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  • ‘One Nation, One Ration Card’ System

    Finance Minister has announced the nationwide rollout of a ‘One Nation, One Ration Card (ONORC)’ system in all states and UTRs by March 2021. As of now, about 20 states have come on board to implement the inter-state ration card portability.

    Practice question for mains:

    Q. The  ‘One nation one ration card ‘scheme would bring perceptible changes to the lives of India’s internal migrant workers. Comment.

    What is PDS?

    • The Public distribution system (PDS) is an Indian food Security System established under the Ministry of Consumer Affairs, Food, and Public Distribution.
    • PDS evolved as a system of management of scarcity through distribution of food grains at affordable prices.
    • PDS is operated under the joint responsibility of the Central and the State Governments. 
    • The Central Government, through Food Corporation of India (FCI), has assumed the responsibility for procurement, storage, transportation and bulk allocation of food grains to the State Governments.
    • The operational responsibilities including allocation within the State, identification of eligible families, issue of Ration Cards and supervision of the functioning of Fair Price Shops (FPSs) etc., rest with the State Governments.
    • Under the PDS, presently the commodities namely wheat, rice, sugar and kerosene are being allocated to the States/UTs for distribution. Some States/UTs also distribute additional items of mass consumption through the PDS outlets such as pulses, edible oils, iodized salt, spices, etc.

    Evolution of PDS in India

    • PDS was introduced around World War II as a war-time rationing measure. Before the 1960s, distribution through PDS was generally dependant on imports of food grains.
    • It was expanded in the 1960s as a response to the food shortages of the time; subsequently, the government set up the Agriculture Prices Commission and the FCIto improve domestic procurement and storage of food grains for PDS.
    • By the 1970s, PDS had evolved into a universal scheme for the distribution of subsidised food
    • Till 1992, PDS was a general entitlement scheme for all consumers without any specific target.
    • The Revamped Public Distribution System (RPDS) was launched in June, 1992 with a view to strengthen and streamline the PDS as well as to improve its reach in the far-flung, hilly, remote and inaccessible areas where a substantial section of the underprivileged classes lives.
    • In June, 1997, the Government of India launched the Targeted Public Distribution System (TPDS) with a focus on the poor.
    • Under TPDS, beneficiaries were divided into two categories: Households below the poverty line or BPL; and Households above the poverty line or APL.
    • Antyodaya Anna Yojana (AAY): AAY was a step in the direction of making TPDS aim at reducing hunger among the poorest segments of the BPL population.
    • A National Sample Survey exercise pointed towards the fact that about 5% of the total population in the country sleeps without two square meals a day. In order to make TPDS more focused and targeted towards this category of population, the “Antyodaya Anna Yojana” (AAY) was launched in December, 2000 for one crore poorest of the poor families.
    • In September 2013, Parliament enacted the National Food Security Act, 2013. The Act relies largely on the existing TPDS to deliver food grains as legal entitlements to poor households. This marks a shift by making the right to food a justiciable right.

    How does the PDS system function?

    • The Central and State Governments share responsibilities in order to provide food grains to the identified beneficiaries.
    • The centre procures food grains from farmers at a minimum support price (MSP)and sells it to states at central issue prices. It is responsible for transporting the grains to godowns in each state.
    • States bear the responsibility of transporting food grains from these godowns to each fair price shop (ration shop), where the beneficiary buys the food grains at the lower central issue price. Many states further subsidise the price of food grains before selling it to beneficiaries.

    Importance of PDS

    • It helps in ensuring Food and Nutritional Security of the nation.
    • It has helped in stabilising food prices and making food available to the poor at affordable prices.
    • It maintains the buffer stock of food grains in the warehouse so that the flow of food remains active even during the period of less agricultural food production.
    • It has helped in the redistribution of grains by supplying food from surplus regions of the country to deficient regions.
    • The system of minimum support price and procurement has contributed to the increase in food grain production.

