The food processing industry in India is increasingly seen as a potential source for driving the rural economy as it brings about synergy between the consumer, industry and the farmer. However, food processing activity is still at a nascent stage in India with low penetration.
Importance of Food Processing Industry
It holds the potential of reducing enormous wastage of agricultural produce in the absence of processing technologies and cold chain facility
It is labour-intensive industry, which has the potential to employ 13 million people directly and 35 million people indirectly
This will also lead to increase in farm income, generate employment opportunities, foster forward and backward linkage effects, contribute to exports and integrate Indian economy with the rest of world
What is the magnitude and size of this industry?
India is strategically located at the centre of the Middle-East and South-East with a long coastal line and easy sea connectivity as well as plenty of raw material for long period which can attract multi-national companies instead of food processing.
It is the 5th largest industry and has the highest rate of growth as well as a very high employment elasticity. Currently, it accounts for nearly 16% of total employment in the organized manufacturing sector and 32% in unorganized sector.
What are the factors which can drive this industry?
India’s demographic profile with 65% of population below 30 years of age
Fast changing consumption patterns
Increase in disposable incomes of the people
Fast increase in the number of working women, who prefer the packaged food
Growth of organised food retail in India
Nearly 55% of the total expenditure on an average is spent on food and grocery in rural areas and nearly 40% in urban areas and only 10% of what we grow is processed in India
What are the challenges faced by FPI?
Indifference of policy makers as very little outlays are allocated in Five Year Plans. In the XI FYP, an outlay of Rs. 4000 crore was earmarked out of which significant proportion was not spent
The legislation’s like APMC Acts, Essential Commodities Act, etc restricts free movement of commodities
Very poor infrastructure i.e. near absence of technologies, incubation facilities, pre-cooling chambers, irradiation facilities, etc < Food Irradiation is a technology that improves the safety and extends the shelf life of foods by reducing or eliminating microorganisms and insects>
High tariffs in the form of high excise duties as well as import duties
Non-tariff barriers in the form of stringest regulation of laboratory testing, grading, sampling and packaging
Lack of entrepreneurship, as 70% of the total value of food processing items manufactured in India is dominated by the unorganised sector
Lack of training facilities related to this industry
Very low Research & Development
Indian agriculture focuses on traditional crops rather than market-oriented agriculure with diversified commercial crops
What are the Govt efforts to promote this industry?
XI Five Year Plan: Govt. recognized the potential of this sector and launched Mega Food Park. It also adopted various measures such as modernization of Abattoir (Slaughter houses), modernization of meat shops, upgradation of street food, effective implementation of Food Safety and Standards Act 2006, technology upgradation, entrepreneurship development programme, setting up of training institutes, etc
Mega Food Park
These are the parks with state-of-art infrastructure related to all of the facilities required for food processing industry with their captive power plants, transportation and other hygienic facilities to attract food processing units to avail of this infrastructure for manufacturing food-processed items.
The target was to set up 30 Mega Food Parks, but only 9 came up.
XII Five Year Plan: There was significant shift in govt. policy towards this industry in XII FYP, as it allocation to the tune of 4-times as compared to XI FYP, with an outlay of Rs. 15000 crore. It also launched National Mission on Food Processing, in the background of the success of National Mission on Horticulture.
National Mission on Food Processing
The mission has two main principles: Decentralization and Outreach.
The mission is totally centrally sponsored and the responsibility of its implementation lies with the state govt., who will have to take initiative in organizing the unorganized food processors into SHGs (Self-Help Group) and provide them training and other facilities. State govt. will have to bring about synergy between agriculture and food processing industries.
Budget 2016-17
Govt. has decided to allow 100% FDI in multi-brand retail for food products produced and processed in India will play a catalytic role in leapfrogging Indian economy.
Future
It will be the endeavor of policy makers to ensure that food processing industry conform to global standards of health and hygiene and adopt CODEX standards (related to food safety) laid down by Food & Agriculture Organization and WHO, for the protection of consumer health.
Food processing needs a fillip in the form of better logistics, access to credit, technology indigenisation and implementation of food safety laws.
