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GS Paper: GS3-02.Inclusive growth and issues therein

  • [pib] CHAMPIONS Portal for Indian MSMEs

    In a major initiative, Union Ministry of MSME has launched CHAMPIONS portal for assisting Indian MSMEs march into the big league as National and Global Champions.

    MSME sector has been hit badly by COVID. Initiatives like CHAMPIONS portal are crucial for this sector.

    CHAMPIONS Portal

    • ‘CHAMPIONS’ is a technology-driven Control Room-Cum-Management Information System.
    • The CHAMPIONS is an acronym for Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength
    • As the name suggests, 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.

    Three basic objectives of the CHAMPIONS

    1) How to help the MSMEs in this difficult situation in terms of finance, raw materials, labour, permissions, etc.

    2) How to help them capture new opportunities like manufacturing of medical accessories and products like PPEs, masks, etc.

    3) How to identify the sparks, i.e., the bright MSMEs who can not only withstand but can also become national and international champions.

    Technology imbibed in the portal

    • In addition to ICT tools including telephone, internet and video conference, the system is enabled by Artificial Intelligence, Data Analytics and Machine Learning.
    • 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.
    • The entire ICT architecture is created in house with the help of NIC in no cost. Similarly, the physical infrastructure is created in one of the ministry’s dumping rooms in record time.

     A hub and spoke model of network

    • As part of the system, a network of control rooms is created in a Hub & Spoke Model.
    • The Hub is situated in New Delhi in the Secretary MSME’s office.
    • The spokes will be in the States in various offices and institutions of Ministry.
    • As of now, 66 state-level control rooms are created as part of the system.

  • What makes MSMEs, most vulnerable to Covid-19 disruptions?

    • The Covid-19 pandemic has left its impact on all sectors of the economy but nowhere is the hurt as much as the Medium, Small and Micro Enterprises (MSMEs) of India.
    • All anecdotal evidence available, such as the hundreds of thousands of stranded migrant workers across the country, suggests that MSMEs have been the worst casualty of lockdown.
    • A closer look at the anatomy of the MSME sector explains why MSMEs are so vulnerable to economic stress.

    Possible mains question:

    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 are MSMEs? How are they defined?

    • Formally, MSMEs are defined in terms of investment in plant and machinery.
    • But this criterion for the definition was long criticised because credible and precise details of investments were not easily available by authorities.
    • That is why in February 2018, the Union Cabinet decided to change the criterion to “annual turnover”, which was more in line with the imposition of GST.
    • According to the proposed definition, which is yet to be formally accepted, a micro-enterprise will be one with an annual turnover less than Rs 5 crore; a small enterprise with turnover between Rs 5 crore and Rs 75 crore; and a medium enterprise with turnover less than Rs 250 crore.

    How many MSMEs does India have, who owns them, and where are they situated?

    • According to the latest available (2018-19) Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country.
    • Around 51 per cent of these are situated in rural India.
    • Together, they employ a little over 11 crore people (Chart 3) but 55 per cent of the employment happens in the urban MSMEs.
    • These numbers suggest that, on average, less than two people are employed per MSME.
    • At one level that gives a picture of how small these really are. But a breakup of all MSMEs into micro, small and medium categories is even more revealing.

    Distributions of MSMEs

    • In terms of geographical distribution, seven Indian states alone account for 50 per cent of all MSMEs.
    • These are Uttar Pradesh (14%), West Bengal (14%), Tamil Nadu (8%), Maharashtra (8%), Karnataka (6%), Bihar (5%) and Andhra Pradesh (5%).
    • This breakup provides a sense of where the pain of the MSME crisis would be felt the most.
    • Chart 4 shows, 99.5 per cent of all MSMEs fall in the micro category.
    • The medium and small enterprises — that is, the remaining 0.5% of all MSMEs — employ the remaining 5 crore-odd employees.
    • While micro-enterprises are equally distributed over rural and urban India, small and medium ones are predominantly in urban India.

    What kind of problems do MSMEs in India face?

    • No/Low Formal registration: To begin with, most of them are not registered anywhere. A big reason for this is that they are just too small. But, as it is clear in a time of crisis, it also constrains a government’s ability to help them.
    • Away from Tax norms: GST has its threshold and most micro enterprises do not qualify. Being out of the formal network, they do not have to maintain accounts, pay taxes or adhere to regulatory norms etc. This brings down their costs.
    • Lack of Financial buffer: According to a 2018 report by the International Finance Corporation (part of the World Bank), the formal banking system supplies less than one-third (or about Rs 11 lakh crore) of the credit MSME credit need that it can potentially fund (Chart 5). They don’t have the buffers of the bigger firms or access to cheap capital to help them tide over this period.

    • Bad credit history: The other big issue plaguing the sector is the delays in payments to MSMEs — be it from their buyers or things likes GST refunds etc. A key reason why banks dither from extending loans to MSMEs is the high ratio of bad loans (Chart 6).

    How has Covid-19 made things worse?

    • 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.
    • According to a recent survey he did for “small and medium” firms in manufacturing, only 7% said they will be able to survive for more than three months with their cash in hand if their business remains closed.
    • A big hurdle to restarting now is the lack of labour availability.

