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  • Pokhran-II nuclear tests

    Yesterday, May 11 was celebrated as the National Technology Day. It marks the day on which India successfully test-fired its first nuclear bombs in 1998.

    Practice question for mains

    Q. India’s nuclear policy of ‘No First Use’ needs a revamp. Examine.

    India and nuclear weapons

    • India is currently among eight countries in the world that have a publicly known nuclear weapons program.
    • At the time of our independence, leaders were opposed to fully embracing nuclear weapons.
    • Just two years before in 1945, the world had witnessed the horrific nuclear bombings of Hiroshima and Nagasaki.
    • Mahatma Gandhi called the use of nuclear weapons morally unacceptable.

    Why India did equip itself with nuclear arms?

    • Then PM Jawaharlal Nehru was sceptical but kept the door open for future consideration.
    • This future beckoned early, as India’s defeat in the 1962 Sino-Indian War gave rise to legitimate fears about national security.
    • Then in 1974, India conducted its first nuclear test, codenamed “Smiling Buddha”, at Pokhran in Rajasthan.
    • Then-Prime Minister Indira Gandhi called the test a peaceful nuclear explosion.
    • India demonstrated to the world that the country could defend itself in an extreme situation and chose not to immediately weaponize the nuclear device it tested at Pokhran.

     The Pokhran II tests

    • India’s fence-sitting finally ended when it detonated another device in 1998, again at Pokhran.
    • Assigned the code name Operation Shakti, the mission was initiated on May 11, 1998.
    • The tests consisted of 5 detonations, the first being a fusion bomb while the remaining four were fission bombs.
    • One fusion and two fission bombs were tested on May 11, and two more fission bombs on May 13.
    • With the tests, India achieved its objective of building fission and thermonuclear weapons with yields up to 200 kilotons.

    Aftermath

    • After Pokhran-II, Vajpayee had declared India a nuclear state — then the sixth country in the world to join this league.
    • Unlike in 1974, India had this time chosen to actively develop its nuclear capabilities, and the tests followed economic sanctions by the United States and Japan. The sanctions were later lifted.

    Back2Basics: India’s nuclear programme

    • India started its own nuclear programme in 1944 when Homi Jehangir Bhabha founded the Tata Institute of Fundamental Research.
    • Physicist Raja Ramanna played an essential role in nuclear weapons technology research; he expanded and supervised scientific research on nuclear weapons and was the first directing officer of the small team of scientists that supervised and carried out the test.
    • After independence, PM Nehru authorised the development of a nuclear programme headed by Homi Bhabha.
    • The Atomic Energy Act of 1948 focused on peaceful development.
    • India was heavily involved in the development of the Nuclear Non-Proliferation Treaty but ultimately opted not to sign it.
    • In 1954, two important infrastructure projects were commissioned. The first established Trombay Atomic Energy Establishment at Mumbai (Bombay). The other created a governmental secretariat, Department of Atomic Energy (DAE), of which Bhabha was the first secretary.

    Nuclear Suppliers Group (NSG)

    • The NSG is a multilateral export control regime and a group of nuclear supplier countries that seek to prevent nuclear proliferation by controlling the export of materials, equipment and technology that can be used to manufacture nuclear weapons.
    • The NSG was founded in response to the Indian nuclear test in May 1974 and first met in November 1975.
    • It was solely aimed to deny advanced technology, and isolate and contain India.

  • Person in news: Gopal Krishna Gokhale

    The Prime Minister has paid tributes to Gopal Krishna Gokhale on his birth anniversary.

    These days, personality-based prelims questions are quite prevalent.

    Q.) He wrote biographies of Mazzini, Garibaldi, Shivaji and Shri Krishna; stayed in America for some time; and was also elected to the Central Assembly. He was – (CSP 2018)

    a) Aurobindo Ghosh

    b) Bipin Chandra Pal

    c) Lala Lajpat Rai

    d) Motilal Nehru

    Gopal Krishna Gokhale (1866-1915)

    • Gokhale was a liberal political leader and a social reformer during the Freedom Movement.
    • Gokhale was a senior leader of the Indian National Congress (INC) and the founder of the Servants of India Society.
    • Through the Society as well as the Congress and other legislative bodies he served in, Gokhale campaigned for Indian self-rule and for social reforms.

    Gokhale and INC

    • Gokhale became a member of the INC in 1889, as a protégé of social reformer MG Ranade.
    • He was the leader of the moderate faction of the Congress party that advocated reforms by working with existing government institutions.

    Quest for political reforms

    • Gokhale’s mentor, justice M.G. Ranade started the Sarvajanik Sabha Journal.
    • Gokhale’s deposition before the Welby Commission on the financial condition of India won him accolades.
    • He played a leading role in bringing about Morley-Minto Reforms (1909), the beginning of constitutional reforms in India.

    Servants of India Society

    • In 1905, when Gokhale was elected president of the INC and was at the height of his political power, he founded the Servants of India Society.
    • It aimed to specifically further one of the causes dearests to his heart: the expansion of Indian education.
    • The Society took up the cause of promoting Indian education in earnest, and among its many projects organised mobile libraries, founded schools, and provided night classes for factory workers.

    Involvement in the government

    • In 1899, Gokhale was elected to the Bombay Legislative Council.
    • He was also elected to the Imperial Council of the Governor-General of India as a non-officiating member representing Bombay Province.

