergency since Independence.
    • The global financial crisis in 2008-09 was a massive demand shock but our financial system was largely sound, and our government finances were healthy.
    • None of this is true today as we fight the coronavirus pandemic.
    • With the right resolve and priorities, and drawing on India’s many sources of strength, it can beat this virus back and even set the stage for a much more hopeful tomorrow.

    To begin with: 21 day Lockdown

    • The immediate priority, of course, is to suppress the spread of the pandemic through widespread testing, rigorous quarantines, and social distancing.
    • The 21-day lockdown is a first step, which buys India time to improve its preparedness.
    • The government is drawing on our courageous medical personnel and looking to all possible resources – public, private, defence, retired – for the fight, but it has to ramp up the pace manifold.
    • It will have to test significantly more to reduce the fog of uncertainty on where the hotspots are, and it will have to keep some personnel and resources mobile so that they can be rushed to areas where shortages are acute.

    Restarting with caution

    • The 21 day lockdown is about a week ahead to get lifted. It is hard to lockdown the country entirely for much longer periods, so we should also be thinking of how we can restart certain activities.
    • Restarting requires better data on infection levels, as well as measures to protect those returning to work.
    • Healthy youth, lodged with appropriate distancing in hostels at the workplace, maybe ideal workers for restarting.

    Pacing up manufacturing

    • Since manufacturers need to activate their entire supply chain to produce, they should be encouraged to plan on how the entire chain will reopen.
    • The administrative structure to approve these plans and facilitate movement for those approved should be effective and quick – it needs to be thought through now.

    Most crucial: Ensuring workforce sustenance

    • In the meantime, policymakers need to ensure that the poor and non-salaried lower middle class who are prevented from working for longer periods can survive.
    • Direct transfers to households may reach most but not all, as a number of commentators have pointed out.
    • Furthermore, the quantum of transfers seems inadequate to see a household over a month.
    • The state and Centre have to come together to figure out quickly some combination of public and private participation and DBTs that will allow needy households to see through the next few months.
    • We have already seen one consequence of not doing so – the movement of migrant labour. Another will be people defying the lockdown to get back to work if they cannot survive otherwise.

    Gearing up for fiscal shocks

    • Our limited fiscal resources are certainly a worry. However, spending on the needy at this time is a high priority use of resources, the right thing to do as a humane nation.
    • This does not mean that we can ignore our budgetary constraints, especially given that our revenues will also be severely affected this year.
    • Unlike the US or Europe, which can spend 10% more of GDP without fear of a ratings downgrade, we already entered this crisis with a huge fiscal deficit, and will have to spend yet more.
    • A ratings downgrade coupled with a loss of investor confidence could lead to a plummeting exchange rate and a dramatic increase in long term rates in this environment, and substantial losses for our financial institutions.

    Channelizing expenditures

    • So we have to prioritise, cutting back or delaying less important expenditures, while refocusing on immediate needs.
    • At the same time, to reassure investors, the government could express its commitment to return to fiscal rectitude.
    • The govt. must back up its intent by accepting the setting up of an independent fiscal council and setting a medium term debt target, as suggested by the NK Singh committee.

    Boosting up Industries

    1) MSMEs

    • Many MSMEs already weakened over the last few years, may not have the resources to survive.
    • We need to think of innovative ways in which bigger viable ones, especially those that have considerable human and physical capital embedded in them, can be helped.
    • SIDBI can make the terms of its credit guarantee of bank loans to SMEs even more favourable, but banks are unlikely to want to take on much more credit risk at this point.
    • The government could accept responsibility for the first loss in incremental bank loans made to an SME, up to the quantum of income taxes paid by the SME in the past year.

    2) Large industries

    • Large firms can also be a way to channel funds to their smaller suppliers. They usually can raise money in bond markets and pass it on.
    • Banks, insurance companies, and bond mutual funds should be encouraged to buy new investment-grade bond issuances, and their way eased by the RBI.
    • The government should also require each of its agencies and PSUs, including at the state level, to pay their bills immediately, so that private firms get valuable liquidity.