    What can be done?

    • The RBI has been trying to pump money into the MSME sector but given the structural constraints, it has had limited impact.
    • There are no easy answers for the MSMEs’ sufferings.
    • However, the government can provide tax relief (GST and corporate tax), give swifter refunds, and provide liquidity to rural India (say, through PM-Kisan) to boost demand for MSME products.

    What about credit guarantees?

    • 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, property values fall and that inhibits the extension of new 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.
    • To the extent such defaults happen, credit guarantees are shown as a departmental expense in the Budget.

    Urgent attention required

    • Governments across the world have announced various measures ranging from wage support to direct subsidies to help these businesses tide over these difficult times.
    • But, in India, more than a month after the national lockdown was announced; there is still no blueprint of how the government intends to support these businesses during this period.

    Way forward

    • There is a strong case for urgent government intervention — the costs of intervening early on will be much less than the price of delayed action.
    • To begin with, all dues owned by governments and public sector undertakings to MSMEs can be immediately cleared. This will help ease their immediate cash flow woes.
    • Second, with banks turning risk-averse, credit flow to MSMEs is likely to be depressed as solvency concerns will dominate.
    • In such a situation, the government could step in. It could set up a credit guarantee fund that backstops loans to MSMEs.

  • Pandemic calls for deep-set forces and scientific concepts of development for building a modern economy

    The article discusses the recovery strategies for India. There are three examples from the past from which we can draw the lessons. 1) Recovery of the US and Europe after the World Wars 2) Recovery of Japan after World War 3) China’s stimulus package after the 2008 financial crisis. In the case of the first two, climate change was not the factor. But in case of the 2008 financial package, China emphasised green technologies and was benefited from it. Drawing on China’s example, the article suggests three pronged strategy for India’s recovery taking into account the climate change factor.

    Decisions on recovery and lessons from the past recovery frameworks

    • The decisions and directions taken by states from hereon will be judged ruthlessly by historical lenses.
    • Though India has managed the pandemic with relative precision, we cannot deny an impending emergence of a new socio-economic order, where the recovery is going to be hard-earned.
    • This is not the first time the world has faced an economic crisis and won’t be the last.
    • Can a country like India, which might be one of the few countries to come out of the crisis without a recession, take lessons from past recovery frameworks?
    • Recovery frameworks: Even though the very nature of the current health crisis is much different from the past crises like World Wars and their repercussions in Europe, the US and Japan.
    • But the evidence shows that ambitious recovery plans made these nation-states more prosperous than the pre-crisis period.

    Recovery lessons form the western world after the World Wars

    • Hurt by the two World Wars and a Great Depression in between, the western world demonstrated unprecedented recovery to attain post-war full employment and stabilized income levels.
    • Almost thirty years between World War II and 1973 recession (“Glorious Thirties“), the countries like the US, Canada, Germany, and France experienced a golden period of growth.
    • In the US, the labour productivity grew at 2.82% per year which meant that productivity doubled every 25 years thanks to better machines driven by electricity and internal combustion engines, better education and massive capital investment.
    • The world wars accelerated technological innovations in energy, manufacturing and vastly improved the labour pool.

    Recovery of Japan after World War

    • Severely hit by the war, Japan’s miraculous growth from 1950 to 1990 is another example of a state using great adversity to propel itself towards prosperity.
    • Post-war liberalization was augmented by multilateral trade agreements and export promotion schemes.
    • That propelled the Japanese economy to dizzying heights making it the second-largest economy at the time.
    • Apart from fiscal stimuli, immense efforts went into strengthening human capital by promoting R&D and skilling activities.
    • Suddenly, Japan becomes one of the most ingenious economies churning out one innovative product after another in fields like electronics.
    • In addition, pioneering quality systems made Japan the first Asian economy to become a developed state.

    Recoveries based on values and technological innovations

    • All the above recoveries are rooted in modern values like create, explore and meet challenges.
    • While large investments garner a lot of attention, role played by massive skilling and resultant technological innovation should not be forgotten.
    • Skilling and innovation enabled creating goods and services of the future.

    Climate change and recovery

    • These successful recovery plans did not have the responsibility to plan for an impending climate change hanging over our head by a thread.
    • The times were different; the needs were different: more importantly, the evidences were not as irrefutable as now.
    • A 2018 study titled ‘Earth’s future’, estimated that India will lose 10% of its GDP annually in a 3°C scenario and lose 14% of its GDP annually in a 4°C scenario in the long term.
    • And the time to act is ‘now’, as consequences of inaction are existential.

    China’s stimulus after the 2008 crisis with a focus on green technologies

    • Fast-forwarding to the 21st century, the 2008–09 Chinese economic stimulus plan pumped in $586 billion to manage the crisis.
    • With serious money of $586 billion going into upgrading selected industrial sectors to firm up its presence in the global value chains (GVC).
    • Interestingly, a sizeable portion went into green technologies.
    • China understood that if the world is provided with affordable green technologies at scale, the states will incentivize the increasingly eco-aware consumers to buy these products.
    • Catalyzed by plans like “Ten Cities, Thousand Vehicles and “Thousand Talents Program (TTP)” and generous state incentives, China became a global leader in e-vehicles.
    • Chinese-made buses started roaming famous cities across the world, the roads traditionally dominated by European makers.
    • Powered by generous capital infusion, China also attained leadership in solar panels, batteries and associated supply chains in a short period setting up a sustainable growth module.
    • A lesson in fiscal prudence: The 2008–09 Chinese economic stimulus plan is also criticized for raising the Chinese debt levels, hence giving us lessons in fiscal prudence.