सामाजिक क्षेत्र: समाज के कमजोर वर्गों के विकास के मायने में सामाजिक क्षेत्र अहम हो जाता है।
आइये सबसे पहले बुनियादी आंकड़ों पर एक नजर डालते हैं क्योंकि आकंड़े इस बात का आईना होते हैं कि सरकार ने किस तरह से बड़ी आबादी के व्यापक हितों को योजनाओं के तहत साधा है।
शिक्षा और स्वास्थ्य देखभाल सहित सामाजिक क्षेत्र के लिए 1,51,581 करोड़ रुपये का आबंटन।
भारत की जनसंख्या के एक तिहाई हिस्से को नई स्वास्थ्य बीमा योजना से जोड़ा गया।
3000 मेडिकल स्टोर्स को प्रधानमंत्री जन औषधि योजना के तहत खोले जाने का ऐलान।
सभी बीपीएल परिवारों को रसोई गैस कनेक्शन दिया जाना।
देशभर के जिला अस्पतालों में डायलिसिस सेवाएं प्रदान करने के लिए नेशनल डायलिसिस सर्विस शुरू करने की घोषणा।
मुख्य बिंदु
#1. जेनेरिक दवाएं
सरकार ने प्रधानमंत्री जन औषधि योजना के तहत वर्ष 2016-17 के दौरान 3,000 नए दवा स्टोर खोल उनके माध्यम से जेनेरिक दवाओं की आपूर्ति करना सुनिश्चित किया है। यानी लोगों को सस्ती कीमतों पर अच्छी दवाएं उपलब्ध होंगी। फार्मा सेक्टर का विकास इसी से जुड़ा पहलू है।
#2. अनुसूचित जाति, अनुसूचित जनजाति और महिलाएं
सरकार ने अनुसूचित जाति और अनुसूचित जनजाति और महिलाओं को उद्यमी बनाने की दिशा में कदम बढ़ाया है। सरकार ने इस वर्ग को सक्षम बनाने के लिए स्टैंडअप इंडिया योजना की पहल की है। इस योजना के चलते इस वर्ग के 2.5 लाख लोगों को सीधा फायदा पहुंचेगा साथ ही इन दोनों वर्ग के उद्यमियों को सहायता उपलब्ध कराने के लिए राष्ट्रीय अनुसूचित जाति/ जनजाति केंद्र स्थापित किया जाएगा। इस योजना से प्रत्येक श्रेणी के एक उद्यमी के लिए प्रति बैंक शाखा कम से कम ऐसी दो परियोजनाओं को मदद मिलेगी। इस योजना से कम से कम 2.5 लाख उद्यमियों को लाभ मिलेगा।
#2.उद्यमियता- एससी/एसटीऔर महिलाएं
सरकार का उद्योग संघों और सूक्ष्म, लघु और मध्यम उद्यम मंत्रालय की भागीदारी में राष्ट्रीय अनुसूचित जाति/जनजाति केन्द्र की स्थापना करने का प्रस्ताव है। यह केन्द्र अनुसूचित जाति/जनजाति के उद्यमियों को केन्द्र सरकार की खरीदारी नीति 2012 के अधीन अपनी जिम्मेदारी पूरी करने के लिए वैश्विक सर्वश्रेष्ठ कार्य विधि अपनाने और स्टैंड अप इंडिया पहल का लाभ उठाने के लिए पेशेवर मदद उपलब्ध कराएगा।
नए कदम
स्वास्थ्य बीमा देश में गरीबी की रेखा से नीचे जीवन यापन करने वाले लोग हर साल कई खतरनाक बीमारियों और आकस्मिक हादसों मे मारे हैं। एक नई स्वास्थ्य सुरक्षा योजना में परिवार प्रति 1 लाख रुपए के लिए स्वास्थ्य कवर प्रदान किया गया है। वरिष्ठ नागरिकों को 30,000 रुपये तक एक अतिरिक्त टॉप-अप पैकेज उपलब्ध कराया जाएगा।
स्वास्थ्य देखभाल
इस समय देश मेें कई सुदूरवर्ती इलाकों के लोग स्वास्थ केंद्रों पर पहुंचने से पहले ही दम तोड़ देते हैं। उनका डायलिसेस ही नहीं हो पाता है। गुर्दे खराब होने की स्थिति में रोगियों को नियमित जांच की जरूरत होती है। सरकार ने इस संबंध में पीपीपी मोड के माध्यम से राष्ट्रीय स्वास्थ्य मिशन के तहत एक ‘राष्ट्रीय डायलिसिस सेवा कार्यक्रम’ का शुभारंभ किया है।
रसोई गैस
बीपीएल परिवारों को सरकार सब्सिडी देकर गैस कनेक्शन मुहैया कराएगी। इस घोषणा से 2016-17 में लगभग 1.5 करोड़ बीपीएल परिवारों को फायदा होगा। सरकार देश में रसोई गैस को पूरे देश में सर्व सुलभ कराने की हिमायती है। इससे काफी हद तक उन गरीब महिलाओं और बीपीएल परिवारों के लोगों को फायदा होगा जिनके परंपरागत चूल्हों खाने बनाने से सेहत पर खराब असर पड़ता है।
आलोचना
स्वास्थ्य नीति के लिए सरकार की समग्र सोच क्या है इस पर बजट में कोई रोशनी नहीं डाली गई है। हालांकि इसमें बीमा सेक्टर पर काफी बढ़चढ़कर बातें कही गई हैं लेकिन उसकी अपनी सीमाएं हैं। इसे सरकार की स्वास्थ्य नीति की ताकत नहीं कहा जा सकता।
नई बीमा योजना, नाम बदलकर महज राष्ट्रीय स्वास्थ्य बीमा योजना का रूपांतरण लगता है।
India 2016, better known as INDIA YEAR BOOK (IYB) among the IAS aspirants was released couple of weeks back. The book is considered as holy grail of UPSC preparation. Offline coaching wallahs and book publishers would give you separate notes for IYB.
Online IAS gurus turned coaching wallahs (you know who I am talking about) would post a strategy with page numbers for most important stuff and after the exam, search from IYB for questions asked in the IAS prelims and sometimes even IAS mains and would put them in Yearbook stuff questions category.
New age coaching wallahs (online test series and micro planing wallahs) would assure you that they would include questions from year book in their tests and they would make you read the IYB. Even some toppers would recommend reading IYB especially for first time aspirants (or freshers as they say).
By all accounts IYB seems like a very important book to read for IAS preparation. It’s a very fat book, some 1000+ pages. It has a great cover pic jacket. So question arises, how to read this book effectively?
Well I am not a big fan of this book. Naah, I said it very mildly, this book is pure rubbish. If you have already bought it, aaj hi raddi wale ko de do.
First let me bust the myth of a lot questions being directly asked from the book and strategy of selective reading. Click on hyperlinked texts to read analysis and questions of coaching wallahs.
Which of the above flows / flow through Arunachal Pradesh?
(a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
(Chapter Land the People: The Brahmaputra rises in Tibet, where it is known as Tsangpo and runs a long distance till it crosses over into India in Arunachal Pradesh under the name of Dihang. Near Passighat, the Debang and Lohit join the river Brahmaputra and the combined river runs all along the Assam in a narrow valley. It crosses into Bangladesh downstream of Dhubri. The principal tributaries of Brahmaputra in India are the Subansiri, Jia Bhareli, Dhansiri, Puthimari, Pagladiya and the Manas….)
