Coronavirus – Economic Issues

Atmanirbhar Abhiyan Package

Note4Students

From UPSC perspective, the following things are important :

Prelims level : GDP rankings

Mains level : Paper 3- Atmanirbhar Bharat Abhiyan

The article examines the various aspects of the recently announced Atmanirbhar Bharat Abhiyaan (ANBA). But before digging deeper into the ANBA the author ruminates over India’s growth (GDP) story. Reasons for India’s failure to deliver on the economic empowerment are also examined. In the end, the relation between the free economies and the welfare states is examined.

The good and the bad of India’s GDP story

  • India crossed the UK two years ago, France last year, and will cross Germany and Japan in the next five years. (In terms of nominal GDP)
  • That will leave only America and China ahead of us.
  • But India’s per capita GDP story is on a different track.
  • We once equalled Korea (1960) and China (1997) but today there are 138 countries ahead of us.
  • The COVID-19 lockdown and the stories of pain inflicted on migrant workers exposes how per capita GDP is more important for our citizens than total GDP.

A take on Economic empowerment

  • Ramchandra Guha, in his book- Gandhi: The Years that Changed India, suggests that while other patriots had used Swaraj to signify national independence, Gandhiji made India aware of its true or original meaning, Swa-Raj, or self rule- both political and economic.
  • Our collective political Swaraj hasn’t always translated into individual economic Swa-Raj because of inadequate formalisation, industrialisation, urbanisation, financialisation, and skilling.

Atmanirbhar Bharat Abhiyaan(ANBA) – A step towards Swaraj

  • The Atmanirbhar Bharat Abhiyaan (ANBA) policy announcements are important moves in meeting Gandhiji’s vision of individual self-reliance and recognising poverty as the worst form of violence.
  • ANBA targets avoiding unemployment becoming hunger and illiquidity becoming insolvency.
  • The agriculture package of Rs 1.63 lakh crore included farm-gate and aggregation point infrastructure, fisheries, animal husbandries, and others like animal vaccination, micro food enterprises.
  • The non-bank liquidity package of Rs 5.94 lakh crore included MSMEs, NBFCs, MFIs, housing finance companies, power discoms, and others (PF, tax relief).
  • The migrant and farmer package of Rs 3.16 lakh crore included concessional credit via kisan credit card, farmer working capital, affordable housing, and others (food, street vendors, microloans).
  • The welfare and health package of Rs 1.85 lakh crore included women and pensioner benefits, MNREGA, emergency health response, and others like food, financial security.
  • RBI’s liquidity measures of Rs 5.24 lakh crore included two phases of targeted long-term repo operations, CRR cut, marginal standing facility limit increase, refinancing facilities, and mutual fund special liquidity facility.
  • The reform to the Essential Commodities Act, APMCs and contract farming directly impact prosperity as 45 per cent of our agricultural labour force generates only 14 per cent of GDP.

How ANBA maintained fiscal health?

  • ANBA is also important for what it is not. It’s not fiscal profligacy-i.e. the government is spending with due care for fiscal deficit figures.
  • Total spending may be higher if the loans for which government has stated to stand as a guarantor turns NPAs (for ex. MSMEs loans).
  • But for now, it marginally raises our already difficult fiscal deficit.
  • It’s not an institutional assault — RBI’s role in ANBA keeps it away from the political minefield that the US Federal Reserve has entered.
  • The US Fed is buying the bonds sold by corporations (i.e. Fed is spending itself) while the RBI has only lent the money to banks.
  • There is a recognition that RBI has lending powers, not spending powers.
  • It’s not a mindless public sector expansion: The end of monopolies (public sector monopoly) and new public-private partnership opportunities signal pragmatism and efficiency targeting.
  • It’s not waiting for potential COVID upsides: it makes us worthy if risky global just-in-time supply chains get replaced by resilient just-in-case diversification.
  • It’s not shutting off India from the world i.e. Atmanirbhar is not isolationist policy.
  • It creates new openness to ideas, investment, and trade.

What is on agenda for ANBA 2.0?

  • The unfinished agenda for ANBA 2.0 includes following-
  • Civil service reform-the steel frame has become a steel cage.
  • Government reform-Delhi doesn’t need 57 ministries and 250 people with Secretary rank.
  • Financial reform-sustainably raising credit to GDP ratio from 50 per cent to 100 per cent.
  • Urban reform-having 100 cities with more than a million people rather than 52.
  • Education reform-our current regulator confuses university buildings with building universities.
  • Skill reform-our apprentice regulations are holding back employers and universities.
  • Labour reform-our capital is handicapped without labour and labour is handicapped without capital.

Welfare state and free economies

  • A modern state is a welfare state with formal private jobs.
  • The idealisation of Scandinavian social democracies forgets that their dense social security nets are underwritten by remarkably free economies.
  • The World Bank Ease of Doing Business scale ranks Denmark third, Norway seventh, and Sweden 12th of 190 countries.
  • Despite — or thanks to — America’s capitalism, its central government spends 37 per cent of GDP while India’s spends 14 per cent.
  • And its ferocious fiscal pandemic response involves $3 trillion government borrowing in the next three months.
  • People suggest the US can sustain its welfare state because it has the world’s reserve currency.
  • But America can afford its welfare state because of the productivity of its cities, companies and citizens. Consider the following-
  • New York’s GDP equals Russia with 6 per cent of the people and 0.00005 per cent of the land.
  • The $4.5 trillion revenue of its 25 largest companies is more than Germany’s GDP.
  • Its per capita income is $55,000.
  • India’s welfare state does not lack intentions but lacks resources.
  • No amount of CSR, philanthropy, or government borrowing can provide the resources for the care of our weak, vulnerable, and unlucky that will flow from more productive cities, firms, and citizens.
  • This is what ANBA hopes to achieve.

Consider the question “Far from being an isolationist, Atmanirbhar Bharat Abhiyan seeks to make India a welfare state with more productive cities, firms and citizens. Comment.”

Conclusion

India missed the manufacturing export train that China boarded but another may be coming.  Policy reform is not the solving of a sum but the painting of a picture — 90 days after the lockdown ends, we need ANBA 2.0 to finish the job.


Back2Basics: Just in time inventory

  • The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules.
  • Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs.
  • This method requires producers to forecast demand accurately.

Just in case inventory

  • Just in case (JIC) is an inventory strategy in which companies keep large inventories on hand.
  • This type of inventory management strategy aims to minimize the probability that a product will sell out of stock.
  • The company that utilizes this strategy likely has a hard time predicting consumer demand or experiences large surges in demand at unpredictable times.
  • A company practicing this strategy essentially incurs higher inventory holding costs in return for a reduction in the number of sales lost due to sold-out inventory.
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