    Mentor to Gandhi

    • Gokhale was famously a mentor to Mahatma Gandhi in the latter’s formative years.
    • In 1912, Gokhale visited South Africa at Gandhi’s invitation.
    • As a young barrister, Gandhi returned from his struggles and received personal guidance from Gokhale, including a knowledge and understanding of India and the issues confronting common Indians.
    • By 1931, Gandhi emerged as the leader of the Indian Independence Movement. In his autobiography, Gandhi calls Gokhale his mentor and guide.

    His literary works

    • In 1908, Gokhale founded the Ranade Institute of Economics.
    • He started the English weekly newspaper, The Hitavad (The people’s paper).
    • He also published a daily newspaper titled Jnanaprakash, which allowed him to voice his reformist views on politics and society.

    With inputs from https://en.wikipedia.org/wiki/Gopal_Krishna_Gokhale

  • [pib] Atal Pension Yojana:  Marking 5 Years of Implementation

    The flagship social security scheme ‘Atal Pension Yojana’ (APY) has completed five years of successful implementation.

    Five years of successfull implemention of APY is a significant feat. A statement based prelims question on terms of enrolment of the APY can be asked.

    Atal Pension Yojana

    • APY is a government-backed pension scheme, primarily targeted at the unorganised sector.
    • It is a social security scheme launched by the government on 9th May 2015 to provide a defined pension between Rs 1,000 to Rs 5,000.
    • It aims of delivering old age income security particularly to the workers in the unorganised sector with a guarantee of minimum pension after 60 years of age.

    Terms of enrolment

    • APY can be subscribed by any Indian citizen in the age group of 18-40 years having a bank account and its uniqueness is attributable to three distinctive benefits.
    • First, it provides a minimum guaranteed pension ranging from Rs 1000 to Rs 5000 on attaining 60 years of age,
    • Secondly, the amount of pension is guaranteed for a lifetime to spouse on death of the subscriber.
    • And lastly, in the event of the death of both the subscriber and the spouse, entire pension corpus is paid to the nominee.

    Success of the scheme

    • The scheme has now 2.23 crores enrolment.
    • Apart from remarkable enrolments, the scheme has been implemented comprehensively across the country covering all states and UTs with male to a female subscription ratio of 57:43.

    About PFRDA

    • Pension Fund Regulatory and Development Authority (PFRDA) is the statutory authority established by an enactment of the Parliament.
    • It aims to regulate, promote and ensure orderly growth of the National Pension System (NPS) and pension schemes to which this Act applies.
    • NPS was initially notified for central government employees recruits w.e.f. 1st Jan 2004 and subsequently adopted by almost all State Governments for its employees.
    • NPS was extended to all Indian citizens (resident/non-resident/overseas) on a voluntary basis and to corporates for its employees.

  • Explained: How can Inter-State workers be protected?

    Context

    • Following the novel coronavirus pandemic, the nationwide lockdown announced on March 24 at short notice has caused immense distress to migrant workers around the country.
    • Hundreds have been seen trying to walk home to Uttar Pradesh, Bihar, West Bengal and Odisha from their places of work in Rajasthan, Delhi, Maharashtra, Gujarat and so forth.

    Try a mains question on this issue:

    Inter state migrants face social, economic and cultural shocks. Discuss some steps taken by center and state governments. Also suggest further reforms.

    Inter-State workers: Where is their almighty?

    • Recently, 16 migrant labourers who were trying to return to Madhya Pradesh, their home State, on foot were killed when a goods train ran over them.
    • Questions are being raised about their welfare and the lack of legal protection for their rights.
    • Those working in the field of labour welfare have recalled a 1979 law to regulate the employment and working conditions of inter-State migrants.
    • The lack of serious implementation has led to their rights being ignored.

    What about occupational safety?

    • As part of the present regime’s efforts towards consolidating and reforming labour law, a Bill has been introduced in Parliament called the Occupational Safety, Health and Working Conditions Code, 2019.
    • The proposed code seeks to merge 13 labour laws into a single piece of legislation.
    • The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979, is one of them.
    • Activists fear that specific safeguards given to migrant workers may be lost as a result of this consolidation.

    Inter-State Migrant Workmen Act, 1979: What does the law envisage?

    • The Act seeks to regulate the employment of inter-State migrants and their conditions of service.
    • It is applicable to every establishment that employs five or more migrant workmen from other States; or if it had employed five or more such workmen on any day in the preceding 12 months.
    • It is also applicable to contractors who employed a similar number of inter-State workmen.
    • The Act would apply regardless of whether the five or more workmen were in addition to others employed in the establishment or by the contractors.
    • It envisages a system of registration of such establishments. The principal employer is prohibited from employing inter-State workmen without a certificate of registration from the relevant authority.
    • The law also lays down that every contractor who recruits workmen from one State for deployment in another State should obtain a licence to do so.

    What are the beneficial provisions for inter-State migrants in it?

    • The provision for registration of establishments employing inter-State workers creates a system of accountability and acts as the first layer of formalizing the utilization of their labour.
    • It helps the government keep track of the number of workers employed and provides a legal basis for regulating their conditions of service.
    • As part of the licensing process, contractors are bound by certain conditions.
    • These include committing them to provide terms and conditions of the agreement or any other arrangement on the basis of which they recruit workers.
    • In no case, shall the wages be lower than what is prescribed under the Minimum Wages Act.