Seriously, they want you to prepare geography from IYB. Are you kidding me?
It does not tell anything about Barak river, how would I know whether or not Barak river flows from Arunachal or not. I would need to see the map and yessss IYB does not teach you geography through maps.
It does not tell me whether or not Subansiri also flows through Arunachal.
You decide it for yourself, if that’s not fraud, what is. Would you want to prepare polity from India year book? Okay, let’s see
#2. The power of Supreme Court of India to decide disputes between the Centre and the States falls under its
advisory jurisdiction
appellate jurisdiction
original jurisdiction
writ jurisdiction
Two questions which made IYB relevant again
Saka era, 21st March
Satyamev jayate, mundak upanishad
These are given in the national symbol chapter but they come in news every year on 21st March.
Satyamev jayate? Come onnnn, everyone studies it in 5th standard and if you didn’t remember it, chances are you wouldn’t even after reading this chapter.
And national symbol chapter is also given in history book Grover and Grover, so i can say, questions directly asked from Grover, start reading Grover also for history.
Other questions as you can all see are all far fetched hyperboles!
Let’s come to their selective reading strategy. I read what they recommended. For instance in energy chapter, IAS Score recommended reading e wastes, renewable energy etc. I did and result was waste of 20 previous minutes of my life.
A few facts
India 2016 is updated only till November 2015, in most cases till June 2015. IAS Mains will be in Dec 2016, won’t be of any use
There are only facts no analysis making it a very boring read (second to none)!
Presentation is worse than the worst presented book you would have read. Someone ask them to at least put 10 images in a 1000 page book. In geography, they don’t even present maps. The font size is going to make you want to go for prescription glasses!
Every economic, commercial and agricultural data is infinite times better presented in economic survey.
Then what explains the popularity and seemingly unwavering faith in the so called India year book?
India year book was meant for the time when IAS paper was more static in nature and Internet was not available (80s, 90s even early noughties). It provided every scheme even if incomplete, non analytical and only factual information in one place.
Internet 1st entered into India on 15th August 1995 and became ubiquitous if I can say so during last decade, more precisely in 2010s only.
IAS aspirants are budding bureaucrats. They are status quoists and risk averse (even though this exam itself is the biggest gamble). So for instance, when everyone had left Orkut and migrated to Facebook and other social platforms, they continued on Orkut. During its final days, Orkut was sustained by IAS aspirants community alone. You don’t believe me? check out with the ForumIAS admins!
On top of that fraud payed by coaching wallahs and online gurus help perpetuate the myth that is INDIA YEAR BOOK
Now there are 4 options available with you
Read the book from cover to cover or as coaching wallah and online gurus suggest, 1st reading only to highlight important stuff and then in 2nd reading highlighted stuff as well as notes making and 3rd reading, only reading notes. May god be with you!
Buy any substandard summary of book from the market. Well, it will save time compared to option one but you would still get nothing out of that
Read chapter 2 national symbols, chapter 4 agriculture , global and regional security scenario from chapter 9, defence and last chapter diary of national events. Read chapter 28, welfare if you do not have any idea about schemes for weaker sections
Not reading the book at all and using that time to read good books, newspapers, magazines. Very decent approach.
You can make out my order of recommendations.
What you should do instead
Read policy and updates from analytical websites. For policy updates follow PRS Legislative research. This is the best resource you can find out there!
You can go back in time and read their monthly policy reviews. It’s available from March 2014, I suppose.
We asked students to fill up the google form and tell us about their struggles. Some really good stories will be put in here so that they help in comforting every other reader (that they all sail in same boat).
———
Confession #1
An upsc aspirant is the most soft target as far as civil services exam is concerned. There will be hundreds of people giving you advice on what to do in life and keep a check on your upsc results and give suggestion when you fail in it. A person who had never even filled the form will tell you how hard this exam is. I know one thing it doesn’t matter how you performed in your college exams ,we all know how u can get marks in those exam. But upsc is altogether a very different thing. I remember telling people how a person named Rukmani Riar AIR 2 in 2012 CSE was just on the line , she scored 199 in preliminary and that year cut off was 198 and then went on to become the second topper and also Ira Singhal AIR 1 in 2014 exam for that matter. Upsc is a mix of both luck and hard work. I believe that luck has a peculiar habit of helping those who doesn’t depend on it. You just need to keep walking. Whenever i feel its getting tough i just remember the lines from Robert Frosts well known piece “woods are lovely dark and deep but I have promises to keep A miles to go before i sleep”
Inflation or price rise has been a major concern of policymakers for a long long time. Common man also lists price rise among his top most concerns. Responsibility of controlling price rise lies with government and RBI. But to control something, we need data which tells us direction in which we are moving.
In India, that data or measure of inflation is Wholesale Price Index (WPI) and Consumer Price Index (CPI). But of late both these data sets are moving in opposite direction.
Then are the prices rising or falling? What explains the difference b/w these two indicators? Which one should be used for taking important policy decisions which affect the whole economy? And finally why is inflation such a bad thing and if it were such a bad thing, surely deflation should be great. who wouldn’t like cheap goods! But why is then Japan struggling with precisely such a thing and Eurozone doing its utmost to avoid deflation?
Let’s understand inflation
Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
Note here the term general price level i.e. increase in price of only 1 or 2 commodities is not inflation but increase in prices of a basket of goods and services.
Let’s understand this with a one commodity economy first-
Suppose in India only apples are consumed and they cost 100 rs a kg in 2010
Year
Commodity
Price
Quantity (Kg)
Bill
Inflation
2010
Apple
100
1
100
No data
2011
Apple
110
1
110
110-100/100
2012
Apple
130
1
130
130-110/110
But suppose both apples are oranges are consumed in India and prices of oranges actually fell from 100 to 95 and then 90.
