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GS Paper: Indian Economy

  • Lessons from the death of the ease of doing business index

    Context

    The Ease of Doing Business Index (EoDB) came under attack on grounds that its data was modified in response to pressure from countries like China and Saudi Arabia. As a result of an independent audit, the index has now been abandoned by the Bank.

    Methodology used in EoDB ranking

    • World Bank researchers developed the EoDB ranking system under the assumption that better laws and regulatory frameworks would increase the ease of doing business and improve economic performance.
    • It collected data from respondents in various countries regarding existing laws and regulations on multiple dimensions, validated them through internal scrutiny, and then combined them into an overall index that allowed us to rank countries.
    • Each dimension was weighted equally and added up to create a scale.

    India specific issues with the EoDB ranking

    • If we want to create an internationally comparable index, we must ask similar questions.
    • Difference in level of development not taken into account: Yet, many of these questions may not be locally salient in economies at different levels of development.
    • For example, EoDB asked questions about the ease of getting an electric connection.
    • However, it is not getting a connection that is the problem, rather the reliability of electricity supply that hampers Indian industries.
    • In addition, most of the questions focused on hypothetical cases about limited liability companies.
    •  However, the World Bank’s own enterprise survey shows that 63 per cent of Indian enterprises are sole proprietorships and only 14 per cent are limited partnerships.
    •  Focusing on protecting minority owners’ rights in this tiny segment of Indian industries and using it to rank the business climate in India does not seem particularly useful.
    • The index placed tremendous faith in formalised systems while simultaneously disdaining bureaucratic structures embedded in this formalisation.

    Why EoDB ranking was so significant?

    • A bigger problem is that EoDB had acquired such power that countries competed to improve their rankings.
    • Countries assume that their EoDB ranking will attract foreign investors.
    • Empirical evidence about this presumed impact is questionable.
    • There is indeed some evidence that the score on EoDB is associated with FDI, but this association exists mainly for more affluent countries.
    •  For instance, in 2020, China was the largest recipient of FDI despite ranking 85th on the EoDB.
    • One of the less visible parts of the EoDB exercise was the underlying political message.
    • Regulation, often treated synonymously with bureaucratic hurdles, is bad, and abandoning regulations will bring positive results.

    Way forward

    • Should we try to reform the index or give up on it? The decision rests on the answer to two questions.
    • First, are there universally acceptable standards of sound economic practices that are applicable and measurable across diverse economies?
    • Second, if the indices are so powerful, should their construction be left to institutions like the World Bank that bring not just knowledge but also wield the heft of global economic power?

    Consider the question “What are the advantages associated with Ease of Doing Business ranking? What are the issues with it?” 

    Conclusion

    The presumed economic consequences, as well as political benefits associated with improving the rankings, encouraged many countries to try and “game” the system by making superficial improvements on indicators that are being measured and, when that failed, by putting explicit pressure on the World Bank research team.

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  • Khadi industry in India

    Context

    The Prime Minister has repeatedly stressed his support for khadi, cottage industries, crafts and handlooms.

    About Khadi

    • Genuine khadi or khaddar is woven from short-stapled organically grown cotton.
    • The beauty is in its uneven texture and colours, as cotton bolls are not all pure white in every region.
    • Fabrics being made today in the name of khadi are modified spin-offs that look more like handloom fabric, with mill-produced yarn, screen printed and often mixed with mill-made polyester.

    Issues

    • Restriction of scope: According to the Khadi Mark Regulations (KMR) of 2013, no textile can be sold or otherwise traded by any person or institution as khadi or a khadi product in any form if the khadi mark tag issued by KVIC is missing.
    • This restricts the scope of trade to a few approved entities, thereby creating recognisable barriers to enter the market for khadi.
    • Restrictive certification process: The certification process described in Chapter V (Clause 20 (a)) of the KMR requires accredited agencies to perform an on-site verification of hand-spinning and hand-weaving processes.”
    • Yarn must be procured only from KVIC depots or the Cotton Corporation of India, descriptions of mechanisation and electrification are ambiguous.
    • There are so many restrictions that most producers have no incentive and many small bodies are unable to pay Rs 50,000 for certification.
    • Multiple authorities: Hand-spinning and weaving are also part of craft skills. Only the hand-spun part is additional in khadi.
    • But today KVIC, on its website and in its catalogue, has visibly non-hand-spun silk-printed saris, polyester fabrics and others that seem clearly machine-printed.
    • The KVIC online catalogue has products like industrially-made suitcases, bags and wallets which are under MSME, but with a “khadi” label.
    • This points to the need for bringing khadi and all handicrafts together in one ministry.