    Looping in everyone’s participation

    • The government should call on people with proven expertise and capabilities, of whom there are so many in India, to help it manage its response.
    • It may even want to reach across the political aisle to draw in members of the opposition who have had experience in previous times of great stress like the global financial crisis.
    • If, however, the government insists on driving everything from the PMO, with the same overworked people, it will do too little, too late.

    Conclusion

    • Globally, it is said that India reforms only in crisis.
    • Hopefully, this otherwise unmitigated tragedy will help us see how weakened we have become as a society, and will focus our politics on the critical economic and healthcare reforms we sorely need.

  • Comparing current crisis with Great Depression, 1929

     

    With the novel coronavirus pandemic severely affecting the global economy, some experts have begun comparing the current crisis with the Great Depression — the devastating economic decline of the 1930s that went on to shape countless world events.

    Looming depression ahead

    • Experts have warned that unemployment levels in some countries could reach those from the 1930s era, when the unemployment rate was as high as around 25 per cent in the United States.
    • Currently, unemployment levels in the US are already estimated to be at 13 per cent, highest since the Great Depression.

    What was the Great Depression?

    • The Great Depression was a major economic crisis that began in the United States in 1929, and went to have a worldwide impact until 1939.
    • It began on October 24, 1929, a day that is referred to as “Black Thursday”, when a monumental crash occurred at the New York Stock Exchange as stock prices fell by 25 per cent.
    • Though the crash was triggered by minor events, the extent of the decline was due to more deep-rooted factors such as a fall in aggregate demand, misplaced monetary policies, and an unintended rise in inventory levels.
    • In the United States, prices and real output fell dramatically. Industrial production fell by 47 per cent, the wholesale price index by 33 per cent, and real GDP by 30 per cent.

    What caused Great Depression?

    The causes of the Great Depression are extremely complex and disputed to this day. The three main factors are:

    1. Financial instability and credit cycles: A period of stability encouraged more borrowing and lending than prudent, sowing the seeds for future instability.
    2. Monetary contraction, the gold standard, and bank runs: Monetary policy, driven in large part by the gold standard, tightened credit at the wrong time fueling bank-runs and economic slowdown.
    3. Debt deflation: Excess private debt created a dangerous condition where no one wanted to spend, causing deflation and economic weakening.

    Worldwide impact

    • The havoc caused in the US spread to other countries mainly due to the gold standard, which linked most of the world’s currencies by fixed exchange rates.
    • In almost every country of the world, there were massive job losses, deflation, and a drastic contraction in output.
    • Unemployment in the US increased from 3.2 per cent to 24.9 per cent between 1929 and 1933. In the UK, it rose from 7.2 per cent to 15.4 per cent between 1929 and 1932.

    Latent outcomes

    • The Depression caused extreme human suffering, and many political upheavals took place around the world.
    • In Europe, economic stagnation that the Depression caused is believed to be the principal reason behind the rise of fascism, and consequently the Second World War.
    • It had a profound impact on institutions and policymaking globally and led to the gold standard being abandoned.

    How did Great Depression impact India?

    • The Depression had an important impact on India’s freedom struggle.
    • Due to the global crisis, there was a drastic fall in agricultural prices, the mainstay of India’s economy, and a severe credit contraction occurred as colonial policymakers refused to devalue the rupee.
    • The effects of the Depression became visible around the harvest season in 1930, soon after Mahatma Gandhi had launched the Civil Disobedience movement in April the same year.

    1) Rural India mainstreamed into freedom struggle

    • The fallout made substantial sections of the peasantry rise in protest and this protest was articulated by members of the National Congress.
    • There were “No Rent” campaigns in many parts of the country, and radical Kisan Sabhas were started in Bihar and eastern UP.
    • Agrarian unrest provided a groundswell of support to the Congress, whose reach was yet to extend into rural India.

    2) INC gained momentum

    • The endorsement by farming classes is believed to be among the reasons that enabled the party to achieve its landslide victory in the 1936-37 provincial elections held under the Government of India Act, 1935.
    • This is marked as a significant event in the history of INC as it flourished the party’s political might for years to come.

