Note4Students
From UPSC perspective, the following things are important :
Prelims level: Defining formal sector
Mains level: Paper 3- Challenges of formalisation
Context
Despite efforts by the government, formalisation of economy still eludes us.
Prevalence of informality in India
- Despite witnessing rapid economic growth over the last two decades, 90% of workers in India have remained informally employed, producing about half of GDP.
- Combining the International Labour Organization’s widely agreed upon template of definitions with India’s official definition (of formal jobs as those providing at least one social security benefit — such as EPF), the share of formal workers in India stood at 9.7% (47.5 million).
- The prevalence of informal employment is also widespread in the non-agriculture sector.
- About half of informal workers are engaged in non-agriculture sectors which spread across urban and rural areas.
- Industries thriving without paying taxes are only the tip of the informal sector’s iceberg.
- What remains hidden are the large swathes of low productivity informal establishments working as household and self-employment units which represent “petty production”.
- To conflate the two distinct segments of the informal sector would be a serious conceptual error.
Fiscal perspective of formalisation
- Efforts to encourage formalisation: Currency demonetisation, introduction of the Goods and Services Tax (GST), digitalisation of financial transactions and enrolment of informal sector workers on numerous government Internet portals are all meant to encourage the formalisation of the economy.
- The formal sector is more productive than the informal sector, and formal workers have access to social security benefits.
- The above-mentioned efforts are based on the “fiscal perspective” of formalisation.
- This perspective appears to draw from a strand of thought advanced by some international financial institutions such as the International Monetary Fund, which foregrounds the persistence of the informal sector to excessive state regulation of enterprises and labour which drives genuine economic activity outside the regulatory ambit.
- Hence, it is believed that simplifying registration processes, easing rules for business conduct, and lowering the standards of protection of formal sector workers will bring informal enterprises and their workers into the fold of formality.
Issues with fiscal perspective
- Early on, in an attempt to promote employment, India protected small enterprises engaged in labour intensive manufacturing by providing them with fiscal concessions and regulating large-scale industry by licensing.
- Such measures led to many labour-intensive industries getting diffused into the informal/unorganised sectors.
- Further, they led to the formation of dense output and labour market inter-linkages between the informal and formal sectors via sub-contracting and outsourcing arrangements (quite like in labour abundant Asian economies).
- While such policy initiatives may have encouraged employment, bringing the enterprises which benefited from the policy into the tax net has been a challenge.
- Political and economic reasons operating at the regional/local level in a competitive electoral democracy are responsible for this phenomenon, too.
Role of underdevelopment
- Global evidence suggests that the view that legal and regulatory hurdles alone are mainly responsible for holding back formalisation does not hold much water.
- A well-regarded study, ‘Informality and Development’ argues that the persistence of informality is, in fact, a sign of underdevelopment.
- The finding suggests that informality decreases with economic growth, albeit slowly.
- A similar association is also evident across major States in India, based on official PLFS data.
- Hence, the persistence of a high share of informal employment in total employment seems nothing but a lack of adequate growth or continuation of underdevelopment.
Impact of pandemic
- Research by the State Bank of India recently reported the economy formalised rapidly during the pandemic year of 2020-21, with the informal sector’s GDP share shrinking to less than 20%, from about 50% a few years ago — close to the figure for developed countries.
- These findings of a sharp contraction of the informal sector during the pandemic year (2020-21) do not represent a sustained structural transformation.
- They are a temporary (and unfortunate) outcome of the pandemic and severe lockdowns imposed in 2020 and 2021.
Way forward
- Policy efforts directed at bringing the informal sector into the fold of formality fail to appreciate that the bulk of the informal units and their workers are essentially petty producers eking their subsistence out of minimal resources.
- The economy will get formalised when informal enterprises become more productive through greater capital investment and increased education and skills are imparted to its workers.
Consider the question “What are the reasons for persistent informality in India? Suggest the way to ensure the smooth transition to the formality.”
Conclusion
Policy efforts to formalise the economy will have limited results as the bulk of informal units are petty producers.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Amendment to IAS cadre rules
Context
There are recent reports in the media about serious concerns of several state governments on Government of India’s proposed move to amend the IAS service rules to meet the shortage of officers at various levels at the Centre.
How does central deputation work?
- Voluntary: Under the current dispensation, officers opt for central deputation from the states voluntarily.
- The Centre then makes a selection from among these officers for posts which are vacant or are likely to be vacant in the near future.
- While doing so, it considers the suitability of the officer based on his/her past experience.
- Once the selection is finalised, orders are issued, requesting the state government to relieve the officer concerned.
- Quota for each state: Each state has a certain quota beyond which its officers are not accepted by the Centre.
Shortage of officers on central deputation
- In the last decade, there has been a gradual decline in the number of officers who opt for central deputation.
