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GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

  • Regulation of Other Service Providers (OSP)

    The Department of Telecom (DoT) has eased the rules for registration, submission of bank guarantee and other norms for other service providers (OSP) in the business process outsourcing (BPO) and information technology-enabled services (ITes).

    Recall your basics from NCERT books
 Sectors of the Economy 
 More precisely, the Tertiary, Quaternary and Quinary Sectors.

    What are Other Service Providers (OSP)?

    • OSPs or other service providers are companies or firms which provide secondary or tertiary services such as telemarketing, telebanking or telemedicine for various companies, banks or hospital chains, respectively.
    • As computers made their foray into the Indian information technology space, a number of such OSPs, which were either voice or non-voice based, came into the market.
    • The sector required minimal investment but gave great returns in business, which prompted a large number of individuals and companies to float other service providing firms.

    Registration of OSPs

    • The new telecom policy of 1999 suggested that all OSPs register themselves so that the government could keep a check on the usage of its resources.
    • Since most of these firms used leased telephone lines, this in turn used the telecom spectrum auctioned by the DoT, hence facing the regulation.
    • Further, the registration was also made mandatory to ensure that firms did not establish fake OSPs which swindled customers under the garb of providing telebanking and other such sensitive services.

    What were the various registration norms for OSPs?

    • To start services in India, OSPs had to register themselves with the DoT and declare to the government as to how many employees were working in the firm as well as the area of service it was engaged in.
    • For example, if a firm wished to provide telebanking services, it had to tell the government the number of people working with the BPO and the state that firms catered to.
    • Further, the OSPs also have to declare whether they were providing services to domestic firms or international firms, and the nature of services being offered.

    Significance of the new guidelines

    • The guidelines will make it easier for BPOs and ITes firms in many ways, such as cutting down on the cost of location, rent for premises and other ancillary costs such as electricity and internet bills.
    • The doing away of registration norms will also mean that there will be no renewal of such licenses and therefore will invite foreign companies to set up or expand their other service providing units in India.
    • This change, in line with the norms of countries in the West can also allow employees to opt for freelancing for more than one company while working from home, thereby attracting more workers in the sector.

  • Fixing the rules of economy

    The article discusses the three fundamentals which need an examination to fix the issues faced by the economy. 

    Re-examining the fundamentals

    • India has an incomes crisis: incomes of people in the lower half of the pyramid are too low.
    • The solutions economists propose are: free up markets, improve productivity, and apply technology.
    • These fundamentals of economics must be re-examined when applied to human work.

    Three solutions and issues with them

    1) Freeing up the markets

    • It is suggested that markets should be freed up for agricultural products so that farmers can get higher prices; and freed up for labour to attract investments.
    • Without adequate incomes, people cannot be a good market for businesses.
    • In fact, it is the inadequate growth of incomes that has caused a slump in investments.
    • Ironically, the purpose of freeing up markets for labour is to reduce the burden of wage costs on investors just when wages and the size of markets must be increased.

    2) Increasing productivity

    • Productivity is a ratio of an input in the denominator and an output in the numerator.
    • The larger the output that is produced with a unit of input, the higher the productivity of the system.
    • Improvement of ‘productivity’ is key to economic progress.
    • Economists generally use labour productivity as a universal measure of the productivity of an economy.
    • Humans are the only ‘appreciating assets’ an enterprise has. They can improve their own abilities.
    • The values of machines and buildings depreciate over time, as any accountant knows.
    • Whereas human beings develop when they are treated with respect, and are provided with environments to learn.
    • For capital-scarce and human resource-abundant countries, such as many developing countries, the correct ratio of productivity is output per unit of capital.
    • This must be the driver of business as well as national strategies.
    • This was the strategy of ‘Japan Inc.’ to make Japan an industrial powerhouse.
    • This was E.F. Schumacher’s insight also.

