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GS Paper: Indian Economy

  • [pib] Account Aggregator Network (AAN): A financial data-sharing system

    The Account Aggregator system in banking has been started off with eight of India’s largest banks. In this newscard, we shall learn it in a FAQ manner.

    What is an Account Aggregator?

    • An Account Aggregator (AA) is a type of RBI regulated entity (with an NBFC-AA license) that helps an individual securely and digitally access and share information from one financial institution they have an account with to any other regulated financial institution in the AA network.
    • Data cannot be shared without the consent of the individual.
    • There will be many Account Aggregators an individual can choose between.
    • Account Aggregator replaces the long terms and conditions form of ‘blank cheque’ acceptance with a granular, step by step permission and control for each use of your data.

    How would it improve an average person’s financial life?

    • India’s financial system involves many hassles for consumers today.
    • This includes sharing of physical signed and scanned copies of bank statements, stamp documents, or having to share your personal username and password to give your financial history to a third party.
    • The AAN would replace all these with a simple, mobile-based, simple, and safe digital data access & sharing process.
    • This will create opportunities for new kinds of services — eg new types of loans.
    • The individual’s bank just needs to join the Account Aggregator network.

    How is AAN different to Aadhaar eKYC data sharing?

    • Aadhaar eKYC and CKYC only allow sharing of four ‘identity’ data fields for KYC purposes (eg name, address, gender, etc).
    • Similarly, credit bureau data only shows loan history and/or a credit score.
    • The AAN allows sharing of transaction data or bank statements from savings/deposit/current accounts.

    What kind of data can be shared?

    • Today, banking transaction data is available to be shared (for example, bank statements from a current or savings account) across the banks that have gone live on the network.
    • Gradually the AA framework will make all financial data available for sharing, including tax data, pensions data, securities data (mutual funds and brokerage), and insurance data will be available to consumers.
    • It will also expand beyond the financial sector to allow healthcare and telecom data to be accessible to the individual via AA.

    Can AAs view or ‘aggregate’ personal data? Is the data sharing secure?

    • Account Aggregators cannot see the data; they merely take it from one financial institution to another based on an individual’s direction and consent.
    • Contrary to the name, they cannot ‘aggregate’ your data.
    • AAs are not like technology companies which aggregate your data and create detailed profiles of you.
    • The data AAs share is encrypted by the sender and can be decrypted only by the recipient.
    • The end to end encryption and use of technology like the ‘digital signature’ makes the process much more secure than sharing paper documents.

    Can a consumer decide they don’t want to share data?

    Yes. Registering with an AA is fully voluntary for consumers.

    • If the bank the consumer is using has joined the network, a person can choose to register on an AA, choose which accounts they want to link, and share their data.
    • A customer can reject a consent to share request at any time.
    • If a consumer has accepted to share data in a recurring manner over a period (eg during a loan period), it can also be revoked at any time later as well by the consumer.

    Duration of the data shared

    • The exact time period for which the recipient institution will have access will be shown to the consumer at the time of consent for data sharing.

    How can a customer get registered with an AA?

    • One can register with an AA through their app or website.
    • AA will provide a handle (like username) which can be used during the consent process.
    • Today, four apps are available for download (Finvu, OneMoney, CAMS Finserv, and NADL) with operational licenses to be AAs.
    • Three more have received in principle approval from RBI (PhonePe, Yodlee, and Perfios) and may be launching apps soon.
    • A customer can register with any AA to access data from any bank on the network.

    Does a customer need to pay the AA for using this facility?

    • This will depend on the AA. Some may charge a small user fee.
    • Some AAs may be free because they are charging a service fee to financial institutions.

    What new services can a customer access if their bank has joined the AA network of data sharing?

    The two key services that will be improved for an individual is access to loans and access to money management.

    • If a customer wants to get a small business or personal loan today, there are many documents that need to be shared with the lender.
    • This is a cumbersome and manual process today, which affects the time taken to procure the loan and access to a loan.
    • Similarly, money management is difficult today because data is stored in many different locations and cannot be brought together easily for analysis.
    • Through Account Aggregator, a company can access tamper-proof secure data quickly and cheaply, and fast track the loan evaluation process so that a customer can get a loan.
    • Also, a customer may be able to access a loan without physical collateral, by sharing trusted information on a future invoice or cash flow directly from a government system like GST or GeM.

