💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

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

  • Initial Public Offer (IPO) of LIC

    The government has started the process to launch the initial public offer (IPO) of Life Insurance Corporation (LIC) within this year.

    Read the complete thread here at:

    [Burning Issue] Divestment of LIC

    Try this question from CSP 2019:

    Q.In India, which of the following review the independent regulators in sectors like telecommunications, insurance, electricity, etc.?

    1. Ad Hoc Committees set up by the Parliament
    2. Parliamentary Department Related Standing Committees
    3. Finance Commission
    4. Financial Sector Legislative Reforms Commission
    5. NITI Aayog

    Select the correct answer using the code given below:

    (a) 1 and 2

    (b) 1, 3 and 4

    (c) 3, 4 and 5

    (d) 2 and 5

    About LIC

    • LIC is an state-owned insurance group and investment corporation owned by the Government of India.
    • It was founded in 1956 when the Parliament of India passed the Life Insurance of India Act that nationalized the insurance industry in India.
    • Over 245 insurance companies and provident societies were merged to create the state-owned LIC.

    Why LIC IPO?

    • LIC is the largest investor in government securities and stock markets every year.
    • On an average, LIC invests Rs 55,000 crore to Rs 65,000 crore in stock markets every year and emerges as the largest investor in Indian stocks.
    • LIC also has huge investments in debentures and bonds besides providing funding for many infrastructure projects according to its Annual Report for 2017-18.

    Biggest IPO in Indian markets

    • The finance ministry has invited bids from transaction advisors, including consulting firms, investment bankers, and financial institutions, for assisting the government in the preparatory processes leading to the IPO.
    • The IPO is expected to be the biggest in the Indian capital markets given the size and scale of LIC, the country’s oldest and largest life insurer.

    What is the size and position of LIC in the insurance market?

    • Even if the government decides to sell 5-10 per cent of its equity in LIC through an IPO, the share sale of LIC, which was set up in 1956, is expected to be the largest.
    • The insurer’s total assets had touched an all-time high of Rs 31.11 lakh crore in 2018-19, an increase of 9.4 per cent.
    • The Corporation realized a profit of Rs 23,621 crore from its equity investment during 2018-19, down 7.89 per cent from Rs 25,646 crore in the previous year.
    • LIC would have at least one transaction of IPO of a size of at least Rs 5,000 crore, or a capital market transaction of at least Rs 15,000 crore.

    How does LIC fit into the overall disinvestment roadmap?

    • In the Budget 2020-21, the finance ministry had announced plans for IPO of LIC and a proposal to sell the government’s equity in the stressed IDBI Bank.
    • The government expects to raise Rs 90,000 crore through stake sale in LIC and IDBI Bank, and another Rs 1.2 lakh crore through other disinvestments.
    • LIC is also a majority shareholder in IDBI Bank.
    • The government had earlier listed the shares of General Insurance Corporation and New India Assurance through IPOs three years ago.

    What benefits can be expected through the IPO?

    • An IPO will certainly bring in transparency into affairs of LIC since it will be required to inform financial numbers and other market-related developments on time to the stock exchanges.
    • Investors can benefit from picking up equity in the insurer, which has been making underwriting profit as well as profits on its investments.
    • LIC’s investment in various equity and bond instruments will come under greater scrutiny after its lists on the exchanges.

    Back2Basics: IPO

    • IPO means Initial Public Offering. It is a process by which a privately held company becomes a publicly-traded company by offering its shares to the public for the first time.
    • Offering an IPO is a money-making exercise. Every company needs money, it may be to expand, to improve their business, to better the infrastructure, to repay loans, etc.
    • A private company, that has a handful of shareholders, shares the ownership by going public by trading its shares.
    • Through the IPO, the company gets its name listed on the stock exchange.

    Also read:

    Disinvestment Policy in India.

  • CHAMPIONS Platform to empower MSMEs

    Recently PM has launched the technology platform CHAMPIONS as a one-stop-shop solution of MSME Ministry.