    Should India opt for a green recovery module?

    • Can a developing India afford to allocate a significant portion of its precious resources towards a green recovery module?
    • Unbridled economic growth and sustainable development are not mutually exclusive.
    • In fact, we might not have a choice, given the movement of global supply chain towards green technologies and tightening screws around strict sustainability standards.
    • European Commission, for instance, has announced that every euro into the recovery plan will be linked to green recovery.

    A three-pronged approach is suggested for recovery

    1. Investment and incentives for green economic activities in the selected sectors

    • First, ambitious investment and incentives in catalyzing futuristic green economic activities in selected sectors.
    • Developing, manufacturing and deploying low carbon products could help India create more jobs: the kind of jobs that will survive into the future.
    • With Giga scale battery and solar manufacturing plans already underway, there is a huge demand globally for sustainable supply chain of even traditional sectors such as textiles.
    • India could choose 5 sectors where it can fill the sustainability vacuum helping the sub-continent emerge as a new global leader in those sectors.
    • India has the potential to scale-up currently ready technologies like e-VTOLs (intra-city electric aerial mobility), which will upend the global mobility modules, increasing the profitability of growing Indian e-mobility supply chain.
    • Companies like Hyundai who have already announced manufacturing of e-VTOLs should be attracted to India.
    • Crisis situations often provide policy windows, where all the stakeholders are empowered, and historically time-consuming decisions are fast-forwarded.
    • If India manages to efficiently remove regulatory bottlenecks and creates standards for e-VTOLs before anyone else, it will take a huge chunk of the global future mobility pie.
    • Similar initiatives for other strategic sectors could be carried out.

    2. Resolve regulatory and on-ground legacy issues

    • Aggressively resolving on-ground legacy issues and challenges.
    • Shackles around entrepreneurship from labour laws to clearances regimes should be broken one by one.
    • It could be done by leveraging the cooperative and competitive federalism evidenced through the crisis under the able leadership of the Hon’ble Prime Minister.
    • And the current policy window might be an ideal opportunity for Indian democracy to deliver.

    3. Focus on skilling people

    • Third, a big-ticket omni-channel skilling architecture should be instituted.
    • Universities should be empowered and enabled to come up with new-age educational programmes to serve futuristic industries.
    • A special focus should be given to develop enough trainers to train the millions of Indian youth getting ready for the labour market every year, in new-age skills.
    • Adequate online-offline training courses must be designed in a way that it does not affect daily wages drastically.
    • The big-ticket vocational programmes, specially directed at the informal sector which constitute more than 90% of the total workforce, has the potential to employ displaced and poor labourers.
    • A strategic skill committee may be empowered to dynamically identify key skills and tweak the training modules.
    • This can be integrated with the Ministry of Environment’s Green Skill Development Program to train 10 million youth by 2030.

    The issues discussed here are important for achieving sustainable and inclusive growth. A question based on this theme was asked by UPSC in 2019.

    Consider the question “It is argued that the strategy of inclusive growth is intended to meet the objectives of inclusiveness and sustainability together. Comment on this statement.”

    Conclusion

    The current pandemic calls for deep-set forces and scientific concepts of development for building a dynamic and modern economy. Green growth is one such concept that will add a new dimension to the economic dynamism of the sub-continent helping it serve the aspirations of its citizens.

  • Growth and the farmer

    Context

    Last month, Montek Singh Ahluwalia’s book, Backstage: The Story Behind India’s High Growth Years, was released. Which tilt in favour of consumer in food policy reduces incentives for farmers, makes it difficult to unlock resources for growth.

    What is covered in the book

    • Besides some very interesting episodes pertaining to author’s personal and professional life, the book is full of useful insights into policy debates and their complexities.
    • At many places, it provides evidence of the impact of these policies.
    • This can be extremely useful as we try to rejuvenate the country’s sluggish economy and abolish poverty.

    Inclusive growth and agriculture

    • Growth in agriculture must for inclusive growth: During the UPA period, from 2004-05 to 2013-14, it was believed that inclusive growth is not feasible unless agriculture grows at about 4 per cent per year while the overall economy grows at about 8 per cent annually.
    • The reason was simple: More than half of the working force at that time was engaged in agriculture and much of their income was derived from agriculture.
      • But many political heavyweights, did not believe that agri-growth could reduce poverty fast enough.
    • Main instrument of agricultural strategy: The main instrument of agricultural strategy was the Rashtriya Krishi Vikas Yojana (RKVY), which gave more leverage to states to allocate resources within agriculture-related schemes.

    What was the impact of strategy?