- Generally, of the total cadre strength of the states, about 25-30 per cent used to be on central deputation.
- Currently, less than 10 per cent are working in various central ministries.
- According to certain reports, in states like UP, Bihar, Odisha and Tamil Nadu and Kerala, the number is between 8 per cent and 15 per cent.
- One of the reasons for this non-availability of officers for central deputation is the inadequate recruitment more than a decade and half ago.
- But an important reason is also the comparatively better service conditions in the states.
So, what do the proposed rules seek to achieve?
- While fixing the cadre strength of states, about 40 per cent posts of senior duty are earmarked for central deputation.
- Shortage to be shared equitably: Considering that recruitments in the past were not adequate, the proposed change in rules provides for shortage to be shared equitably between the Centre and states.
- Time limit to relieve officers: Also, since vacancies need to be filled in time, there is a suggestion of a time limit in which states must respond and relieve the officer selected.
Way forward
- Respect the views of State: It has to be clearly understood that when states give the list of officers they wish to offer for central deputation, it will be the decision of the states alone.
- The Centre, if it wishes to have an officer work for it, can suggest so to the state.
- If the state does not wish to suggest his name for deputation, the Centre should respect their views, even though they have the power under cadre rules to do so.
- Improving working conditions for officers: The Centre has to realise that improving working conditions for officers at the deputy secretary and director levels is critical to the success of cadre management.
- Many of the officers at this level have concerns regarding education of their children, transport and the higher cost of living in Delhi.
- A deputation allowance for the period of deputation in Delhi could be an option.
- Non-adversarial manner: The states also have to look at this issue in a non-adversarial manner, where needs of both the Centre and the state have to be matched and met.
- The Centre should dispel fears of states about misuse of central power.
Conclusion
Proposed amendment to service rules is needed to meet shortage of personnel, but Centre must dispel states’ fears about overreach.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Banking frauds
- Poor banking governance: Most frauds show that banks did not observe due diligence, both before and after disbursing loans. Poor level of checks and balances in the banking system is one of the reason.
- Poor monitoring: Lack of technology and fraud monitoring agencies to detect frauds makes the problem more complex. There is an absence of an effective mechanism to monitor the credit flow. Flawed risk-mitigation design, which creates an excessive focus on credit or market risks, but focuses less on operational risks also leading to more breaches.
- Technological backwardness: Excessive dependence on manual supervision, at both external and internal levels makes it impossible to manually control and supervise the sheer volume of transactions.
- Immoral behaviour: The disintegrating moral fibre of Indian businessmen, bankers and other white-collar professionals, nepotism in internal committees of banks, unnecessary political interventions lead to increased frauds.
- Political interference: The political pulls and pressures on investigating agencies, and long-drawn processes of legal system act less as a deterrent.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Anti-dumping duty, Countervailing Duty
Mains level: Read the attached story
India has initiated an anti-dumping probe against imports of a certain type of tiles, used for covering the floors in residential and commercial buildings, from China, Taiwan and Vietnam following a complaint by domestic players.
Why in news?
- Countries start anti-dumping probes to determine whether their domestic industries have been hurt because of a surge in cheap imports.
- The dumping has caused material injury to the domestic players. If established, the Directorate General of Trade Remedies (DGTR) would recommend an anti-dumping duty on these imports.
- As a countermeasure, they India would impose these duties under the multilateral regime of the World Trade Organisation (WTO).
What is Dumping?
- Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges in its home (or its domestic) market.
- This is an unfair trade practice which can have a distortive effect on international trade.
- Anti dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect.
What is Anti-Dumping Duty?
- An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
- In order to protect their respective economy, many countries impose duties on products they believe are being dumped in their national market.
- In fact, anti-dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry.
- Such ‘dumped’ products have the potential to undercut local businesses and the local economy.
- Anti-dumping duties provide relief to the domestic industry against the injury caused by dumping.
Mechanism in India
- The Department of Commerce recommends the anti-dumping duty, provisional or final.
- The Department of Revenue in Finance Ministry acts upon the recommendation within three months and imposes such duties.
WTO and Anti-Dumping Duties
- The WTO operates a set of international trade rules, including the international regulation of anti-dumping measures.
- It does NOT intervene in the activities of companies engaged in dumping.
- Instead, it focuses on how governments can—or cannot—react to the practice of dumping.
- In general, the WTO agreement permits governments to act against dumping if it causes or threatens material injury to an established domestic industry.
Issues with such duties
- Anti-dumping duties have the potential to distort the market.
- In a free market, governments cannot normally determine what constitutes a fair market price for any good or service.
Back2Basics:
Countervailing duty (CVD)
- Countervailing duty (CVD) is a specific form of duty that the government imposes in order to protect domestic producers by countering the negative impact of import subsidies.