    What does the proposed Code say on migrant workers?

    • The attempt to consolidate laws relating to occupational safety, health and working conditions means that many separate laws concerning various kinds of workers and labourers will have to be repealed.
    • The proposed law seeks to repeal 13 Acts such as the Factories Act, Mines Act, Dock Workers’ Act, the Inter-State Migrant Workmen Act, and other enactments relating to those working in plantations, construction, cinema, beedi and cigarette manufacture, motor transport, and the media.

    What does the news law promise for migrant workers?

    • Regarding inter-State migrant workers, the Act includes them in the definition of ‘contract labour’.
    • At the same time, an inter-State migrant worker is also separately defined as a person recruited either by an employer or a contractor for an establishment situated in another State.
    • The Code has a chapter on ‘contract labour and inter-State migrant workers’, but the Parliamentary Standing Committee has recommended that the provisions relating to migrant workers be covered in a separate chapter.
    • The Code contains provisions similar to the 1979 Act regarding registration of establishments, licensing of contractors and the inclusion of terms and conditions on hours of work, wages and amenities.
    • Further, both the old Act and the proposed Code envisage the payment of a displacement allowance and a journey allowance to inter-State migrant workers.

    Trade Union’s response

    • Even though the Code seeks to preserve many of the protections and rights are given to inter-State workers, trade unions feel that it is always better to have a separate enactment.
    • The unprecedented distress and misery faced by migrant workers due to the current lockdown have drawn attention to beneficial legislation dedicated to their welfare.
    • The Centre of Indian Trade Unions (CITU) has highlighted the fact that both the States where they work and home States have obligations cast upon them in the existing law.
    • Despite the fact that it has been poorly implemented at all, labour unions feel that preserving the separate enactment and enforcing it well is a better option than subsuming it under a larger code.

  • Relaxation in labour laws due to COVID-19 outbreak and their impacts

    • Amid the coronavirus-induced lockdown, an increasing number of states that include Uttar Pradesh, Madhya Pradesh, Rajasthan and Gujarat have pushed through changes to their labour laws by way of amendments — ordinances or executive orders.
    • They aim to provide some sort of blanket exemption to employers from labour laws.

    Practice Question

    Q. Multiplicity of Labour laws in India has done little to address the plight of Labourers. Critically comment in context to the nationwide lockdown imposed due to the coronavirus outbreak.

    What is the move all about?

    • Most states cleared an ordinance exempting businesses from the purview of most labour law provisions for the next three years.
    • However, labour laws related to bonded labour, deployment of women and children and timely payment of salaries are not changed.

    Changes in the law

    • The changes in the labour laws will apply to both the existing businesses and the new factories being set up in the state.
    • Similarly, the Madhya Pradesh government has also suspended many labour laws for the next 1000 days.
    • Few important amendments are:
    • Employers can increase working hours in factories from 8 to 12 hours and are also allowed up to 72 hours a week in overtime, subject to the will of employees.
    • The factory registration now will be done in a day, instead of 30 days. And the licence should be renewed after 10 years, instead of a year. There is also the provision of penalty on officials not complying with the deadline.
    • Industrial Units will be exempted from majority of the provisions of the Industrial Disputes Act, 1947.
      • Organisations will be able to keep workers in service at their convenience.
      • The Labour Department or the labour court will not interfere in the action taken by industries.
      • Contractors employing less than 50 workers will be able to work without registration under the Contract Labour (Regulation and Abolition) Act, 1970.

     Major relaxations to new industrial units are:

      • Exempted from provisions on ‘right of workers’, which includes obtaining details of their health and safety at work, to get a better work environment which include drinking water, ventilation, crèches, weekly holidays and interval of rest, etc.
      • Exempted from the requirement of keeping registers and inspections and can change shifts at their convenience.
      • Employers are exempt from penalties in case of violation of labour laws.

    Rationale Behind the Changes in Labour Laws

    • States have begun easing labour laws to attract investment and encourage industrial activity.
    • To protect the existing employment, and to provide employment to workers who have migrated back to their respective states.
    • Bring about transparency in the administrative procedures and convert the challenges of a distressed economy into opportunities.
    • To increase the revenue of states which have fallen due to closure of industrial units during Covid-19 lockdown.
    • Labour reform has been a demand of Industries for a long time. The changes became necessary as investors were stuck in a web of laws and red-tapism.
    • Businesses and economic activities have slowed down due to which labour welfare has also been affected due to the national lockdown.

    What are the Indian Labour Laws?

    • Labour falls in the Concurrent List and there are many laws enacted by the Centre that a state cannot just brush aside.
    • Estimates vary but there are over 200 state laws and close to 50 central laws. And yet there is no set definition of “labour laws” in the country.

    Their types

    Broadly speaking, they can be divided into four categories. Refer to the image.

    • The main objectives of the Factories Act, for instance, are to ensure safety measures on factory premises and promote the health and welfare of workers.
    • The Shops and Commercial Establishments Act, on the other hand, aims to regulate hours of work, payment, overtime, a weekly day off with pay, other holidays with pay, annual leave, employment of children and young persons, and employment of women.
    • The Minimum Wages Act covers more workers than any other labour legislation.
    • The most contentious labour law, however, is the Industrial Disputes Act, 1947 as it relates to terms of service such as layoff, retrenchment, and closure of industrial enterprises and strikes and lockouts.