    Issues Associated with PDS System in India

    • Identification of beneficiaries: Studies have shown that targeting mechanisms such as TPDS are prone to large inclusion and exclusion errors. This implies that entitled beneficiaries are not getting food grains while those that are ineligible are getting undue benefits.
    • According to the estimation of an expert group set up in 2009, PDS suffers from nearly 61% error of exclusion and 25% inclusion of beneficiaries, i.e. the misclassification of the poor as non-poor and vice versa.
    • Leakage of food grains: (Transportation leakages + Black Marketing by FPS owners) TPDS suffers from large leakages of food grains during transportation to and from ration shops into the open market. In an evaluation of TPDS, the erstwhile Planning Commission found 36% leakage of PDS rice and wheat at the all-India level.
    • Issue with procurement: Open-ended Procurement i.e., all incoming grains accepted even if buffer stock is filled, creates a shortage in the open market.
    • Issues with storage: A performance audit by the CAG has revealed a serious shortfall in the government’s storage capacity.
    • Given the increasing procurement and incidents of rotting food grains, the lack of adequate covered storage is bound to be a cause for concern.
    • The provision of minimum support price (MSP) has encouraged farmers to divert land from production of coarse grains that are consumed by the poor, to rice and wheat and thus, discourages crop diversification.
    • Environmental issues: The over-emphasis on attaining self-sufficiency and a surplus in food grains, which are water-intensive, has been found to be environmentally unsustainable.
    • Procuring states such as Punjab and Haryana are under environmental stress, including rapid groundwater depletion, deteriorating soil and water conditions from overuse of fertilisers.
    • It was found that due to the cultivation of rice in north-west India, the water table went down by 33 cm per year during 2002-08.

    What is the one ‘One Nation, One Ration Card’ system?

    • Under the National Food Security Act, 2013, about 81 crore persons are entitled to buy subsidized foodgrain — rice at Rs 3/kg, wheat at Rs 2/kg, and coarse grains at Re 1/kg — from their designated Fair Price Shops (FPS) of the Targeted Public Distribution System (TPDS).
    • Currently, about 23 crore ration cards have been issued to nearly 80 crore beneficiaries of NFSA in all states and UTs.
    • In the present system, a ration cardholder can buy foodgrains only from an FPS that has been assigned to her in the locality in which she lives.
    • However, this will change once the ONORC system becomes operational nationally.

    How would that work?

    • Under the ONORC system, the beneficiary will be able to buy subsidised foodgrains from any FPS across the country.
    • The new system, based on a technological solution, will identify a beneficiary through biometric authentication on electronic Point of Sale (ePoS) devices installed at the FPSs.
    • This would enable that person to purchase the number of foodgrains to which she is entitled under the NFSA.

    How will the system of ration card portability work?

    • Ration card portability is aimed at providing intra-state as well as inter-state portability of ration cards.
    • While the Integrated Management of PDS portal provides the technological platform for the inter-state portability of ration cards.
    • It enables a migrant worker to buy foodgrains from any FPS across the country.
    • The Annavitaran portal hosts the data of the distribution of foodgrains through E-PoS devices within a state.
    • The portal enables a migrant worker or his family to avail the benefits of PDS outside their district but within their state.
    • While a person can buy her share of foodgrains as per her entitlement under the NFSA, wherever she is based, the rest of her family members can purchase subsidised foodgrains from their ration dealer back home.

    Revamping of the PDS

    • The PDS system was marred with inefficiency leading to leakages in the system. To plug the leakages and make the system better, the government started the reform process.
    • For, this purpose it used a technological solution involving the use of Aadhaar to identify beneficiaries. Under the scheme, the seeding of ration cards with Aadhaar is being done.
    • Simultaneously, PoS machines are being installed at all FPSs across the country.
    • Once 100 per cent of Aadhaar seeding and 100 per cent installation of PoS devices is achieved, the national portability of ration cards will become a reality.
    • It will enable migrant workers to buy foodgrains from any FPS by using their existing/same ration card.

    How many states have come on board?

    • It was initially proposed to nationally roll out the ONORC scheme by June 1, 2020.
    • So far, 17 major states and UTs have come on board to roll out the inter-state portability of ration cards under the NFSA.
    • Three more states — Odisha, Mizoram, and Nagaland — are expected to come on board by June 1, taking the number of States and UTs to 20 under the One Nation, Once Ration Card System.

    How has been the experience of Ration Card Portability so far?

    • The facility of inter-state ration card portability is available in 20 states as of now but the number of transactions done through using this facility has been low so far.
    • According to data available on the IMPDS portal, only 275 transactions have been done until May 14.
    • However, the number of transactions in the intra-state ration card portability is quite high.
    • The data available on the Annavitaran portal shows that about one crore transactions took place using the facility last month.
    • It means that usages of intra-state ration card portability are way higher than the inter-state portability.

