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GS Paper: GS3

  • Ensuring the take off of aviation industry

    Primarily the major driver of connectivity, the aviation industry is one of the worst affected industries in the corona crisis. It is in the need of relief package from the government. The article discusses the contribution of the industry in the economy. Finer details of the operation of the industry are also explained. In the end, details of the measures expected from the government relief package are discussed.

    Significance of aviation industry in Indian economy

    • The air transport industry, including airlines and its supply chain, is estimated to contribute directly or indirectly $72 billion of GDP to India.
    • India being the fastest-growing domestic market in the world at 18.6 per cent per annum, followed by China at 11.6 per cent. (IATA report)

    Impact of Covid-19 crisis

    • The same IATA report says that in India, 29.32 lakh jobs in the aviation sector are at risk.
    • Airlines in the Asia Pacific region may see the largest revenue drop.
    • The air transport business along with its supply chain may see a near wipeout of approximately 40 per cent of business volume in the current financial year.
    •  The two-month-long shutdown has eroded the capital of most airlines.
    • The cost of maintaining Aircraft on Ground (AoG) is extremely high, and with nil revenues, this is a sure-shot recipe for disaster.

    Economics of running airlines profitably

    • You should be flying your entire fleet, with no Aircraft on Ground. (Airbus A-320 or similar)
    • Every plane must fly for 11 hours a day.
    • Which will be possible only if you have a turnaround time of 30-45 minutes.
    • And you have an average Passenger Load Factor (PLF) of around 65 to 67 per cent.

    Now, consider this:

    • Forty per cent of your fleet is grounded.
    • Due to social distancing and other hygiene protocols, an aircraft can fly only eight hours because of the elongated turnaround time.
    • One-third seats are to be kept vacant.
    • And finally, you are flying with a reduced 50 per cent PLF.
    • The break-even ticket price in such a scenario would be astronomical.

    Demand for  financial relief package

    • The Asia Pacific division of the IATA has corresponded with the Indian government, citing the case of some of the other nations which have announced financial relief packages for the sector.
    • As per reports, countries like Australia, New Zealand and Singapore, have announced relief packages for airlines.
    • FICCI has urged the government to immediately provide direct cash support to Indian carriers whereby the airlines can meet their fixed costs.

    What relief measures could be provided?

    • First, a moratorium for the next 12 months on all interest on the principal amount of loans without limitations of size or turnover through a direction to all financial institutions.
    • Second, VAT on ATF by state governments, which ranges from 0-30 per cent, should be rationalised with immediate effect to a maximum of 4 per cent across all states for the next six months.
    • Third, aviation turbine fuel needs to be brought under the ambit of 12 per cent GST, with full input tax credit on all goods and services.
    • Fourth, a waiver for private airport operators space rentals and AAI, royalty, landing, parking, route navigation and route terminal changes for the next one year.
    • This should be done not only for the airlines but all aviation-related businesses.
    • Fifth, all airlines and aviation-related business must be treated as priority sector lending.
    • Sixth, no loans to airlines and other aviation-related business should be classified as NPAs and no collateral enforced or enhanced during this moratorium.
    • Finally, support the airlines and other-aviation related companies by paying or taking care of salaries of the employees for a period of six months.
    • This will allow employee retention and is being done in a lot of countries.

    A question was asked by the UPSC in 2017 related to the development of Airports in India under PPP model. This shows the importance of the aviation sector from UPSC point of view. Consider the question asked by the UPSC “Examine the development of Airports in India through joint ventures under PPP model. What are the challenges faced by the authorities in this regard?”

    Conclusion

    Recovery from this crisis is going to be a long and uphill task. It will take effort, planning and, most importantly, coordination between the aviation industry and the government.

    Back2Basic: IATA-International Air Transport Association

    • IATA was founded in Havana, Cuba, on 19 April 1945.
    • It is the prime vehicle for inter-airline cooperation in promoting safe, reliable, secure and economical air services – for the benefit of the world’s consumers.
    • The international scheduled air transport industry is more than 100 times larger than it was in 1945.
    • Few industries can match the dynamism of that growth, which would have been much less spectacular without the standards, practices and procedures developed within IATA.