    Why are labour laws often criticised?

    • Indian labour laws are often characterized as “inflexible”. Most of them are inadequate to make the sector formalized.
    • At present 90% of India’s workers are parts of the informal economy. The Chart shows, even the organised sector are increasingly employing workers without formal contracts.
    • Others have also pointed out that there are too many laws, often unnecessarily complicated, and not effectively implemented. This has laid the foundation for corruption and rent-seeking.

    Issues with the recent relaxation

    1.Exploitation

    • The state of UP has summarily suspended almost all labour laws including the Minimum Wages Act.
    • Hence this move is characterized as “creating an enabling environment for exploitation”.
    • That’s because far from being a reform, which essentially means an improvement from the status quo, the removal of all labour laws will not only strip the labour of its basic rights but also drive down wages.
    • For instance, what stops a firm from firing all existing employees and hiring them again at lower wages.
    • For one, as Chart 3 shows, even before the Covid-19 crisis, thanks to the deceleration in the economy, wage growth had been moderating.
    • Moreover, there was always a wide gap between formal and informal wage rates. For example, a woman working as a casual labourer in rural India earns just 20% of what a man earns in an urban formal setting.
    • If all labour laws are removed, most employment will effectively turn informal and bring down the wage rate sharply. And there is no way for any worker to even seek grievance redressal.

    2.Informalization

    • Moreover, far from pushing for a greater formalization of the workforce, this move will in one go turn the existing formal workers into informal workers as they would not get any social security.

    3. Will reduce demand in the economy

    • Scrapping labour laws to save on labour costs will not help start the economy but will do exactly the opposite.
    • It will reduce wages, lower earnings (particularly of low wage workers) and reduce consumer demand.

    4.Unlikely to spur economic growth?

    • Theoretically, it is possible to generate more employment in a market with fewer labour regulations.
    • However, as the experience of states that have relaxed labour laws in the past suggests, dismantling worker protection laws have failed to attract investments and increase employment.
    • It is unproven if they can cause an increase in worker exploitation or deterioration of working conditions. However, in the long run, employment will not increase, because of several reasons.

    5. Enacted without any scrutiny:

    • Usually, any change in an Act follows a rigorous process of public consultation, scrutiny by committees of Parliament, and debates in the House before being approved.
    • The changes described here have not gone through such a process.
    • However, most of these have a three-month time limit, and any extension would need to be approved by the legislature.

    What else could have been done?

    1.Allow two shifts

    • There is already too much-unused capacity. Firms are shaving off salaries up to 40% and making job cuts. The overall demand has fallen. Which firm will hire more employees right now, he asked.
    • If the intention was to ensure more people have jobs, then states should not have increased the shift duration from 8 hours to 12 hours.
    • They should have allowed two shifts of 8-hours each instead so that more people can get a job.
    • This move and the resulting fall in wages will further depress the overall demand in the economy, thus hurting the recovery process.

    2.Partnered with the industry

    • Most governments have done across the world have partnered with the industry and allocated 3% or 5% of the GDP towards sharing the wage burden and ensuring the health of the labourers.
    • Moreover, beyond labour regulations, firms face a lot of other hurdles like the shortage of skilled labour and the weak enforcement of contracts etc.
    • Time demands to secure the labour most than their employers.

  • Indigenous antibody test: COVID Kavach ELISA

    Indian Council of Medical Research (ICMR)-National Institute of Virology (NIV) at Pune has developed and validated the indigenous IgG ELISA test “COVID KAVACH ELISA” for antibody detection for COVID-19.

    Our thumb rule suggests that the ELISA test is being used only for the diagnosis of HIV infection. Right?

    But the ELISA test is a broader term to diagnose antibody-antigen interaction after certain virus infection to a person.  UPSC can test your basic knowledge of core biology with a question based on this concept.

    What is ELISA test?

    • ELISA (enzyme-linked immunosorbent assay) is a plate-based assay technique designed for detecting and quantifying substances such as peptides, proteins, antibodies and hormones.
    • Other names, such as enzyme immunoassay (EIA), are also used to describe the same technology.
    • In an ELISA, an antigen must be immobilized on a solid surface and then complexed with an antibody that is linked to an enzyme.
    • Detection is accomplished by assessing the conjugated enzyme activity via incubation with a substrate to produce a measurable product.
    • The most crucial element of the detection strategy is a highly specific antibody-antigen interaction.

    What are antibodies?

    • An antibody is a large, Y-shaped protein produced mainly by plasma cells that are used by the immune system to neutralize pathogens such as pathogenic bacteria and viruses.
    • There are five immunoglobulin classes (isotypes) of antibody molecules found in serum: IgG, IgM, IgA, IgE and IgD.
    • They are distinguished by the type of heavy chain they contain.