    Back2Basics

    Slowdown vs recession vs depression

    •  Slowdown simply means that the pace of the GDP growth has decreased.  During slowdown, the GDP growth is still positive but the rate of growth has decreased.
    •  Recession refers to a phase of the downturn in the economic cycle when there is a fall in the country’s GDP for two quarters.   It is a period of decline in total output, income, employment and trade, usually lasting six months to a year.
    • Depression is a prolonged period of economic recession marked by a significant decline in income and employment.   It is a negative GDP growth of 10% of more, for more than 3 years.

  • AMMA Canteen and its success

    The Amma Canteen, a delivery system to provide urban food security in Tamil Nadu, has become an effective mechanism in reaching the needy during the lockdown.

    AMMA Canteen

    • Amma Unavagam better known as Amma Canteen is a food subsidization programme run by the Government of Tamil Nadu.
    • Under the scheme, municipal corporations of the state-run canteens serving subsidised food at low prices.
    • The dishes are offered at low prices: ₹1 for an idli, ₹5 for a plate of sambar rice, ₹5 for a plate of “Karuvapellai Satham” (Curry leaves rice) and ₹3 for a plate of curd rice.

    Feeding the stranded

    • Migrants usually benefit from this canteen scheme.  It is not uncommon to see policemen, municipal workers and people from the media having their breakfast in these canteens.
    • The system, in short, has ensured urban food security and is a boon to migrants during lockdown. There are, thus, unexpected but pleasant benefits from this scheme.

    Reasons for success

    • It is a delivery system with minimum leakages and has reached to its target group very effectively compared to the PDS system.
    • People realized the benefits of the scheme in due course of time and thus it emerged popularly.

    A lesson for all

    • Welfare schemes are started with the intention to provide benefits to vulnerable sections of society.
    • The success of any welfare scheme depends on the seriousness of the people at the helm of affairs, the efficiency of the scheme’s functionaries and the involvement of the people.
    • During the process of implementation, some deserving people get excluded from the scheme, while some of those who were undeserving manage to enjoy its benefits.
    • Welfare schemes deliver unexpected but pleasant benefits sometimes.

    Way forward

    • For such a welfare scheme to be successful, it must be launched in letter and spirit.
    • The benefits of the schemes cannot be realized at pan India level in the absence of a good delivery system.
    • These states should explore the possibility of utilising available infrastructure in existing private canteens and hotels (closed during lockdown).
    • This measure would not only help migrant workers but also provide employment to workers who remained unemployed since the lockdown came into effect.

  • What is Drive-through Testing?

    To work around the challenges of home-based testing in the country, a New Delhi based firm has offered ‘drive-through test’ for COVID-19.

    Drive-through Testing

    • Those who feel sick drive up to a test centre where nurses wearing protective gear collect a nose or throat sample from the car itself.
    • Results are mailed or messaged in a day.
    • This method of mass testing has allowed reduced contact between patients and healthcare workers, thereby lessening the chances of transmission.
    • South Korea has led the world in the number of tests per million to check for coronavirus infection through this method.

    Germany: leading through examples

    • Germany is conducting around 3,50,000 coronavirus tests a week, far more than any other country.
    • It means that more people with few or no symptoms are reported thereby increasing the number of known cases and adequate quarantines.

    Limitations (for India)

    • We have seen so far is that many are uncomfortable with the home collection process.
    • Some people are worried that lab personnel visiting home in full protective gear would scare the neighbours.
    • There are also instances when spouses of some healthcare personnel have separated for a while.

  • Tropical Butterfly Conservatory

    The Tropical Butterfly Conservatory Tiruchirappalli (TBCT) has been developed in Tamil Nadu’s Tiruchirappalli to create awareness among the public about the importance of the butterfly and its ecology.

    Tropical Butterfly Conservatory

    • The TBC is located in the Upper Anaicut Reserve Forest, sandwiched between the Cauvery and Kollidam rivers in Tiruchirappalli.
    • It was inaugurated during November 2015 at Tiruchirappalli with the objective of propagating the importance of butterflies and conserving the biodiversity of the district through environmental education.
    • It  is spread over 27 acres and is considered to be Asia’s largest butterfly park.
    • The park has an outdoor as well as indoor conservatory, a ‘Nakshatra Vanam’ and a ‘Rasi Vanam’ in addition to a breeding lab for non-scheduled species.
    • So far, about 109 butterfly species have been observed here.