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  • Consequences of asset monetisation on ordinary citizens

    Context

    In the Budget for 2021-22, the Finance Minister had announced the Government’s decision to monetise operating public infrastructure assets. The National Monetisation Pipeline (NMP) was unveiled, which shows that the Government intends to raise ₹6-lakh crore over the next four years by monetising several “core assets”.

    Four issues with NMP

    1)  Assets transferred would be performing assets and not idle asset

    • Strategic and significant asset: The Government has identified “performing assets” to transfer to private entities and these are both strategic and significant.
    • These include over 26,700 kilometres of highways, 400 railway stations, 90 passenger trains etc.
    • Moreover, existing public sector infrastructure in telecoms, power transmission and distribution and petroleum, petroleum products and natural gas pipelines are included in the NMP.
    • Under the NMP, the Government intends to lease or divest its rights over these assets via long-term leases against a consideration that can be upfront and/or periodic payments.

    2) Consequences for ordinary citizens

    • There are two dimensions about the impact on common citizens.
    • Public as a stakeholder: The assets have all been created through substantial contribution by the tax-paying public, who have stakes in their operation and management.
    • Double taxation: These assets have, until now, been managed by the Government and its agencies,  which operate in public interest.
    • Therefore, charges borne by the public for using these assets have remained reasonable.
    • With private companies getting the sole responsibility of running all these assets, prices of these services will go up, as resutl the citizens of this country would be double-taxed.
    • First, they paid taxes to create the assets, and would now pay higher user charges.
    • Concern: Therefore, as the Government prepares to transfer “performing assets” to the private companies, it has the responsibility to ensure that user charges do not price the consumers out of the market.

    3) Are there other avenues to plug the revenue gap?

    • Increase tax revenue: One possibility was to increase the tax revenue, for at 17.4% in 2019-20, India’s tax to GDP ratio was relatively low, as compared to most advanced nations.
    • Improvements in tax compliance and plugging loopholes have long been emphasised as the surest way to improve tax revenue, but little has been done, as the following example shows.
    • Since 2005-06, the Government has been providing data on the profits declared and taxes paid by companies that file their returns electronically.
    • Data shows that India’s large companies have been exploiting the loopholes for reporting lower profits and to escape the tax net.

    4) Efficiency issue

    • According to NITI Aayog, the “strategic objective of the Asset Monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies”.
    • The NITI Aayog objective assumes that public sector enterprises are inefficient, which is contrary to the reality.
    • In 2018-19, while 28% of these enterprises were loss-making, the corresponding figure for large companies was 51%.

    Consider the question “How asset monetisation is different from the privatisation? What are the issues with the National Manetisation Pipeline that seeks to monetise the assets?”

    Conclusion

    The government should address the issues mention here associated with the roll out of the National Monetisation Pipeline to make it a success.

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  • New Code for Creditors (CoC) under IBC

    The insolvency regulator has called for public comments on a proposal to introduce a code of conduct for Committees of Creditors (CoC), of companies undergoing insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).

    Before proceeding, try this PYQ first:

    Q. Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news? (CSP 2017)

     

    (a) It is a procedure for considering the ecological costs of developmental schemes formulated by the Government.

    (b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

    (c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.

    (d) It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government.

     

    [wpdiscuz-feedback id=”lq23m2nrph” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

    About IBC

    • The IBC, 2016 is the bankruptcy law of India that seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
    • It is a one-stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.
    • The code aims to protect the interests of small investors and make the process of doing business less cumbersome.

    Key features

    Insolvency Resolution: The Code outlines separate insolvency resolution processes for individuals, companies, and partnership firms. The process may be initiated by either the debtor or the creditors. A maximum time limit, for completion of the insolvency resolution process, has been set for corporates and individuals.

    1. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree.
    2. For startups (other than partnership firms), small companies, and other companies (with assets less than Rs. 1 crore), the resolution process would be completed within 90 days of initiation of request which may be extended by 45 days.

    Insolvency regulator: The Code establishes the Insolvency and Bankruptcy Board of India, to oversee the insolvency proceedings in the country and regulate the entities registered under it. The Board will have 10 members, including representatives from the Ministries of Finance and Law, and the RBI.