    At the very first sight, the name CHAMPIONS creates a delusion. It looks more of an HRD initiative. Here lies the risk! Please cautiously make a personal note here. Demarcate all such initiatives on an A4 page.

    CHAMPIONS Platform

    • CHAMPIONS stand for Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength.
    • The portal is basically for making the smaller units big by solving their grievances, encouraging, supporting, helping and handholding.
    • It is a technology-packed control room-cum-management information system.
    • It is also fully integrated on a real-time basis with GOI’s main grievances portal CPGRAMS and MSME Ministry’s own other web-based mechanisms.
    • This ICT based system is set up to help the MSMEs in a present difficult situation and also to handhold them to become national and international champions.

    Detailed objectives

    • Grievance Redressal: To resolve the problems of MSMEs including those of finance, raw materials, labour, regulatory permissions etc particularly in the COVID created a difficult situation;
    • To help them capture new opportunities: including manufacturing of medical equipment and accessories like PPEs, masks, etc and supply them in National and International markets;
    • To identify and encourage the sparks:e. the potential MSMEs who are able to withstand the current situation and can become national and international champions.

  • R&D: Path to self-reliant India

    What does it take to be self-reliant? (Hint: R&D!) This is the question this article tries to answer.  After independence, we had a good start in R&D. But what went wrong? What was the role played by globalisation? Did the globalisation deliver on its promise of technology transfer? And finally, what lies on the way forward for India? This article answers all such question.

    What went wrong: historical perspective

    • India chose the path of self-reliance in state-run heavy industries and strategic sectors after independence.
    • In the decades following independence, this choice of self-reliance had placed India ahead of most developing countries.
    • In the 1970s and 80s, however, India did not modernise these industries to climb higher up the technological ladder.
    • The private sector, which had backed the state-run core sector approach in its Bombay Plan, stayed content with near-monopoly conditions in non-core sectors in a protected market.
    • Little effort was made to modernise light industries or develop contemporary consumer products.
    • India’s industrial ecosystem was thus characterised by low productivity, poor quality and low technology, and was globally uncompetitive.

    What did India lose in the ‘lost decades’?

    • India completely missed out on the ‘third industrial revolution’.
    • Third industrial revolution comprised electronic goods, microprocessors, personal computers, mobile phones and decentralised manufacturing and global value chains during the so-called lost decade(s).
    • Today, India is the world’s second-largest smartphone market.
    • However, it does not make any of these phones itself.
    • India manufactures only a small fraction of solar photovoltaic cells and modules currently used, with ambitious future targets.

    What happened to ‘self-reliance’ after India embraced globalisation?

    • At the turn of the millennium, when India embarked on liberalisation, privatisation and globalisation.
    • So, the very concept of self-reliance was rubbished.
    • This happened in the belief that it was like reinventing the things already invented and wasting money on it.
    • And when advanced technologies could simply be bought from anywhere at lower costs. 
    • Two related ideas have prevailed since then, and neither delivered the desired results.

    So, what are these two basic ideas?

    1. Unsuitability of PSUs in the globalised world

    • The first idea was that public sector undertakings (PSUs) are, by definition, inefficient and sluggish for the competitive globalised scenario.
    • No effort was made to engender either real autonomy or a transition to new technological directions.
    • Instead, PSUs with capability and scale were undermined or abandoned, along with many nascent research and development (R&D) efforts, for instance, in photovoltaics, semiconductors and advanced materials.

    So, what was the result of this attitude towards PSUs?

    • The private sector displayed little interest in these heavy industries and showed no appetite for technology upgradation.
    • With entry of foreign corporations, most Indian private companies retreated into technology imports or collaborations.
    • Even today, most R&D in India is conducted by PSUs.
    • And much of the smaller but rising proportion of private sector R&D is by foreign corporations in information technology and biotechnology/pharma.
    • Conclusion: Given the disinclination of most of the private sector towards R&D and high-tech manufacturing, significant government reinvestment in PSUs and R&D is essential for self-reliance.