    Back2Basics: National Food Security Act, 2013

    • The NFS Act, 2013 (also Right to Food Act) aims to provide subsidized food grains to approximately two-thirds of India’s 1.2 billion people.
    • It was signed into law on 12 September 2013, retroactive to 5 July 2013.
    • The NFSA 2013 converted into legal entitlements for existing food security programmes.
    • It includes the Midday Meal Scheme, Integrated Child Development Services scheme and the Public Distribution System.
    • Further, the NFSA 2013 recognizes maternity entitlements.
    • The Midday Meal Scheme and the Integrated Child Development Services Scheme are universal in nature whereas the PDS will reach about two-thirds of the population (75% in rural areas and 50% in urban areas).
    • Pregnant women, lactating mothers, and certain categories of children are eligible for daily free cereals.

  • West Bank Annexation plans by US

    U.S. Secretary of State Mike Pompeo met Israeli PM Benjamin Netanyahu to discuss plans to annex parts of the West Bank.

    The strategic location of Gaza strip, West Bank, Dead Sea etc. creates a hotspot for a possible map based prelims question.  Consider this PYQ from 2015 CSP:

    Q. The area known as ‘Golan Heights’ sometimes appears in the news in the context of the events related to:

    a) Central Asia
    b) Middle East
    c) South-East Asia
    d) Central Africa

    Where is West Bank Located?

    • The West Bank is located to the west of the Jordan River.
    • It is a patch of land about one and a half times the size of Goa, was captured by Jordan after the 1948 Arab-Israeli War.
    • Israel snatched it back during the Six-Day War of 1967 and has occupied it ever since.
    • It is a landlocked territory, bordered by Jordan to the east and Israel to the south, west, and north.
    • Following the Oslo Accords between the Israeli government and the Palestine Liberation Organization (PLO) during the 1990s, part of the West Bank came under the control of the Palestinian Authority.
    • With varying levels of autonomy, the Palestinian Authority controls close to 40 percent of West Bank today, while the rest is controlled by Israel.

    Back2Basics: Gaza Strip

    • The Gaza Strip is a small boot-shaped territory along the Mediterranean coast between Egypt and Israel.
    • A couple of years later in 2007, Hamas, an anti-Israel military group, took over Gaza Strip. The militia group is often involved in violent clashes with the Israeli Defence Forces.
    • While Palestine has staked claim to both territories — West Bank and Gaza Strip — Israel’s objective has been to keep expanding Jewish settlements in these regions.

    For complete details on Israel-Palestine conflict, kindly refer:

    [Burning Issue] West Asia Peace Plan

  • “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

  • 15th May 2020 | Prelims Daily with Previous Year Questions

    [WpProQuiz 436]

  • 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.

  • Changing labour laws not a solution

    Recently several State governments made changes in their labour laws and removed or expanded limits on working hours and changed several other provisions. The article argues that the move may not be as beneficial as it is thought to be. So, how come the changes turned out to be detrimental to the interests of the workers? and what are the other issues involved? Read to know more…

    What changed laws mean?

    •  Uttar Pradesh introduced an ordinance that has scrapped most labour law for three years.
    • This was done ostensibly for two reasons- 1) creating jobs and 2)for attracting factories exiting China.
    • These laws deal with -the occupational safety, health and working conditions of workers, regulation of hours of work, wages and settlement of industrial disputes.
    • They apply mostly to the economy’s organised (formal) sector, that is, registered factories and companies, and large establishments in general.
    • Madhya Pradesh and Gujarat have quickly followed suit.
    • Reportedly, Punjab has already allowed 12-hour shifts per day.

    Why it is not a good move?

    •  Significantly, migrant labour will be critical to restoring production once the lockdown is lifted.
    • In fact, factories and shops are already staring at worker shortages.
    • Instead of encouraging workers to stay back or return to cities by ensuring livelihood support and safety nets, State governments have sought to strip workers of their fundamental rights.
    • The abrogation of labour laws raises many constitutional and political questions.
    • Scrapping labour laws to save on labour costs will not help start the economy but will do exactly the opposite.
    • It will reduce wages, lower earnings (particularly of low wage workers) and reduce consumer demand.
    • Further, it will lead to an increase of low paid work that offers no security of tenure or income stability.
    • It will increase informal employment in the formal sector instead of encouraging the growth of formal work.