    Insolvency professionals: The insolvency process will be managed by licensed professionals. These professionals will also control the assets of the debtor during the insolvency process.

    Bankruptcy and Insolvency Adjudicator: The Code proposes two separate tribunals to oversee the process of insolvency resolution, for individuals and companies:

    1. National Company Law Tribunal: for Companies and Limited Liability Partnership firms; and
    2. Debt Recovery Tribunal: for individuals and partnerships

    What is the recent development?

    Ans. Code of conduct for Committees of Creditors (CoC)

    • A CoC is to be composed of financial creditors to the Corporate Debtor (CD) — or operational creditors in the absence of unrelated financial creditors.
    • Under the IBC, CoC is empowered to take key decisions, including decisions on haircuts for creditors, that are binding on all stakeholders, including those dissenting.
    • The CoC is also empowered to seek and choose the best resolution plan for a corporate debtor from the market, and its role is vital for a timely and successful resolution for a CD.
    • The IBBI noted that a code of conduct for CoCs would promote transparent and fair working on the part of CoCs.

    What are the issues that the code of conduct is seeking to address?

    • Several cases in which certain lenders have withdrawn funds from a CD undergoing insolvency proceeding and contributed to delays in the insolvency process.
    • Delays in resolution are seen as contributing to the loss of value in corporate debtors and have become a key criticism of the IBC, with over 75 percent of proceedings having crossed the 270-day timeline.
    • The IBBI highlighted cases in which representatives of lenders have had to seek approval from seniors for decisions such as an appointment of resolution professionals.
    • IBBI has recommended that a code of conduct require that members of the CoC nominate representatives with sufficient authorization to participate in meetings and make decisions during the process.
    • The regulator also highlighted cases where lenders have withdrawn funds from a corporate debtor during insolvency or liquidation proceedings.

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  • Govt must constitute GST tribunal: SC

    The Supreme Court has warned that the government had no option but to constitute the Goods and Services Tax (GST) Appellate Tribunal.

    What is GST Appellate Tribunal?

    • The GST Appellate Tribunal (GSTAT) is the second appeal forum under GST for any dissatisfactory order passed by the First Appellate Authorities.
    • The National Appellate Tribunal is also the first common forum to resolve disputes between the centre and the states.
    • Being a common forum, it is the duty of the GST Appellate Tribunal to ensure uniformity in the redressal of disputes arising under GST.
    • It holds the same powers as the court and is deemed Civil Court for trying a case.

    Constitution of the GST Appellate Tribunal

    The GSTAT has the following structure:

    1. National Bench: The National Appellate Tribunal is situated in New Delhi, constitutes a National President (Head) along with 2 Technical Members (1 from Centre and State each)
    2. Regional Benches: On the recommendations of the GST Council, the government can constitute (by notification) Regional Benches, as required. As of now, there are 3 Regional Benches (situated in Mumbai, Kolkata and Hyderabad) in India.
    3. State Bench and Area Bench

    Why in news now?

    • The GST tribunal has not been constituted even four years after the central GST law was passed in 2016.
    • Section 109 of the GST Act mandates the constitution of the Tribunal.
    • Citizens aggrieved are constrained to approach respective High Court and the same was overburdening the work of the High Courts.

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    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.

  • National monetisation pipeline has narrow outlook

    Context

    Recently, FM announced the National Monetisation Pipeline (NMP) to lease a slew of “brownfield” (already developed) but underutilised public sector assets to the private sector with the objective of raising Rs 6 lakh crore.

    About the NMP

    • The assets identified for lease include roads, railways, ports, power, mining, aviation, oil and gas pipelines, warehouses, hotels and even two sports stadia.
    • The idea is to create “structured public-private partnerships” to unlock value from public sector assets and to recycle the revenues so raised into new infrastructure.
    • But the move raises several concerns.

    3 concerns with NMP

    1) Government is preferring financial value of assets over public welfare

    • The design of the NMP is out of sync with existential challenges — global warming, pandemics, geopolitical chaos and fundamentalism.
    •  The assets are valued on the basis of conventional financial metrics (enterprise value, book value, net present value, the costs of comparable assets).
    • The model seemingly absolves the government from the responsibility to unlock the intrinsic “social” (to include “smart” and “clean” ) value of these assets.