Inflation in oranges 95-100/100 would be -5%
so general inflation would be 10% + (-5%) = 5% right? If you think so, CSAT mein kamjor lagte ho. Consider this
Year
Commodity
Price
Quantity (kg)
Bill
Inflation
2010
1. Apple
2. Orange
100
100
1
2
100*1 + 100*2 = 300
No data
2011
1. Apple
2. Oranges
110
95
1
2
100*1 + 95*2= 300
300-300/300 =
Here, we introduce the concept of weights. When calculating general inflation, we need to assign weights to different goods and services in the proportion they are consumed and then we take weighted average to compute general inflation.
The year whose consumption level is included in creation of basket of goods and services is called base year, in this case 2010. Base Year has to be frequently revised as consumption basket keeps on changing. For instance, pizza would not have been in the consumption basket about a decade back.
Base Effect
Scenario one,
Year
Commodity
Price
inflation
2010
Apple
100
No data
2011
Apple
150
50%
2012
Apple
140
140-150/150= negative inflation
in 2012 there is negative inflation while w.r.t to 2010, prices have risen significantly.
Scenario two
Year
Commodity
Price
inflation
2010
Apple
100
No data
2011
Apple
120
20%
2012
Apple
140
140-120/120= 17%
In this scenario also prices in 2010 and 2012 are same but due to excessive inflation in 2011 in earlier case, 2012 appeared to be deflationary. This anomalous situation is being created due to base effect.
What we were calculating till now was price rise in items average citizen consume. Because we are talking about consumers this is called Consumer Price Index (CPI) inflation.
Let’s know more about CPI inflation in India
Base year- 2012
Calculated by – Central Statistical Organization (CSO) in Ministry of Statistics and Programme Implementation (MoSPI) using Laspeyres formula (basically our weighted average formula)
Source- firstpost
Basket:
These broad categories are further divided into subcategories but that’s not important. What is important is that about 46% weight is given to food items and any increase in food prices will lead to increase in CPI inflation.
Other point to note is that health, education etc services are also there in CPI basket. we shall later see services are not in WPI basket and thus CPI gauges services inflation as well.
But food prices are highly volatile as food products can’t be stored for long and prices depend on agriculture output. Also food is an essential good and people will buy food no matter what the food prices are, food inflation is not much affected by central bank policies. It’s a supply side issue.
Similar is the case with fuel prices which are highly volatile.
When we remove these components from overall inflation, we get core inflation
Core CPI =Headline CPI MINUS (food and fuel components.)
Why is overall inflation called Headline Inflation?
That is what newspaper headlines report
Because consumption basket of rural and urban areas are different, CPI inflation is calculated separately for rural and urban areas.
CPI (rural) and CPI (urban) both have same 2012 base with slightly different weightage. For instance Rural CPI doesn’t consider Housing inflation. Weightage of food items is about higher in rural areas. Weighted average of CPI(R) and CPI(U) gives overall CPI inflation.
Earlier we used to calculate 4 different categories of CPI inflation
Agricultural Labourer (AL)
Rural Labourer (RL)
Industrial Workers (IW)
Urban Non-Manual Employees (UNME)
First 3 computed by Labour bureau, as you can guess and the last one by CSO. We continue to compute these indices but focus now is on CPI (rural), CPI (Urban) and overall CPI
Why is CPI important-
It directly affects what consumers pay to buy a select basket of goods and services. It is thus better indicator of the cost of living and, hence, reflecting the welfare objective of monetary policy.
Let’s now take a look at Wholesale Price Index (WPI) inflation.
As the name suggests it computes price rise at the level of goods and services sold at wholesale level
Base Year : 2004
Calculated by Economic Adviser in the commerce ministry using same Laspeyres formula
Source- firstpost
Basket
Primary Articles include food, non food and minerals
Weightage of food items in WPI is weightage of primary food articles (cereal, pulses etc) + weightage of manufactured food items (ice cream, ghee, butter etc)
14% + 10% = 24%
Core WPI ignore Food and Fuel (volatile components)
Core WPI is WPI of Non-food manufacturing industries
Note here that WPI does not take into account inflation in services sector such as education, health etc. while 65% of our GDP comes from services sector i.e. it does not give complete picture of price rise in the economy.
In spite of that, RBI used to focus on WPI earlier as CPI basket and base year was not frequently revised and data set was not robust but after the signing of monetary policy framework RBI has decided to focus on CPI as it directly affects consumers and thus better indicator for policy formulation.
But if RBI is to focus on CPI only, what’s the importance of WPI and why so much divergence with WPI in negative and CPI 5% in positive.
WPICPI divergence Source-economic survey
Statistical difference –
inclusion of services in CPI
Different weightage to different items with food occupying highest weightage in CPI and food inflation being higher
While reduced crude prices leading to negative WPI
2. Transaction costs – Middlemen might have increased their profit margin
3. Taxes – Indirect taxes
If same item has higher inflation in CPI than WPI, possible reason could be higher margins and govt can target that area to bring down inflation.
Other measure of inflation is GDP deflator which we understood in this article
What is Produce Price Index (PPI)
PPI is inflation at producer level without any tax component
Advantage of PPI over WPI
Majority of the OECD countries measure inflation based on PPI (International Best Practice)
WPI includes taxes while PPI tracks inflation minus tax component
PPI will track average change over time in selling prices received by domestic producers for their output for both goods and services while WPI tracks transaction only at the wholesale level for goods.
Govt set up a committee headed by Professor BN Goldar to devise PPI.