    3) Use of technology

    • Schumacher, best known for his seminal idea ‘small is beautiful’ understood where capitalism powered with technology would be heading.
    • In his essay he wrote: “If we define the level of technology in terms of ‘equipment cost per work-place’, we can call the indigenous technology of a typical developing country (symbolically speaking) a ÂŁ1-technology, while that of the modern West could be called a ÂŁ1,000-technology.
    • The current attempt of the ‘developing ‘countries, supported by foreign aid, to infiltrate the ÂŁ1,000-technology into their economies inevitably kills off the ÂŁ1-technolgy at an alarming rate.
    • This results in destroying traditional workplaces at a much faster rate than modern workplaces can be created and producing the ‘dual economy’ with its attendant evils of mass unemployment and mass migration.
    • Schumacher had warned there was a malaise brewing beneath the drive to ‘Westernise’ and ‘technologise’ economies.

    Way forward: Social contract between society and workers

    • Workers provide the economy with the products and services it needs.
    • In return, society and the economy must create conditions whereby workers are treated with dignity and can earn adequate incomes.
    • Good jobs require good contracts between workers and their employers.
    • Therefore, the government should create a good society for all citizens, must regulate contracts between those who engage people to do work for their enterprises, even in the gig economy.
    • Goverment should push innovation in socially more beneficial directions to augment rather than replace less skilled workers.

    Conclusion

    The power balance must shift. Small enterprises and workers must combine into larger associations, in new forms, using technology, to tilt reforms towards their needs and their rights.

  • Controlling the distorting power of the global capital

    Issues with free trade are making themselves more evident in the aftermath of the Covid pandemic. The article analyses the growing influence of the capital and how it is benefiting the few.

    Issues with free trade

    • Debates about free trade revolves around value of economic growth vs. the values of justice.
    • The Economist (October 5) says “Investor-state dispute-settlement (ISDS) clauses of international trade and investment agreements give foreign investors the right to resort to a secretive tribunal to seek compensation when they are in disagreement with a host government.
    • They threaten governments who want to pass laws that seem self-evidently in their country’s and even the world’s interests.
    • The interests of remote financial investors are considered superior to the rights of local people represented by their own democratically elected governments.
    • TRIPS (the Agreement on Trade-Related Aspects of International Property Rights) is another egregious example.
    • Lobbies of multinational pharma companies want to protect their investors with intellectual monopolies under TRIPS, denying affordable medicines to the world’s poorer people.
    • New business models are throwing more workers into short-term contractual arrangements to make it easier for investors to do business.

    How it is relevant in India

    • The Environmental Impact Assessment (EIA) notification 2020 make it easier for investors to take over lands for projects by debilitating the assessment process which requires that communities be heard.
    • The new labour codes passed by Parliament to simplify regulations have also weakened the rights of workers to be represented by unions.
    •  In India, terms of trade have been stacked against small farmers to keep prices low for consumers.
    • Terms are also against small enterprises in financial markets, and also when they supply to large buyers in global supply chains.
    • The terms of trade are unfair for all workers who are on the supply side of labour markets vis-Ă -vis those who pay them.
    • Small people do not have clout in any market. Those with more money set the terms of trade.

    Governance crisis

    • Capitalism runs on the principle of property rights: Those who own more must have a greater say in the governance of the enterprise.
    • Money is speaking too much in fixing the rules of the game: It influences elections; it controls the media; it powers lobbies for reforms at international and national levels.

    Conclusion

    The way the rules of the economy and trade are made must change to create a more just and resilient world. Voices of the poorest people and their associations must be heard more loudly than the opinions of the rich and their lobbies.

     

  • Forex Reserves hit a record high

    India’s foreign exchange reserves touched a lifetime high of $555.12 billion, according to RBI data.

    Aspirants must make a note here:

    1. Authority managing FOREX in India
    2. Components of FOREX
    3. IMF’s SDRs
    4. Emergency use of FOREX

    What are Forex Reserves?

    • Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
    • RBI accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.
    • The Forex reserves of India consist of below four categories:
    1. Foreign Currency Assets
    2. Gold
    3. Special Drawing Rights (SDRs)
    4. Reserve Tranche Position
    • The IMF says official Forex reserves are held in support of a range of objectives like supporting and maintaining confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national or union currency.
    • It will also limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.

    Where are India’s forex reserves kept?

    • The RBI Act, 1934 provides the overarching legal framework for the deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties.
    • As much as 64 per cent of the foreign currency reserves is held in the securities like Treasury bills of foreign countries, mainly the US.
    • 28 per cent is deposited in foreign central banks and 7.4 per cent is also deposited in commercial banks abroad.
    • In value terms, the share of gold in the total foreign exchange reserves increased from about 6.14 per cent as at end-September 2019 to about 6.40 per cent as at end-March 2020.

    Try this PYQ:

    Q. Gold tranche(Reserve tranche) refers to (CSP 2020)-

    (a) A loan system of World bank

    (b) One of the operations of a central bank

    (c) A credit system of WTO granted to its members

    (d) A credit system granted by IMF to its members

    Rising above the 1991 crisis

    • Unlike in 1991, when India had to pledge its gold reserves to stave off a major financial crisis, the country can now depend on its soaring Forex reserves to tackle any crisis on the economic front.
    • The level of Forex reserves has steadily increased by 8,400 per cent from $5.8 billion as of March 1991 to the current level.

  • Nudge towards formalisation of MSMEs

    The lack of formalisation has several implications for MSMEs. Registering them could help them in various ways. The article deals with the issue of formalisation.

    Please read the link shared below for issues related to MSME

    The missing large in MSMEs

    Steps taken by Government to Formalize MSME

    • UAM: In 2015, the government notified the Udyog Aadhaar Memorandum (UAM), an online filing system for MSMEs.
    • As of January, 86 lakh MSMEs had registered on the UAM portal.
    • In 2016, the government notified rules under which MSMEs had to furnish information relating to their enterprises, online, in an MSME databank.
    • As of January, only 1.6 lakh units registered on it.
    • A new process of classification and registration for small businesses took off on July 1 called as “Udyam”.
    • As of October 1, the MSME ministry has confirmed that only 7 lakh registrations have taken place using the new system.Nudge by the government
    • In an attempt to nudge more enterprises to become lifetime Udyam, the government has integrated the system with the Trade Receivables Electronic Discounting System (TReDS) and the Government e-Marketplace (GeM).
    • In its updated Priority Sector Lending (PSL) guidelines, the RBI has established that for the purposes of PSL, MSMEs will be identified as per the gazette notification laying down the new process of classification and registration.

    Addressing the concerns

    • While the Udyam initiative holds more promise, it is important to assess if this will be detrimental to accessing formal finance.
    • To this end, the government and RBI should consider whether the registration requirement can be exempted for units with investment and turnover that falls in the lower end of the criteria.
    • In 2018, the International Finance Corporation estimated that the overall supply of finance from formal sources met only one-third of the credit demand of the MSME sector.
    • Enabling strategies such as PSL could provide a fillip to priority sectors including MSMEs which require increased formal financing.

    Conclusion

    The costs of formalisation and compliance are high and onerous in many states in India. In such an ecosystem, there are perverse incentives to remaining small and informal. Governments’ efforts towards formalisation should be directed towards addressing these issues.

  • Issues in the Phased Manufacturing Policy

    The Production Linked Incentive Scheme, though ambitious in its goal suffers from several fundamental issues. The article discuses such issues.

    Background of the Phased Manufacturing Policy

    • The Phased Manufacturing Programme (PMP) incentivised the manufacture of low value accessories initially, and then moved on to the manufacture of higher value components.
    • This was done by increasing the basic customs duty on the imports of these accessories or components.
    • The PMP was implemented with an aim to improve value addition in the country.
    • Recently, 16 firms in the mobile manufacturing sector were approved for the Production Linked Incentive (PLI) scheme to transform India into a major mobile manufacturing hub.
    • The PLI comes on the back of a phased manufacturing programme (PMP) that began in 2016-17.