     

     

     

  • Economic stimulus package for Agriculture

    FM has announced plans to enact a central law to permit barrier-free inter-State trade of farm commodities and ensure a legal framework to facilitate contract farming under the third tranche of the Atmanirbhar Bharat Abhiyan economic stimulus package.

    Try this question:

    ‘Doubling Farmer’s Income’ and ‘USD 5 trillion economy’  seems more like slogans today in wake of COVID pandemic. Comment on the statement with keeping in view the Atmanirbhar Bharat Abhiyan of the government.

    Details of the package

    • The third tranche included plans to invest ₹1.5 lakh crore to build farm-gate infrastructure and support logistics needs for fishworkers, livestock farmers, vegetable growers, beekeepers and related activities.
    • The Centre will deregulate the sale of six types of agricultural produce, including cereals, edible oils, oilseeds, pulses, onions and potatoes, by amending the Essential Commodities Act, 1955.
    • Stock limits will not be imposed on these commodities except in case of national calamity or famine or an extraordinary surge in prices.
    • The Centre is considering introducing a law on contract farming under the Contract Act of 1872 to enable farmers to directly engage with processors, aggregators, large retailers and exporters in a fair and transparent manner.
    • It would allow private players to invest in inputs and technology in the agricultural sector.

    Must read:

    [pib] Atmanirbhar Bharat Abhiyan (Self-reliant India Mission)

  • Species in news: 40 Gharials released into Ghaghara River in UP

    Forty gharials (Gavialis gangeticus) were released in the Ghaghara River by the Bahraich forest division of Uttar Pradesh.

    This year, we have seen many news focusing on species reintroduction into the wild. Can you recall them?? If not, Click Here.

    And one may often get confused between the Mugger, Gharial and the Saltwater Crocodile. Note the differences about their IUCN status, habitat (freshwater/saltwater) etc..

    Gharials

    • The Gharial is a fish-eating crocodile is native to the Indian subcontinent. They are a crucial indicator of clean river water.
    • Small released populations are present and increasing in the rivers of the National Chambal Sanctuary, Katarniaghat Wildlife Sanctuary, Son River Sanctuary.
    • It is also found at the rainforest biome of Mahanadi in Satkosia Gorge Sanctuary, Orissa.
    • Gharials are ‘Critically Endangered’ in the IUCN Red List of Species.
    • The species is also listed under Schedule I of the Wild Life (Protection) Act, 1972.

    Into the wild

    • A major chunk of gharials in India is found in the Chambal River, which has about 1,000 adults.
    • The Ghaghara acts as an important aquatic corridor for gharials in Uttar Pradesh. The river is a major left-bank tributary of the Ganges.
    • About 250 gharials have been released in the Ghaghara since 2014.
    • However, there are satellite populations of less than 100 adults in the Girwa River (Katarniaghat Wildlife Sanctuary in Uttar Pradesh, the Ramganga River in Jim Corbett National Park and the Son River).
    • Like Uttar Pradesh, Bihar too is releasing gharials in the Valmiki Tiger Reserve as part of restocking the wild population. Unlike crocodiles, gharials do not pose any danger to humans.

    Back2Basics

    Mugger

    • The mugger is a marsh crocodile which is found throughout the Indian subcontinent.
    • It is a freshwater species and found in lakes, rivers and marshes.
    • IUCN Status: Vulnerable

    Saltwater Crocodile

    • It is the largest of all living reptiles.
    • It is found along the eastern coast of India.
    • IUCN Status: Least Concerned

  • Species in news: Quinine Nongladew

    Quinine, the most primitive antimalarial avatar of Hydroxychloroquine (HCQ), has made a village in Meghalaya latch on to its past for a curative future.

    Relate Quinine Nongladew with the following question. Such peculiar names are very important.