    • Agri-growth increased: The agricultural strategy, along with other infrastructure investments in rural areas, had a beneficial impact on agri-growth.
      • Agri-growth increased from 2.9 per cent during the Vajpayee period (1998-99 to 2003-04) to 3.1 per cent during the UPA-1 period (2004-05 to 2008-09) and further to 4.3 per cent during UPA-2 (2009-10 to 2013-14).
      • The agri-GDP growth during UPA-2 was driven not as much by RKVY as it was by high agri-prices in the wake of the global economic crisis of 2007-08.
    • Impact on poverty reduction: Agri-GDP growth had a significant impact on poverty reduction, whichever way it was measured — the Lakdawala poverty line or Tendulkar poverty line, which is higher.
      • At what rate poverty reduced? The rate of decline in poverty (headcount ratio), about 0.8 per cent per year during 1993-94 to 2004-05, accelerated to 2.1 per cent per year, and for the first time, the absolute number of the poor declined by a whopping 138 million during 2004-05 to 2013-14.
      • Interestingly, this holds even on the basis of the international poverty line of $1.9 per capita per day (on 2011 purchasing power parity, PPP, also see graphs).

    Right to food and debate around it

    • Scepticism over the success of agriculture support to food subsidy: Instead of celebrating this success of the growth strategy in alleviation of poverty, several NGOs and even Congress stalwarts remained sceptical.
      • They advocated food subsidy under the Right to Food Campaign.
      • National Advisory Council (NAC) came up with a proposal to subsidise 90 per cent of people by giving them rice and wheat at Rs 3/kg and Rs 2/kg.

    What were the arguments put forward by Montek Singh Ahluwalia?

    • Burden on exchequer: He tried to convince them that this was likely to create an unsustainable burden on the exchequer.
    • India could end up importing food: He also argued that India could end up importing grains to the tune of 13-15 million tonnes per year.
    • Cap the population coverage at 40%: He favoured a cap at 40 per cent of the population to be covered under the Food Security Act as the poverty ratio (HCR) in 2011-12 was 22 per cent.
    • Smart card to beneficiaries: He also favoured providing smart cards to the beneficiaries so that they could opt for buying more nutritious food rather than just relying on rice and wheat.
    • Chance for diversification of agriculture: Smart card with beneficiaries would have also allowed diversification of agriculture and augmented farmers’ incomes.
      • But he could not win over the NAC — although the coverage for food subsidy was reduced from the original proposal of 90 per cent to 67 per cent of the population.
    • Against the ban on agri. export: Montek also argued against export bans on agricultural commodities as these impacted farmers’ incomes adversely.
      • Government siding with consumers: But the government of the day often ended up taking the consumer’s side, as that was considered pro-poor.
      • This reduced the incentives for farmers, who then had to be compensated by increasing input subsidies.

    What are the result of this strategy adopted by the government?

    • Negative PSE: No wonder, years later, when we estimated the producer support estimates (PSEs), as per the OECD methodology — used by countries that produce more than 70 per cent of the global agri-output — we found a deeply negative PSE.
      • What negative PSE indicates? This indicates implicit taxation of agriculture through trade and marketing policies, even when one has accounted for large input subsidies going to farmers (see graph on PSE).
    • Consumer bias in the system: Today, the food subsidy is the biggest item in the Union budget’s agri-food space. In the current budget, it is provisioned at Rs 1,15,570 crore.
      • Borrowing by FCI not factored in: But this factor hides more than it reveals. Lately, the government has been asking the Food Corporation of India (FCI) to borrow from myriad sources, and not fully funding the food subsidy, which should logically be a budgetary item.
      • The outstanding dues of the FCI are more than the provisioned subsidy, and if one adds these dues to the budgeted food subsidy, the effective amount of food subsidy comes to Rs 3,57,688 crore.
      • This displays the consumer bias in the system.

    Conclusion

    • Restrict the population coverage of food subsidy: The Economic Survey of 2019-20 makes a case for restricting food subsidy to 20 per cent of the population — the headcount poverty in 2015 as per the World Bank’s $1.9/per capita per day (PPP) definition was only 13.4 per cent.
      • For the others, the issue prices of rice and wheat need to be linked to at least 50 per cent of the procurement price or, even better, 50 per cent of the FCI’s economic cost.
    • Unless we make progress on this front, it is difficult to unlock resources for the growth of agriculture, which slumped from 4.3 per cent during UPA-2 to 3.1 per cent during Modi 1.0.

  • Towards a new world order

    Context

    Social inequalities and the grim problems of stark and continuing poverty are at the epicentre of the new world.

    The ugly face of capitalism and growing inequalities

    • The concentration of the health: The latest Oxfam Report presented at Davos points out that 2,153 billionaires have more wealth than 4.6 billion people.
    • Rising poverty: The emergence of billionaires and oligarchs in different parts of the world coincides with increased poverty among the already poor people, especially children.
    • Concept of stakeholder’s capitalism: These realities make observers question the tenability of stakeholder capitalism as a concept.
    • Faults in the capitalism on display in 2008: The ugliest face of this capitalism was visible during the 2007-2008 economic crisis, first in the U.S. and thereafter across the European Union.
      • At that time, it appeared as if the global economy was on the verge of collapse.