    Issues to consider

    1) More imports and less value addition in India

    • Firms such as Apple, Xiaomi, Oppo, and OnePlus have invested in India, but mostly through their contract manufacturers.
    • As a result, production increased from $13.4 billion in 2016-17 to $31.7 billion in 2019-20.
    • But factory-level production data from the Annual Survey of Industries (ASI) shows that more than 85% of the inputs were imported.
    • UN data for India, China, Vietnam, Korea and Singapore (2017-2019), show that except for India, all countries exported more mobile phone parts than imports.
    • More export than import by these countries indicate the presence of facilities that add value to these parts before exporting them.
    • India, on the other hand, imported more than it exported.
    • Therefore, while the PMP policy increased the value of domestic production, improvement in local value addition remains low.
    • The new PLI policy offers an incentive subject to thresholds of incremental investment and sales of manufactured goods.
    • Thus, focus remains on increasing value of domestic production, and not local value addition.

    2) Shift from China unlikely

    • India produced around 29 crore units of mobile phones for the year 2018-19; 94% of these were sold in the domestic market.
    • This implies that much of the incremental production and sales under the PLI policy will have to be for the export market.
    • Recently, a study by Ernst & Young showed that if the cost of production of a mobile phone is say 100 (without subsidies), then the effective cost (with subsidies and other benefits) of manufacturing mobile phone in China is 79.55, Vietnam, 89.05, and India (including PLI), 92.51.
    • So, it may be premature to expect a major chunk of mobile manufacturing to shift from China to India.

    3) PLI doesn’t strengthen the current export competitiveness

    • India’s mobile phone exports grew from $1.6 billion in 2018-19 to $3.8 billion in 2019-20, but per unit value declined from $91.1 to $87, respectively.
    • This shows that our export competitiveness seems to be in mobiles with lower selling price.
    • However, for foreign firms chosen under the PLI policy, the incentive will be at and above â‚č15,000 ($204.65).
    • So, it is clear that the PLI policy does not strengthen our current export competitiveness in mobile phones.

    4) Absence of domestic firms

    • Domestic firms have been nearly wiped out from the Indian market.
    • So, their ability to take advantage of the PLI policy and grab a sizeable domestic market share seems difficult.
    • Domestic firms may have the route of exporting cheaper mobile phones to other low-income countries.
    • However, their performance in the last couple of years has not been promising.

    5) Importance of supply chain colocation

    • The six component firms that have been given approval under the ‘specified electronic components segment’do not complete the mobile manufacturing ecosystem.
    • For example, when Samsung set up shop in Vietnam, it relied heavily on its Korean suppliers which co-located with it to produce intermediate inputs, so much so that 63 among Samsung’s 67 suppliers then were foreign.
    •  Though Samsung is invested hugely in India, it has not colocated its supply chain in the country.
    • So, the foreign firms chosen under the PLI policy should be encouraged to colocate their supply ecosystems in the country.

    6) Complaint at WTO against PMP

    • In September 2019, Chinese Taipei contested the raise in tariffs under the PMP.
    • If the PMP is found to be World Trade Organization (WTO) non-compliant, then we may be flooded with imports of mobile phones.
    • This might make the local assembly of mobile phones unattractive.
    • This will affect the operations of the mobile investments done under the PMP.

    Conclusion

    The PMP policy, since 2016-17 has barely been helpful in raising domestic value addition in the industry even though value of production expanded considerably.

    B2BASICS

  • Asset Reconstruction Companies

    The article argues for the greater role to Asset Reconstruction Companies by allowing them to invest in the equity [shares] of the distressed companies.