    2) It will lead to concentration of capital

    • NMP is designed to attract deep-pocketed financial institutions (PE firms) and industrial conglomerates.
    • This is because the valuations are so high that few other entities will have the resources or the risk carrying capacity to respond.
    • The result will be a deepening of the concentration of capital and existing inequalities.
    • There will be economic and social implications.

    3) Addressing the system problem

    • The government should have asked itself a fundamental question before placing a substantial share of public assets on the block:
    • Why have these assets been so poorly managed?
    • Was it because of bad leadership, inadequate talent within the PSEs, and/or systemic and structural shortcomings?
    • If the reason for low productivity was poor leadership or lack of talent, the transfer of these assets to a different, private sector-led organisational and investment structure would make sense.
    • Structural issues: But if the reason had to do with structural impediments, then such a change may not be warranted, at least not in the first instance.
    •  The example, gas pipelines GAIL are hugely underutilized, but this is not because of the “inefficiency” of GAIL, the PSE operator.
    • It is because of structural factors such as the shortage of domestic gas supplies; the regressive taxation system; the relatively uncompetitive price of gas and the perennial tussle between the Centre and state governments over land access.
    • A similar point can be made about most of the other assets identified for monetisation.
    • Their low productivity is because their PSE operators have faced a combination of systemic hurdles related to weak dispute resolution mechanisms; regulatory miasma; lack of transparency in governance; pricing distortions and intrusive bureaucratic intervention.
    • Way forward: So, until and unless these systemic problems are addressed, the private sector will find it difficult to harness the full value of these assets and the transfer of operatorship to them will offer at best a partial palliative.

    Conclusion

    Private-public investment structures make sense, but they must be modeled to also generate social value. In today’s world, there are no shortcuts to sustainable development.

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  • Indian Banks join ‘Account Aggregators Network’

    Eight of India’s major banks — State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank and Federal Bank has joined the Account Aggregator (AA) network that will enable customers to easily access and share their financial data.

    What is an Account Aggregators (AA)?

    • According to the RBI, an AA is a non-banking financial company engaged in the business of providing, under a contract, the service of retrieving or collecting financial information pertaining to its customer.
    • It is also engaged in consolidating, organizing, and presenting such information to the customer or any other financial information user as may be specified by the bank.
    • The AA framework was created through an inter-regulatory decision by RBI and other regulators.
    • These regulators include SEBI, Insurance Regulatory and Development Authority, and Pension Fund Regulatory and Development Authority (PFRDA) through an initiative of the Financial Stability and Development Council (FSDC).
    • The license for AAs is issued by the RBI, and the financial sector will have many AAs.
    • The framework allows customers to avail themselves of various financial services from a host of providers on a single portal based on a consent method, under which the consumers can choose what financial data to share and with which entity.

    What does an AA do?

    • Reduce bank traffic: It reduces the need for individuals to wait in long bank queues, use Internet banking portals, share their passwords, or seek out physical notarization to access and share their financial documents.
    • Data security: An AA is a financial utility for the secure flow of data controlled by the individual.
    • Data flow: AA is an exciting addition to India’s digital infrastructure as it will allow banks to access consented data flows and verified data.
    • Reduced cost: This will help banks reduce transaction costs, which will enable us to offer lower ticket size loans and more tailored products and services to our customers.
    • Transaction security: It will also help us reduce fraud and comply with upcoming privacy laws.

    How does it work?

    • It has a three-tier structure:
    1. Account Aggregator
    2. FIP (Financial Information Provider) and
    3. FIU (Financial Information User)
    • A FIP is the data fiduciary, which holds customers’ data. It can be a bank, NBFC, mutual fund, insurance repository, or pension fund repository.
    • An FIU consumes the data from a FIP to provide various services to the consumer.
    • An FIU is a lending bank that wants access to the borrower’s data to determine if the borrower qualifies for a loan.
    • Banks play a dual role – as a FIP and as an FIU.
    • An AA should not support transactions by customers but should ensure appropriate mechanisms for proper customer identification.
    • An AA should share information only with the customer to whom it relates or any other financial information user as authorized by the customer

    What purpose does it serve?