    Demand is a reason for the slowdown

    •  There are no inherent shortages at the moment as the inflation rate remains moderate.
    • Before the lockdown, the annual GDP growth rate had plummeted to 4.7% during October-December quarter of 2019-20, from 8.3% in the full year of 2016-17.
    • The slowdown is due to lack of demand, not of supply, as widely suggested.
    • With massive job and income losses after the lockdown, aggregate demand has totally slumped, with practically no growth.
    • Therefore, the way to restart the economy is to provide income support and restore jobs.
    • This will not only address the humanitarian crisis but also help revive consumer demand by augmenting incomes.

    2 concerns over the rationale of scrapping laws

    • The rationale for scrapping labour laws to attract investment and boost manufacturing growth poses two additional questions.
    • One, if the laws were in fact so strongly pro-worker, they would have raised wages and reduced business profitability.
    • But the real wage growth (net of inflation) of directly employed workers in the factory sector has been flat (2000-01 to 2015-16).
    • This is because firms have increasingly resorted to casualisation and informalisation of the workforce to suppress workers’ bargaining power.
    • Two, it is not right to blame the disappointing industrial performance mainly on labour market regulations.
    • Industrial performance is not just a function of the labour laws.
    • The industrial performance also depend on the size of the market, fixed investment growth, credit availability, infrastructure, and government policies.
    • In fact, there is little evidence to suggest that amendment of key labour laws by Rajasthan and Madhya Pradesh in 2014 took them any closer to their goal of creating more jobs or industrial growth.
    • The role of labour market regulations may be more modest than the strong views expressed against them in the popular debates.

    Time to rationalise the labour laws

    • India’s complex web of labour laws, with around 47 central laws and 200 State laws, need rationalisation.
    • However, now more than ever before, reforms need to maintain a delicate balance between the need for firms to adapt to ever-changing market conditions and workers’ employment security.
    • Depriving workers of fundamental rights such as freedom of association and the right to collective bargaining, and a set of primary working conditions such as adequate living wages, limits on hours of work and safe and healthy workplaces, will create a fertile ground for the exploitation of the working class.
    • Presently, over 90% of India’s workforce is in informal jobs.
    • These informal jobs have no regulations for decent conditions of work, no provision for social security and no protection against any contingencies and arbitrary actions of employers.

    Consider the question “There is a rising demand for reforms in the labours laws in India. Examine the issues with the current labour laws in India. Suggest the areas which require improvements “

    Conclusion

    The changes made by the State governments should not end up doing more harm than good. To ensure that there must be a careful calibration of the move and its consequences.

  • A plan to revive the broken economy

    The article suggests ways to revive the economy while keeping in mind the livelihood issues of the vulnerable section of society. Urgent concern should be addressed by the food and cash transfer, after that for livelihood in the rural area MGNREGA can be of great help. In the urban area, a  scheme based on the lines of MGNREGA is suggested. In the end, some ways to increase revenue are suggested.

    Food and cash transfers

    • Providing every household with ₹7,000 per month for a period of three months and every individual with 10 kg of free foodgrains per month for a period of six months is likely to cost around 3% of our GDP (assuming 20% voluntary dropout).
    • This could be financed immediately through larger borrowing by the Centre from the Reserve Bank of India.
    • The Centre should also clear outstanding Goods and Services Tax compensation.
    • Food and cash transfer are doable for the following reasons.
    • First, foodgrains are plentiful, as the Food Corporation of India had 77 million tonnes, and rabi procurement could add 40 million tonnes.
    • Second, because of the lockdown restrictions multiplier effect would be less. (so, fewer concerns about inflation)
    • Third, cash transfers in many spheres will only enable current demand to continue (such as payment of house rent to continue occupancy) and not create any fresh demand.
    • Fourth, when greater normalcy finally allows demand held back during lockdown to the surface, output could also expand because of resumed economic activity.
    • Finally, putting money in the hands of the poor is the best stimulus to an economic revival, as it creates effective demand and in local markets.
    • Hence, an immediate programme of food and cash transfers must command the highest priority.