    2. Foreign companies were expected to bring new technologies in India

    • The second idea was that inviting foreign direct investment and manufacturing by foreign majors would bring new technologies into India’s industrial ecosystem.
    • This was thought to obviate the need for indigenous efforts towards self-reliance.

    So, what happened on the ground?

    • But mere setting up of manufacturing facilities in India is no guarantee of absorption of technologies.
    • There is no evidence from any sector that this has taken place or has even been attempted.
    • The fact is, foreign majors jealously guard commercially significant or strategic technologies in off-shore manufacturing bases.
    • Conclusion: The key problem of self-reliance is therefore neither external finance nor domestic off-shore manufacturing, but resolute indigenous endeavour including R&D.

    Let’s look at experience of other Asian countries towards self-reliance

    Three models emerge from Asian countries.

    1. Focus on technology and industries

    •  Japan’s post-war success, was seen as a template by some countries to follow.
    • These include countries like South Korea, Taiwan, Singapore and Hong Kong
    • These countries took huge technological and industrial strides in the 1970s and 80s.
    • South Korea emerged as a global powerhouse in manufacturing, but also in indigenously developed technologies.
    • Taiwan developed technologies and manufacturing capacities in robotics and micro-processors.
    • While Singapore and Hong Kong adapted advanced technologies in niche areas.
    • These self-reliant capabilities were enabled, among other factors, by planned state investments in R&D including basic research (3-5% of GDP), technology and policy support to private corporations, infrastructure and, importantly, education and skill development (4-6% of GDP).

    2. Focus on off-shore manufacturing and not on self-reliance

    • Countries like Thailand, Malaysia, Indonesia and Vietnam have focused on off-shore manufacturing lower down the value chain and without the thrust on self-reliance.
    • This is useful for job creation but is an unsuitable model for a country of India’s size and aspirations.

    3. China: Transition from low-end manufacturing to dominant role in supply chains

    • China is, of course, unique in scale and in its determination to become a superpower not just geopolitically but also in self-reliant S&T and industrial capability.
    • China advanced purposefully from low-end mass manufacturing to a dominant role in global supply chains.
    • It has now decided on shifting to advanced manufacturing.
    • It has set itself a target of becoming a world leader by 2035 in 5G, supercomputing, Internet of Things (IoT), artificial intelligence (AI), autonomous vehicles, biotech/pharma and other technologies of the ‘fourth industrial revolution’.

    Way forward for India

    • India may well have missed the bus in many of technologies in which the U.S., Europe and China have established perhaps insurmountable leads.
    • Yet, self-reliant capabilities in electric and fuel cell vehicles, electricity storage systems, solar cells and modules, aircraft including UAVs, AI, robotics and automation, biotech/pharma and others are well within reach.
    • Large-scale concerted endeavours would, however, be required, since self-reliance will not happen by itself.
    • State-funded R&D, including in basic research, by PSUs and research institutions and universities needs to be scaled-up significantly, well above the dismal 1% of GDP currently.
    • Upgraded and reoriented PSUs would also be crucial given their distinctive place in the ecosystem.
    • Private sector delivery-oriented R&D could also be supported, linked to meaningful participation in manufacturing at appropriate levels of the supply chain.
    • India’s meagre public expenditure on education needs to be substantially ramped up including in skill development.

    Consider the question “The path to the self-reliance of any country goes through robust capabilities in the R&D. Comment”

    Conclusion

    Self-reliance would need a paradigm shift in our approach toward many things. First and foremost is the R&D. Potential of the PSUs has to be tapped to their fullest in the realms of R&D. The second area of focus should be education. These two areas are the key to achieve self-reliance and should be the focus of policymakers.

    Back2Basics: Bombay Plan

    • The Bombay plan was a set of proposal of a small group of influential business leaders in Bombay for the development of the post-independence economy of India.
    • This plan was published in two parts or volume- first in 1944 and second in 1945.
    • The prime objectives of the plan were to achieve a balanced economy and to raise the standard of living of the masses of the population rapidly by doubling the present per capita income within a period of 15 years from the time the plan goes into operation.