Earlier two separate groups headed by Abhijit Sen and Saumitra Chaudhuri underscored the importance of PPI but felt that more work and data was needed to fully construct PPI.
Let’s understand some other terms associated with inflation
Deflation- Opposite of inflation i.e. general decline in prices. it is generally associated with contracting economy i.e. recession and is much more dangerous than inflation.
Disinflation-Slow down in the rate of inflation i.e. prices are still rising but as the lower pace. Eg. If inflation rate was 10%, 2 years back, 8% last year and, 6% this year, economy is said to be in disinflation.
Hyperinflation– Very high and accelerating inflation which cause people to severely curtail their use of the currency as currency simply becomes worthless. For instance in Germany after 1st world war or in Zimbabwe a few years back. Prices rise 10% or more month on month.
stagnation plus inflation i.e. inflation in a stagnating economy. Generally inflation is associated with a booming, high growth economy but when economy is contracting, growth rates are coming down, unemployment is rising and there is high inflation , it is called stagflation.
What are the causes of inflation?
Essentially there is more amount of money to buy limited amount of goods and services leading to rise in prices (demand supply mismatch). It could be due to following reasons-
Demand pull inflation – increases in aggregate demand due to increased private and government spending. Thus high fiscal deficits, high subsidies lead to demand pull inflation.
Cost push inflation– also called “supply shock inflation,” is caused by a drop in aggregate supply. This may be due to natural disasters, or increased prices of inputs. For example, a sudden decrease in the supply of oil, leading to increased oil prices, can cause cost-push inflation. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices. Another example could be inflation due to high administered prices due to high MSP.
Monetary policy can mainly control demand pull inflation by raising interest rates, tightening liquidity thus reducing amount of money available. Supply side inflation is difficult to control by monetary authorities and in case of India main cause of inflation is high food prices which is a supply side issue due to rigidities in agriculture markets. Then why does RBI raise interest rate when inflation is due to supply side issues such as high food prices?
Here comes the role of 3rd factor-
3. Built in inflation is induced by adaptive expectations, and is often linked to the price-wage spiral. Essentially workers try to keep their wages up with prices (above the rate of inflation), and firms pass these higher labor costs on to their customers as higher prices, leading to a ‘vicious circle’.
Wage-Price Spiral Source – abahe.co.uk
RBI raises rates to break this vicious circle.
For this very reason, RBI conducts survey of inflationary expectations and latest surveys suggest in spite of inflation being down to 5%, expectations are of double digit inflation due to very high inflation for a prolonged period.
Let’s now understand effects of inflation
General Effects –
As same amount of money buys less goods, purchasing power of currency comes down, currency depreciates in international exchange rate market. How? Learn here
It benefit borrowers or debtors as in real terms they have to repay less amount in real terms while it hurts creditors or savers.
Year
Borrowed/ lent
Inflation
Apple price
Real amount Borrowed/ returned
2010
1000
No data
100
10 kg
2011
1000
10%
110
9 .1 kg
You can clearly see, borrower/ debtor has to return less in real term, thus advantage debtor/and disadvantage creditor / bond holder.
Negative effect-
Uncertainty about future rate of inflation makes it difficult to conclude business deals, affects investment.
Savers tend to park their money in fixed assets, financial savings fall. One of the reason for gold rush in India was high inflation.
Hurts poor the most as they are not able to bargain for higher wages to keep up with the rising prices
Hoarding– to take advantage of higher prices in future, this furthers inflation and vicious cycle starts. Recall the case of pulse hoarders when pulse prices were shooting up.
Finally there is always that risk of inflation going out of control resulting in hyperinflationary situation which can cripple the whole economy
Positives
1.Most important positive is that it avoids deflationary tendencies which is the worst
Effects of deflation
As we saw above, it harms borrowers resulting in inability to repay loans. Companies and banks collapse
While in inflation people start hoarding, here people postpone their purchases in the expectation of future fall in prices. If nobody buys, demand goes down and economy goes under recession resulting in job losses and high unemployment
Source-investinganswers
Labour-market adjustments- Nominal wages are slow to adjust downwards. Since inflation allows real wages to fall even if nominal wages are kept constant, moderate inflation enables labor markets to reach equilibrium faster.
Consider this, real salary has decreased but person would feel he had been awarded 8% pay hike.
Year
Nominal salary
Inflation
Apple price
Real salary in apples
2010
1000
No data
100
10 kg
2011
1080
20%
120
9 kg
But if there were no inflation, he would have resisted wage decline, though it would have been same, worth 9 kg apples.
Year
Nominal salary
Inflation
Apple price
Real salary in apples
2010
1000
No data
100
10 kg
2011
900
0
100
9 kg
In emerging economies such as India, structure of economy changes rapidly and thus more frequent churning and adjustment in labour market is required. It is for this reason that inflation level of 4-6% is considered healthy in emerging economies while most advanced economies don’t like inflation beyond 2%.
Inflation especially demand pull inflation is associated with high growth and low unemployment. As demand rises, industries increase their production leading to higher growth and employment. This holds true only for short term.
A few more terms before we wind up our discussion –
Phillips curve is a historical inverse relationship between rates of unemployment and corresponding rates of inflation.
Misery index – the sum of the inflation and unemployment rates
Modified misery index – sum of the interest, inflation, and unemployment rates, minus the year-over-year percent change in per-capita GDP growth
In the next article we shall discuss tools available with government and RBI to control inflation and why monetary policy transmission is very poor in India.
Now it’s time to solve a few questions asked in previous years IAS prelims-
#1. Which of the following brings out the ‘Consumer Price Index Number for Industrial Workers? (IAS pre 2015)
(a) The Reserve Bank of India
(b) The Department of Economic Affairs
(c) The Labour Bureau
(d) The Department of Personnel and Training
#2. A rise in general level of prices may be caused by
an increase in the money supply
a decrease in the aggregate level of output
an increase in the effective demand
Select the correct answer using the codes given below.