    Need for changes in MGNREGA

    • Millions of migrant workers have gone back home, and are unlikely to return to towns in the foreseeable future.
    • Employment has to be provided to them where they are, for which the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) must be expanded greatly and revamped with wage arrears paid immediately.
    • The 100-day limit per household has to go.
    • Work has to be provided on demand without any limit to all adults.
    • And permissible work must include not just agricultural and construction work, but work in rural enterprises and in care activities too.
    • The revamped MGNREGS could cover wage bills of rural enterprises started by panchayats, along with those of existing rural enterprises, until they can stand on their own feet.
    • This can be an alternative strategy of development, recalling the successful experience of China’s Township and Village Enterprises (TVEs).
    • Public banks could provide credit to such panchayat-owned enterprises and also assume a nurturing role vis-à-vis them.
    • Pandemic highlighted unsustainability of the earlier globalisation.
    • Which means that growth in India in the coming days will have to be sustained by the home market.
    • Since the most important determinant of growth of the home market is agricultural growth, this must be urgently boosted.
    • The MGNREGS can be used for this, paying wages for land development and farm work for small and medium farmers.
    • Also the government support through remunerative procurement prices, subsidised institutional credit, other input subsidies, and redistribution of unused land with plantations is possible.
    • Agricultural growth in turn can promote rural enterprises, both by creating a demand for their products and by providing inputs for them to process.
    • Both these activities would generate substantial rural employment.

    Focus on urban area

    • In urban areas, it is absolutely essential to revive the Micro, Small and Medium Enterprises (MSMEs).
    • Simultaneously, the vast numbers of workers who have stayed on in towns have to be provided with employment and income after our proposed cash transfers run out.
    • The best way to overcome both problems would be to introduce an Urban Employment Guarantee Programme, to serve diverse groups of the urban unemployed, including the educated unemployed.
    • Urban local bodies must take charge of this programme and would need to be revamped for this purpose.
    • “Permissible” work under this programme should include, for the present, work in the MSMEs.
    • This would ensure labour supply for the MSMEs and also cover their wage bills at the central government’s expense until they re-acquire robustness.
    • It should imaginatively also include care work, including of old, disabled and ailing persons, educational activities, and ensuring public services in slums.

    The CARE economy: Public health, education, employment

    • The pandemic has underscored the extreme importance of a public health-care system, and the folly of privatisation of essential services.
    • The post-pandemic period must see significant increases in public expenditure on education and health, especially primary and secondary health including for the urban and rural poor.
    • The “care economy” provides immense scope for increasing employment.
    • Vacancies in public employment, especially in such activities, must be immediately filled.
    • Anganwadi and Accredited Social Health Activists/workers who provide essential services to the population, including during this pandemic, are paid a pittance and treated with extreme unfairness.
    • We must improve their status, treat them as regular government employees and give them proper remuneration and associated benefits, and greatly expand their coverage in settlements of the urban poor.
    • These could easily come within the total package announced by the Prime Minister, which could be financed by printing money.
    • But in the medium term, public revenues must be increased.
    • This is not because there is a shortage of real resources which, therefore, has to be taken from other existing uses through taxation.
    • Rather, since much-unutilised capacity exists in the economy, the shortage is not of real resources; the government has to just get command over them.

    Suggestions to increase public revenue

    • A combination of wealth and inheritance taxation and getting multinational companies to pay the same effective rate as local companies through a system of unitary taxation will garner substantial public revenue.
    • They will also reduce wealth and income inequalities which have become horrendous.
    • A 2% wealth tax on the top 1% of the population, together with a 33% inheritance tax on the wealth they bequeath every year to their progeny, could finance an increase in government expenditure to the tune of 10% of GDP.
    • It would be argued that this might cause large financial outflows, which the country can ill-afford.
    • Contrarily, even foreign capital is more likely to be attracted to a growing economy than one in sharp decline because of a lack of stimulus.
    • Also, a fresh issue of special drawing rights by the International Monetary Fund which India has surprisingly opposed along with the United States would provide additional external resources.
    • These additional resources, would suffice to finance the institution of five universal, justiciable, fundamental economic rights:1) the right to food, 2)the right to employment, 3)the right to free public health care, 4)the right to free public education and 5)the right to a living old-age pension and disability benefits.

    Consider the question, “The economic disruption caused by the pandemic threatens the progress made on the front of inclusive growth. Suggest the measures to ensure the livelihood of the economically vulnerable section of the society in the aftermath of the pandemic in rural and urban areas.”

    Conclusion

    The broken economy must be rebuilt in ways to ensure a life of dignity to the most disadvantaged citizen. The ways suggested here shows how to achieve that.

  • Credit guarantees to MSMEs: What are they and how will they help?