    Q. Recently, there was a growing awareness in our country about the importance of Himalayan nettle (Girardinia diversifolia) because it is found to be a sustainable source of (CSP 2019)

    (a) anti-malarial drug

    (b) bio-diesel

    (c) pulp for paper industry

    (d) textile fibre

    Quinine Nongladew

    • The herb Quinine Nongladew is the alkaloid quinine extracted from the bark of cinchona, a plant belonging to the Rubiaceae family and classified as either a large shrub or a small tree
    • The tree is named after a village about 70 km south of Guwahati, on the highway to Meghalaya capital Shillong.
    • The cinchona nursery was raised in the 19th century, probably around 1874, when Shillong became the British administrative headquarters for Assam Province.
    • Large swathes of Meghalaya used to be, and still are, malaria-prone.
    • The British had the foresight to start the plantation to combat malaria and other diseases caused by mosquitoes.

    Back2Basics: Hydroxychloroquine (HCQ)

    • HCQ is an oral tablet used as an anti-malarial drug. It is used to treat malaria, lupus erythematosus, and rheumatoid arthritis.
    • It may be used as part of a combination therapy where it is taken with other drugs.

  • [pib] Defence Testing Infrastructure Scheme (DTIS)

    In order to give a boost to domestic defence and aerospace manufacturing, Raksha Mantri has approved the launch of the Defence Testing Infrastructure Scheme (DTIS).

     

    Practice question for mains:

    Q. Self-reliance in defence manufacturing is one of the key objectives of ‘Make in India’. Discuss.

     

    Defence Testing Infrastructure Scheme (DTIS)

    • The DTIS would run for the duration of five years and envisages set up six to eight new test facilities in partnership with private industry.
    • The scheme has been allocated with an outlay of Rs 400 crore for creating a state of the art testing infrastructure for this sector.
    • This will facilitate indigenous defence production, consequently, reduce imports of military equipment and help make the country self-reliant.
    • While the majority of test facilities are expected to come up in the two Defence Industrial Corridors (DICs), the Scheme is not limited to setting up Test Facilities in the DICs only.

    Funding pattern

    • The projects under the Scheme will be provided with up to 75 per cent government funding in the form of ‘Grant-in-Aid’.
    • The remaining 25 per cent of the project cost will have to be borne by the Special Purpose Vehicle (SPV) whose constituents will be Indian private entities and State Governments.
    • The SPVs under the Scheme will be registered under Companies Act 2013 and shall also operate and maintain all assets under the Scheme, in a self-sustainable manner by collecting user charges.

  • How the economic package will play out for MSMEs?

    Recently, a stimulus package worth 20 lakh crore was announced by the government. How effective will these measures prove for the MSMEs? How the liquidity issue plaguing the NBFCs is sought to be solved? Finally, what are the issues with the package? All such question are dwelled upon here!

    Why ensuring flow of credit is important?

    • While assessing policy measures during the lockdown there are two over-arching principles one must keep in mind
    • One, the flow of funds will slow down with economic activity.
    • Two, firms do not go bankrupt because of insolvency, but because of lack of access to funds also called liquidity.
    • World over policymakers are pulling out all stops to make sure that the flow of credit continues.
    • Of the Rs 20-lakh-crore economic support announced by the Prime Minister on May 12, we have details for about Rs 16 lakh crore.
    • Monetary and financial interventions taken by the government and the RBI to provide credit to those who need it make up more than 90 per cent of it.

    Limited impact of RBI’s measures

    • Most of the measures announced by the RBI earlier have not had the desired effect.
    • The quantum of cheap funds being made available being more or less the same as the increase in the amount being deposited in the RBI every night by banks.
    •  Just reducing the cost of funds (i.e. lower Repo rate and LTRO) had no impact on the volume and cost of the credit they provided.
    • This happened due to the heightened risk aversion in banks.

    So, how government sought to address this problem?

    • The series of measures announced to provide credit support to the micro, small and medium enterprises (MSMEs) attempts to address this gap.
    • For MSMEs that have been servicing their loans so far new loans up to 20 per cent of the current outstanding credit will be fully backstopped by the government.
    • That is, if there is a default, the government will pay the bank.(i.e. act as a backstop).
    • So, how backstop by the government could help?
    • The move could lead to immediate credit creation, as guarantees are available only for loans extended in the next six months.
    • Also, the lenders have zero risk, and the borrowers are most likely stressed and would want these funds.
    • It is possible if not likely that firms will use these loans to just pay interest and cover losses.
    • But if so, that in a way is the purpose of this scheme — the government absorbing losses upfront rather than the likely larger lost taxes and potential bank bailouts if there is a bankruptcy.
    • For the government, the costs of this guarantee would be spread over several years, with at most 10 per cent incurred in this fiscal year.