    Application of ELISA

    • Presence of antigen or the presence of antibody in a sample can be evaluated
    • Determination of serum antibody concentrations in a virus test
    • Used in the food industry when detecting potential food allergens
    • Applied in disease outbreaks- tracking the spread of disease e.g. HIV, bird flu, common, colds, cholera, STD etc

    Significance

    • Robust antibody tests are critical for surveillance to understand the proportion of the population exposed to infection.
    • The test will have the advantage of testing 90 samples together in a single run of 2.5 hours.
    • Moreover, ELISA based testing is easily possible even at the district level as the ELISA kit has an inactivated virus.
    • There are also minimal bio-safety and bio-security requirements as compared to the real-time RT-PCR test.
    • The test has the advantage of having much higher sensitivity and specificity as compared to the several rapid test kits which have recently flooded the Indian market.

    Limitations

    • Since the ELISA test is based on the detection of antibodies, it can only help in knowing if the person has been previously infected by a coronavirus.
    • It takes one-three weeks for the antibodies to develop in response to infection.
    • So, if a person who has been recently infected by the virus is tested during the window period (the time taken to develop antibodies) the result will turn out to be negative.
    • But a repeat test after a couple of weeks will indicate the true infection status.

    How it is different from the PCR test?

    • While the RT-PCR, which detects the RNA of the coronavirus, enables detection of current infection, it will not be useful if the testing is carried out days after the infection clears as the virus will no longer be present.
    • However, antibodies developed in response to the coronavirus infection will be present in the blood for a longer duration and hence the ELISA test can help detect past infection.
    • The maximum time the antibodies will be present in the body is not known for coronavirus.

    Back2Basics: Reverse Transcriptase – Polymerase Chain Reaction (PCR) Test

    • It uses a technique that creates copies of a segment of DNA. ‘Polymerase’ refers to the enzymes that make the copies of DNA.
    • Kary Mullis, the American biochemist who invented the PCR technique, was awarded the Nobel Prize for Chemistry in 1993.
    • The ‘chain reaction’ is how the DNA fragments are copied, exponentially — one is copied into two, the two are copied into four, and so on.
    • However, SARS-COV-2 is a virus made of RNA, which needs to be converted into DNA. For this, the technique includes a process called reverse transcription.
    • A ‘reverse transcriptase’ enzyme converts the RNA into DNA. Copies of the DNA are then made and amplified.
    • A fluorescent DNA binding dye called the “probe” shows the presence of the virus. The test also distinguishes SARS-COV-2 from other viruses.

  • [pib] Mission SAGAR

    As part of India’s outreach amidst the ongoing COVID-19 pandemic, ships have departed for Maldives, Mauritius, Seychelles, Madagascar and Comoros, to provide Food Items, COVID related Medicines including HCQ Tablets and Medical Assistance Teams under Mission Sagar.

    Mission SAGAR, unlike other missions, can create confusion with the name and its purpose. Make note of such special cases. UPSC can ask such questions as one liner MCQs.

    Mission SAGAR

    • As part of the mission, INS Kesari would enter the Port of Male in the Republic of Maldives, to provide them 600 tons of food provisions.
    • The deployment is in consonance with the PMs vision of Security and Growth for All in the Region ‘SAGAR’.
    • This deployment is in line with India’s role as the first responder in the region and builds on the excellent relations existing between these countries to battle the COVID-19 pandemic and its resultant difficulties.
    • The operation is being progressed in close coordination with the Ministries of Defence and External Affairs, and other agencies of the govt.

    Back2Basics

    SAGAR Programme (Security and Growth for All in the Region)

    • SAGAR is a term coined by PM Modi in 2015 during his Mauritius visit with a focus on the blue economy.
    • It is a maritime initiative which gives priority to the Indian Ocean region for ensuring peace, stability and prosperity of India in the Indian Ocean region.
    • The goal is to seek a climate of trust and transparency; respect for international maritime rules and norms by all countries; sensitivity to each other`s interests; peaceful resolution of maritime issues; and increase in maritime cooperation.
    • It is in line with the principles of the Indian Ocean Rim Association.

    IORA (Indian Ocean Rim Association)

    • Established in 1997 in Ebene Cyber City, Mauritius.
    • First established as Indian Ocean Rim Initiative in Mauritius on March 1995 and formally launched in 1997 by the conclusion of a multilateral treaty known as the Charter of the IORA for Regional Cooperation.
    • It is based on the principles of Open Regionalism for strengthening Economic Cooperation particularly on Trade Facilitation and Investment, Promotion as well as Social Development of the region.

  • [Burning Issues] Fiscal Push for MSME Sector of India (Part II)

    COVID-19 and MSMEs

    • The MSMEs were already struggling — in terms of declining revenues and capacity utilization — in the lead-up to the Covid-19 crisis.
    • The total lockdown has raised a question mark on workers payment primarily because these firms mostly transact on cash. That explains the job losses.
    • The problem with most small Indian businesses is that they operate on thin margins and don’t have the deep financial resources to survive a significant dip in cash flows.
    • So, when an unexpected event like a lockdown happens and MSMEs can’t sell/produce their goods or services, it also means for many they can’t meet their monthly expenses – this includes costs like paying salaries to their employees.

    Fiscal stimulus package to MSMEs under Atmanirbhar Bharat Abhiyan

    Finance Minister has announced the first tranche of the Atmanirbhar Bharat Abhiyan economic package. The main thrust of the announcements was a relief to Medium, Small and Micro Enterprises (MSMEs) in the form of a massive increase in credit guarantees to them.

    What is the package about?

    Instead of directly infusing money into the economy or giving it directly to MSMEs in terms of a bailout package, the government has resorted to taking over the credit risk of MSMEs.