     

  • Explained: Contract Farming and its benefits

    The Odisha government has promulgated an ordinance allowing investors and farmers to enter into an agreement for contract farming in view of the continuing uncertainties due to the pandemic.

    Practice question for mains:

    Q. What is Contract Farming? Examine its potentials and feasibility from the perspective of farmers’ interests.

    Moving on with Odisha’s law

    • The Odisha ordinance is aimed at facilitating both farmers and sponsors to develop mutually beneficial and efficient contract farming system.
    • It is argued that the new system will lead to improved production and marketing of agricultural produce and livestock while promoting farmers’ interest.
    • The agreement will be entered into between the contract farming sponsor, who offers to participate in any component or entire value chain including preproduction, and the contract farming producer (farmers), who agree to produce the crop or rear the livestock.
    • Both the loans and advances given by the sponsor to the producer can be recovered from the sale proceeds of the produce.
    • And in no case realized, recovery can be through the sale or mortgage or lease of the land in respect of which the agreement has been entered into.

    What is Contract Farming?

    • Contract farming (CF) can be defined as agricultural production carried out according to an agreement between a buyer and farmers, which establishes conditions for the production and marketing of a farm product or products.
    • Typically, the farmer agrees to provide agreed quantities of a specific agricultural product.
    • These should meet the quality standards of the purchaser and be supplied at the time determined by the purchaser.
    • In turn, the buyer commits to purchase the product and, in some cases, to support production through, for example, the supply of farm inputs, land preparation and the provision of technical advice.

    Some business models in CF

    1) Informal model – This model is the most transient and speculative of all contract farming models, with a risk of default by both the promoter and the farmer. However, this depends on the situation: interdependence of contract parties or long-term trustful relationships may reduce the risk of opportunistic behaviour.

    2) Intermediary model – In this model, the buyer subcontracts an intermediary (collector, aggregator or farmer organisation) who formally or informally contracts farmers (a combination of the centralised/ informal models).

    3) Multipartite model – This model can develop from the centralised or nucleus estate models. It involves various organisations such as governmental statutory bodies alongside private companies and sometimes financial institutions.

    4) Centralized model – In this model, the buyers’ involvement may vary from minimal input provision (e.g. specific varieties) to control of most production aspects (e.g. from land preparation to harvesting). This is the most common CF model.

    Advantages of Contract Farming:

    To the farmers:

    • It helps in skilling of farmers as they learn to use various resources efficiently like fertilizer, pesticides and get in touch with new technology in some cases.
    • Farmers get the opportunity for diversification of crops.
    • Price risk is drastically reduced as many contracts specify prices in advance.
    • Contract farming can open up new markets which would otherwise have been unavailable to small farmers. The farmers can also get easy credit from the Bank under contractual agreements.
    • In the case of agri-processing level, it ensures a consistent supply of agricultural produce with quality, at the right time and lesser cost.

    To the Client:

    • They get uninterrupted & regular flow of raw material of high quality which helps in protection from fluctuation in market pricing.
    • Long term planning of business is possible as they have a dedicated supplier base of raw material.
    • Concept of contract farming can be extended to other crops also which helps to generate goodwill for the organisation.

    Limitations

    • Contract farming arrangements are often criticized for being biased in favour of firms or large farmers while exploiting the poor bargaining power of small farmers.
    • Problems faced by growers like an undue quality cut on produce by firms delayed deliveries at the factory, delayed payments, low price and pest attack on the contract crop which raised the cost of production.
    • Contracting agreements are often verbal or informal in nature, and even written contracts often do not provide legal protection in India that may be observed in other countries. Lack of enforceability of contractual provisions can result in a breach of contracts by either party.
    • Single Buyer – Multiple Sellers (Monopsony).
    • Adverse gender effects – Women have less access to contract farming than men.