    Conclusion

    Gandhi did not intend to create a police state for the khadi sector, full of acts and rules that put production in a straitjacket. Perhaps, some courageous producers can try circumventing all this by using the word “khaddar” on their labels instead.

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  • GST collections hit 5-month high

    India’s gross Goods and Services Tax (GST) revenues crossed ₹1.17 lakh crore in September, hitting a five-month high.

    Take a look towards the share of GST in government earnings for the previous fiscal:

    UPSC can ask about the majority component of the Revenue Receipts of the govt. See how Corporate tax is nearing the GST revenues.

    Do you think it will surpass GST revenue when the economy is fully recovered?

    What is the news?

    • September’s revenues were 23% higher than a year ago and 27.3% more than collections in the pre-pandemic month of September 2019.
    • Revenues from import of goods were 30% higher while indirect tax collected on domestic transactions, including the import of services, were 20% higher in September, compared to the same month in 2020.
    • Among the major States, GST revenues grew 29% in Karnataka, 28% in Gujarat, followed by 22% in Maharashtra and 21% each in Tamil Nadu and Andhra Pradesh.
    • Telangana recorded a 25% surge in revenues, while Odisha saw a sharper 40% rise.

    Significance

    • This clearly indicates that the economy is recovering at a fast pace.
    • Coupled with economic growth, anti-evasion activities, especially action against fake billers have also been contributing to the enhanced GST collections.
    • It is expected that the positive trend in the revenues will continue and the second half of the year will post higher revenues.

    Issues underlying

    • Though GST revenues are picking up pace after the impact of the Covid-19 pandemic, revenue buoyancy under GST is being seen as a concern.
    • This is especially after the legally mandated compensation to states for revenue shortfall from the GST implementation comes to an end in June 2022.

    Back2Basics: Goods and Services Tax

    • The GST is a value-added tax levied on most goods and services sold for domestic consumption.
    • It was launched into operation on the midnight of 1st July 2017.
    • It subsumed almost all domestic indirect taxes (petroleum, alcoholic beverages, and stamp duty are the major exceptions) under one head.
    • The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.
    • GST is levied at four rates viz. 5%, 12%, 18% and 28%. The schedule or list of items that would fall under these multiple slabs is worked out by the GST council.

    Types

    • The GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the States is called State GST (SGST).
    • Import of goods or services would be treated as inter-state supplies and would be subject to Integrated Goods & Services Tax (IGST) in addition to the applicable customs duties.

    The GST Council

    • It is a constitutional body (Article 279A) for making recommendations to the Union and State Government on issues related to GST.
    • The GST Council is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in charge of Finance or Taxation of all the States.
    • It is considered as a federal body where both the centre and the states get due representation.

  • What gives rise to the rural debt trap?

    Context

    The AIDIS report published this month reveals that non-institutional sources have a strong presence in the rural credit market, notwithstanding the high costs involved in borrowing from them.