    • AA creates secure, digital access to personal data at a time when Covid-19 has led to restrictions on physical interaction.
    • It reduces the fraud associated with physical data by introducing secure digital signatures and end-to-end encryption for data sharing.
    • These capabilities in turn open up many possibilities.
    • For instance, whereas physical collateral is usually required for an MSME loan, with secure data sharing via AA, ‘information collateral’ (or data on future MSME income) can be used to access a small formal loan.
    • HDFC Bank and Axis Bank have been using AA for auto loans, Lending Kart for MSME loans, and IndusInd Bank for personal finance management.

    What data can be shared?

    • An Account Aggregator allows a customer to transfer his financial information pertaining to various accounts such as banks deposits, equity, mutual fund, and pension funds to any entity requiring access to such information.
    • There are 19 categories of information that fall under ‘financial information, besides various other categories relating to banking and investments.
    • For sharing of such information, the FIU is required to initiate a request for consent by way of any platform/app run by the AA.
    • Such a request is received by the individual customer through the AA, and the information is shared by the AA, after consent is obtained.
    • The AA framework is an excellent initiative that will compile all the digital footprints of the customer in one place and make it easy for lenders like us to access it.
    • It will enable us to provide very quick turnarounds to our customers.

    Can an AA see or store data?

    • Data transmitted through the AA is encrypted. AAs are not allowed to store, process and sell the customer’s data.
    • No financial information accessed by the AA from a FIP should reside with the AA.
    • It should not use the services of a third-party service provider for undertaking the business of account aggregation.
    • User authentication credentials of customers relating to accounts with various FIPs shall not be accessed by the AA.

  • Why India’s Steady Exports Are At A Record High?

    Context

    First-quarter growth in India’s gross domestic product (GDP) stands at 20.1 %. This however still means that GDP in the first quarter was 9.2 % below its level two years ago.

    Export: Challenges

    • The key driver of growth in the coming quarters will be exports riding on the rapidity of recovery in major markets.
    • There are two serious worries here.
    • 1) Bullwhip element: This could cause an immediate ramp-up in demand for steel and other such upstream elements in global supply chains, with a corresponding damp down in the months to come.
    • In this connection, although the rates under the scheme for remission of duties and taxes on exported products (RODTEP) were finally notified in mid-August.
    • Steel, pharma and chemicals get no rebate at all, although many products using these inputs do.
    • The scheme looks like a subsidy to selected sectors disguised as duty rollback, which can get India into trouble at the World Trade Organization (WTO).
    • These excluded products need the rebate if they are to survive in a fiercely price-competitive global market in the months to come.
    • 2) Container shortage: A crippling shortage of sea-borne containers has afflicted key large-volume products in the Indian export basket (tea, basmati rice, furniture, garments).
    • Sea-freight subsidy: At a time when container rates have shot up, there is surely a case for a sea-freight subsidy (for a limited period).
    • Even more urgently, the estimated 25,000-30,000 containers locked up at different ports owing to customs disputes need to be unloaded into warehouses and these containers freed.

    Can National Monetisation Pipeline (NMP) spur growth?

    • Even if the expected ₹88,000 crore of revenue under NMP is realized during the current year, it is intended to feed only a small part of the infrastructure expenditure budgeted for the year.
    • It is the latter that will have to drive growth. Monetization is merely a funding source.
    • The scheme offers a participation incentive to states with a 33% matching transfer from the Centre for revenues that states realize under the scheme.
    • This matching transfer could well have the perverse consequence of states under-achieving the potential value realizable. 
    • Volume II of the NMP document refers to the Scheme for Special Assistance to States for Capital Expenditure announced in October 2020.
    • It offered states an interest-free loan with bullet repayment after 50 years to complete stalled capital projects, or settle the outstanding bills of contractors.
    • The NMP demands clear and well-thought-through processes, with sufficient transparency and safeguards in the form of regulatory structures.

    Conclusion

    For now, the need of the hour is export facilitation.

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  • Common Prosperity Drive in China

    Chinese President Xi Jinping has called for China to achieve “common prosperity”, seeking to narrow a yawning wealth gap that threatens the country’s economic ascent and the legitimacy of Communist Party rule.

    What is ‘Common Prosperity’?