    Finance Minister has announced some details of the Atmanirbhar Bharat Abhiyan economic package. The main thrust of the announcements was a relief to Medium, Small and Micro Enterprises (MSMEs) in the form of a massive increase in credit guarantees to them.

    Practice questions:

    Q. Discuss the efficacy of various tranches of credit facilities to MSMSEs provided under Atmanirbhar Bharat Abhiyan.

    Q. Discuss how the nationwide lockdown to control the coronavirus outbreak has led to the resurfacing of inherent bottlenecks in India’s MSME Sector.

    What is the package about?

    • Instead of directly infusing money into the economy or giving it directly to MSMEs in terms of a bailout package, the government has resorted to taking over the credit risk of MSMEs.
    • These credit guarantees should help the formal banking system meet the credit demand of the MSME sector (see Chart 2).

    What is the credit guarantee scheme for MSMEs?

    • Loans to MSMEs are mostly given against property (as collateral) because often there isn’t a robust cash flow analysis available.
    • But in times of crisis, like the one currently playing out, property prices fall and this inhibits the ability of MSMEs to seek loans. It also means that banks are less willing to extend loans.
    • A credit guarantee by the government helps as it assures the bank that its loan will be repaid by the government in case the MSME falters.

    How does it work?

    • For instance, if the government provides say a 100% credit guarantee up to an amount of Rs 1 crore to a firm, it means that a bank can lend Rs 1 crore to that firm; in case the firm fails to pay back, the government will make good all of Rs 1 crore.
    • If this guarantee was for the first 20% of the loan, then the government would guarantee to pay back only Rs 20 lakh.

    Why need credit guarantees?

    • Even before the Covid-19 crisis, Indian government finances were in poor health. This pandemic has meant that government revenues will come under further pressure.
    • For instance, experts are already talking about a GDP contraction of 5% to 10% in the current financial year. It will result in a revenue loss of anywhere between Rs 5 to 7 lakh crore.
    • And yet, this is also the year when employees and firms want the government to help them out financially.
    • Banks, quite justifiably, suspect that any new loans will only add to their growing mountain of non-performing assets (NPAs).
    • So the government was facing an odd problem: Banks had the money but were not willing to lend to the credit-starved sections of the economy, while the government itself did not have enough money to directly help the economy.

    • The solution — credit guarantees — finally chosen by the government is not a new one, because this fiscal conundrum is not a new one either (Chart 3).

    Quantum of credit guarantee facilitated by FM

    • There are three proposals but the main one is for standard MSMEs — that is, those MSMEs which were running fine until the COVID-19-induced lockdown disrupted their work.
    • For these, the government has provided a credit guarantee of Rs 3 lakh crore.
    • This is like an emergency credit line, said the Finance Minister, and it is for MSMEs that have an already outstanding loan of Rs 25 crore or those with a turnover less than Rs 100 crore.
    • The loans will have a tenure of 4 years and they will have a moratorium of 12 months (that is, the payback starts only after 12 months).

    Why Rs 3 lakh crore?

    • The total outstanding loan to MSMEs by the banking and NBFC sector is around Rs 16 to 18 lakh crore.
    • Assuming that 80% of these loans are working capital loans where there would be a 20% incremental funding needs, that gives an amount of approximately Rs 3 lakh crore.
    • So the government is hoping that this credit guarantee will help those MSMEs take out another loan and recover.
    • The hope is that since these MSMEs were able to pay back before the crisis, there is no reason why they cannot after the crisis, provided they are given some extra money to survive this period.

    What were the other measures?

    • There is a subordinate debt scheme, worth Rs 20,000 crore, which will allow loans to MSMEs that were already categorised as “stressed”, or struggling to pay back.
    • In this case, the government’s guarantee is not full, but partial.
    • The third measure is the creation of a fund with a corpus of Rs 50,000 crore to infuse equity into “viable” MSMEs, thus helping them to expand and grow.
    • The government intends to put in Rs 10,000 crore and get others, possibly institutions like LIC and SBI, to fund the remaining amount.
    • Then there is a change in the definition of an MSME that was pending for long. Now MSMEs are judged on turnover and there will be no difference between a manufacturing MSME and services MSME.

    How far will these measures help?

    • The Rs 3 lakh crore credit guarantees are the most substantive announcement as it will most likely have a significant impact.
    • It will help MSMEs pay salaries and keep their heads above the water even as the economy slows down.
    • This measure is expected to help as many as 45 lakh MSMEs.

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