    Highlights of AIDIS

    • The All-India Debt and Investment Surveys (AIDIS) is carried out by the National Statistical Office.
    • AIDIS is among the most important nationally representative data sources on the rural credit market in India.
    • According to the latest report, the average debt per household in rural India is Rs 59,748, nearly half the average debt per household in urban India.
    • IOI: As per the latest AIDIS report, the incidence of indebtedness (IOI) is 35 per cent in rural India — 17.8 per cent of rural households are indebted to institutional credit agencies, 10.2 per cent to non-institutional agencies and 7 per cent to both.
    • Dependence on institutional source: The share of debt from institutional credit agencies in total outstanding debt in rural India is 66 per cent as compared to 87 per cent in urban India.
    • Dependence on institutional sources is often seen as a positive development, signifying broadening financial inclusion, while reliance on non-institutional sources denotes vulnerability and backwardness.
    • Purpose: Institutional credit is taken mainly for farm business and housing in rural India.
    • A significant portion of debt from non-institutional sources is used for other household expenditures.
    • Socio-economic inequality: The data indicates that better-off households have greater access to formal-sector credit and use it for more income-generating purposes.
    • Access to institutional credit is largely determined by the ability of households to furnish assets as collateral.
    • The report shows that the top 10 per cent of asset-owning households have borrowed 80 per cent of their total debt from institutional sources, whereas those in the bottom 50 per cent borrowed around 53 per cent of total debt from non-institutional sources.
    • Debt-trap: the Debt-Asset Ratio (DAR) of the bottom 10 per cent asset-owning households in rural India is 39, much higher than the DAR of 2.6 estimated for the top 10 per cent households.
    • This, coupled with higher borrowing from non-institutional sources, acts as a debt trap for households with fewer assets.

    Way forward

    • Inadequate access to affordable credit lies at the heart of the rural distress
    • The credit policy needs to be revamped to accommodate the consumption needs of the rural poor and to find alternatives for collateral to bring the rural households within the network of institutional finance.

    Conclusion

    The solution to the problem of lack of access to credit in rural areas lies in policy changes.

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  • MSP is not the way to increase farmers’ income

    Context

    The recently released data for 2018-19 Situation Assessment Survey (SAS) of agricultural households paints a bleak picture for doubling farmers’ income.

    Background

    • Prime Minister Narendra Modi set out an ambitious target to double farmers’ incomes by 2022-23.
    • The Ashok Dalwai Committee made it clear that the target of doubling farmers’ incomes was in real terms.
    •  Required rate: The committee clearly stated that a growth rate of 10.4 per cent per annum would be required to double farmers’ real income by 2022-23.
    • The goal was to be achieved over seven years with the base year of 2015-16.
    • According to an estimate of farmers’ income for 2015-16 by NABARD in 2016-17, the average monthly income of farmers for 2015-16 was Rs 8,931.
    • However, unless a similar survey is conducted in 2022-23, we won’t really know what happened to the target of doubling farmers’ real income.

    Determining the growth rate of farmers income

    • As per Situation Assessment Survey (SAS) of agricultural households for 2018-19, an average agricultural household earned a monthly income of Rs 10,218 in 2018-19 (July-June) in nominal terms.
    • We have a similar SAS for 2012-13, when the nominal income was Rs 6,426.
    • In nominal terms, the compound annual growth rate (CAGR) turns out to be 8 per cent between 2012-13 to 2018-19.
    • Choice of deflator: If one deflates nominal incomes by using CPI-AL (consumer price index for agricultural labour), which should be the logical choice, then the CAGR turns out to be just 3 per cent.
    • If one uses WPI (wholesale price index of all commodities), the CAGR in real incomes turns out to be 6.1 per cent.
    • This vast difference is just due to the choice of deflator.
    •  However, there is another SAS that the NSO conducted for 2002-03.
    • When one compares CAGR in farmers’ real income (deflated by CPI-AL) over 2002-03 to 2018-19, it turns out to be 3.4 per cent (and 5.3 per cent if deflated by WPI).
    • A better method would have been to look at average annual growth rates (AAGR), if yearly data was available.
    • The AAGR for agri-GDP is available and at an all-India level, between 2002-03 to 2018-19, it turns out to be 3.3 per cent.

    Policy message about farmers income from SASs

    • One, the share of income from rearing animals (this includes fish) has gone up dramatically from 4.3 per cent in 2002-03 to 15.7 per cent.
    • Two, the share of income from the cultivation of crops has decreased from 45.8 per cent to 37.7 per cent.
    • Three, the share of wages and salaries has gone up from 38.7 per cent to 40.3 per cent.
    • Four, the share of income coming from non-farm business has come down from 11.2 per cent to 6.4 per cent.