    1) 100% credit guarantee

    • Firstly, it will give a 100% credit guarantee for Rs 3 lakh crore worth of collateral-free loans to MSMEs that were doing fine before the pandemic hit and are now in trouble.
    • This deal will only apply to small businesses that already had an outstanding loan of Rs 25 crore or those with a turnover of less than Rs 100 crore.
    • This doesn’t mean the government is directly infusing Rs 3 lakh crore into India’s MSMEs.
    • Put simply, if an MSME wants to take a loan of Rs 1 crore from a bank now, the Centre is saying that if the business fails to repay that loan, it will step in and make good all of that Rs 1 crore.
    • Thus, banks don’t have to worry about potential NPAs – that headache is transferred to the government.

    2) Subordinate debt scheme

    • The second measure is a ‘subordinate debt scheme’ worth Rs 20,000 crore and is mainly for MSMEs who are already struggling with debt and are unlikely to get fresh funding by themselves.
    • This scheme will allow banks and NBCs to give loans to MSMEs which are already deemed as ‘stressed’ and are thus less credit-worthy.
    • For these firms, the government will only provide partial credit guarantee support to banks.

    3) Availability of Funds

    • The final step involves the government creating a Rs 50,000-crore fund which will infuse equity into “viable” MSMEs, thus helping them to expand and grow.
    • The Centre will put only Rs 10,000 crore into this and get other PSU institutions like SBI or LIC to help fund the remaining amount.
    • The basic idea behind this is that MSMEs who have been forced into a cash-strapped corner by the national lockdown will be able to apply for some working capital that will keep their businesses afloat until they are able to operate at pre-pandemic levels.
    • By doing this, the government also hopes to protect the employment that MSMEs create and thus save jobs.

    4)Other measures

    • There are two other MSME policy announcements – one aimed at bringing more firms into the MSME net, while the other is oriented towards providing a level playing field.
    • The first is defining what the firm gets to be an ‘MSME’ and avail of all the government benefits that are given to that category of business.
    • The criteria have been expanded quite loosely and will mean that companies don’t have to be as small as they were to avail of MSME benefits.
    • Put simply, the government will now subsidize more smaller companies than they used to.
    • Second, there is a change in the definition of an MSME that was pending for long.
    • Now MSMEs will be judged on turnover and there will be no difference between a manufacturing MSME and services MSME.
    • FM also extended the initiation period of fresh insolvency proceedings against MSMEs by six months to up to one year depending upon the COVID situation.

    Need for such measures

    • Even before the Covid-19 crisis, Indian government finances were in poor health. This pandemic has meant that government revenues will come under further pressure.
    • For instance, experts are already talking about a GDP contraction of 5% to 10% in the current financial year. It will result in a revenue loss of anywhere between Rs 5 to 7 lakh crore.
    • And yet, this is also the year when employees and firms want the government to help them out financially.
    • Banks, quite justifiably, suspect that any new loans will only add to their growing mountain of non-performing assets (NPAs).
    • So the government was facing an odd problem: Banks had the money but were not willing to lend to the credit-starved sections of the economy, while the government itself did not have enough money to directly help the economy.

    • The solution — credit guarantees — finally chosen by the government is not a new one, because this fiscal conundrum is not a new one either (see chart).

    Why Rs 3 lakh crore?

    • The total outstanding loan to MSMEs by the banking and NBFC sector is around Rs 16 to 18 lakh crore.
    • Assuming that 80% of these loans are working capital loans where there would be a 20% incremental funding needs, that gives an amount of approximately Rs 3 lakh crore.
    • So the government is hoping that this credit guarantee will help those MSMEs take out another loan and recover.
    • The hope is that since these MSMEs were able to pay back before the crisis, there is no reason why they cannot after the crisis, provided they are given some extra money to survive this period.

    How far will these measures help?

    • The Rs 3 lakh crore credit guarantees are the most substantive announcement as it will most likely have a significant impact.
    • It will help MSMEs pay salaries and keep their heads above the water even as the economy slows down.
    • This measure is expected to help as many as 45 lakh MSMEs.

    Issues with the package

    1) No banks consulted

    • The scheme for MSMEs has left bankers unhappy as the guarantee is not being offered by the government, but from the credit guarantee trust fund for micro and small enterprises (CGTMSE) instead of being a sovereign guarantee.

    2) Criteria of availability

    • The benefits of the package will not be available to businesses which had repayments overdue by more than 30 days as on Feb 29, 2020.
    • Only for the stressed MSMEs and those whose loans have turned bad, a Rs 20,000-crore subordinated debt scheme has been envisaged.

    3) Employee’s welfare faintly addressed

    • With the package, the government has mandated MSMEs for paying the wages.
    • The MSMEs are short of revenues to be able to pay the salaries. It has now become a matter of ability to pay.
    • Manpower cost for ancillary suppliers is one of the largest. Not every company has the ability to pay their employees so going forward will be more stressful.

    4) Too much of loans

    • The package has offered for taking additional loans, but the MSME sector is already leveraged heavily.
    • At this point, taking additional loans can help with major short term liquidity, but in the longer-term, the companies or the units abilities for repaying these loans is grossly neglected.
    • Also the onus on increasing the competitiveness of MSMEs post the lockdown has been grossly neglected.