    Context

    • In a recently released paper “Indian Banks: A time to reform” Viral Acharya and Raghuram Rajan argued for a greater role for Asset Reconstruction Companies.
    • They argue that when there are fewer bids in a bankruptcy auction, the value on loans is better realised if read an asset reconstruction company takes over the borrower and places the firm under new management.

    Current limits on the role of ARC

    • The RBI limited the role of  ARC to participation in resolutions under the Insolvency and Bankruptcy Code, 2016 (IBC) only by partnering with an equity investor, which is the resolution applicant.
    • If the application succeeds, the equity investor would acquire the shares, while the ARC trust would acquire the debt.

    Background of the ARCs

    •  Some stakeholders are asking for extending the role of ARCs by allowing direct invest in the equity of distressed companies through IBC resolution just like private equity funds.
    • The RBI doesn’t appear to favour such an extended role for ARCs.
    • This is due to the uninspiring performance of the Asset Reconstruction Companies in the past.
    • At the time of the Asian Financial Crisis,  India’s non-performing assets stood at a whopping 14.4 per cent.
    •  It was in this context that the Narasimham Committee (1998) recommended setting up an ARC specifically for purchasing NPAs from banks and financial institutions.
    • Subsequently, the SARFAESI Act, 2002 created the legal framework for establishing multiple private ARCs.
    • This policy achieved only modest success.
    • The maximum average recovery by ARCs as a percentage of total bank claims stood at 21.5 per cent in 2010.
    • Since then, it has steadily declined and reached 2.3 per cent in 2018.
    • This low recovery could be the result of collateral disposal rather than genuine business turnarounds [i.e. operating the business and turning it profitable].

    Need for extending the role of ARCs

    • In 2002, India lacked an effective bankruptcy system.
    • There was no market for corporate control of distressed firms.
    • ARCs were originally designed for this peculiar institutional ecosystem.
    • They were required to hand over the distressed business back to the original promoter once they had generated enough value to repay the debt.
    • Consequently, ARCs had little incentive to turn around distressed businesses.
    • This situation completely changed in 2016 as the IBC seeks to maximise the value of distressed businesses through a market for corporate control.
    • ARCs should be able to fully participate in this market and attempt successful turnarounds by acquiring strategic control over distressed businesses.
    • In a solvent company, shareholders have stronger incentives than creditors to maximise enterprise value.
    • This is because an increase in enterprise value automatically increases the value of its equity.
    • In contrast, creditors do not benefit from increases in enterprise value beyond their individual claims.
    • If ARCs could hold more equity instead of debt in the resolved company, they would also have a stronger incentive to take strategic control to ensure successful turnaround.

    Way forward

    • The law should enable ARCs to invest in a distressed company’s equity, whether by infusing fresh capital or by converting debt into equity.
    • Effectively, an ARC should act more like a private equity fund, as Acharya and Rajan suggested.
    • This in turn would make the market for corporate control under IBC deeper and more liquid, improving ex-ante recovery rates for banks.

    Consider the question “What are Asset Reconstruction Companies? How allowing the ARCs to invest in equity of distressed companies under IBC help successful turnaround of the distressed business?”

    Conclusion

    •  If only ARCs are allowed to directly participate in IBC resolutions by infusing equity, they could emerge as the most efficient vehicle for turning around distressed Indian businesses.

    Back2Basics: Difference between debt and equity

    • Debt market and equity market are two broad categories of investment available in the general investment milieu.
    • Equity markets trade in shares or stocks of the company listed on the stock exchanges.
    • A stock in a company indicates a unit in the ownership of the company.
    • As shareholders, you become part owners of the company.
    • The largest shareholder, with 50% or more shares, becomes the owner of the company.
    • Equity markets are riskier than debt markets.
    • Debt is a form of borrowed capital.
    • The central or state governments raise money from the market by issuing government securities or bonds.
    • In effect, the government is borrowing money from you and will pay interest to you at regular intervals.
    • The principal amount is returned on maturity.
    • In the same way, a company raises money from the market by selling debt market securities such as corporate bonds.
    • The debt market is made up of bonds issued by government authorities and companies.