    Way forward

    • Survey results indicates that the scope for augmenting farmers’ incomes is going to be more and from rearing animals (including fisheries).
    • There is no minimum support price (MSP) for products of animal husbandry or fisheries and no procurement by the government.
    •  It is demand-driven, and much of its marketing takes place outside APMC mandis.
    • This is the trend that will get reinforced in the years to come as incomes rise and diets diversify.
    • Those who advocate raising the MSP of grains and government procurement, irrespective of increasing grain stocks to more than double the buffer stocking norms, are living in the past — and advocating a very expensive food system.
    • That will fail sooner or later.
    • Wisdom lies in investing more in animal husbandry (including fisheries) and fruits and vegetables, which are more nutritious.
    • The best way to invest is to incentivise the private sector to build efficient value chains based on a cluster approach.

    Consider the question “Why the role of MSP in increasing the farmers’ income has been repeatedly questioned? What are the alternatives to achieve the doubling of farmers’ income?”

    Conclusion

    Too much focus on increasing MSP to increase farmers’ income is not helping the cause. What we need is an investment in animal husbandry (including fisheries) and fruits and vegetables.

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  • Risks involved in Indian tech unicorns gaining at China’s expense

    Context

    Investment firms with a reputation for tracking and hunting unicorns — startups with billion-dollar-plus valuations are shifting their attention to India from China. While this cannot be good for China, the question remains over whether or not it is good for India either.

    China’s crackdown on tech industry

    • Beijing has decided to crack down on the tech industry, wiping out $1.5 trillion in market value.
    •  The crackdown began with the abrupt suspension of the much-anticipated initial public offering (IPO) of Ant Group last November.
    •  China’s regulators stopped the ride-hailing company, Didi Chuxing, from accepting new users, as soon as it went public on the New York Stock Exchange.
    • There have been sweeping industry-wide changes, from anti-monopoly legislation to new rules governing data collection and use.
    • All of this has investors spooked.

    How India can benefit from China’s crackdown on the tech industry?

    • Due to China’s crackdown, for the first time since 2013, the value of venture deals in India surpassed that of China.
    • Converging factors in India: If this keeps up, India will experience a veritable blessing of unicorns, thanks not only to the fact that the money fleeing China needs refuge, but to many converging forces within India itself.
    • India is the world’s second largest digital market.
    • The use of the United Payment Interface has made digital payments easier in a society that was — and still is — so tied to cash.
    • The pandemic lockdowns have driven an unusually large proportion of that digital population to spend an unusually large amount of time and spend money online.
    • This means that in a very short time, the need to serve this digital population has exploded.
    • The Chinese crackdown could not have come at a more opportune time.
    • Many startups are in a hurry to capitalise on the boom with many investors looking to capitalise them.

    Concern: the risk of tech-bubble

    • When investors rush in to seek refuge because they are fleeing risk elsewhere, even if the refuge looks promising, they can contribute to a self-reinforcing cycle that ends up destroying the refuge.
    • Eager to get a piece of the action, each investor may over-value a company, far exceeding what is justifiable based on market fundamentals.
    • The stampede builds and soon you have the makings of a tech bubble.

    Way forward for investors

    • Instead of reflexively chasing the next shiny startup in India, investors ought to ask a few questions.
    • Do the startups and the markets they serve have the capacity to scale up and do they justify sticking with them for a long period?
    • Has the Indian initial public offerings market really proven itself?
    • Are there enough large corporations that might buy these startups?
    • Can the under-investment in essentials, such as education, health and job market readiness, clog the talent pipeline?
    • Can the Indian government be trusted not to borrow a page from the government it would like to emulate — the Chinese state — and attempt a crackdown of its own?

    Consider the question “Indian tech start-ups are dealing with the gush of capital owing to the convergence of certain factors. Examine these factors and also the concerns with such influx of capital.”

    Conclusion

    India desperately needs patient capital, skilled talent and appropriate technology to solve the country’s numerous fundamental problems laid bare by the pandemic. The last thing India can afford is a bubble that bursts and for all three to take flight and seek refuge in yet another country because no one wants to pick up the pieces of a popped bubble.

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    Back2Basics: IPO

    • An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance.
    • An IPO allows a company to raise capital from public investors.
    • The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes a share premium for current private investors.
    • Meanwhile, it also allows public investors to participate in the offering.