    Intensification of energy use and sustainability

    • The relation between growth and energy: One of the chief characteristics of economic development is the intensification of energy use.
      • There is an unprecedented concentration of high energy density in all economic development strategies.
    • Use of non-renewable sources: The bulk of the energy continues to be generated from non-renewable sources.
    • Developing world capturing energy-generating sources: The developed world’s, and China’s, central objective is to capture energy-generating resources from across continents and put them to use to push GDP growth to greater heights.
      • In the process, sustainability is becoming a casualty.
    • Higher waste generation: The higher the use of energy, the larger the amount of waste generated. Entropy, like time, is always unidirectional, it only goes forward.

    Disposal of e-waste

    • High energy consumption and disposal of waste: Egregious consumption of energy by the developed world has been accompanied by the disposal of residual products (‘e-waste’) on the shores of many African and Asian countries.
    • Impact on the developing world: As a result of the disposal, the poor in the developing world are, unwittingly, drawn and exposed to toxic, hazardous materials like lead, cadmium and arsenic.
      • Hence, the ‘globalisation’ phenomenon has turned out to be nothing other than the exploitation of the developing world, with most countries being treated as a source of cheap labour and critical raw material.

    Unfairness involved in the Globalisation

    • Increasing consumption in the developing world: Countries in the developed world, and China, are ferociously using up finite raw materials without care or concern for the welfare of present and future generations.
    • Bright and the dark side of the development: Certainly, there has been significant technological progress which has brought about a revolution in the fields of healthcare and communications, but there is also a dark side to this.
    • System loaded in the favour of the rich: High expenses and Intellectual Property Rights load the system further in favour of the rich.
      • Pernicious system of carbon credit: To demonstrate how unfair the system is, one can look at the pernicious plan to set up a carbon credit system.
      • Under this, countries with high energy consumption trends can simply offset their consumption patterns by purchasing carbon credits, the unutilised carbon footprint, from poor developing countries.

    Understanding the Nordic Economic Model

    • ‘Nordic Economic Model’: It pertains to the remarkable achievements of the Scandinavian countries comprising Denmark, Finland, Iceland, Sweden, Norway, and allied territories. They also have-
      • Large public sector enterprises.
      • Extensive and generous universal welfare systems.
      • High levels of taxation.
      • And considerable state involvement in promoting and upholding welfare states.
      • Among the happiest countries: UN reports also indicate that the Nordic countries are the happiest countries in the world. The U.S., in contrast, is in 19th place.
      • The total population of the Nordic countries is estimated at almost 27 million people.
      • Among the richest countries: These nations are among the richest in the world when measured in terms of GDP per capita.

    Enlightened Global Order

    • Taking the Nordic model as a template, there are some ingredients that could be part of a new ‘enlightened global order’.
    • What does the Global Order include? These should include-
      • Effective welfare safety nets for all.
      • Corruption-free governance.
      • A fundamental right to tuition-free education including higher education.
      • And a fundamental right to good medical care.
      • Shutting of tax havens.
      • Tax structure: In Nordic countries, personal and corporate income tax rates are very high, especially on the very rich. If a just, new world order is to arise, taxes everywhere should go up.
    • Holding companies responsible: When it comes to the corporate sector, there are some new perspectives.
      • Changing the parameters of profit: In traditional business accounting, ‘bottom line’ refers to the financial year’s profit or loss earned or incurred by the company on pure financial parameters.
      • The four ‘Ps’: Following vigorous debates, a new format has emerged under which a company’s performance is measured through four ‘Ps’.
      • The first is ‘P’ for ‘profit’.
      • The second ‘P’ is for people — how the company’s actions impact not only employees but society as a whole.
      • The third ‘P’ is for the planet — are the company’s actions and plans sensitive to the environment?
      • The fourth ‘P’ is for purpose, which means the companies and individuals must develop a larger purpose than ‘business as usual’. They must ask: what is the larger purpose of the company, apart from generating profits?
      • Using performance in terms of four ‘P’s: Using big data and text analytics, a company’s performance can be measured in terms of all the four ‘P’s and a corporate entity can be thus held accountable. Market capitalisation need not be the only way to measure the value of a company.

    Conclusion

    Much work is yet to be done to uplift the global economic order, but the important point is that new tools are now emerging. What is required is a global consensus and the will to make the planet more sustainable, so that all individuals can live with justice and equality, ensuring that not a single child is hungry or seriously unwell because of poverty or lack of affordable medical help.

     

     

     

     

  • To help her work

    Context

    When it came to allocating funds, the budget relegates women’s economic participation to secondary importance.

    The current status of women in India

    • Lack of Equality: India continues to struggle to provide its women with equal opportunity.
    • A low score on international measures: On international measures of gender equality.
      • India scores low on women’s overall health and survival and ability to access economic opportunities.
    • Why it matters? Since the woman’s economic engagement is related to her own and her family’s well-being, the continuing decline in rural women’s labour force participation is a cause for concern, and both affects and reflects these worrying gender gaps.

    Why female labour force participation matters beyond social cause?