    Also read

    What is contract farming? Critically analyze the features of the draft “Model Contract Farming Act – 2018”. (150 W)

    With inputs from Vikaspedia

  • [pib] Emergency Credit Line Guarantee Scheme (ECLGS)

    The Union Cabinet has given its approval for the Emergency Credit Line Guarantee Scheme (ECLGS) for MSMEs and MUDRA borrowers.

    Practice question for Mains :

    Q. Discuss how the nationwide lockdown to control the coronavirus outbreak has led to the resurfacing of inherent bottlenecks in India’s MSME Sector.

    About ECLGS

    • Under the Scheme, 100% guarantee coverage to be provided by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs. 3 lakh crore to eligible MSMEs and interested MUDRA borrowers.
    • The credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility.
    • The Scheme would be applicable to all loans sanctioned under GECL Facility during the period from the date of announcement of the Scheme to 31.10.2020.

    Aims and objectives

    • The Scheme aims at mitigating the economic distress faced by MSMEs by providing them additional funding in the form of a fully guaranteed emergency credit line.
    • The main objective is to provide an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and NBFCs to increase access to, and enable the availability of additional funding facility to MSME borrowers.
    • It aims to provide a 100 per cent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers.

    Salient features

    • The entire funding provided under GECL shall be provided with a 100% credit guarantee by NCGTC to MLIs under ECLGS.
    • Tenor of the loan under Scheme shall be four years with a moratorium period of one year on the principal amount.
    • No Guarantee Fee shall be charged by NCGTC from the Member Lending Institutions (MLIs) under the Scheme.
    • Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.

    Benefits of the scheme

    • The scheme aims to mitigate the distress caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector.
    • The scheme is expected to provide credit to the sector at a low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses.
    • By supporting MSMEs to continue functioning during the current unprecedented situation, the Scheme is also expected to have a positive impact on the economy and support its revival.

    Must read

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

  • Credit guarantees to MSMEs: What are they and how will they help?

    Finance Minister has announced some details 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.

    Practice questions:

    Q. Discuss the efficacy of various tranches of credit facilities to MSMSEs provided under Atmanirbhar Bharat Abhiyan.

    Q. Discuss how the nationwide lockdown to control the coronavirus outbreak has led to the resurfacing of inherent bottlenecks in India’s MSME Sector.

    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.
    • These credit guarantees should help the formal banking system meet the credit demand of the MSME sector (see Chart 2).

    What is the credit guarantee scheme for MSMEs?

    • Loans to MSMEs are mostly given against property (as collateral) because often there isn’t a robust cash flow analysis available.
    • But in times of crisis, like the one currently playing out, property prices fall and this inhibits the ability of MSMEs to seek loans. It also means that banks are less willing to extend loans.
    • A credit guarantee by the government helps as it assures the bank that its loan will be repaid by the government in case the MSME falters.

    How does it work?

    • For instance, if the government provides say a 100% credit guarantee up to an amount of Rs 1 crore to a firm, it means that a bank can lend Rs 1 crore to that firm; in case the firm fails to pay back, the government will make good all of Rs 1 crore.
    • If this guarantee was for the first 20% of the loan, then the government would guarantee to pay back only Rs 20 lakh.

    Why need credit guarantees?

    • 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 (Chart 3).

    Quantum of credit guarantee facilitated by FM

    • There are three proposals but the main one is for standard MSMEs — that is, those MSMEs which were running fine until the COVID-19-induced lockdown disrupted their work.
    • For these, the government has provided a credit guarantee of Rs 3 lakh crore.
    • This is like an emergency credit line, said the Finance Minister, and it is for MSMEs that have an already outstanding loan of Rs 25 crore or those with a turnover less than Rs 100 crore.
    • The loans will have a tenure of 4 years and they will have a moratorium of 12 months (that is, the payback starts only after 12 months).

    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.

    What were the other measures?

