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

  • 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:

  • Financial Inclusion in India and Its Challenges

    From Jan Dhan to Jan Suraksha: A Journey towards Financial Inclusion and Security

    The budget 2015-16 had announced 3 Social Security Schemes:

    #1. Pradhan Mantri Suraksha BimaYojna (PMSBY)
    #2. Pradhan MantriJeevan Jyoti Bima Yojana (PMJJBY)
    #3. Atal Pension Yojana (APY)

    Why the schemes?

    • India faces the biggest challenge of providing banking facilities and insurance coverage to all
    • Having access to institutional finance has so far remained a far cry to a vast chunk of rural population
    • As of May 2015, only 20% of India’s population has any kind of insurance and only 11% has any kind of pension scheme
    • Insurance is a way of managing risks & give necessary protections in case of financial loss
    • When one has an insurance policy, certain rights and protections are derived out of it to the person and his family
    • There is a dire need for providing social security at a very nominal cost to the millions and economic empowerment of the poor Answer in comments.>
    • PMJDY is a major step to bring people across the country closer to institutionalized finance, and save them from the clutches of informal financiers
    • However, most of the PMJDY accounts had zero balance initially. The government aims to reduce the number of such zero balance accounts by using these schemes Answer in comments.>

    PMSBY & PMJJBY:

     

     

    • Implementation: The scheme will be offered by all Public Sector General Insurance Companies and all other insurers who are willing to join the scheme and tie-up with banks for this purpose
    • Govt Contribution: Various Ministries can co-contribute premium for various categories of their beneficiaries from their budget or from Public Welfare Fund created in this budget from unclaimed money
    • Auto-debit: The premium amount will be auto debited from subscriber’s bank account
    • The schemes will be linked to the bank accounts opened under the Pradhan Mantri Jan Dhan Yojana scheme

    Criticisms of PMSBY:

    • Private banks have complained that the Govt should focus on upper middle class instead of the poorer section
    • Western scholars have argued that financial inclusion is a myth and serving such large number of people would only increase the burden and work-load of public sector

    Criticisms of PMJJBY:

    • The banks have complained that revenue received will be very low
    • Some bankers have claimed that amount they are receiving is not sufficient to cover the service costs
    • Insurers have also pointed out that no health certificate or information of pre-existing disease is required for joining

    Atal Pension Yojana

    • It focuses on the unorganized sector where nearly 400 million employees representing more than 80% of all employees are engaged Answer in comments.>
    • The aim is to make sure that needy people could get fixed amount when they get old
    • It is the improved version of Swavalamban scheme, launched in 2010-11, which has been found lacking in clarity with regard to pension benefits at the age after 60

    Features:

    • All citizen of India aged between 18-40 years are eligible
    • A guaranteed minimum monthly pension will be provided to the subscribers varying from Rs. 1000 to Rs. 5000 per month
    • The pension amount depends on contribution by subscriber
    • Government of India will guarantee the minimum benefit of pension
    • Most interesting part of the scheme is that the government will contribute 50% of the contribution made by the subscriber or Rs. 1000 whichever is lower
    • However, contribution by the govt is available for only those who are not income tax payers and are not covered by any Statutory Social Security Schemes
    • Bank account holder of Any Bank account is eligible

    Suraksha Bandhan drive- Spreading the social security message

    • Aim: To take forward the Govt’s objective of creating a universal social security system in the country, targeted especially at the poor and the under-privileged
    • Participating Banks supported by the participating Insurance Companies are carrying out local outreach, awareness building and enrolment facilitation under the drive
    • Public service organizations supported by peoples representatives are participating in these efforts through various outreach activities such as enrolment drives, camps etc. in large numbers during this period