    Move to provide liquidity to NBFCs

    • The two schemes together, targeting to provide Rs 75,000 crore of liquidity to non-banking finance companies (NBFCs), may be a bit less successful.
    • The special purpose vehicle that is to provide liquidity to NBFCs provides funds for three months at a time, may succeed in addressing problems like an NBFC defaulting due to lack of liquidity.
    • But it may not suffice to get them to grow.
    • The partial credit guarantee given to banks’ loans to NBFCs may be more effective for a subset of NBFCs.
    • But as it is only available to public sector banks, it would depend on their willingness and ability to extend new loans.

    Fund to provide equity for MSMEs

    • The Rs 50,000 crore fund to provide equity for MSMEs, with a corpus of Rs 10,000 crore being provided by the government, which would then be leveraged, is an interesting initiative.
    • Losses incurred in the current lockdown are depleting risk capital.
    • Replenishing if not growing that is paramount to restoring India’s growth potential.
    • While global as well as local private equity and venture capital funds would continue to explore and invest in smaller firms, such a fund can scale up the funds availability significantly.

    Issues with the package

    • The natural limitation of the policy interventions thus far is that they only affect enterprises in the formal sector and in agriculture.
    • The problems in informal non-agricultural enterprises may stay unaddressed, and remain an impediment on growth.
    • While less than 10 per cent of the announcements thus far has been the fiscal cost.
    • One senses a fiscal caution in government measures that is overdone, and could hurt more than it helps. (avoiding direct expenditure)

    Stability: of bond market and value of rupee

    • Two things minimised the volatility in the bond market: 1) pre-announcing the additional bond issuance for the year 2) giving an implicit assurance that additional deficits would be financed separately.
    • Even though that potentially means the RBI purchasing government bonds, the rupee has been remarkably stable.
    • There was fear that fiscal spending financed by the central bank would be frowned upon and drive currency weakness.

    Consider the question-“MSME sector forms the backbone of Indian economy. List challenges it faces in present times. Critically analyse whether the current stimulus package is suitable to boost growth in this sector.”

    Conclusion

    The road ahead remains unclear, but it is likely that the economic damage is already much larger than the measures undertaken so far. A continued focus on reforms and on sustaining India’s growth potential will be critical in preventing macroeconomic instability.

    Back2Basics: The two schemes announced for NBFCs

    • The FM announced a Rs 30,000-crore liquidity scheme for NBFCs.
    • The government will buy debt papers by NBCs, MFIs and HFCs.
    • The buying of papers will be fully guaranteed by the government of India.
    • Under this scheme investment will be made in both primary and secondary market transactions in investment-grade debt paper ofNBFCs/HFCs/MFIs.
    • The move is seen providing liquidity support for NBFCs and mutual funds and create confidence in the market.
    • The FM also announced Rs 45,000 crore partial credit guarantee scheme (PCGS) 2.0 for NBFCs.
    • Existing PCGS scheme will be extended to cover borrowings such as primary issuance of bonds/ CPs of such entities.
    • The first 20 per cent of loss will be borne by the government of India.

    50000 Crore fund for MSMEs

    • Finance Minister Nirmala Sitharaman announced Rs 50,000-crore equity infusion through Fund of Funds for MSMEs.
    •  The Fund of Funds will be set up with a corpus of Rs 10,000 crore.
    • The Fund of Funds will be operated through a mother fund and a few daughter funds.
    • The fund structure will help leverage Rs 50,000 crore at daughter-fund levels.
    • This will help MSMEs expand size as well as capacity.
    • It will encourage MSMEs to get listed on the main board of stock exchanges, the government said.
    • Based on the recommendations of UK Sinha Committee, the Fund of Funds was first announced in the Union Budget on February 1, 2020.
    • An investment of Rs. 10,000 crore was proposed in the Budget for the scheme.