    • There is a subordinate debt scheme, worth Rs 20,000 crore, which will allow loans to MSMEs that were already categorised as “stressed”, or struggling to pay back.
    • In this case, the government’s guarantee is not full, but partial.
    • The third measure is the creation of a fund with a corpus of Rs 50,000 crore to infuse equity into “viable” MSMEs, thus helping them to expand and grow.
    • The government intends to put in Rs 10,000 crore and get others, possibly institutions like LIC and SBI, to fund the remaining amount.
    • Then there is a change in the definition of an MSME that was pending for long. Now MSMEs are judged on turnover and there will be no difference between a manufacturing MSME and services MSME.

    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.

  • From informal to the formal economy: The crooked road

    The article discusses the issues around the informal workforce in the economy. What are the factors responsible for the high informal sector in India? How is this sector responding in times of COVID? Are there some easy solutions to mainstream the informal sector into our formal economy? These are some of the points one should ponder upon while reading this article.

    The vulnerability of the informal workforce

    • Developing countries such as India are economically vulnerable to Covid-19 because of the presence of huge informal workforce.

    • Lack of protection: This vast informal workforce, which has no labour, social or health protection, is woefully ill-equipped to cope with the medical and economic shocks of the virus.

    The humongous size of the informal economy in India

    • Share of the informal sector: As per Periodic Labour Force Survey, 2017-18, 90.6 per cent of India’s workforce was informally employed.

    • This estimate includes those who are employed in informal enterprises (unincorporated small or unregistered enterprises).

    • It also includes informal workers in the formal sector (workers in the formal sector who are not provided any social security benefits by employers).

    • Take another example: Between 2004-05 and 2017-18, a period when India witnessed rapid economic growth, the share of the informal workforce witnessed only a marginal decline from 93.2 per cent to 90.6 per cent. 

    • Covid effect: Looking ahead, it is likely that informal employment will increase as workers who lose formal jobs during the COVID crisis try to find or create work (by resorting to self-employment) in the informal economy.

    • Also, formal enterprises are likely to continue hiring informal workers as they seek more flexibility and attempt to cut labour costs to cope with the COVID-19 induced economic uncertainty.

    Why is the informal more favourable over the formal?

    • The basic reason: necessity to eke out a subsistence living in the absence of alternative employment opportunities.

    • The ‘not so basic’ reasons: Some self-employed persons choose to be in the informal economy voluntarily to avoid registration or taxation.

    • Many are deterred by the costs of formalisation or don’t see much benefit from formalisation.

    • Finally, the phenomenon of informalisation of wage employment in the formal sector is a consequence of formal firms trying to avoid payroll taxes and employer’s contributions to social security or pensions to reduce labour costs.

    Some solution to smoothen the crooked road

    • A multi-pronged and comprehensive approach is needed to facilitate the transition.

    • Labour intensive growth: It requires creating more formal jobs through labour-intensive growth so that informal workers can move to these jobs.

    • Registering and taxing informal enterprises: The Indian experience of compelling informal firms to register and become tax compliant through demonetisation and introduction of GST formalised them only in a legal sense.

    • There is a need for increasing productivity of informal enterprises and incomes of the informal workforce by providing them with technical and business skills, infrastructure services, financial services, enterprise support and training to better compete in the markets.

    • Promoting the path to entrepreneurship in the informal economy.

    • Many informal enterprises would welcome efforts to reduce barriers to registration and related transaction costs as they expect to reap the benefits of formalising.

    • Reducing decent work deficit: This requires protecting informal workers by providing them a social protection floor, ensuring a set of basic working conditions (adequate living wages, limits on hours of work and safe and healthy workplaces).

    A direct question based on the issue of the informal sector can be asked by the UPSC, for ex- “There is a humongous presence of the informal sector in the Indian economy. What are the factors responsible for this? Suggest ways to transform the informal sector into the formal sector.”

    Conclusion

    Questions around the role of government and who bears the onus of protecting workers deserve careful consideration in the backdrop of the rising incidence of informal employment in the formal sector and the growth of the gig economy. It is apparent that in our relentless pursuit of economic growth, we have ignored the voices of India’s informal sector for too long.