  • Inflation in India

    Context

    Inflation for the last four months has been worryingly high. This is happening at a time when demand has been down, unemployment has been high, many have lost incomes and poverty has aggravated.

    Issues with the recent inflation data

    • The shock of lockdowns not only made data collection difficult but the consumption basket for calculating CPI should have been changed.
    • Issue with the base: In April and May 2020, data on production and prices could not be collected due to the strict lockdown.
    • As such, the official inflation figures for these months in 2021 do not reflect the true picture.
    • For calculating inflation, a single number is arrived at by assigning weights to different commodities and services.
    • Issue due to different consumption baskets: For WPI, the weights in production are used; for CPI, the consumption basket is used.
    • The consumption basket is vastly different for the poor, the middle classes, and the rich.
    • Hence, the CPI is different for each of these classes and a composite index requires averaging the baskets.
    • So, in a sense, it represents none of the categories.
    • Changed consumption pattern: During lockdown and unlock in 2020, people largely consumed essentials.
    •  RBI data show that consumer confidence fell drastically from 105 in January 2020 to 55.5 by January 2021.
    • While the consumption pattern of the well-off sections may have changed little, the poor and middle classes, especially those who lost jobs and incomes, would have had to cut back on their consumption.
    • Thus, the weights in the CPI would have changed and inflation required recalculation, but this has not been done.
    • Under-representation of services: Inflation data under-represents services in the consumption basket.
    • In production, services are about 55% of the GDP but have no representation in WPI and about 40% in CPI.
    • Increased health and education cost not captured: Health costs and education costs shot up during the pandemic, but this is not captured in inflation figures.
    • Many services were not used. Eating out and travel, for instance, should have been factored out.

    Impact of the inflation

    • If the income does not increase in proportion to inflation, for the middle classes, both consumption of less essential items and savings get reduced.
    • But the poor, who hardly save, have to curtail essential consumption.
    • Decline in demand: In India, 94% work in the unorganised sector and mostly earn low incomes and have little savings.
    • By definition, they cannot bargain for higher incomes as prices rise, further, due to lockdowns, the wages of many declined, both in the unorganised and organised sectors.
    • Consequently, demand has declined not only for non-essentials but even for essentials.
    • Impact on employment generation: In a vicious cycle, this is slowing down economic recovery and employment generation.
    •  Further, this impacts the government’s revenues and tends to increase the budgetary deficit.
    • This puts pressure on the government to cut back budgetary expenditures, especially on the social sector.
    • That aggravates poverty and reduces demand further.

    Factors leading to inflation

    • Tax on fuels: Increase in tax on fuel push up the prices of all goods and services.
    • This is an indirect tax, it is regressive and impacts the poor disproportionately more.
    • It also makes the RBI’s task of controlling inflation difficult.
    • Supply bottlenecks: The lockdowns disrupted supplies and that added to shortages and price rise.
    • Prices of medicines and medical equipment rose dramatically.
    • Prices of items of day-to-day consumption also rose.
    • International factors: Most major economies have recovered and demand for inputs has increased while supplies have remained disrupted (like chips for automobiles).

    Consider the question “What are the issues with measurement of inflation data in India? How inflation in times of low demand and reduced incomes leads to a vicious cycle?”

    Conclusion

    The current official inflation rate does not correctly measure price rise since the lockdown administered a shock to the economy. The method of calculating it needed modification.

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  • Holding transnational corporations accountable

    Context

    Given the enormous power that transnational corporations (TNCs) wield, questions about their accountability have arisen often. There have been many instances where the misconduct of TNCs has come to light such as the corruption scandal involving Siemens in Germany.

    Holding TNCs accountable: Background

    • The effort was made at the UN to develop a multilateral code of conduct on TNCs.
    • However, due to differences between developed and developing countries, it was abandoned in 1992.
    • Role of BITs: Aim was to use international law to institutionalise the forces of economic globalisation, leading to the spread of BITs.
    • Asymmetry in BITs: These treaties promised protection to foreign investors under international law by bestowing rights on them and imposing obligations on states.
    • This structural asymmetry in BITs, which confer rights on foreign investors but impose no obligations, relegated the demand for investor accountability.
    • In 2014, the UN Human Rights Council established an open-ended working group with the mandate to elaborate on an international legally binding instrument on TNCs and other businesses concerning human rights.
    • Since then, efforts are being made towards developing a treaty and finding ways to make foreign corporations accountable.
    • The latest UN report is a step in that direction.