- CVD is thus an import tax by the importing country on imported products.
- To make their products cheaper and boost their demand in other countries, foreign governments sometimes provide subsidies to their producers.
- To avoid flooding of the market in the importing country with these goods, the government of the importing country imposes a countervailing duty, charging a specific amount on import of such goods.
How does it work?
- The duty nullifies and eliminates the price advantage (low price) enjoyed by an imported product when it is given subsidies or exempted from domestic taxes in the country where they are manufactured.
- It raises the price of the imported product, bringing it closer to its true market price.
- In this way, the government is able to provide a level playing field for domestic products.
CVD and India
- The World Trade Organization (WTO) permits the imposition of countervailing duty by its member countries.
- In India, the CVD is imposed as an additional duty besides customs on imported products when such products are given tax concession in the country of their origin.
Who imposes countervailing measures in India?
- The countervailing measures in India are administered by the Directorate General of Anti-dumping and Allied Duties (DGAD), in the commerce and industry ministry’s department of commerce.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: America COMPETES Act
Mains level: US Visa policies and its impact for Indians
The US has unveiled the Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength (COMPETES) Act of 2022 that proposes to open up new vistas for talented individuals from across the world with a new start-up visa.
What is the COMPETES Act?
- The bill provides $52 billion to encourage more semiconductor production in the US, and $45 billion for grants and loans to improve supply chain resilience and manufacturing, among other programs.
- It also includes funding to address social and economic inequality, climate change, and immigration.
- For instance, it provides an exemption for STEM PhDs from the green card cap and creates a new green card for entrepreneurs.
- The bill also authorizes $600 million a year to construct manufacturing facilities to make the US less reliant on solar components made in Xinjiang, China.
Key provisions in the Act
- The Act amends the Immigration and Nationality Act to create a new classification of “W” non-immigrants for entrepreneurs with an ownership interest in a start-up entity.
- It seeks to establish procedures for foreign nationals with an ownership interest in a start-up entity to self-petition for lawful permanent resident status as an immigrant entrepreneur.
- The bill exempts from the numerical limits on immigrant visas certain foreign nationals (and the spouses and children of such aliens) who have earned a doctoral degree in STEM.
Implications for Indians
- It would mean more opportunities in the US for Indian talent, and for skilled workers.
- Every year, the US administration issues 85,000 H-1B work permits.
- Every year, Indians and Indian companies corner a lion’s share of the H-1B work permits issued that year.
- With this new category, Indian professionals will likely have a better shot at opportunities that the Act is likely to provide.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: SSLV, PSLV, GSLV
Mains level: Commercial space activities in India
The new chairman of the ISRO Dr S Somanath has indicated inauguration of indigenous new launch rockets, called the Small Satellite Launch Vehicle (SSLV).
What is SSLV?
- The SSLV is a small-lift launch vehicle being developed by the ISRO with payload capacity to deliver:
- 600 kg to Low Earth Orbit (500 km) or
- 300 kg to Sun-synchronous Orbit (500 km)
- It would help launching small satellites, with the capability to support multiple orbital drop-offs.
- In future a dedicated launch pad in Sriharikota called Small Satellite Launch Complex (SSLC) will be set up.
- A new spaceport, under development, near Kulasekharapatnam in Tamil Nadu will handle SSLV launches when complete.
- After entering the operational phase, the vehicle’s production and launch operations will be done by a consortium of Indian firms along with NewSpace India Limited (NSIL).
Vehicle details
(A) Dimensions
- Height: 34 meters
- Diameter: 2 meters
- Mass: 120 tonnes
(B) Propulsion
- It will be a four stage launching vehicle.
- The first three stages will use Hydroxyl-terminated polybutadiene (HTPB) based solid propellant, with a fourth terminal stage being a Velocity-Trimming Module (VTM).
SSLV vs. PSLV: A comparison
- The SSLV was developed with the aim of launching small satellites commercially at drastically reduced price and higher launch rate as compared to Polar SLV (PSLV).
- The projected high launch rate relies on largely autonomous launch operation and on overall simple logistics.
- To compare, a PSLV launch involves 600 officials while SSLV launch operations would be managed by a small team of about six people.
- The launch readiness period of the SSLV is expected to be less than a week instead of months.
- The SSLV can carry satellites weighing up to 500 kg to a low earth orbit while the tried and tested PSLV can launch satellites weighing in the range of 1000 kg.
- The entire job will be done in a very short time and the cost will be only around Rs 30 crore for SSLV.
Significance of SSLV
- SSLV is perfectly suited for launching multiple microsatellites at a time and supports multiple orbital drop-offs.
- The development and manufacture of the SSLV are expected to create greater synergy between the space sector and private Indian industries – a key aim of the space ministry.
Back2Basics:
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