    Back2Basics: What is the informal economy?

    • An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government.
    • Although the informal sector makes up a significant portion of the economies in developing countries, it is sometimes stigmatized as troublesome and unmanageable.
    • However, the informal sector provides critical economic opportunities for the poor.

  • Globalisation 2.0 after Covid-19

    The article discusses the future of the Globalisation after Covid-19. Globalisation 2.0 which has been dominated by China will see several changes in the post-pandemic world. Investment decisions and Global Value Chains would undergo a paradigm shift. The article is concluded by expressing the hope that pandemic doesn’t end  Globalisation 2.0 but it will certainly usher in the new rules of capitalism.

    Globalisation 2.0 and issues with the flow of labour

    • What is Globalisation 2.0? In strictly economic terms, globalisation is about the free movement of capital, goods and labour across national borders.
    • Globalisation 2.0 began in the early 1980s and has lasted for four decades.
    • Under the 2.0 phenomenon, the labour flows were never as free as the movements of capital and goods.
    • This is because one does not necessarily see who produced the goods or capital coming into the borders.
    • But migrants are distinguishable, one can directly observe how ethnically, racially, religiously different they are from the mainstream.

    Rise of right-wing politics in the US and UK due to labour flows

    • Labour flows is a major reason for triggering right-wing politics of nativism in present times.
    • Donald Trump directed his political campaign against non-white immigrants, especially Hispanics and Muslims.
    • He criticised businessmen who, in search of lower costs, had made China the destination of their accumulated investments, transferring jobs away from America’s industrial heartland.
    • Thus, his policies to levy higher tariffs to curtail freer trade. These policies made sure that the American corporations bring capital back to the US.
    • In Europe, a similar politics has been led by the UK, though less vociferously.

    How China has benefited from Globalisation 2.0?

    • In 1980, China was the 48th largest economy in the world: with GDPs at roughly $200 billion, Indian and Chinese economies were similar in size.
    • In 2018, China, with a GDP of $13.6 trillion, was the second-largest economy in the world, behind the US ($20.5 trillion). But far ahead of Japan ($4.9 trillion), Germany ($4.0 trillion), Britain ($2.8 trillion), France ($2.8 trillion) and India ($2.7 trillion).
    • Not only in terms of GDP, but China had also become the largest trading nation in the world by 2018:
    • Exports: worth $2.5 trillion, substantially ahead of the US ($1.6 trillion).
    • FDI in China: In 2018, China attracted over $203 billion worth of net FDI, much more than India ($42 billion), and second only to the US ($258 billion).

    Is COVID-19 a sign of ending Globalisation 2.0?

    • Despite the pure economic logic of how easy it is to manufacture at scale in China, the global leader today are more concerned about the political overtones.
    • Given all the doubts about how China handled the information about the origins of the virus in Wuhan, anger against China in world capitals is evident.
    • Such anger can have impact on the rules of globalisation.
    • Strict regulation of labour laws: We can expect labour flows will now be more strictly regulated than before.
    • Political risks in investment decisions: Western investors will also have to factor in political risks in their investment decision-making.
    • National security concern: New concerns like what if China threatens supply disruptions for critical materials.
    • Instead of chasing lower labour costs, investors will either bring capital back to domestic shores or geographically restructure their supply chains.
    • To summarize it, Globalisation will not end, but it will be pushed into greater retreat. Thus, changing the rules of the BIG game of capitalism.

    A question based on the impact of the pandemic on the global trade, issues associated with and opportunities for India could be asked in the Mains Paper 3.

    Also the Idea of Globalisation is important from the aspect of paper 1 and Essay. “Globalisation’ vs ‘Nationalism’ was one of the topic in Essay paper in 2009.

    Conclusion

    For the foreseeable future, economic efficiency, the cornerstone of market-based systems, will not be high on priority. Politics will drive new economic policies, not market-based rationality.