     

  • “Tour of Duty (ToD) Scheme” for Short Service in Indian Army

    The Indian Army has planned to take civilians on a three-year “Tour of Duty” (ToD) or short service” on a trial basis to serve as officers and in other ranks initially for a limited number of vacancies which will be expanded later.

    Practice question for mains:

    Q. The “Tour of Duty” (ToD) Scheme is a significant move to free up funds for the Army’s modernization. Comment.

    Tour of Duty Scheme

    • Indian Army is thinking to induct youngsters for three-year “Tour of Duty (ToD) tenure as both officers and jawans.
    • The ToD scheme, in case approved, will initially be launched with around 100 vacancies for officers and 1,000 for jawans.
    • As per Army, a ToD officer will earn Rs 80,000-90,000 per month. After ToD tenure, youngsters can find lucrative private and public sector jobs.
    • The Army says it will restructure the cadre and help modernize the force.

    Advantages of ToD Scheme

    • ToD is expected to result in a significant reduction in the expenditure on pay and pensions and free up funds for the Army’s modernization.
    • The overall purpose of the ToD concept is ‘internship/temporary experience’.
    • There will be no requirement of attractive severance packages, resettlement courses, professional encashment training leave, ex-servicemen status, ex-servicemen Contributory Health Scheme for ToD officers and other ranks.
    • Analysing the cost of training incurred on each personnel compared with the limited employment of the manpower for three years, the proposal calculates that it will indeed have a positive benefit.

    The cost factor

    • The approximate cost incurred is nearly ₹5.12 crore and ₹6.83 crores for a Short Service Commission (SSC) officer if he or she is released from service after 10 and 14 years, respectively.
    • The costs for those released after a three-year ToD is just ₹80-85 lakh.
    • Similarly, estimates for a jawan with 17 years of service as compared to a ToD recruit with three years’ service shows that the prospective lifetime savings of just one jawan are ₹11.5 crores.
    • Thus, savings for only 1,000 jawans could be ₹11,000 crores, which could be used for the much-needed modernization of the Army.

    Other benefits

    • This scheme is for those who did not want a full career in the Army but still wanted to put on the uniform.
    • Individuals who opted for ToD would get a much higher salary than their peers in the corporate sector.
    • They would also have an edge after leaving the service and going to the corporate sector.
    • The Army hoped that this would attract individuals from the best colleges, including the Indian Institutes of Technology.

    Back2Basics: Permanent Commission (PC) Vs. Short Service Commission (SSC)

    • SSC means an officer’s career will be of a limited period in the Indian Armed Forces whereas a PC means they shall continue to serve in the Indian Armed Forces, till they retire.
    • The officers inducted through the SSC usually serve for a period of 14 years. At the end of 10 years, the officers have three options.
    • A PC entitles an officer to serve in the Navy till he/she retires unlike SSC, which is currently for 10 years and can be extended by four more years, or a total of 14 years.
    • They can either select for a PC or opt-out or have the option of a 4-years extension. They can resign at any time during this period of 4 years extension.

  • Global Forest Resources Assessment, 2020

    The deforestation rate globally declined between 2015 and 2020, according to the Global Forest Resources Assessment, 2020. This decline is a result of sustainable management measures worldwide.

    Possible prelim question:

    Q. The Global Forest Resources Assessment Report recently seen in news is published by-

    a) UN-FAO

    b) UN Forum on Forests

    c) International Union of Forest Research Organizations

    d) None of these

    Global Forest Resources Assessment

    • The Global Forest Resources Assessment (FRA) reports on the status and trends of the world’s forest resources.
    • It is led by the Forestry Department of the Food and Agriculture Organization of the United Nations.
    • The FRA reports the extent of the world’s forest area as well as other variables, including land tenure and access rights, sustainable forest management (SFM), legal and institutional frameworks for forest conservation, and sustainable use.

    Click here for amazing visuals of the FRA

    Highlights of the 2020 report

    • The rate of forest loss in 2015-2020 declined to an estimated 10 million hectares (mha), down from 12 million hectares (mha) in 2010-2015, according to the FRA 2020.
    • The FRA 2020 has examined the status of, and trends in, more than 60 forest-related variables in 236 countries and territories in the period 1990–2020.
    • The world lost 178 mha of forest since 1990, an area the size of Libya, according to the report.
    • However, the rate of net forest loss decreased substantially during 1990–2020 due to a reduction in deforestation in some countries, plus increases in the forest area in others through afforestation.
    • The largest proportion of the world’s forests were tropical (45 per cent), followed by boreal, temperate and subtropical.