    • Source of economic growth: Ignoring India’s declining female labour force participation at a time of economic distress is a mistake.
      • Not just a social cause: Involving women in the economy is not a social cause — it is a source of efficiency gains and economic growth.
    • Missing out on many things: In a country where young women’s education is now at par with men’s, ignoring that half of the population isn’t participating equally in the economy means we are missing out on many things, like-
      • Innovation.
      • Entrepreneurship.
      • And productivity gains.
    • Large potential to increase in GDP: The large potential increases in GDP that could accrue to India and countries around the world, if they could only close their labour force gender gaps, are often cited.
      • 60% increase in GDP: A report by McKinsey Global Institute suggests that if women participated in the Indian economy at the level men do, annual GDP could be increased by 60 per cent above its projected GDP by 2025.
      • Underlying conclusion: The underlying conclusion is that women’s potential to contribute to GDP is huge.
      • Gain larger than any other region: The same analysis also suggested that India’s potential GDP gains through achieving economic gender parity were larger than gains in any of the other regions they studied.

    How can the state be responsive to women? 

    It can be ensured in the following two ways-

    • 1.MGNREGA-Important focus: An important focus could be a smarter policy and gender-intentional implementation.
      • A key example comes from MGNREGA, a programme whose official policy has long been to pay individual workers in their own bank accounts.
      • It is observed that this policy was typically not implemented and that women’s wages were usually being paid into the bank account of the woman’s husband.
    • Why paying wages in women’s account matters?
      • Giving women digital control of her wage:
      • This seemingly small change — giving a woman digital control of her wages — had a big impact.
      • Working women more outside their home: Women who received digital accounts plus training worked more outside their homes, not only for MGNREGA but also in private employment.
    • Higher economic engagement and lessening patriarchy
      • Importantly, women from especially conservative households reported higher economic engagement and an improved ability to move about their communities unaccompanied.
      • Lessening of patriarchal norms: Surveys conducted showed that the payment in account also began to influence restrictive patriarchal norms.
    • 2.Need to move beyond MGNREGA
      • Ease of doing business and reform in labour market reforms: Continuing to improve ease of doing business and addressing rigid labour market regulations can also draw more women into high-potential sectors.
      • Such as those supported under Assemble in India.
      • Potential in manufacturing: Rural women’s relative participation in manufacturing has grown compared to men’s, and manufacturing stands out as a promising means to pull young women, in particular, into the economy.
      • Potential in SMEs: Ensuring better support to small and medium-sized enterprises can help new businesses.

    Conclusion

    • Attune schemes to the aspiration of women: Ensuring that these programmes are attuned to the needs and aspirations of women is not expensive. But it makes a much difference.
      • Review of policy and programme: It requires a review of individual policies and programme implementation.
    • Increase the funding: The government needs to increase funding to programmes targeting women. Until then, the policy can build on the fact that pulling women into the economy isn’t just a function of budget allocations or social sector programmes. It’s also a matter of thoughtful policy design and political will.

     

     

  • [op-ed snap] Fashioning the framework of a New India

    Context

    As the Indian economy is going through a severe crisis, a major solution to the present economic crisis is to go in for inclusive growth; it also means shared prosperity.

    Where India stands on poverty and how the slowdown is impacting the poor.

    • Bottom 30-40% adversely impacted: The slowing economy has had an adverse impact on the bottom 30%-40% of the population.
      • Absolute poverty on the rise: The incidence of absolute poverty, which has been falling since 1972-73, has increased to 30% (4% jump).
    • 44% population below the multi-dimensional Poverty line: The Human Development Report (2019) has shown, more than 44% of the Indian population is under the multi-dimensional poverty line.
    • Rising inequality: The poorest 50% population at present owns only 4.1% of the national wealth.
      • While the richest 10% of people own 73% of the total wealth in India (Suisse Credit 2019).
    • Rampant malnourishment: India has 15.2% population malnourished (women 15%) as against 9.3% in China.
      • And 50% of the malnourished children in the world are in India.
    • At 112th position on global hunger: India’s global hunger rank has gone up to 112 while Brazil is 18, China is 25 and South Africa, 59.
    • Dismal performance on education: In the field of education as per a UN report (2015), overall literacy in India is 74.04% (more than the 25% are totally illiterate) against 94.3% in South Africa, 96.6% in China and 92.6% in Brazil.
      • Almost 40-45% population is either illiterate or has studied up to standard 4.
    • Poor quality of education: Given the quality of education in India, the overall population is very poorly educated, with the share of ‘educated unemployment’ rising by leaps and bounds.

    What needs to be realised?

    • Focus on domestic demand: It needs to be realised that when exports are declining, the economy will have to depend on domestic demand for growth.
      • It is no more feasible for the top 20-25% population to continue growing without depending on the demand from the bottom 40-45% population.
    • Demand by the bottom 40% a must: There is thus a strong reason now for the economy to increase effective demand of this bottom 40-45% population at least to continue growing-to reach a $5-trillion economy by 2024.

    What is wrong with the growth process?