    Conservation measures

    • Eggs of non-scheduled butterfly species are collected and bred in captivity in the in-house incubation laboratory by keeping them in ventilated plastic containers with the leaves of host plants as feed.
    • After attaining the transformation of larva (caterpillar) and pupa (transition), the adult butterfly finally comes out with gorgeous colours and at this stage they are released into the natural habitat.
    • Non-scheduled butterfly species are bred and released by the park authorities into their natural surroundings.

    Significance of butterflies

    • Butterflies are known for their intrinsic, aesthetic, educational, scientific, ecological, health and economic values.
    • As butterflies form an important part of nature’s food web, it is very essential to protect the species for ecological balance.
    • They play a key role in the pollination of plant species, the global food chain depends on their well-being.

    Various threats

    • The major threats to butterfly diversity are destruction, degradation and fragmentation of their habitats, grazing, fires and application of pesticides and weedicides in agricultural and urban ecosystems.

  • Making the private sector care for public health

    Context

    As India enters the second week of a national lockdown imposed in response to COVID-19, it is still unclear how well prepared the healthcare system is in dealing with the pandemic.

    Need for roping in the private healthcare

    • No indication of an increase in expenditure on health: A preparedness plan has to address all levels of care in terms of infrastructure, equipment, testing facilities and human resources in both the public and private sectors.
    • However, so far, the Central and State governments have given little indication of bringing an increase in public expenditure on health.
    • So, an already overburdened public health system will be unable to meet the increase in moderate and severe cases of COVID-19 that would require hospitalisation.
    • Need for the comprehensive national policy: While some individual private sector companies have come forward with offers of creating capacity and making it available to COVID-19 patients, there is a need for a comprehensive national policy to ensure that private healthcare capacity is made available to the public.
    • Some states like Chhattisgarh, Rajasthan, Madhya Pradesh and Andhra Pradesh have already roped in the private sector to provide free treatment.

    What the government should do?       

    • Provide universal health service: The governments at the Centre and in States have to take responsibility for providing universal health services free of charge and accessible to all.
    • Tap into private sector capacity: This will require governments to not just expand the capacity within the public sector, but also to tap into the available capacity in the private sector.
    • Faced with a serious health emergency, the silence of the government on the expected role of the private sector is intriguing.
    • Include COVID-19 testing in PM-JAY: The National Health Authority has recommended that the testing and treatment of COVID-19 be included in the PM-Jan Arogya Yojana (PM-JAY) but this proposal is still awaiting clearance.
    • Form the central command: The governance of the health service system is clearly fragmented and has created anxiety among the public.
    • There is a lack of a visible central command, which should be created under the supervision of the Union Health Minister, aided by a team of experts.
    • They should be tasked to make policies as and when required and communicate them to State governments, taking into account an evolving situation.
    • Ensure that there is no cost to the patient: There have been some tentative measures taken by States to allow individuals seeking testing for COVID-19 to access private laboratories at subsidised rates.
    • At present, the government has put a cap on the cost at ₹4,500 per test, which is a burden for even a middle-class patient.
    • The poor will clearly have no access to this and the government itself does not have adequate facilities to meet the increasing demand. It is here that the government needs to ensure that there is no cost to the patient.
    • Create adequate testing facilities: At this point, and certainly, before the lockdown is lifted, it is absolutely essential that adequate testing and quarantine facilities are created.
    • The Central government has already taken over some private hotels to accommodate persons quarantined for COVID-19.
    • One way of expanding such facilities would be for the government to ‘take over’ private corporate laboratories and hospitals for a limited period.
    • Standard treatment protocol: The political directive for such a move needs to come from the Central government while ensuring that the Ministry of Health provides standard treatment protocols for health personnel.