    Data on losses and gains

    • The world’s total forest area was 4.06 billion hectares (bha), which was 31 per cent of the total land area. This area was equivalent to 0.52 ha per person.
    • Among the world’s regions, Africa had the largest annual rate of net forest loss in 2010–2020, at 3.9 mha, followed by South America, at 2.6 mha.
    • On the other hand, Asia had the highest net gain of forest area in 2010–2020, followed by Oceania and Europe.
    • However, both Europe and Asia recorded substantially lower rates of the net gain in 2010–2020 than in 2000–2010.
    • Oceania experienced net losses of forest area in the decades 1990–2000 and 2000–2010.
    • More than 54 per cent of the world’s forests were in only five countries — the Russian Federation, Brazil, Canada, the United States of America and China.
    • The highest per cent of plantation forests were in South America while the lowest was in Europe.

  • Global Energy Transition Index, 2020 and its highlights

    India has moved up two positions to rank 74th on a Global ‘Energy Transition Index (ETI)’ with improvements on all key parameters of economic growth, energy security and environmental sustainability.

    Possible prelim question:

    Q. The Global Energy Transition Index recently seen in news is released by:

    a) International Energy Agency (IEA)

    b) World Economic Forum (WEF)

    c) International Renewable Energy Agency (IRENA)

    d) International Solar Alliance

    Energy Transition: What does it mean?

    • Energy transition refers to the global energy sector’s shift from fossil-based systems of energy production and consumption — including oil, natural gas and coal — to renewable energy sources like wind and solar, as well as lithium-ion batteries.
    • The increasing penetration of renewable energy into the energy supply mix, the onset of electrification and improvements in energy storage are all key drivers of the energy transition.

    What is the Energy Transition Index (ETI)?

    • The ETI is a fact-based ranking intended to enable policy-makers and businesses to plot the course for a successful energy transition.
    • The benchmarking of energy systems is carried out annually across countries.
    • Part of the World Economic Forum’s Fostering Effective Energy Transition initiative, it builds on its predecessor, the Energy Architecture Performance Index.
    • The ETI is a tool for energy decision-makers that strive to be a comprehensive, global index that tracks the performance of energy systems at the country level.
    • It also incorporates macroeconomic, institutional, social, and geopolitical considerations that provide enabling conditions for an effective energy transition.

    Global rankings

    • Results for 2020 show that 75 per cent of countries have improved their environmental sustainability.
    • Sweden has topped the ETI for the third consecutive year and is followed by Switzerland and Finland in the top three.
    • Surprisingly, France (ranked 8th) and the UK (7th) are the only G20 countries in the top ten.
    • The scores for the US (32th), Canada (28th), Brazil (47th) and Australia (36th) were either stagnant or declining.

    India’s highlights

    • India is one of the few countries in the world to have made consistent year-on-year progress since 2015.
    • India’s improvements have come across all three dimensions of the energy triangle — economic development and growth, energy access and security, and environmental sustainability.
    • The WEF said that the emerging centres of demand such as India (74th) and China (78th) have made consistent efforts to improve the enabling environment.
    • For India, gains have come from a government-mandated renewable energy expansion programme, now extended to 275 GW by 2027.
    • India has also made significant strides in energy efficiency through bulk procurement of LED bulbs, smart meters, and programs for labelling of appliances.

    Threats posed by COVID-19

    Beyond the uncertainty over its long‑term consequences, COVID-19 has unleashed cascading effects in real-time:

    • The erosion of almost a third of global energy demand
    • Unprecedented oil price volatilities and subsequent geopolitical implications
    • Delayed or stalled investments and projects
    • Uncertainties over the employment prospects of millions of energy‑sector workers

  • What self-reliant economy means?