    UN report on human rights-compatible international investment agreements

    • The UN working group on ‘human rights, transnational corporations (TNCs) and other businesses’ has published a new report on human rights-compatible international investment agreements.
    • It urges states to ensure that their bilateral investment treaties (BITs) are compatible with international human rights obligations.
    • It emphasises investor obligations at the international level i.e., the accountability of TNCs in international law.

    Using BITs to hold TNCs accountable

    • BITs can be harnessed to hold TNCs accountable under international law.
    • The issue of fixing accountability of foreign investors came up in an international law case, Urbaser v. Argentina (2016).
    • Subjecting corporates to international law: In this case, the tribunal held that corporations can be subjects of international law and are under a duty not to engage in activities that harm or destroy human rights.
    • The case played an important role in bringing human rights norms to the fore in BIT disputes.
    • It also opened up the possibility of using BITs to hold TNCs accountable provided the treaty imposes positive obligations on foreign investors.
    • Recalibrating BITs: In the last few years, states have started recalibrating their BITs by inserting provisions on investor accountability.
    • Issues with BITs: However, these employ soft law language and are hortatory.
    • They do not impose positive and binding obligations on foreign investors.
    • They fall short of creating a framework to hold TNCs accountable under international law.

    Takeaways for India

    • The recent UN report has important takeaways for India’s ongoing reforms in BITs.
    • Best endeavour clauses not enough: India’s new Model BIT of 2016 contains provisions on investor obligations.
    • However, these exist as best endeavour clauses. They do not impose a binding obligation on the TNC.
    • Impose positive binding obligations: India should impose positive and binding obligations on foreign investors, not just for protecting human rights but also for imperative issues such as promoting public health.
    • The Nigeria-Morocco BIT, which imposes binding obligations on foreign investors such as conducting an environmental impact assessment of their investment, is a good example.

    Consider the question ” Ensuring that the bilateral investment treaties (BITs) are compatible with international human rights obligations in the need of the hour. In light of this, assess the progress made globally on this issue and suggest way forward for India in framing its BITs.”

    Conclusion

    Reforms would help in harnessing BITs to ensure the answerability of foreign investors and creating a binding international legal framework to hold TNCs to account.

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  • EoDB at risk if issue of appointments to tribunals is not resolved

    While hearing a challenge to the Tribunal Reforms Act, 2021, the Supreme Court came down heavily on the government of India for vacancies not being filled on time. This could severely impact the ease of doing business in India, said the court.

    Background

    • The government has lauded the role of the Insolvency and Bankruptcy Code, 2016 (IBC), for improving India’s ranking on the “Ease of Doing Business” index over the last couple of years.
    • However, the SC’s observation is spot-on as vacancies in the tribunals have slowed down insolvency resolution due to the huge pendency of cases.
    • When the SC made its observations, the NCLT had only 30 members against a total strength of 63.

    About NCLAT and NCLT

    • National Company Law Appellate Tribunal (NCLAT) was constituted under Section 410 of the Companies Act, 2013 for hearing appeals against the orders of National Company Law Tribunal(s) (NCLT) in 2016.
    • NCLAT is also the Appellate Tribunal to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India (CCI).
    • It is also the Appellate Tribunal to hear and dispose of appeals against the orders of the National Financial Reporting Authority.

    Difference between NCLT AND NCLAT

    NCLT

    NCLAT
    ·         NCLT is established as per Section 408 of companies act, 2013 ·         NCLAT is established as per Section 410 of companies act, 2013
    ·         It holds primary jurisdiction on cases of insolvency and bankruptcy ·         It holds appellate jurisdictions over the cases judged by NCLT
    ·         NCLT accepts and analyzes the evidence from creditors and debtors ·         NCLAT accepts and analyzes the decision made by NCLT
    ·         NCLT collects facts and evidences ·         NCLAT analyzes facts and evidences

    CJI’s reservations over Pendency

    • The NCLAT had a sanctioned strength of a chairperson plus 11 members but its functioning strength was of eight members.
    • Both the NCLT and NCLAT have been without chairpersons for several months respectively.
    • These vacancies are concerning because as of May 31, 13,170 insolvency petitions were pending before benches of the NCLT.
    • Of these, 2,785 petitions have been filed by financial creditors and 5,973 by operational creditors.