  • Code on Wages 2019

    The article discusses the issues in the Code on Wages (yet to be notified) 2019 and how it fails to achieve what it seeks to achieve.

    Code on Wages 2019

    • The Code on Wages, 2019 seeks to consolidate and simplify four pieces of legislation into a single code. These 4 legislations are-
    • 1) Payment of Wages Act, 1936.
    • 2) Minimum Wages Act, 1948.
    • 3) Payment of Bonus Act, 1965.
    • 4) Equal Remuneration Act, 1976.
    • Its object and reasons stated that even the Second National Commission on Labour- 2002 suggested consolidating all labour laws into four codes.

    Issues with the consolidation

    • While the previous four pieces of legislation had a total of 119 sections, the new Code has 69 sections.
    • Any consolidation will impact the length of the sections.
    • Further, all requirements for enforcing the Act, have been relegated to the Rules.
    • As a result, the delegated pieces of legislation (Rules) will be bigger than the Code; this is no way to condense prior pieces of legislation.
    • All the four repealed pieces of legislation were enacted historically at different points in time and to deal with different situations.
    • The combining of asymmetrical laws into a single code is not an easy task and will only create its own set of new problems.
    • The central government will have the power to fix a “floor wage”.
    • Once it is fixed, State governments cannot fix any minimum wage less than the “floor wage”.
    •  The concept should be for a binding minimum wage and not have dual wage rates — a binding floor wage and a non-binding minimum wage.
    • Neither the Code nor the Rules (presently, draft Rules) prescribe the qualifications and experience required for appointment of competent authority.
    • Anew provision (Section 52) has been introduced where an officer will be notified with power to impose a penalty in the place of a judicial magistrate.
    • An essential judicial function is now sought to be vested with the executive in contravention of Article 50 of the Constitution.

    Issue of MGNREGA wages

    • There were cases as to whether the Minimum Wages Act would have an over-riding effect over the provisions of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005.
    • Several High Courts have placed the Minimum Wages Act to override MGNREGA.
    • That has been set to rest by excluding MGNREGA from the purview of the Code on Wages.
    • That has been set to rest by excluding MGNREGA from the purview of the Code on Wages.

    Conclusion

    The Code on Wages (yet to be notified) has neither succeeded in consolidation of laws nor will it achieve the expansion of the coverage of workers in all industries in the unorganised sector.

  • What are Basel III compliant Bonds?

    The country’s largest lender State Bank of India has raised Rs 7,000 crore by issuing Basel III compliant bonds.

    Try this PYQ:

    Q.‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to:

    (a) Develop national strategies for the conservation and sustainable use of biological diversity

    (b) Improve the banking sector’s ability to deal with financial and economic stress and improve risk management

    (c) Reduce greenhouse gas emissions but places a heavier burden on developed countries

    (d) Transfer technology from developed countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

    What are Basel III compliant Bonds?

    • The bonds qualify as tier II capital of the bank, and has a face value of Rs 10 lakh each, bearing a coupon rate of 6.24 per cent per annum payable annually for a tenor of 10 years.
    • There is a call option after 5 years and on anniversary thereafter.
    • Call option means the issuer of the bonds can call back the bonds before the maturity date by paying back the principal amount to investors.

    Back2Basics: What are Basel Norms?

    • Basel is a city in Switzerland. It is the headquarters of the Bureau of International Settlement (BIS), which fosters co-operation among central banks with a common goal of financial stability and common standards of banking regulations.
    • Basel guidelines refer to broad supervisory standards formulated by this group of central banks – called the Basel Committee on Banking Supervision (BCBS).
    • The set of the agreement by the BCBS, which mainly focuses on risks to banks and the financial system is called Basel accord.
    • The purpose of the accord is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses.
    • India has accepted Basel accords for the banking system.