    ‘Atma-nirbhar’ has become a buzzword after PM Modi mentioned it in his speech. This article analyses the policy statement announced by the PM that focuses on self-reliance of the country in the future.  So, what exactly the term self-reliance could include? what are the areas in which India is dependent on other economies? Read the article to know more about these issues.

    Policy statement of 1991

    • In 1991, only four policy statements were made —the end of licence-permit Raj, steep cuts in fiscal deficit and tariffs,  and devaluation of the Rupee.
    • With four policy measures, the economy was pulled out of a crisis and placed on a new growth path.
    • The key to 1991 was the political articulation of a vision that went beyond platitudes.

    What is there in the PM’s vision statement?

    • The PM’s vision statement had four elements.
    • First, a step up in public spending and investment, aimed at promoting the welfare and raising the investment rate.
    • Second, policy reforms aimed at making the domestic economy more globally competitive.
    • Third, a long-term structural shift making the economy more “self-reliant” and less dependent on the world economy.
    • The fourth wheel of this new growth engine will be Lockdown Model 4 that is to be announced in a few days.

     Commitment of political leadership: key to spending and investment

    • Increased public spending will certainly boost demand and generate employment in the short term and add to infrastructure capacity in the medium term.
    • Policy reform, including changes in land, labour and other policies, could yield results in the medium term.
    • But for now, investors will wait and watch to test the sincerity and efficiency of governments at the Centre and in the states.
    • They will wait to see how the various policy steps being announced by the FM get implemented — how quickly and how efficiently.
    • The government can meet with success if investors, consumers and other economic agents believe in the commitment of the political leadership and the capability of the administration to deliver.

    Focus on the self-reliance

    • PM has said that his version of self-reliance does not imply isolationism and inward-orientation.
    • His version of self-reliance will inject greater self-confidence in the people by reducing the country’s dependence on other nations.
    • Theotonio Dos Santos, defined dependence as a situation in which a country’s economy is “conditioned by the development and expansion of another economy”. 
    • He said that to be self-reliant the growth process of an economy “should not become dominated or dependent on another economy”.

    So, on which economies is India excessively dependent?

    • 1. The oil-exporting economies.
    • Oil and gas account for a bulk of India’s imports.
    • Whatever new sources of energy India may tap in the foreseeable future, it will remain import-dependent for energy.
    • Fortunately, for India, the global crude oil and gas markets are likely to remain buyers’ markets for some time to come.
    • 2. Dependence on foreign exchange.
    • Second is the dependence on foreign exchange inflows both in the form of remittances, mainly from the Gulf and the US, and financial flows into capital markets.
    • It is not clear how the new Modi strategy of self-reliance proposes to deal with this dependence.
    • If anything, India is seeking more FDI and external debt.
    • 3. Defence equipment.
    • The third dependence is on imported defence equipment, mainly from Russia, the US, Israel and France.
    • 4. Electronic and pharmaceuticals.
    • Fourth, import dependence in electronic goods and pharmaceuticals, mainly from China.
    • Thus far, government policy does not address these dependencies.
    • The immediate focus of PM’s self-reliance seems to be China.

    How to turn import dependence into import power?

    • Post-Deng Xiaoping China established long ago that for a large economy, it is possible to be both self-reliant and globalised at the same time.
    • Trade in itself does not create dependence if a country is able to grow both exports and imports.
    • China has demonstrated the geo-economic power of both exports and imports by making trade partners dependent on it on both counts.
    • When China refuses to buy wine and beef from Australia, it is using its import power, not demonstrating its import dependence.
    • If an economy is willing to live without those imports or can substitute them with domestic production, then it is not badly hurt.

    So, what are the lessons for India?

    • It is export dependence that can make even a large economy vulnerable.
    • It is China’s dependence on US markets that President Donald Trump has aimed to reduce by waging a trade war.
    • India has never had such export dependence on any one country.
    • Indian government’s hope that multinational companies exiting China will relocate to India can only make India more export-dependent since these MNCs aim to sell globally.
    • Making India less dependent on China cannot be the only measure of self-reliance.

    Consider the question “For India, it is not trading dependence that makes India vulnerable but the inadequacy of its human capital. Comment”

    Conclusion

    For India to be truly self-reliant and self-confident, public investment in education, human capability and research and development has to increase.