    Learning lessons from Spanish and British experience

    • The Spanish government issued an order bringing hospitals in the large private corporate sector under public control for a limited period.
    • This tough decision was taken with the understanding that existing public healthcare facilities would not be able to cope with the sudden, if short-term, rise in COVID-19 cases.
    • British trade unions have demanded that the government make the 8,000 beds in 570 private hospitals in the country available.
    • They have argued that while beds in private hospitals are lying empty, there is a severe shortage of beds in public hospitals.
    • The unions have also been critical of the U.K. government decision to rent these beds at an exorbitant cost to the exchequer.

    Way forward

    • Rope in the private healthcare sector: In India, private corporate hospitals have, in the past, received government subsidies in various forms and it is now time to seek repayment from them.
    • They are also well poised to provide specialised care and have the expertise and infrastructure to do so.
    • Bring in the universal public healthcare: Universal public healthcare is essential not only to curb outbreaks but also to ensure crisis preparedness and the realisation of the promise of the right to health.

  • BCG vaccine

    According to a  US-based research, a combination of reduced morbidity and mortality could make the Bacillus Calmette-Guerin (BCG) vaccination a “game-changer” in the fight against novel coronavirus.

    What is BCG Vaccine?

    • Bacillus Calmette–Guérin (BCG) vaccine is a vaccine primarily used against tuberculosis (TB).
    • In countries where TB or leprosy is common, one dose is recommended in healthy babies as close to the time of birth as possible.
    • In areas where tuberculosis is not common, only children at high risk are typically immunized, while suspected cases of tuberculosis are individually tested for and treated.

    How can TB vaccine help fight COVID-19?

    • The BCG vaccine contains a live but weakened strain of tuberculosis bacteria that provokes the body to develop antibodies to attack TB bacteria.
    • This is called an adaptive immune response, because the body develops a defense against a specific disease-causing microorganism, or pathogen, after encountering it.
    • Most vaccines create an adaptive immune response to a single pathogen.
    • Unlike other vaccines, the BCG vaccine may also boost the innate immune system, first-line defenses that keep a variety of pathogens from entering the body or from establishing an infection.

  • Still no bullseye, in volume and value

    Context

    Based on the latest estimates released by the Stockholm International Peace Research Institute (SIPRI) in the period between 2009-13 and 2014-18, Indian defence imports fell even as exports increased.

    What are the factors responsible for the shift?

    • Make in India initiative: The first is the ‘Make in India’ initiative, as part of which a number of components from Indian private and public sector enterprises have been prioritised by the government.
    • Delay by vendors in supplying equipment: The second set of factors is extraneous to India in the form of delays in supplying equipment by vendors and the outright cancellation of contracts by the Indian government or at least a diminution of existing contracts.

    How ‘Make in India’ made the difference?

    • DPP’s measures to build India’s defence industry: Under the ‘Make in India’ initiative, the Defence Procurement Procedure (DPP) lays out the terms, regulations and requirements for defence acquisitions as well as the measures necessary for building India’s defence industry.
    • It created a new procurement category in the revised DPP of 2016 dubbed ‘Buy Indian Indigenously Designed, Developed and Manufactured’ (IDDM).
    • Earmarking projects for MSMEs: The ‘Make’ procedure has undergone simplification “earmarking projects not exceeding ten crores” that are government-funded and ₹3 crores for Micro, Small and Medium Enterprises (MSMEs) that are industry-funded.
    • Technology transfer to private companies: In addition, the government has also introduced provisions in the DPP that make private industry production agencies and partners for technology transfers.
    • The growing share of SMEs in the defence market: Small and Medium Enterprises (SMEs) until 2016 accounted for a 17.5% share of the Indian defence market.
    • According to the government of India data for the financial year 2018-19, the three armed services for their combined capital and revenue expenditures sourced 54% of their defence equipment from Indian industry.
    • Four companies among the top 100: Among arms producers, India has four companies among the top 100 biggest arms producers of the world.
    • It is estimated, according to SIPRI, their combined sales were $7.5 billion in 2017, representing a 6.1% jump from 2016.
    • All four of these companies are public sector enterprises and account for the bulk of the domestic armament demand.
    • The largest Indian arms producers are the Indian ordnance factories and the Hindustan Aeronautics Limited (HAL), which are placed 37th and 38th, respectively, followed by Bharat Electronics Limited (BEL) and Bharat Dynamics Limited (BDL).