  • Rebate of State Levies (ROSL) Scheme

    The Department of Revenue has allowed the release of pending Rebate of State Levies (RoSL) worth Rs 464.13 crore to garment exporters.

    We may expect a prelim question like- “The Rebate of State Levies (ROSL) Scheme is related to which of the following industrial sector? ” with some unrelatedly looking options.

    Rebate of State Levies (ROSL) Scheme

    • Last year, the Union Cabinet has approved the Scheme to Rebate State and Central Embedded Taxes to Support the Textile Sector.
    • The scheme aimed to reimburse the State levies that garment and made-up exports incurred.
    • But it was discontinued on and replaced with the Rebate of State and Central Taxes and Levies scheme.

    Why was such a scheme needed?

    • ROSL plays a vital role for the exporters by providing zero-rated taxation on apparel and made-up products.
    • This scheme enabled the exporters to increase traffic, enhance competitiveness among the global market, and compete against countries such as Sri Lanka, Bangladesh, Cambodia and Vietnam, who enjoy zero taxation.
    • This also benefits the traders who export to the European Union (EU), India’s largest export market for the apparel sector, facing a tariff variation of 9.6 per cent.

  • The deal raises several concerns for privacy, net-neutrality and consumer welfare

    Facebook’s decision to acquire a 9.99 per cent stake in the parent company of Reliance Jio could have several implications. It could impact retail stores which we are trying hard to protect by restricting FDI in retail. Second, it could have implications for net neutrality. Third, it would have implications for data privacy.

    Implications for the country’s retail landscape

    • Recently, Reliance Industries and Facebook announced that the California-based social media giant will acquire a 9.99 per cent stake in Jio Platforms limited, the holding company of Reliance Jio, for $5.7 billion (Rs 43,574 crore).
    • At its core, the idea is to create an ecosystem around JioMart, enabling customers to access the local Kirana stores using WhatsApp, combining both offline and online retail.
    • This ability to connect millions of local businesses with end consumers, and provide them a seamless online transaction experience could radically alter the country’s retail landscape.
    • Both firms have stressed on the new opportunities for businesses of all sizes, and especially for the millions of small businesses across the country.
    • With the ongoing lockdown in the country only reaffirming the importance of the local Kirana store — major online delivery channels have struggled to reach consumers during this period — integration is bound to be an enticing proposition.

    Opportunities for cross-selling

    • A scaling up of this model will also provide opportunities for cross-selling — significantly increasing the upside for firms and increasing the valuation of its retail arms.
    • At present, though, the reach of WhatsApp Pay is limited — just over a million Indians are reported to currently have access to the pay feature.
    • But this sort of model is popular in other Asian economies such as China, Korea and Japan where apps like WeChat have a wide range of product offerings, which induces consumer stickiness.
    • This arrangement also allows Jio to greatly expand its product offering to its more than 370 million-odd subscriber base.
    • The deal may also open up the entire WhatsApp consumer base of around 400 million — to Reliance, including those on other telecom platforms such as Airtel and Vodafone.

    The following concern could arise from the deal and the UPSC can frame a question based on these concern, like ” Recently a global IT giant acquired a significant stake in an Indian telecom giant. Discuss the various issues which could arise from coming together of such dominant players.”

    What are the concerns in such deals?

    • Implications for consumer welfare: Given the dominant market position of the players, concerns over the market structure and its implications for consumer welfare are bound to arise.
    • Questions over net neutrality: The tie-up also raises questions on net neutrality with the possibility of preferential treatment being granted.
    • Data privacy issue: Third, given the data privacy issues highlighted in the past by the Cambridge Analytica episode, for instance, there are apprehensions over the enormous amounts of data that will be collected by these entities.
    • This concern gains significance especially when India still does not have a personal data protection law.

    Conclusion

    Whenever two dominant players of respective fields come together, it gives rise to concern. The government must keep watch on the implications and how such a deal plays out in the future. If the concerns raised turn out to come true, maybe India should come out with the antitrust law of its own.