    Way forward

    • The challenge now is to create a policy environment that will encourage the growth of more MSME that can hold their own in a competitive market.
    • The problems faced by MSMEs need to be considered in a disaggregated manner for successful policy implementation as they produce very diverse products, use different inputs and operate in distinct environments.
    • In general, there is a need for tax provisions and laws that are not only labour-friendly but also entrepreneur-friendly.
    • More importantly, there is a need for skill formation and continuous upgrade both for labour and entrepreneurs.
    • While the government has to strengthen the existing skilling efforts for labour, there is an urgent need for managerial skill development for entrepreneurs running MSMEs — an area that is considerably neglected.
    • Further, the government could consider dedicated television and radio programmes, similar to agriculture, to help educate entrepreneurs running small businesses.

    Conclusion

    Covid-19 is a crisis with an unforeseeable ending. What is clear though is that the government and businesses—both large and small—will have to work together to ensure the protection of workers, be ready for risk management in terms of phased re-starting of business operations and be prepared and open to structural changes in business activities.

    • Issues related to credit, like adequacy, timely availability, cost and mortgages continue to be a concern for MSME. These enterprises are dependent on self-finance. Profit margins are also low.
    • The government drive for financial inclusion could benefit such entities.
    • The government could consider dedicating specialised financial schemes for addressing difficulties in assessing and providing credit for small enterprises, as also providing a line of credit to firms which are under financial stress.
    • The road ahead remains unclear, but it is likely that the economic damage is already much larger than the measures undertaken so far.
    • A continued focus on reforms and on sustaining India’s growth potential will be critical in preventing macroeconomic instability.

     

     

     

    References

    https://www.civilsdaily.com/news/what-makes-msmes-most-vulnerable-to-covid-19-disruptions/

    https://www.cii.in/Sectors.aspx?enc=prvePUj2bdMtgTmvPwvisYH+5EnGjyGXO9hLECvTuNuXK6QP3tp4gPGuPr/xpT2f

    https://economictimes.indiatimes.com/cibil/articles/msme-sector-panacea-of-all-ills/articleshow/61836122.cms?from=mdr

    https://thewire.in/economy/narendra-modi-msme-package-cost

    Also read: Various schemes related to MSME Sector

    [Prelims Spotlight] Acts and schemes related to MSME sector

  • Economy and the challenges ahead

    Various projections of growth paint a grim picture of the Indian economy as well as the global economy. This article analyses the sector-wise impact and comes with the GVA projections for 2020-21. The government has to deal with serious challenges like financing huge fiscal deficits. So, what will be the growth rate for 2020-21 and what will be the size of GVA? Read to know!

    Projections of growth and uncertainty

    • Various institutions have assessed India’s growth prospects for 2020-21 ranging from 0.8% (Fitch)to 4.0% (Asian Development Bank).
    • This wide range indicates the extent of uncertainty and tentative nature of these forecasts.
    • The International Monetary Fund (IMF) has projected India’s growth at 1.9%, China’s at 1.2%, and the global growth at (-) 3.0%.
    • The actual growth outcome for India would depend on: 1) the speed at which the economy is opened up 2) the time it takes to contain the spread of virus, and, 3) the government’s policy support.

    Health of India economy before the crisis

    • India slid into the novel coronavirus crisis on the back of a persistent economic downslide.
    • There was a sustained fall in the saving and investment rates with unutilised capacity in the industrial sector.
    • In 2019-20, there was a contraction in the Centre’s gross tax revenues in the first 11 months during April 2019 to February 2020, at (-) 0.8%.
    • These trends continue to beset the Indian economy in this crisis.

    Growth prospects for 20-21 from the output side

    • In 2019-20, which would serve as the base year, India may show GVA growth of about 4.4%,
    • This is well below the Central Statistics Office’s second advance estimate of 9%.
    • The IMF’s GDP growth estimate for 2019-20 is at 2%.
    • GVA is divided into eight broad sectors. Although all sectors have been disrupted, some may be affected less than the others. We divide the output sectors in four groups.
    • Group A- This group is likely to suffer minimum disruption.
    • Agriculture and allied sectors, and public administration, defence.
    • Despite some labour shortage issues, agriculture sector may show near-normal performance.
    • The public and defence services have been nearly fully active, with the health services at the forefront of the the COVID-19 fight.
    • For the group A sectors, it may be possible to achieve 90% of the 2019-20 growth performance.
    • Group D- This group is likely to suffer maximum disruption.
    • This includes, trade, hotels, restaurants, travel and tourism under the broad group of “Trade, Hotels, Transport, Storage and Communications”.
    • This sector may be able to show 30% of 2019-20 growth performance.
    • Group B
    • This comprises sectors which may suffer average disruption showing 50% of 2019-20 growth performance.
    • These sectors are mining and quarrying, electricity, gas, water supply and other utility services, construction, and financial, real estate and professional services.
    • Group C
    • In this group come manufacturing which has suffered significant growth erosion in 2019-20.
    • It is feasible to stimulate this sector by supporting demand.
    • In this case a 40% performance factor on the average growth of the preceding three years is applied.

    So, what are the estimates for 2020-21 GVA?