    • “Common prosperity” was first mentioned in the 1950s by Mao Zedong, founding leader of what was then an impoverished country.
    • The idea was repeated in the 1980s by Deng Xiaoping, who modernized an economy devastated by the Cultural Revolution.
    • Deng said that allowing some people and regions to get rich first would speed up economic growth and help achieve the ultimate goal of common prosperity.
    • Common prosperity is not egalitarianism. It does not mean “killing the rich to help the poor”.

    Components of the drive

    • The push for common prosperity has encompassed a wide range of policies, that includes curbing tax evasion and limits on the hours that tech sector employees can work to bans on for-profit tutoring in core school subjects, and strict limits on the time minors can spend playing video games.

    Why in news now?

    • China became an economic powerhouse under a hybrid policy of “socialism with Chinese characteristics”, but it also deepened inequality, especially between urban and rural areas, a divide that threatens social stability.
    • This year, Xi has signaled a heightened commitment to delivering common prosperity, emphasizing it is not just an economic objective but core to the party’s governing foundation.
    • A pilot program in Zhejiang province, one of China’s wealthiest, is designed to narrow the income gap there by 2025.

    How will it be achieved?

    • Chinese leaders have pledged to use taxation and other income redistribution levers to expand the proportion of middle-income citizens, boost incomes of the poor, “rationally adjust excessive incomes”, and ban illegal incomes.
    • Beijing has explicitly encouraged high-income firms and individuals to contribute more to society via the so-called “third distribution”, which refers to charity and donations.
    • Several tech industry heavyweights have announced major charitable donations and support for disaster relief efforts.
    • Other measures would include improving public services and the social safety net.

    What will be the economic impact?

    • Chinese leaders are likely to tread cautiously so as not to derail a private sector that has been a vital engine of growth and jobs.
    • This goal may speed China’s economic rebalancing towards consumption-driven growth to reduce reliance on exports and investment, but policies could prove damaging to growth driven by the private sector.
    • Increasing incomes and improved public services, especially in rural areas, would be positive for consumption, and a better social safety net would lower precautionary savings.
    • The effort supports Xi’s “dual circulation” strategy for economic development, under which China aims to spur domestic demand, innovation, and self-reliance, propelled by tensions with the United States.

    Try answering this PYQ from CSP 2020:

    Q.One common agreement between Gandhism and Marxism is :

    (a) The final goal of a stateless society

    (b) Class struggle

    (c) Abolition of private property

    (d) Economic determinism

     

    [wpdiscuz-feedback id=”6hsoxr3t9f” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

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  • The April-June quarter GDP numbers indicated at 20.1 per cent growth

    Context

    The April-June quarter GDP numbers indicated at 20.1 per cent growth.

    Making sense of the numbers

    • The higher GDP growth was driven by high indirect tax collections, largely GST.
    • The more representative measure of economic activity, gross value added (GVA), grew by 18.8 per cent.
    • GDP is derived by adding indirect tax collections, net of subsidy payouts, to GVA.
    • These numbers are over a base quarter that had contracted sharply due to the lockdowns during the first Covid wave last year.
    • The revival of manufacturing GVA was the most robust, with mining and electricity growth somewhat moderate.
    • The overall and sector-specific activity levels need to be evaluated vis-à-vis the corresponding thresholds of (the pre-pandemic) first quarter of 2019-20.
    • Agriculture grew at 4.5 per cent, with cereals, pulses and oilseeds output at all-time highs.
    • As could be expected, the services sector remained vulnerable, with activity even softer than expected.
    • Steel and cement output growth — proxies for construction activity — were also quite robust in the quarter.
    • Demand and expenditure: Private consumption was up 19.3 per cent while investment was at 55.3 per cent.
    • Government consumption was lower by 4.8 per cent.
    • Export: Net exports are typically in deficit, but the gap was much lower in the first quarter.