1 only
1 and 2 only
2 and 3 only
1, 2 and 3
#3. Consider the following statements: (IAS Pre 2014)
Inflation benefits the debtors.
Inflation benefits the bond-holders.
Which of the statements given above is/are correct?
1 only
2 only
Both 1 and 2
Neither 1 nor 2
#4. India has experienced persistent and high food inflation in the recent past. What could be the reasons?(2011)
Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
As a consequence of increasing incomes, the consumption patterns of the% people have undergone a significant change.
The food supply chain has structural constraints.
Which of the statements given above are correct?
(a.) 1 and 2 only
(b.) 2 and 3 only
(c.) 1 and 3 only
(d.) 1, 2 and 3
#5. A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?(2011)
(a.) It is the impact of drastic deficiency in supply due to failure of crops
(b.) It is the impact of the surge in demand due to rapid economic growth
(c.) It is the impact of the price levels of previous year on the calculation of inflation rate
(d.)None of the statements (a), (b) and (c) ‘given above is correct in this context
#6. Economic growth is usually coupled with (2011)
In this section, we will deal with the sector which is very important for a country like India, where more than two-third of the population resides in villages – Rural Sector.
Take a look at basic statistics, which will give you a larger picture about govt.’s approach towards rural sector, where emphasis is on rural employment and infrastructure:
Total allocation for rural sector is 87,700 cr
Rs. 2.87 lakh cr grant-in-aid to Gram Panchayats and Municipalities
Rs. 38,500 crore has been allocated for MGNREGS in 2016-17
Digital Literacy mission to cover additonal 6 cr households
Focus Areas
#1. Decentralization
As per 14th Finance Commission recommendations, the budget has allocated a sum of Rs. 2.87 lakh cr grant-in-aid to Gram Panchayats and Municipalities, which is higher by 228% as compared to the previous 5-year period.
Each Gram Panchayat will receive an average assistance of Rs 80 lakh, where as each Urban Local Body will get Rs. 21 cr.
#2. Mitigating Rural Distress
Every block in the distress areas will be set up as an intensive Block under the Deen Dayal Antyodaya Mission
Formation of Self Help Groups will be speeded up to promote multiple livelihoods
Cluster Facilitation Teams will be set up under MGNREGS to ensure water conservation and natural resource management
These Clusters will incubate growth centres in rural areas by providing infrastructure amenities and market access for the farmers. They will also expand employment opportunities for the youth.
#4. Electrification
Govt is targeting to achieve 100% village electrification by 1st May, 2018. The budget has allocated Rs. 8,500 crore for Deendayal Upadhayaya Gram Jyoti Yojna and Integrated Power Development Schemes.
#5. Modernization of Land Records
Govt. has revamped National Land Record Modernisation Programme, to build an integrated land information management system, which is critical for dispute free titles.
#6. Sanitation
Govt. will reward villages that have become free from open defecation, under Swachh Bharat Mission
New Initiatives
Promotion to Digital Literacy
About 12 crore households out of the total 16.8 crore rural households, do not have computers and are unlikely to have digitally literate persons. In this regard, there are already 2 schemes, which are approved to promote digital literacy:
National Digital Literacy Mission
Digital Saksharta Abhiyan
Govt. will launch a new Digital Literacy Mission Scheme for rural India to cover around 6 crore additional households within the next 3 years. This will help India to derive greater benefit from our demographic advantage.
Improving Governance of PRI’s
Govt. will make efforts to develop governance capabilities of Panchayat Raj Institutions so that they can deliver on the Sustainable Development Goals. In this regard, govt. has proposed to launch a new restructured scheme, called Rashtriya Gram Swaraj Abhiyan.
PS: Please click on the green hyperlinked text to read more about the concepts. Revise and revise & feel free to ask pertinent questions.
Brazil, Russia, India, China and South Africa (BRICS) are leading emerging economies and political powers at the regional and international level.
When? 2008. They had their first official meeting in 2009
Origin:
The acronym, BRIC, was coined by Jim O’Neill of Goldman Sachs way back in 2001
He predicted that by year 2050, Brazil, Russia, India and China would become bigger than the 6 most industrialized nations in dollar terms and would completely change the power dynamics of the last 300 years
It was pointed out that high growth rates, economic potential and demographic development were going to put BRICS further in a lead position
Why is BRICS suddenly so important?
The idea of development bank (NDB) and Contingency Reserve Arrangement (CRA) has strengthen BRICS as a grouping
Both of these concepts were formalised over in 2015 (@BRICS summit at Fortaleza and Brasilia) and this was seen as a strong signal to the challenge of western dominated discourses in some forums (IMF, WB)
We will get to these details in a short while but since these developments happened in 2015, the IAS aspirants from 2016 onwards are required to sweat blood in order to be on top of this theme (kidding!)
What prompted the need for emergence of BRICS?
Most multilateral institutions were designed in the era when the West dominated the world. The US and Europe are over-represented in the IMF and the World Bank. Together with Japan, they control most regional development banks as well! That’s a big bad bully in making, right?
The main reason for co-operation to start among the BRICs nation was the financial crises of 2008
The crises raised scepticism on the dollar dominated monetary system and the need for participation by non-G7 countries became evident. If you don’t know about G7, click this wiki page to know the countries involved
What reform did BRICS want out of the multilateral institutions?