    Basel I

    • In 1988, BCBS introduced a capital measurement system called Basel capital accord, also called as Basel 1.
    • It focused almost entirely on credit risk. It defined capital and structure of risk weights for banks.
    • The minimum capital requirement was fixed at 8% of risk-weighted assets (RWA).
    • RWA means assets with different risk profiles.
    • For example, an asset-backed by collateral would carry lesser risks as compared to personal loans, which have no collateral. India adopted Basel 1 guidelines in 1999.

    Basel II

    • In June ’04, Basel II guidelines were published by BCBS, which were considered to be the refined and reformed versions of Basel I accord.
    • The guidelines were based on three parameters, which the committee calls it as pillars:
    • Capital Adequacy Requirements: Banks should maintain a minimum capital adequacy requirement of 8% of risk assets.
    • Supervisory Review: According to this, banks were needed to develop and use better risk management techniques in monitoring and managing all the three types of risks that a bank faces, viz. credit, market and operational risks.
    • Market Discipline: This needs increased disclosure requirements. Banks need to mandatorily disclose their CAR, risk exposure, etc to the central bank. Basel II norms in India and overseas are yet to be fully implemented.

    Basel III

    • In 2010, Basel III guidelines were released. These guidelines were introduced in response to the financial crisis of 2008.
    • A need was felt to further strengthen the system as banks in the developed economies were under-capitalized, over-leveraged and had a greater reliance on short-term funding.
    • Also, the quantity and quality of capital under Basel II were deemed insufficient to contain any further risk.
    • Basel III norms aim at making most banking activities such as their trading book activities more capital-intensive.
    • The guidelines aim to promote a more resilient banking system by focusing on four vital banking parameters viz. capital, leverage, funding and liquidity.

  • Action plan for the success of Atmanirbhar Bharat project

    Atmanirbhar Bharat Abhiyan, well considered plan by the Central government seeks to transform the Indian economy. The article analyses its potential and suggests the ways to achieve the aims.

    Vocal for local

    • Prime Minister Narendra Modi gave a call to fellow Indians to be “Vocal for Local” in May.
    • This includes not only to buy and use local products but to also take pride in promoting them.

    Challenges

    1) Imports from China

    • Serious challenge to Atmanirbhar mission is country’s $65 billion worth of imports from China alone.
    • Most of these imports are of essential items — raw materials, components and intermediates required in producing finished goods.
    • For example, the pharmaceuticals sector imports nearly 70 per cent of its raw material and drug intermediates.
    • It may not be feasible to replace all Chinese imports in the near future.
    • It may also be debatable if the end goal is to replace the entire chain of imports from a country.
    • Nevertheless, experts and industrialists do assert that the ANBA is an excellent initiative and gives India the opportunity to embark on the self-reliance drive.

    2) Struggling MSMEs

    • A major part of the Vocal for Local mission rests on the MSMEs, which has been seen as struggling for survival.
    • But the reforms announced as part of the ANBA should put them on a stronger footing.
    • One immediate fallout of these measures will be creation of large scale employment opportunities for both the skilled and unskilled workforce.
    • A stronger manufacturing base will also lead to positive spinoffs related to the supply-purchase of local raw material and capacity building of allied manufacturing units.

    Way forward

    • First, an umbrella action plan should be drawn by the Niti Aayog listing all targets under the ANBA and the Vocal for Local Mission.
    • A monitoring agency will review and suggest course correction to ensure that no delay is allowed to build.
    • Second, each state/UT will develop an action plan in consonance with the umbrella plan.
    • A separate organisation created by each state will be responsible for the implementation of the action plan
    • Such organisation should also conduct regular studies to identify local and global market trends and invite competitive solutions to meet market demands.
    • Third, each district (or a group of districts) will work out a more detailed action plan, and charter of responsibilities for ground level officers and departments.

    Conclusion

    The ANBA is a mission to empower the people of India. It will in all likelihood become a benchmark of how governments and their various organisations can work in a mission mode.