    How to sustain recovery: way forward

    • Looking beyond the first quarter, the set of high-frequency economic signals suggest a strong recovery in July and August.
    •  But, how can this recovery over the rest of the year and beyond be sustained, and even accelerated?
    • Sustaining 3 growth drivers: The three distinct potential growth drivers — consumption, investment and exports — will need to be effectively sustained by policy initiatives over the next couple of years.
    • Government spending: Centre’s revenues and expenditures during April-July this year suggest that it has significant room to increase spending.
    • National Monetisation Plan will open up further fiscal space to increase spending, in particular, on capex.
    • Credit support to stressed segment: mid-and small-sized enterprises will take some time to restore their pre-pandemic operational levels.
    • An increase in the flow of credit, from banks, NBFCs and markets, particularly to these stressed segments, is a priority, as a supplement to state spending.
    • Opportunity for exports: Global inventories are low and depending on the progression of the pandemic relaxations across geographies, are likely to provide opportunities for Indian exports to fill some of these gaps.
    • Reforms: Multiple reform initiatives, tax and other incentives are in the process of implementation.
    • These need to be accelerated in coordination with states to enable an environment of steady, high growth in the medium term.

    Challenges

    • Global central banks’ are signalling the imminent normalisation of ultra-loose monetary policy.
    • The resulting increase in financial sector volatility will have spillover effects on emerging markets, including India.
    • To keep the process smooth, it is crucial to raise India’s potential growth so that the economic recovery does not rapidly close the output gap, thereby preventing a surge in inflationary pressures.

    Conclusion

    There is a limited window of opportunity for India to leverage the current ongoing realignment of global supply chains and progressively onboard both manufacturing and services entities.

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  • How to unleash the entrepreneurial power of 1.3 billion Indians

    Context

    Last Independence Day, the PM announced that 15,000 of our current 69,000+ employer compliances and 6000+ filings have been identified for removal.

    Why India is a development economics outlier?

    • Software industry despite being low-income country: Few models predict a $2,500 per-capita income country with five million people writing software and internet data costs per GB at 3 percent of US levels.
    • Digital identity: In India there are1.2 billion people empowered with paperless digital identity verification.
    • Digital economy: India also witnesses 3.5 billion real-time monthly digital payments.
    • Attraction for Investment: $10 billion in private equity raised in July, and a $3 trillion public market capitalization.
    • Harvard’s Ricardo Hausman believes, the only sustained predictor of sustained economic success is economic complexity and suggests that India’s prosperity is less than our economic complexity would predict.

    India’s software industry

    • Our software industry is an oasis of high productivity — 0.8 per cent of India’s workers generate 8 percent of GDP.
    • The mandatory global digital literacy program and digital investment super-cycle sparked by Covid will double our software employment in five years.
    • Our software industry’s talent, alumni, and global engagement — 50,000 tech startups that have raised over $90 billion since 2014 from 500+ institutional investors.
    • India’s software services industry and tech startups are each estimated to be worth about $400 billion today which is expected to grow to $1 trillion by 2025.

    Why did India’s manufacturing sector fail to perform while its software industry flourished?

    • One of the reasons is the different regulatory thought worlds of the Software Technology Parks India rules of 1991 (STPI) and the Special Economic Zones Act of 2005 (SEZ).
    • STPI’s genius was simplicity. It allowed rebadging existing assets, embraced trust over suspicion, and adopted self-reporting that was largely paperless, presence less, and cashless.
    • SEZs largely replicated the regulatory cholesterol and distrust that has made India unfavorable for employment-intensive industries.

    Way forward

    • Productivity: Raising per-capita needs high productivity manufacturing and domestic services firms that disrupt our low-level equilibrium of labor handicapped without capital and capital handicapped without labor.
    • Opportunities for India: Until recently, China’s tech industry seemed unstoppable — half of their 160 unicorns operate in AI, big data, and robotics. But this is changing.
    • Over 50 recent regulatory actions against China’s tech industry have already cost investors over $1 trillion.
    • This offers an opportunity for India due to its attractiveness to factories, multinationals, startups, venture capital, and pension funds.
    • Replicate regulatory trust and simplicity offered to the technology industry to other sectors: India’s global soft power by reaching revenue and valuation possibilities that felt unimaginable — have come before physical infrastructure, farm employment reduction, and higher women’s labor force participation.
    • Massifying our prosperity needs massive formal, non-farm job creation.
    • Creating the productive firms that will offer these jobs to our young needs replicating the regulatory trust and simplicity that our technology industry enjoys in the rest of our economy.

    Conclusion

    Imagine India@100 if we cut regulatory cholesterol today and spent the next 25 years unleashing the entrepreneurial energies of 1.3 billion Indians — 65 percent of whom are below 35 years old.

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