Since their inception in 1944, the Bretton Woods institutions (IMF and World Bank) had not reformed their governance structure, to give more voting and voice to emerging economies. Both dominated by USA and developed countries. Both were out of sync with the new dynamics of world economy
The BRICs called for the “the reform of multilateral institutions in order that they reflect the structural changes in the world economy and the increasingly central role that emerging markets now play
BRICS managed to push for institutional reform which led to International Monetary Fund (IMF) quota reform in 2010 (although, it met with limited success as United States Congress did not ratify)!
Three new terms? Bretton Woods, Quota reforms, 2008 financial crisis. We will get to them later.
So, essentially, BRICS opened up a possibility for countries of the global South to challenge the global North. When the quota reforms were quashed in 2010, BRICS moved towards enlarging their spheres of cooperation. We will talk about the BRICS bank at a later stage.
Advantage India?
Now that NAM (Non-alignment) is almost defunct and very little wealth is left in the Commonwealth, BRICS provide a great alternate for India to build its global profile.
But don’t we have a G 20 group to further India’s interest in the global arena?Yes, that’s another big one (besides UN).
G 20 is a bloc of developing nations established on 20 August 2003. The G-20 accounts for – 60% of the world’s population, 70% of its farmers and 26% of world’s agricultural exports.
India has tried to use BRICS as a forum to engage China as the latter has become the largest market for the fast-industrializing countries of East Asia. India wants to resolve the age-old mis trust and complicated relationship between the two countries since the 1962 war between them.
What are the factors that will bolster co-operation among BRICS members?
Firstly, the common need among developing countries to construct economic order that reflects current situation will drive the BRICS’ efforts. In this matter, the idea of NDB and CRA are defining and will have a huge geo-economic and geopolitical impact
Secondly, the BRICS alternative idea in the landscape of global governance will attract support from other countries. There have been suggestions by political analysts that BRICS may expand its member quota
Thirdly, the expansion of BRICS interaction to other sector will make it more strong partnership
Lastly, Chinese support to BRICS will make sure that group remains a force to reckon with in the future
Chinese support – interesting point. Some would say that a lot depends on how China carries its might behind BRICS for the time to come.
Some concerns regarding the future of BRICS
Competition within themselves – The BRICS countries aspire to be regional powers and hence at some point will compete with each other
Different forms of governance – They have different political systems with Brazil, India and South Africa being democracies while Russia and China having authoritarian characteristics. It would be interesting to see how policy consensus is brought about!
Trade conflicts, maybe? Brazil and Russia are commodity exporting countries and thus benefit from high commodity prices while India and China are commodity importers that benefit from low commodity prices
Territorial Issues – China and India have outstanding territorial issues to resolve and India looks askance to any institution that has Chinese domination. Russia looks suspiciously at China’s interest in its sparsely populated far eastern of Siberia
The big daddy China – China spearheads three other major initiatives in this region – One Belt One Road (OBOR), Asian Infrastructure Investment Bank (AIIB) and SCO. You should know that the 7th BRICS summit was held as a joint summit with SCO. BRICS has to find a reckoning space among them to keep china’s interests alive!
Parting words on BRICS (more mirch masala)
All that UPSC want from an IAS aspirant is: Analysis, analysis, analysis. These are some of the fodder points that you can use in any answer involving BRICS and world arena.
Engaging China has been one of the important components of India’s foreign policy in recent years, considering that co-operation and negotiations with China is imperative to clearing the mistrust between the two countries.
Geostrategically, BRICS are now represented on all continents of the global south. In bilateral and regional agreements, the BRICS emphasize south-south solidarity and horizontal cooperation in contrast to western dominance.
Yet, in global fora such as G20, UN Security Council or World Climate Conferences, BRICS claim to speak on behalf of the developing world (whether they actually do represent these countries is disputable) and gradually challenge western supremacy in international politics.
Phew. This was a long one! Did we cover everything? Nope. We will cover later
Latest BRICS summit
All about the BRICS Bank (NDB) & Contingency Reserve Arrangement (CRA)
Comparison of BRICS Bank with AIIB (another master stroke by China)
#1. With reference to a grouping of countries known as BRICS, consider the following statements: (IAS Prelims 2014)
1. The First Summit of BRICS was held in Rio de Janeiro in 2009.
2. South Africa was the last to join the BRICS grouping.
Which of the statements given above is / are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2 #2. The ‘Fortaleza Declaration’, recently in the news, is related to the affairs of ((IAS Prelims 2015)
(a) ASEAN
(b) BRICS
(c) OECD
(d) WTO
#3. With reference to BRIC countries, consider the following statements (IAS Prelims 2010)
1. At present, China’s GDP is more than the combined GDP of all the three other countries.
2. China’s population is more than the combined population of any two other countries.
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
There are so many wisecracks about budgets. World over, budgets have managed to create madness, hysteria, protests, and satire. It is basic to the human mind that no other mind is possibly capable of carefully handling and allocating that joyous commodity, money. Add this sense of insecurity to the Orwellian point of view that all politicians are equal (in their incapability) but some politicians are more equal than the others, and you quintessentially have, what our Parliamentarians fondly call ‘The Budget Session’.
Budgets are largely an exercise in philosophy; you deliver the numbers only to realise that they are never deliverable and never have been, to begin with. “Deficits satyam, Budget mithya” could well be the Indian take on the issue. Americans, those descendants of immigrants and revolutionaries, have scant regard for things as deep as the Shankara philosophy. Their philosophy about budgets goes about as deep as, errr, a bean bag. It was the inimitable Will Rogers, who in his loud style commented, “The budget is a mythical bean bag. Congress votes mythical beans into it, and then tries to reach in and pull real beans out.”
American budgets have inspired perhaps the biggest quips and laughs. George W Bush, never quite revered across the globe for his intelligence, much to the delight of his critics, is believed to have said, “Of course it’s a budget. It’s got a lot of numbers in it.” Can’t get more dubiously Dubya than that, eh?