    • Bottom 40% not getting the fair share of growth: A major reason for the crisis is that the growth process has marginalised the bottom 40-plus% of the population.
      • It is in the sense that they do not get a fair share of the economic growth, and are more or less deprived of productive employment with a decent income.
      • They have not been used as active participants in the growth process. Their potential has not been promoted.
    • Less spending for the poor and its consequences: Though the bottom population depends on the government for basic health and elementary education (and also for access to higher educational opportunities)-
      • The government spends just 4% of GDP on health (against the norm of 4-6% of GDP) and 3% of GDP on education (against the norm of 6-8% of GDP).
      • How this dismal spending affects the poor: As a result of this below norm spending, these people are left hardly literate and sick, with poor nutrition and high morbidity.
      • They are incapable of acquiring any meaningful skills or participating actively when new technology is spreading in the rest of the economy.
    • The sub-optimal use of labour force: This sub-optimal use of the labour force in the economy is not likely to enable India to achieve optimal growth with proper use of the national resources -the labour force.

    Inclusive growth- a solution to the present economic crisis

    • Inclusive growth also includes shared prosperity: Here, inclusive growth does not mean only including all sections of the population in the growth process as producers and beneficiaries; it also means “shared prosperity”.
      • Since India has already committed to sustainable and inclusive growth at the UN General Assembly, India is definitely obliged to implement inclusive growth.
      • This should be our “New India”.
    • What “New India” would involve?
      • Improve the capability and opportunities: To start with, to improve the capabilities of the masses as well as their well-being by expanding productive employment opportunities for them.
      • What expanding productive employment mean? The main steps to expand productive employment for all in the economy should be made up of-
      • A process of inclusion.
      • Expanding the quality of basic health for all.
      • And ensuring quality education to all.
    • How will “New India” help?
      • Which will by itself generate large-scale employment in the government.
      • Having a well-educated and healthy labour force will ensure high employability.
      • Such people will be able to participate actively in the development process.
      • The cycle of more productive employment: Having a well-educated labour force will help start-ups and MSMEs, in turn triggering a cycle of more productive employment in the economy.
      • Global competitiveness increase: This will also improve the global competitiveness of our production units.
      • Labour absorption potential of MGNREGA: Employment guarantee schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) will also increase employment.
        • Assets generated under MGNREGA will expand capital formation in the economy, thereby raising the labour-absorbing capacity of the mainstream economy.
      • Why this strategy is advantageous?
        • Such a strategy has multiple advantages:
        • First– it will raise incomes and the well-being of those who need it most urgently.
        • Second– it will raise effective demand rapidly, which is so badly needed in the economy today to raise economic growth.
        • Third– growth will be equitable and sustainable.

    Way forward

    • Finally, how does one raise resources to increase new public investments in the selected sectors?
    • Raise direct taxes: One major strategy is to raise direct taxes, both capital tax and wealth tax.
      • Past growth has failed to reach the poor: Growth led by providing tax cut and extra incentives, but this growth does not much percolate to the poor.
      • Consequently, taxing the rich has to be a major strategy to raise government revenue.
    • Treat public expenditure as an investment: The public expenditure on raising capabilities should be treated as social investment rather than social welfare, policymakers will be willing to spend on this capital formation.
    • Let the fiscal deficit slip: Finally, there was no sound economic reason to control fiscal deficit ratio. Sound macroeconomics never supports this.

     

     

     

  • National Strategy for Financial Inclusion (NSFI)

    The Reserve Bank of India (RBI) has chalked out an ambitious strategy for financial inclusion of all till 2024.

    National Strategy for Financial Inclusion (NSFI)

    • Financial inclusion is increasingly being recognised as a key driver of economic growth and poverty alleviation the world over.
    • The strategy aims to strengthen the ecosystem for various modes of digital financial services in all Tier-II to Tier VI centres to create the necessary infrastructure to move towards a less-cash society by March 2022.
    • One of the objectives of the strategy includes increasing outreach of banking outlets of to provide banking access to every village within a 5-km radius or a hamlet of 500 households in hilly areas by March 2020.
    • RBI said that the aim was also to see that every adult had access to a financial service provider through a mobile device by March 2024.
    • With the aim of providing basic of financial services, a target has been set that every willing and eligible adult, who has been enrolled under the PM Jan Dhan Yojana, be enrolled under an insurance scheme and a pension scheme by March 2020.
    • The plan is also to make the Public Credit Registry (PCR) fully operational by March 2022 so that authorised financial entities could leverage the same for assessing credit proposals from all citizens.

  • Issues related to Economic growth

  • Direct Benefits Transfers

    The government’s DBT plan involves transferring the subsidy amount directly to the beneficiaries’ bank accounts.

    • Here, the government does not have to fiddle around with differential pricing for the underprivileged.
    • This method can effectively address the issue of leakages and go a long way in solving the mis-targeting problem.

    The government has also linked DBT to Aadhaar. Efficient targeting, using Aadhaar-linked data, ensures that the intended beneficiary receives the money in his account, thus helping him as well as reducing the government’s subsidy burden. This has resulted in effectively solving the leakage and mis-targeting problems in some schemes.