    Reasons for falling imports

    • Cancellation of contracts: Indian defence acquisitions have also fallen due to the cancellation of big-ticket items. For instance the India-Russia joint venture for the development of the advanced Su-57 stealth Fifth Generation Fighter Aircraft (FGFA).
    • India cancelled involvement in 2018 due to rising dissatisfaction in delays with the project as well as the absence of capabilities that would befit a fifth-generation fighter jet.
    • Reduction in order: In 2015, the Modi government also reduced the size of the original acquisition of 126 Rafale Medium Multi-Role Combat Aircraft (MMRCA) from Dassault to 36 aircraft, which is also responsible for significantly driving down the import bill.
    • Delay by suppliers: That apart, the delays in the supplies of T-90 battle tanks, and Su-30 combat aircraft from Russia and submarines from France, in 2009-13 and 2014-18, also depressed imports.
    • Industrial model at odds with the global trend: India’s defence model faces challenges despite the positive trends generated by ‘Make in India’.
    • SMEs still face stunted growth because India’s defence industrial model is at odds with global trends in that it tends to create disincentives for the private sector.
    • Governments, including the incumbent, have tended to privilege Defence Public Sector Units (DPSUs) over the private sector, despite ‘Make in India’.
    • Undermining the private sector: This model is highly skewed, undermining the growth of private players and diminishes the strength of research and development.

    The rise in Indian defence export

    • Considerable rise between 2012 and 2019: The period between 2012 and 2019 saw Indian defence exports experiencing a considerable jump sourced from Indian public and private sector enterprises.
    • In the last two fiscal years, 2017-18 and 2018-19, exports have witnessed a surge from ₹7,500 crore to ₹11,000 crores, representing a 40% increase in exports.
    • Measures introduced by the government: The sharpest rise in defence export products can be attributed to the measures introduced by the government which in 2014, delisted or removed several products that were restricted from exports.
    • It dispensed with the erstwhile No Objection Certificate (NOC) under the DPP restricting exports of aerospace products, several dual-use items and did away with two-thirds of all products under these heads.
    • According to the Ministry of Commerce and the Industry, Export-Import Data Bank export of defence items in the aerospace category has witnessed an increase in value.
    • Small naval crafts account for the bulk of India’s major defence exports. However, the export of ammunition and arms remain low.
    • As a percentage of total Indian trade, defence-related exports for the fiscal years 2017-18 and 2018-19 were 8 and 0.73%, respectively.

    Conclusion

    From a volume and value standpoint, Indian defence exports, while showing a promising upward trend, still remain uncompetitive globally. It is likely that Indian defence exports will take several years before they are considered attractive by external buyers. But green shoots are emerging in a sector that has long been devoid of any dynamism and Indian policymakers should make the most of the opportunities this represents.

  • Pull out all the stops

    Context

    Though there is coherence in India’s response to the Covid-19, still there is more that needs to be done.

    Sense of coherence in India’s response

    • Since last week, a sense of coherence is settling over India’s response to the COVID-19 outbreak.
    • The national lockdown, the incomes and credit support, and the three-month debt moratorium announced by the government and the RBI are the needed first steps to contain the outbreak on the one hand and lessen the economic impact on the other hand.

    Uncertainty in two important factors

    • Several laundry lists of measures have already been proffered by many, however, these are not of much help.
    • Uncertainty: Given the extreme uncertainty clouding how long and intensely social distancing policies will need to be pursued, the attendant economic impact and, crucially, how quickly and strongly the recovery can take place.
    • 1. The answer to the first depends on how much the outbreak tests the capacity of the already-stretched public health system.
    • Extending the social distancing policy: If the lockdown does not slow the spread of the virus to a rate that the healthcare system can handle, then the social distancing policies, in some form or another, will need to be extended.
    • Destruction of demand: The longer such containment measures last, the larger will be the destruction to (of) demand and the bigger the collapse in output and incomes.
    • 2. Then, there is the question about the pace and strength of the recovery.
    • Much will depend on how much damage the eventual output loss inflicts on households’ and corporates’ balance sheets.
    • Lower consumption: For example, even if a worker starts earning once the lockdown is lifted if one has incurred large debts in the interim, one’s consumption demand will naturally be much lower than before the crisis.
    • The same holds for corporates, both big and small.
    • No help from global demand: What makes the situation worse is that there is not likely to be much help coming from global demand.
    • Growth estimates: It is now expected global growth would decline to 5 per cent (annualised) in 1H20 (first half 2020), considerably more than during the global financial crisis, and rebound only partially in 2H20, leaving global GDP 2.5 percentage points below its pre-crisis level at the end of this year.

    How the uncertainty makes policy response calibration difficult?

    • Difficulty in assessing economic damage: Given these extreme uncertainties, it is very hard to assess the economic damage with any degree of conviction.
    • In fact, in last week’s policy review, the Monetary Policy Committee refrained from providing any projections for future growth and inflation, breaking from its normal practice.
    • So, if the outlook is so uncertain, how does one calibrate the policy response?
    • 1. Under-support the economy: One can easily under-support the economy, which could prolong the slowdown.
    • 2. Or over-support the economy, which could end up stoking inflation (as it did in 2010-13 when the massive monetary and fiscal easing during the global financial crisis was not withdrawn quickly) or creating asset price bubbles.

    What is the way out in such a situation?

    • Don’t try to calibrate: The way out is not to even try calibrating policies under such extreme uncertainty but to let the size of the support be determined endogenously by the extent and nature of the economic damage.
    • Falling back of first principles: This requires falling back on first principles. We know that the economic damage could be very large.
    • Delay in recovery: We also know that if the damage to households’ and firms’ balance sheets is substantial, then the recovery could be delayed and weakened.
    • Give extensive income support: This calls for extensive income support through existing government Jan Dhan and Mudra accounts to households and SMEs, and temporary tax cuts or deferments to the larger corporates.
    • Tax cuts needed: It also needs substantial cuts in indirect taxes (GST) when social distancing is relaxed.

    Problems with RBI measures

    • RBI providing support: The RBI has begun to provide support via its liquidity facility (TLTRO) and regulatory forbearance that allows banks to offer a debt moratorium to their customers for the next three months.
    • But both these measures work through banks.
    • The problem of bank turning risk-averse: Given that banks have turned substantially risk-averse because of the restructuring and bad debt problems of the last few years, the RBI likely needs to start providing liquidity directly to corporates, as recently announced by the US Fed.
    • At the same time, any debt moratorium will reduce profit and, in turn, capital, banks might be reluctant to extend it to all their customers.
    • Accommodate capital shortfall in the bank: Consequently, the RBI also needs to change regulations to accommodate possible shortfalls in bank capital because of the debt moratorium.

    What should be the scope and size of the policy support?

    • Support should be based on the extent of the damage: The scope and size of such policy support need to be determined by the extent of the economic damage, and not by perceived limits about what India can afford or those imposed by existing institutional arrangements and practices.
    • It is quite possible that the size of the economic damage ends up requiring support that widens the fiscal deficit substantially.
    • India clearly does not have the fiscal space to provide any material economic support when measured against standard benchmarks of fiscal prudence.
    • Directly funding the budget deficit: The market is on edge, and fears of eventual large government borrowing has spiked long-term interest rates despite large cuts in short-term rates by the RBI, which are likely to delay and weaken the recovery.
    • Any large bond auction by the government, even if it is offset by the RBI through open market operations, is not likely to calm market nerves and bring down lending rates.
    • The government should invoke “natural disaster” clause: What is needed is for the government to invoke the “escape” or the “natural disaster” clause in the fiscal responsibility act (FRBM) that allows the RBI to directly fund the budget deficit without having to go through market auctions.

    Conclusion

    Such a proposal is likely to raise the hackles of any fiscal conservative and there is the natural question about how rating agencies might react. As long as the government credibly commits to reversing the action as soon as the crisis is over, rating agencies and fiscal conservatives alike will likely treat this kindly, as it is a response to a crisis caused not by poor economic policies, but by an act of nature.