Greeks, the other race that pride themselves on their philosophical underpinnings, have a different way of looking at budgets and debt burdens. When in trouble, they have a strange Greek way of using wonderful quotes by their forefathers in a most inappropriate fashion. “Speaking the truth and repaying your debts is not a correct definition of justice,” once said Plato. And now says Tsipras, to the great horror of Merkel and Co. It was humour in its blackest form that the Greeks recently passed an ‘austerity’ budget.
Even the late Sophocles, that great master of tragedy who is believed to create despair even in Heaven, started laughing uncontrollably when he heard about that one. Merkel showed her technical German wit when she primly commented, “Austerity makes it sound evil. I prefer to call it balancing the budget.” Even the British raised their eyebrows in appreciation.
Because, perhaps the greatest kind of budget humour can only come from the stiff upper lip of Europe, Great Britain. Unwittingly and unknowingly, George Osborne, the finance minister of UK, created complete confusion in Britain when he dared to claim last year in the British parliament, “This will be a budget for working people.” The Brits paused for a minute over their seventy-third cup of tea to exclaim, “I say, what does he mean, working people? We thought they were called Germans!”
Back home at North Block, the entire team is getting serious about how to get funny. The FM has been braving suggestions on taglines that could scroll on the bottom of the TV screen whilst he would read the budget provisos. Senior advisors have suggested sher-o-shayari, but Ghalib makes you feel depressed, and Iqbal, Congressed. The younger interns are all for filmi taglines.
Imagine, the FM would declare the fiscal deficit target for FY17 to be 4.2 per cent, markets would tank, only to be assured by the tagline scroll, “Bade bade deshon mein aisi choti choti baatein hoti rehti hain.” Or whilst talking of subsidies, “Hum AAP ke hain kaun.” The FM is hoping for an ‘Airlift’
Amidst global and domestic headwinds, Finance Minister presented a growth and development-oriented Budget that seeks to transform india for the benefit of farmers and the vulnerable. We will take a look at the budget in terms of various sectors.
In this section, we will deal with the sector which received a lot of attention in this budget – Agriculture and Farmer’s Welfare
Take a look at basic statistics, which will not be useful for memorizing, but certainly will help you in analyzing the shifting focus of govt. towards agriculture.
Total allocation for Agriculture and Farmers’ welfare is 35,984 crore
28.5 lakh heactares of land will be brought under irrigation
5 lakh acres to be brought under organic farming over a 3-year period
Rs 6,000 crore for recharging of ground water recharging
Dedicated irrigation fund in NABARD of Rs.20.000 crore
Focus Areas
#1. Food Security to Income Security
Govt. is targeting to double the farmers’ income in 5 years. Govt. will re-orient its efforts both in farm and non-farm sectors. The access to markets becomes critical in this respect, so govt. will implement a Unified Agriculture Marketing Scheme which envisages a common e-market platform that will be deployed in selected 585 regulated wholesale markets.
#2. Irrigation
Irrigation is a critical input for increasing agriculture production and productivity. Out of 141 million hectares of net cultivated area in the country, only 46% is covered with irrigation. A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about `20,000 crore.
The ‘Pradhan Mantri Krishi Sinchai Yojana‘ has been strengthened and will be implemented in mission mode. 28.5 lakh hectares will be brought under irrigation under this scheme. Govt. is taking efforts to fast track 89 irrigation projects languishing under AIBP, which will help to irrigate 80.6 lakh hectares.
Under the sustainable management of ground water resources, at least 5 lakh farm ponds and dug wells in rain fed areas will be created and 10 lakh compost pits for production of organic manure will be taken up by making productive use of the allocations under MGNREGA.
#3. Conserve Soil Health and Fertility
There is a National Project on Soil Health and Fertility and govt. is implementing Soil Health Card Scheme. It enables farmers to get information about nutrient level of the soil and can make judicious use of fertilizers. The target is to cover all 14 crore farm holdings by March 2017.
#4. Credit Availability
Govt. is making special efforts to ensure adequate and timely flow of credit to farm sector. The target for agricultural credit in 2016-17 will be at an all-time high of Rs. 9 lakh crore, as against the target of Rs. 8.5 lakh crore in 2015-16.
Govt. has made the provision of Rs. 15,000 crore towards interest subvention, in order to reduce the burden of loan repayment on farmers
#5. Food Processing Industry
100% FDI will be allowed through FIPB route in marketing of food products produced and manufactured in India. It will benefit farmers as fruits and vegetables will fetch right prices and also reduce their wastage. It will also give impetus to food processing industry and create vast employment opportunities.
New Initiatives
Finances
A Krishi Kalyan Cess will be imposed at 0.5% on all taxable services, proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. To know more about basics of cess – Read more.
Broadening MSP
Govt. will make efforts to ensure that the benefit of MSP reaches farmers in all parts of the country. Govt. will encourage remaining states to take up decentralized procurement. An online procurement system will be undertaken through the Food Corporation of India. Govt has also made effective arrangements for pulses procurement.
Dairy Development
Govt. will bring four new projects to make dairying more remunerative to the farmers:
Pashudhan Sanjivani – An animal wellness programme and provision of Animal Health Cards (‘Nakul Swasthya Patra’)
An advanced breeding technology
Creation of ‘E-Pashudhan Haat’ – An e-market portal for connecting breeders and farmers
A National Genomic Centre for indigenous breeds
Agriculture Insurance
In order to protect the farmer from the adverse consequences of nature, govt. has recently announced PM Fasal Bima Yojna, which will have nominal premium and highest ever compensation in case of crop loss.
PS: Please click on the green hyperlinked text to read more about the concepts. Revise and revise & feel free to ask pertinent questions.