    • Considering these four groups together, a GVA growth of 2.9% is estimated for 2020-21.
    • Realising this requires strong policy support, particularly for the manufacturing sector which has a weight of 17.4%.
    • It is also based on the assumption that the Indian economy may move on to positive growth after the first quarter.
    • In the first quarter, GVA growth will be negative.

    Policy support for the growth

    • Monetary policy initiatives undertaken so far include a reduction in the repo rate to 4.4%, the reverse repo rate to 3.75%, and cash reserve ratio to 3%.
    • The Reserve Bank of India has also opened several special financing facilities.
    • These measures need to be supplemented by an appropriate fiscal stimulus.
    • Cash-constrained central and State governments have taken expenditure reducing measures by announcing freezing of enhancements of dearness allowance and dearness relief.
    • This may result in savings of ₹37,000 crore for the Centre and about ₹82,000 crore for the States, together amounting to 6% of GDP.
    • There is also talk of substantially reducing non-salary defence expenditure.
    • With lower petroleum prices, fertilizer and petroleum subsidies may be reduced.
    • These expenditure cuts are contemplated to keep the fiscal deficit under some control.

    Fiscal stimulus and fiscal deficit

    • Fiscal stimulus can be of three types:
    • 1) Relief expenditure for protecting the poor and the marginalised.
    • 2) Demand-supporting expenditure for increasing personal disposable incomes or government’s purchases of goods and services, including expanded health-care expenditure imposed by the novel coronavirus, and,
    • 3) Bailouts for industry and financial institutions.
    • The Centre had earlier announced a relief package of ₹1.7-lakh crore.
    • The Centre’s budgeted fiscal deficit of 3.5% of GDP may have to be enhanced substantially to 1) make up for the shortfall in budgeted revenues; 2) account for a lower than projected nominal GDP for 2020-21, 3) provide for a stimulus.
    • Thus, the Centre’s fiscal deficit may increase to 6.0% of GDP.
    • Expenditure on the construction of hospitals, roads and other infrastructure and purchase of health-related equipment and medicines require prioritisation.
    • These expenditures will have high multiplier effects.
    • Similar initiatives may be undertaken by the State governments which may also enhance their combined fiscal deficit to about 0% of GDP to account for 3.0% of GDP under their respective Fiscal Responsibility Legislation/Law and to provide for the shortfall in their revenues and some stimulus.

    Challenges

    • Financing of the fiscal deficit poses a major challenge this year.
    • On the demand side, the Central (6.0%) and State governments (4.0%) and Central and State public sector undertakings (3.5%).
    • These together present a total public sector borrowing requirement (PSBR) of 13.5% of GDP.
    • Against this, the total available resources may at best be 9.5% of GDP.
    • The gap of 4.0% points of GDP may result in increased cost of borrowing for the Central and State governments.

    Consider the question, “Examine the sector-wise damage caused to the economy due to Covid-19 pandemic. What were the fiscal and monetary measures taken to mitigate the damage and challenges faced by the government in meeting the required revenue demands.”

    Conclusion

    The gap in requirement of resources and availability may be bridged by enhancing net capital inflows including borrowing from abroad and by monetising some part of the Centre’s deficit. The monetisation of debt can at best be a one-time effort. This cannot become a general practice. 

    Back2Basics: What is GVA?

    • GVA it is a measure of total output and income in the economy.
    • It provides the rupee value for the amount of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services.
    • It also gives sector-specific picture like what is the growth in an area, industry or sector of an economy.
    • While GVA gives a picture of the state of economic activity from the producers’ side or supply side, the GDP gives the picture from the consumers’ side or demand perspective.
    • Both measures need not match because of the difference in treatment of net taxes.
    • GDP = GVA + taxes on products – subsidies on products

  • What is Stringency Index?

    India enforced one of the strongest lockdowns at an early phase of case growth. Now, an index created by the University of Oxford quantifies that.

    The Stringency Index provides a computable parameter to evaluate the effectiveness of the nationwide lockdown in India.

    What is Stringency Index?

    • It is among the metrics being used by the Oxford COVID-19 Government Response Tracker.
    • The Tracker involves a team of 100 Oxford community members who have continuously updated a database of 17 indicators of government response.
    • These indicators examine containment policies such as school and workplace closings, public events, public transport, stay-at-home policies.
    • The Stringency Index is a number from 0 to 100 that reflects these indicators. A higher index score indicates a higher level of stringency.

    What does the Stringency Index tell us?

    • It provides a picture of the stage at which any country enforced its strongest measures.
    • Oxford provides an overlay of countries’ death curve and their stringency score.
    • Some countries saw their deaths just begin to flatten as they reached their highest stringency, such as Italy, Spain, or France.
    • As China pulled stronger measures, its death curve plateaued.
    • In countries such as the UK, the US, and India, the Oxford graphs find that the death curve has not flattened after strictest measures were enforced.

    How does India compare with others?

    • The Index has found that India indeed had one of the strongest lockdown measures in the world — at a 100 score since March 22.
    • When compared to other countries with the similar or higher caseload, India called its strict lockdown at a much earlier point on its case and death curves.
    • These 18 other countries had more than 500 cases when they called their strictest lockdown, while India had 320.
    • Again, India had only four deaths on March 22, when its score reached 100, while most countries had more deaths at that point (except Switzerland; no deaths).
    • Spain called for its strictest measures later in its case and death count than all others. Sweden has had the most liberal measures in this set, and Iran the second most liberal.