    Note: The IBC created an institution called an information utility to be the repository of information on debts and defaults in India.  The sole utility in India at present is the National E-Governance Services Ltd. (NeSL).

    Basis of these cases

    • The financial creditors are facing criticism for taking haircuts as high as 90 per cent against their claims.
    • A longer approval period would entail greater value erosion of a corporate debtor which would be an unattractive proposition for any prospective resolution applicant.
    • This uncertainty can be cured by a faster approval process by the NCLTs by the creation of more benches and filling up of current vacancies.

    Why is the Supreme Court fuming over vacancies?

    (a) Covid impact

    • The Indian economy is recovering from the adverse effects of the Covid-19 pandemic.
    • During the downturn, financial institutions and banks have suffered higher defaults than usual, impacting the robustness of the system.
    • Lending has decreased during this time and can only be encouraged now by shoring up the mechanism under the IBC to inspire confidence in creditors.

    (b) Non-compliance by the govt

    • The SC had granted time to the government till September 13 to take substantial steps in this regard, which was partially complied with by appointing 18 members.
    • The government, however, failed to avoid embarrassment as the CJI expressed his anger at the appointment process which had ignored candidates recommended by the selection committee.

    (c) Burden of pendency

    • There is a real risk of the court taking matters into its own hands by making appointments itself, or by taking harsher steps like transferring jurisdiction under the IBC to high courts.
    • One hopes that the situation is resolved quickly to make strict time-bound insolvency resolutions a reality.

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  • Building a resilient economy

    Context

    To revive and sustain growth, action is needed both at the international and national levels.

    Hopes of V-shaped recovery of Indian economy

    • The National Statistical Office (NSO) had recently estimated that India’s economic growth has surged to 20.1% in the April-June quarter.
    • In its recently launched Trade and Development Report 2021, UNCTAD has estimated global growth to hit 5.3% in 2021 and growth in India to hit 7.2%.
    • According to the report, India showed strong quarterly growth of 1.9% in the first quarter of 2021, on the back of the momentum of the second half of 2020 and supported by government spending in goods and services.
    • Given the inherent fragilities, India’s growth in 2021 as a whole is estimated at 7.2%, which is one of the fastest compared to most countries in the analysis.
    • But it is still not sufficient to regain the pre-COVID-19 income level.
    • However, going forward, the economy is likely to experience a deceleration of growth to 6.7% growth in 2022.

    Ways to sustain growth

    1) Efforts at the International level

    • To revive and sustain growth, action is needed both at the international and national levels.
    • TRIPS waiver: The report strongly supports India’s proposed temporary suspension of the World Trade Organization TRIPS waiver.
    • Waiver is considered as a necessary step to enable the local manufacture of vaccines in developing countries

    2) Steps to be taken at the national level

    • Resilience: At the national level, COVID-19 has reinforced the idea that resilience is a public good and responsibility of the state.
    • It has to be delivered through a robust public sector with the resources to make the necessary investments, provide the complementary services and coordinate the multiple activities that building resilience involves.
    • Mobilising financial resources: We need a financial system that accords a more significant role to public banks, breaks up and guards against the emergence of megabanks, and exercises stronger regulatory oversight is more likely to deliver a healthier investment climate.
    • Minimum wage:  Wages are a critical source of demand and their growth can stimulate productivity and underpin a strong social contract.
    • Minimum wages and related labour legislation are needed for appropriate protection against abusive practices.
    • Policies for informal sector: Policies targeting informality are of particular importance, especially for a country like India with a large informal economy.

    Conclusion

    It is important to build a healthy, diversified economy. For this, a strong industrial policy focusing on building digital capacities is needed. A resilient economy goes beyond offering a residual category of safety nets designed to stop those left behind from falling further.

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