    • DBT in India
    • Pre requisite of successful DBT
    • Merits of DBT
    • Demerits of DBT
    • DBT in fertilizers
    • Is India ready to implement DBT in all programmes?
    • Suggestions for improvement
    • Conclusion

    DBT in India

    Direct Benefit Transfer is a mechanism to transfer the subsidy amount directly to the bank account of beneficiaries. Main agendas for DBT is to prevent and address following

    1. Leakages
    2. Delays
    3. Reducing structural expenses in distributing the subsidies in hand
    4. Encouraging everyone to have bank account and achieve financial inclusion.

    Right now it is applied to only 4 areas that too in selected districts:

    1. LPG subsidies
    2. Jnani Suraksha Yojana
    3. Old age pension
    4. Scholarships

    Pre requisite of successful DBT

    source

    Merits of DBT (Direct Benefit Transfer)

    • Leakage and delays are prevented.
    • Reduces Corruptions and black money issue.
    • Reduces economical inequalities in rural areas as everyone gets theire share rightfully.
    • Reducing the government expense on PDS, Cooperative society, bureaucracy to distribute scholarships etc.
    • Reduces time, energy and money of people to get their money/commodity.
    • Encourage free and fair market structure. Earlier subsidised grains entering market through backdoor used to distort the price in market.
    • More circulation of money in economy which will lead to at least 0.5% growth in GDP.
    • Government can better focus on other issues and not engaging in distribution.
    • Transportation charge for FCI and NABARD subsidies for warehouses will be reduced.
    • Slowly importance of MSP will reduce while price a farmer would fetch will increase which is win-win situation for farmers, also non-food crops will get importance which is issue right now in India.
    • Financial institutions will pay attention in rural area once people have cash in their hand.
    • Health facility will get better with private hospital giving facilities once people will have money to get treatment.

    Demerits of DBT

    • Money in the hand of poor may get spent in something other than what is needed, a scholarship needed to be spent in education only, but how government can ensure that, once she has sent it to account
    • Most accounts holder are males who have accessibility to banks, hence it will lead to usage by them only. Females may not get their share if they are the intended beneficiaries
    • With lesser banks in rural parts of India, it will be another overhead for people to get their withdrawal
    • Delay in transfer may create more turbulence as many will flock to banks to check on their balances

    DBT in fertilisers

    Government is embarked on rationalizing subsidies as has been seen in LPG subsidy which saved thousands of crores of government exchequer. Now it has proposed for rolling out DBT for fertilizers as has been mentioned in recent economic survey.

    Pros of DBT in fertilizer –

    • It would be beneficial for minimizing the use of fertilizer which would check degradation of soil nutrients and would prevent water contamination.
    • Farmers would be free from moneylender’s debt trap as now they would have secure money in their bank accounts. It would be helpful for inculcating saving habits also in farmers.
    • Released government control on the fertilization market would drive competition and would enhance productivity.
    • Enhanced financial inclusion and financial literacy will give boost to digital India and skill India.
    • No middlemen > no leakage > benefits to the needy > correct use of tax payer’s money (redistribution of wealth).
    • Less burden on government exchequer > fiscal consolidation target >money transferred in job creation and infrastructure development

    However there are some cons which need to be factored – 

    • More money in hand may lead to misuse like in drug, alcohol, unnecessary shopping or gambling etc.
    • May further widen the gap between big farmers and small farmers.
    • Bio-identification can be detrimental for the personal information of farmers if not properly handled.

    Operational challenges –

    • Management of data whether it may be of land, of status of farmer (landholder, tiller or tenant etc) or pertaining to agriculture practice is not up to the level in our country.
    • Though crores of accounts are opened but still there is a good number of people who are unbanked.
    • Some farmers have little knowledge about banking system so they can fall prey of undue interference.

    Is India ready to implement DBT across all programmes?

    The debate of implementing DBT in all subsidy programmes is discussed below. A proper implementation would helpful in following ways –

    • Filling leakages: DBT will help in reducing malpractices like leakages, ultimately giving the beneficiary what he is entitled. Example: LPG subsidy.
    • Increasing incomes: with large number of schemes which are implemented with an intention to increase incomes of the poor, but due to delay and other factors most of the time poor gets subsidy after a long time (like in wages of MNREGA). DBT can reduce these cases.
    • Financial inclusion: with the provision of DBT, poor will get themselves included in financial system of the country, which will help them to get other benefits and will boost their saving.

    Some of the downsides of the implementation – 

    • People may use money for other purposes rather than using it for what it is meant for like in case of PDS.
    • Due to lack of education and financial literacy, poor will keep themselves outside the purview of banks.
    • Inadequate development of the banking channel in rural areas is also a challenge.
    • Lack of adequate documents also leads to exclusion of many poor from banking sector.

    source

    Conclusion

    DBT revolutionized the banking sector by connecting low income segments of society with banks. There is no doubt that DBT has created a firm base for financial inclusion, which will include poor sections to the growth and development processes.

    National Payment Corporation of India (NPCI) has successfully opened 150 million DBT accounts with Adhaar numbers and around 125 million accounts under Jan Dhan Yojana.

    The government is fully relying on this scheme to plug leakages and save costs. It is estimated that over the time it could save up to 1.2% of GDP, which is currently lost in transit.

    References: