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Subject: Economics

  • MSP for all crops is fiscally unfeasible

    Context

    Many political parties are demanding to make the minimum support prices (MSP) a legal instrument.

    Background of MSP

    • MSP regime had its genesis in 1965 when India was hugely short of basic staples and living in a “ship-to-mouth” situation.
    • Indicative price: It was an indicative price (not a legal price) and procurement of rice and wheat was done to support farmers when they were adopting new seeds (HYV technology) and domestic procurement was to feed the PDS.
    • The government declares MSP for 23 crops: Seven cereals (paddy, wheat, maize, bajra, sorghum, ragi and barley), five pulses (tur, moong, chana, urad and masur), seven oilseeds (soybean, groundnut, rapeseed-mustard, sesamum, safflower, sunflower and nigerseed) and four commercial crops (sugarcane, cotton, jute and copra).

    Need to rethink procurement policy

    • But now with granaries overflowing with rice and wheat, there is a need to rethink and redesign the procurement policy.
    • In the crop year 2020-21, about 60 million metric tonnes (MMTs) of rice and 43 MMTs of wheat were procured by the Food Corporation of India (FCI) and NAFED procured about 0.66 MMTs of pulses.

    The increasing cost of PDS

    • The main procurement by the government happens largely for rice and wheat to feed the public distribution system (PDS).
    • The PDS issue prices of rice and wheat are subsidised by more than 90 per cent of their economic cost to the government.
    • In 2020-21, the food subsidy bill was almost 30 per cent of the net tax revenue of the central government, reflecting clearly a huge consumer-bias in the system.
    • Way forward: Unless this PDS is reformed either by restricting this to say the bottom 30 per cent of the population, or raising the issue prices to say half the economic cost of rice and wheat, giving a better deal to farmers is likely to blow up the fiscal position of the central government.

    The cost of legal MSP

    • Assuming that only 10 per cent of the production of remaining crops (excluding sugarcane) is procured, it will cost the government about Rs 5.4 lakh crore annually to procure these other MSP crops.
    • This cost is estimated on the basis of economic costs of operation that are usually about 30 per cent higher than the MSP (in case of rice and wheat it is 40 per cent).
    • But it appears that despite this, market prices may stay below MSP, especially during the harvest time.
    • It also raises the question why only these MSP crops, why not other agri-produce, say milk, the value of which is more than the value of rice, wheat and sugarcane combined.

    Way forward

    • PDP: One may use price deficiency payments (PDP), implying that the government pays to farmers the gap between the market price and MSP, whenever market prices are below MSP.
    • Income support instead of price support: It may be better to use an income policy on a per hectare basis to directly transfer money into farmers’ accounts without distorting markets through higher MSPs or PDPs.

    Consider the question “What are the challenges in providing the legal backing to the Minimum Support Price to the agriculture produce? Suggest the way forward.”

    Conclusion

    There is no easy substitute to “getting the markets right”. Government need to apply an innovative approach to solve the conundrum of the MSP.

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  • Why policymakers prefer targeting of Retail Inflation over Wholesale Inflation?

    The wholesale inflation in India has grown by double digits. This is the highest year-on-year increase recorded in any month since the start of the 2011-12 data series.

    Context

    • It is surprising policymakers are not looking as concerned as the inflation figures show.
    • The Finance Ministry has largely focused on the trend in retail inflation — or the inflation rate at the level of retail consumers.
    • It is not just the policymakers within the government who prefer to focus on retail inflation but also the RBI.

    Wholesale and Retail (Consumer) Inflation

    • The wholesale and retail (consumer) inflation rates are based on the wholesale price index (WPI) and the consumer price index (CPI), respectively.
    • In other words, we make two separate indices — one each for wholesale prices and retail prices — and see how the index values have gone up in a particular month as against the same month last year.
    • The percentage change is the rate of inflation.
    • The CPI-based inflation data is compiled by the Ministry of Statistics and Programme Implementation (or MoSPI) and the WPI-based inflation data is put together by DPIIT.

    The tables alongside detail how the two indices — WPI and CPI — differ in their composition. There are two key differences.

    [A] Wholesale Price Index

    Component Weight (in %) Inflation rate (in %);

    Nov 2021
    All Commodities 100.00 14.23
    Primary Articles 22.62 10.34
    Fuel & Power 13.15 39.81
    Manufactured Products 64.23 11.92

    [B] Consumer Price Index

    Component Weight (in %) Inflation rate (in %); 

    Nov 2021
    General Index 100.00 4.91
    Food and beverages 45.86 2.60
    Pan, tobacco and intoxicants 2.38 4.05
    Clothing and footwear 6.53 7.94
    Housing 10.07 3.66
    Fuel and light 6.84 13.35
    Miscellaneous (services) 28.32 6.75

    A Comparison

    (1) Manufactured Goods Vs. Food Items

    • WPI is dominated by the prices of manufactured goods while CPI is dominated by the prices of food articles.
    • As such, if the year-on-year increase in the prices of food articles is subdued, as is the case at present, chances are that the overall (also called headline) retail inflation will be within reasonable bounds.
    • In WPI, if manufactured products are getting costlier at the wholesale level then that would likely spike wholesale inflation regardless of how food prices are doing at the wholesale level.

    (2) Accounting Service

    • Two, WPI does not take into account the change in prices of services. But CPI does.
    • If services such as transport, education, recreation and amusement, personal care etc. get significantly costlier, then retail inflation will rise but there will be no impact on wholesale price inflation.

    Why do policymakers prefer targeting retail inflation instead of wholesale inflation rate?

    • RBI’s limitations: RBI is the monetary authority that has little ability to control food and fuel prices. Ex: raising the repo rate (rate at which RBI lends money to banks) is unlikely to contain the price of vegetables if any disruptions have led to a sudden spike.
    • Non-commodity Inflation: Wholesale inflation does not capture price movements in non-commodity-producing sectors like services, which constitute close to two-thirds of economic activity in India.
    • Large revisions in WPI: Movements in WPI often reflect large external shocks and as such, the wholesale inflation rate is often subject to large revisions.

    Arguments in favour of CPI-based inflation targeting

    • Commodity basket: A crucial reason why CPI-based inflation could not be ignored is the fact that it has almost 57% dominance of food and fuel prices.
    • Affecting general public: Since most people use retail inflation as a way to arrive at their real earnings, and use it for wage negotiations etc., it makes more sense for policymakers,
    • Public faith: The choice of CPI establishes ‘trust’ viz., economic agents note that the monetary policy maker is targeting an index that is relevant for households and businesses.
    • Inflation affecting people: True inflation that consumers face is in the retail market. It is for this reason that almost all central banks in big economies use CPI as their primary price indicator.

    Impact of Wholesale inflation on Retail

    • The Urjit Patel committee analysed the relationship between WPI and CPI based on monthly data from January 2000 to December 2013 — a total of 14 years.
    • When they looked at the impact of an increase in WPI-food inflation on CPI food inflation, they found it to be “significant”.
    • It stated that higher food inflation in wholesale markets leads to an increase in retail food inflation “till two months”.
    • An increase in retail food inflation leads to a corresponding increase in WPI-food inflation.

     

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  • The challenge of achieving 9.5% growth rate

    Context

    The National Statistical Office (NSO) released the second quarter gross value added (GVA) and gross domestic product (GDP) numbers on November 30, 2021, indicating the pace of economic recovery in India after the two COVID-19 waves.

    Strong growth momentum required to exceed pre-COVID-19 levels

    • The real GVA for the first half of 2021-22 at ₹63.4 lakh crore has remained below the level in the first half of 2019-20 at ₹65.8 lakh crore by (-)3.7%.
    • This difference is even larger for GDP which at the end of first half of 2021-22 stood at ₹68.1 lakh crore, which is (-) 4.4% below the corresponding level of GDP at ₹71.3 lakh crore in 2019-20.
    • As the base effect weakens in the third and fourth quarters of 2021-22, a strong growth momentum would be needed to ensure that at the end of this fiscal year, in terms of magnitude, GVA and GDP in real terms exceed their corresponding pre-COVID-19 levels of 2019-20.
    • Domestic demand including private final consumption expenditure (PFCE) in the first half of 2021-22 remains below its corresponding level in 2019-20 by nearly ₹5.5 lakh crore.
    • This indicates that investment as well as consumption demand have to pick up strongly in the remaining two quarters to ensure that the economy emerges on the positive side at the end of 2021-22 as compared to its pre-COVID-19 level.

    Annual growth prospects

    • Required rate in second half of 2021-22: To realise the projected annual growth at 9.5% for 2021-22 given both by the Reserve Bank of India (RBI) and the International Monetary Fund (IMF), we require a growth of 6.2% in the second half of 2021-22.
    • This will have to be achieved even as the base effect weakens in the third and fourth quarters since GDP growth rate in these quarters of 2020-21 was at 0.5% and 1.6%, respectively.
    •  Thus, achieving the projected growth rate of 9.5% is going to be a big challenge.

    What should be the policy to achieve higher growth rate

    • Fiscal support: The policy instrument for achieving a higher growth may have to be a strong fiscal support in the form of government capital expenditure.
    • The Centre’s gross tax revenues have shown an unprecedented growth rate of 64.2% and a buoyancy of 2.7 in the first half of 2021-22.
    • The Centre’s incentivisation of state capital expenditure through additional borrowing limits would also help in this regard. According to available information, 11 States in the first quarter and seven States in the second quarter qualified for the release of the additional tranche under this window.
    • Even as Central and State capital expenditures gather momentum, high frequency indicators reflect an ongoing pick-up in private sector economic activities.

    Robust growth in Centre’s gross tax revenue

    • The growth in the Centre’s GTR in the first half of 2019-20 was at 1.5% and there was a contraction of (-)3.4% for the year as a whole.
    • In the face of such weak revenues, the Central government could not mount a meaningful fiscal stimulus in 2019-20 even as real GDP growth fell to 4.0%.
    • In contrast, the government is in a significantly stronger position in 2021-22 since the growth in GTR in the first half is 64.2% and the full-year growth is expected to be quite robust.

    Conclusion

    Thus, the key to attaining a 9.5% real GDP annual growth in 2021-22 lies in the government’s ongoing emphasis on infrastructure spending as reflected in the government’s capital expenditure.

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  • Tackling agricultural reforms after farm laws repeal

    Context

    In the run-up to the repeal of the three farm laws, the potential cost of MSP to the taxpayers became a matter of debate.

    Issue of MSP

    • Large variation: Experts and agricultural economists quoted numbers about the cost of MPS.
    • There is a large variation in the quoted numbers.
    • The enormity of the variance in estimates is astounding.
    • No consensus on the number of beneficiaries of MSP: There is also a dissonance between the NSSO data and the administrative data on the number of farmers who enjoy MSP.
    • No consensus on a formula to calculate MSP: Further, there is no consensus on the formulae for the calculation of MSP.

    Suggestions on land reforms

    [1] Reduce high domestic prices

    • That India is an agri-surplus country.
    • That domestic prices of agri-commodities are often higher than in the international market and therefore, there is a need to bring them down.
    • How to achieve cost reduction: Cost reduction can happen either by creating efficiencies by plugging leakages or, by cost-cutting — including reducing farmers’ margins.
    • In the recently-reached understanding with the farmers, the government has agreed to constitute a committee on MSP.
    • Hopefully, a formula can be arrived at by which costs of domestic agricultural produce can be reduced while ensuring a “remunerative price” for the farmers.

    [2] Protecting landholdings

    • There is also a need to protect landholdings.
    • Farmers’ fears in this regard are not exaggerated.
    • Under the erstwhile laws, orders of payment made by an SDM/Collector could be recovered as “arrears of land revenue”.
    • While agricultural lands were protected from such recovery, non-agricultural (immovable and movable) assets appeared to be fair game.
    • Further, circumstances such as sustenance and payment of debts could force a farmer to sell their agricultural landholdings.
    • Large-scale loss of landholdings could lead to their consolidation in the hands of a few.
    • This could have the impact of turning the clock back, reminiscent of the Zamindari system.

    [3] Need to reconsider the dispute resolution mechanism

    • The government should also reconsider the dispute resolution mechanism provided in the erstwhile laws.
    • In an MSP driven regime, the government is likely to be a party in any potential dispute.
    • Conflict of interest: There will be a direct conflict of interest since the SDM/Collector is an arm of the government.
    • Land records are within the jurisdiction of the patwari and tehsildar, who report to the SDM/Collector.
    • Fast track courts: It would be advisable to think in terms of fast-track courts, and remove the provision of recovery through arrears of land revenue.
    • It would also be advisable to have only one dispute resolution mechanism for all farm laws.

    [4] Avoid over-corporatisation without the creation of the requisite efficiencies

    • We should not ask our farmers to brave corporatisation without levelling the playing field and enough jobs in the non-agricultural sector.
    • Over-corporatisation without the creation of the requisite efficiencies could lead us to become heavily import-dependent, killing the benefits of the Green Revolution.

    Conclusion

    Perfunctory reforms and those that don’t work for all constituents — corporates as well as farmers — could have long-term deleterious effects for not only the agricultural sector, but the economy as a whole.

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  • The WTO’s challenge to MSP

    Context

    Amid the demand for legal backing to MSP, the question remains about whether India can provide a legal guarantee violating its international law obligations enshrined in the Agreement on Agriculture (AoA) of the World Trade Organization (WTO)?

    Classification of subsidies under AoA: Trade distorting and non-trade distorting

    • The objective of AoA: One of the central objectives of the AoA is to cut trade-distorting domestic support.
    • Three categories: In this regard, the domestic subsidies are divided into three categories: ‘green box’, ‘blue box’ and ‘amber box’ measures.
    • Non-trade distorting: ‘Green box’ subsidies (like income support to farmers de-coupled from production) and ‘blue box’ subsidies (like direct payments under production limiting programmes subject to certain conditions) are considered non-trade distorting.
    • Countries can provide unlimited subsidies under these two categories.
    • Trade-distorting subsidies: Price support provided in the form of procurement of crops at MSP is classified as a trade-distorting subsidy and falls under the ‘amber box’ measures, which are subject to certain limits.

    So, how do countries measure ‘amber box’ support?

    • Compute AMS: To measure ‘amber box’ support, WTO member countries are required to compute Aggregate Measurement of Support (AMS).
    • AMS is the total of product-specific support (price support to a particular crop) and non-product-specific support (fertilizer subsidy).

    Understanding the  de minimis limit

    • Under Article 6.4(b) of the AoA, developing countries such as India are allowed to provide a de minimis level of product and non-product domestic subsidy.
    • This de minimis limit is capped at 10% of the total value of production of the product, in case of a product-specific subsidy; and at 10% of the total value of a country’s agricultural production, in case of non-product subsidy.
    • Subsidies breaching the de minimis cap are trade-distorting.

    Possibility of India overshooting the de minimis limit

    • Relation between MSP and AMS: The procurement at MSP, after comparing it with the fixed external reference price (ERP) — an average price based on the base years 1986-88 — has to be included in AMS.
    • Widening gap between ERP and MSP: Since the fixed ERP has not been revised in the last several decades at the WTO, the difference between the MSP and fixed ERP has widened enormously due to inflation.
    • According to the Centre for WTO Studies, India’s ERP for rice, in 1986-88, was $262.51/tonne and the MSP was less than this.
    • However, India’s applied administered price for rice in 2015-16 stood at $323.06/tonne, much more than the 1986-88 ERP.
    • Procuring all the 23 crops at MSP, as against the current practice of procuring largely rice and wheat, will result in India breaching the de minimis limit making it vulnerable to a legal challenge at the WTO.
    • Even if the Government does not procure directly but mandates private parties to acquire at a price determined by the Government, as it happens in the case of sugarcane, the de minimis limit of 10% applies.

    Way forward

    • Peace clause: Although a permanent solution is nowhere in sight, the countries have agreed to a peace clause.
    • The peace clause forbids bringing legal challenges against price support-based procurement for food security purposes even if it breaches the limit on domestic support.
    • The peace clause is applicable only for programmes that were existing as of the date of the decision and are consistent with other requirements.
    • India’s procurement for rice and wheat, even if it violates the de minimis limit, will enjoy legal immunity.
    • However, India will not be able to employ the peace clause to defend procuring those crops that are not part of the food security programme (such as cotton, groundnut, sunflower seed).
    • Move from MSP to income-based support: Arguably, India can move away from price-based support in the form of MSP to income-based support, which will not be trade-distorting under the AoA provided the income support is not linked to production.
    • Supplement price-based support with income-based support: Alternatively, one can supplement price-based support (keeping the de minimis limit in mind) with an income-based support policy.

    Conclusion

    The Government needs to engage with the farmers and create an affable environment to convince them of other effective policy interventions, beyond MSP, that are fiscally prudent and WTO compatible.

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  • Growth of India’s Defence Exports

    India’s defense exports have increased manifold from ₹1,521 crore in 2016-17 to ₹8,434.84 crore in 2020-21.

    Note: This newscard provides substantial data about India’s defense exports and imports, which is highly relevant for mains and interview. Kindly bookmark this article.

    India’s defense exports

    • India has the strength of low-cost, high-quality production.
    • The Government has set an ambitious target to achieve exports of about ₹35,000 crore ($5 billion) in aerospace and defense goods and services by 2025.
    • The Defense Ministry has clarified that the names of the major defense items exported cannot be disclosed due to strategic reasons.
    • To boost indigenous manufacturing, the govt had issued two “positive indigenization lists” consisting of 209 items that cannot be imported and can only be procured from domestic industry.

    A significant achievement

    • According to the latest report of the Swedish think tank Stockholm International Peace Research Institute (SIPRI), three Indian companies figure among the top 100 defence companies in the 2020 rankings.
    • These include Hindustan Aeronautics Limited (HAL), Ordnance Factory Board and Bharat Electronics Ltd (BEL).

    Yet India is a top importer

    • While India remained among the top importers, it was also included in the Top 25 defence exporters.
    • There was an overall drop in India’s arms imports between 2011-15 and 2016-20, according to another SIPRI report of 2020.

    Items that India export

    • India has supplied different types of missile systems, LCA/helicopters, multi-purpose light transport aircraft, warships and patrol vessels etc.
    • It is also willing to export artillery gun systems, tanks, radars, military vehicles, electronic warfare systems and other weapons systems to IOR nations.

    Major partners: South Asian Countries

    • Vietnam is procuring 12 Fast Attack Craft under a $100 million credit line announced by India.
    • It is also interested in Advanced Light Helicopters and Akash surface-to-air missiles.
    • HAL has pitched its helicopters and the Tejas LCA to several Southeast Asian and West Asian nations and is in the race to supply the LCA to Malaysia.
    • Discussions on the sale of BrahMos supersonic cruise missiles, jointly developed by India and Russia, are at an advanced stage with some Southeast Asian nations.

    Steps taken by the Centre to boost defence production

    • Licensing relaxation: Measures announced to boost exports since 2014 include simplified defence industrial licensing, relaxation of export controls and grant of no-objection certificates.
    • Lines of Credit: Specific incentives were introduced under the foreign trade policy and the Ministry of External Affairs has facilitated Lines of Credit for countries to import defence product.
    • Policy boost: The Defence Ministry has also issued a draft Defence Production & Export Promotion Policy 2020.
    • Indigenization lists: On the domestic front, to boost indigenous manufacturing, the Government had issued two “positive indigenization lists” consisting of 209 items that cannot be imported.
    • Budgetary allocation: In addition, a percentage of the capital outlay of the defence budget has been reserved for procurement from domestic industry.

    Issues retarding defence exports

    • Excess reliance on Public Sector: India has four companies (Indian ordnance factories, Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL) and Bharat Dynamics Limited (BDL)) among the top 100 biggest arms producers of the world.
    • Policy delays: In the past few years, the government has approved over 200 defence acquisition worth Rs 4 trillion, but most are still in relatively early stages of processing.
    • Lack of Critical Technologies: Poor design capability in critical technologies, inadequate investment in R&D and the inability to manufacture major subsystems and components hamper the indigenous manufacturing.
    • Long gestation: The creation of a manufacturing base is capital and technology-intensive and has a long gestation period. By that time newer technologies make products outdated.
    • ‘Unease’ in doing business: An issue related to stringent labour laws, compliance burden and lack of skills, affects the development of indigenous manufacturing in defence.
    • Multiple jurisdictions: Overlapping jurisdiction of the Ministry of Defence and Ministry of Industrial Promotion impair India’s capability of defence manufacturing.
    • Lack of quality: The higher indigenization in few cases is largely attributed to the low-end technology.
    • FDI Policy: The earlier FDI limit of 49% was not enough to enthuse global manufacturing houses to set up bases in India.
    • R&D Lacunae: A lip service to technology funding by making token allocations is an adequate commentary on our lack of seriousness in the area of Research and Development.
    • Lack of skills: There is a lack of engineering and research capability in our institutions. It again leads us back to the need for a stronger industry-academia interface.

    Way forward

    • Reducing import dependence: India was the world’s second-largest arms importer from 2014-18, ceding the long-held tag as the largest importer to Saudi Arabia, says 2019 SIPRI report.
    • Security Imperative: Indigenization in defence is critical to national security also. It keeps intact the technological expertise and encourages spin-off technologies and innovation that often stem from it.
    • Economic boost: Indigenization in defence can help create a large industry which also includes small manufacturers.
    • Employment generation: Defence manufacturing will lead to the generation of satellites industries that in turn will pave the way for a generation of employment opportunities.

     

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  • Extension for PM Krishi Sinchai Yojana

    The Cabinet has given its approval to extend its umbrella scheme Pradhan Mantri Krishi Sinchayee Yojana for irrigation, water supply, groundwater and watershed development projects for another five years till 2026.

    PM Krishi Sinchai Yojana

    • The PMKSY was launched on 1st July, 2015 with the motto of “Har Khet Ko Paani”.
    • It is being implemented to expand cultivated area with assured irrigation, reduce wastage of water and improve water use efficiency.

    The scheme has basically combined three active projects under various ministries which is as follows:

    1. Accelerated Irrigation Benefit Program (Ministry of Water Resources)
    2. Integrated Watershed Management Program (Ministry of Rural Development)
    3. Farm Water Management Project of the National Mission on Sustainable Agriculture

    Components of PMKSY

    PMKSY seeks to provide a complete solution to farm level irrigation and assured irrigation for every farm

    • It aims to integrate irrigation with the latest technological practices and cover more cultivable areas under assured irrigation
    • Increase the implementation of water-saving technologies and precision irrigation which in other words can be said as More Crop Per Drop.
    • PMKSY also targets the promotion of micro-irrigation in the form of sprinklers, rain-guns, drips, etc.

    Advantages of Micro Irrigation

    • Higher Profits
    • Water Saving & Water Use Efficiency (WUE)
    • Less Energy Costs
    • Higher fertilizer-use efficiency (FUE)
    • Reduced Labour Costs
    • Reduce Soli Loss
    • Marginal Solis & Water
    • Efficient & Flexible
    • Improved Crop Quality
    • Higher Yields

    Implementation of PMKSY

    • Everything from planning and execution of plans is regionalized in PMKSY.
    • District Irrigation Plans (DIPs) will identify the areas that require improved facilities in irrigation at block levels and district levels.
    • State Irrigation Plan consolidates all the DIPs and it oversees the agricultural plans developed under the Rashtriya Krishi Vikas Yojana.

    Funding pattern

    • Funds will be allocated by the centre only if the state has prepared the district irrigation plans and the state irrigation plans.
    • The state government’s share under PMKSY is 25% and rest is borne by the centre, with an exception for north-eastern states where contribution by the state government is 10%.

     

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  • The price of food must figure in the policy

    Context

    The essential challenge of public policy for agriculture- the high price of food remains unsolved.

    Implications of high food prices

    • Increases poverty: A higher price of food increases poverty, especially as the rice and wheat supplied through the PDS constitute only a part of the total expenditure on food of the average Indian household.
    • Reduces the expenditure on other item: For the household, a high price of food crowds out expenditure on other items ranging from health and education to non-agricultural goods.
    • This prevents the market for non-agricultural goods from expanding.
    • This was one of the first discoveries in economics, made by the English economist David Ricardo about two centuries ago.

    Rising food prices in India

    • An indication of the elevation of the price of food in an economy is the share of food in a household’s budget.
    • In a global comparison we would find that this share is very large for India.
    • Data from the U.S. Department of Agriculture (2016) show that this share ranges from over 30% for India to less than 10% for the U.S. and the U.K.
    • This is in line with Ricardo’s understanding of how economies progress i.e., as food gets cheaper, growth in the non-agricultural economy is stimulated.
    • Agricultural policy in India has remained quite unaccountable in the face of a rising relative price of food.
    • Impact on manufacturing sector: Arguably, the high price of food has been a factor in the disappointing lack of expansion of the manufacturing sector in India despite repeated efforts to bring it about.

    Changes needed in agricultural policy

    • Both from the point of view of food security for low-income households and the dynamism of the non-agricultural sector, agricultural policy cannot ignore the price at which food is produced.
    • Focus on improving the yield: The fact of low agricultural yield in India by comparison with the rest of the world has been known for long, and little is done about it.
    • Management of soil nutrients and moisture: A superior management of soil nutrients and moisture, assured water supply and knowledge inputs made available via an extension service would be crucial.
    • Raising yields will ensure profitability without raising producer prices, which will inflate the food subsidy bill.

    How government intervention created problems

    • Given the importance of food for our survival, this justifies public intervention in agriculture.
    • The issue is the design and scale of this intervention.
    • In the mid-sixties, when India was facing food shortage that could not be solved through trade, a concerted effort was made to raise domestic agricultural production.
    • Profitability through MSP: It introduced the strategy of ensuring farm profitability though favourable prices assured by the state.
    • Further, it entrenched the belief that it is the farmer’s right to have the state purchase as much grain as the farmer wishes to sell to the state agency.
    • Created grain stockpile: This has resulted in grain stockpiles far greater than the officially announced buffer-stocking norm.
    • These stocks have often rotted, resulting in deadweight loss, paid for by the public though taxes or public borrowing.
    • Supply more than demand: Finally, with all costs of production reimbursable and all of output finding an assured outlet, supply has outstripped demand. 
    • Damage to natural environment: This has led to unimaginable pressure on the natural environment, especially water supply.

    Consider the question “India faces the challenge of high food prices. Examine the ways in which high food prices affects the overall economy. How far is the India’s agriculture policy responsible for the problem?”

    Conclusion

    India needs an agricultural policy that ensures that farming is profitable but this cannot be at the cost of a high price of food. The ‘food problem’ should no longer be seen only in terms of the availability of food from domestic sources.

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  • The NMP is hardly the panacea for growth in India

    Context

    As the government seeks to monetise core assets through National Monetisation Pipeline (NMP), it needs to investigate the key reasons and processes which led to once profit-making public sector assets becoming inefficient and sick businesses.

    Background of the MNP

    • The National Monetisation Pipeline (NMP) envisages an aggregate monetisation potential of ₹6-lakh crore through the leasing of core assets of the Central government.
    • These assets are in sectors such as roads, railways, power, oil and gas pipelines, telecom, civil aviation, shipping ports and waterways, mining, food and public distribution, coal, housing and urban affairs etc. over a four-year period (FY2022 to FY2025).
    • Strategic objective of NMP: According to NITI Aayog, the strategic objective of the asset monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies.
    • Unlocking idle capital: The NMP policy advocates unlocking idle capital from non-strategic/underperforming government owned assets
    • Contribution of core sectors: Eight core industrial sectors that support infrastructures such as coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity have a total weight of nearly 40% in the Index of Industrial Production (IIP).

    Reasons for the decline of PSU and why the government should introspect the decline

    • Cost overruns, inter alia, is one of the major reasons.
    • Exceeding project completion time: In some cases, project completion time is exceeded, leading to elevated project cost so much so that either the project itself becomes unviable at the time of its launching or delays its break even point.
    • Lack of optimum input-output ratio: Optimum input-output ratio is seldom observed in a majority of government infrastructural projects leading to their overcapitalisation.
    • A reluctance to implement labour reforms, a lack of inter-ministerial/departmental coordination, poor decision-making, ineffective governance and excessive government control are other reasons for the failure of public infrastructural assets.
    • Need for introspection: It is quite likely that the nation may find itself in a vicious cycle of creating new assets and then monetising the same when they become liabilities for the Government at a later stage.

    Importance of public sector enterprises

    • Going by the annual report (2020-2021) of the Department of Public Enterprises there are 256 operationally-run central public sector undertakings (CPSUs), employing about one million people.
    • They posted a net profit of ₹93,294 crore (FY 2019-20).
    • Ratna Status: Out of these, 96 have been conferred the Ratna status (72, 14, and 10 are Miniratnas, Navaratnas, and Maharatna companies, respectively).
    • As India needs to invest about $1.5 trillion on infrastructure development in order to aspire to become $5 trillion economy by the year 2024-25, according to the Economic Survey 2019-20, public enterprises should be in focus.

    Steps to strengthen public sector businesses

    • Gati Shakti National Master Plan: Recently, the “Pradhan Mantri Gati Shakti National Master Plan” for multi-modal connectivity was launched.
    • It is essentially a digital platform for information sharing among different Ministries and departments at the Union and State levels.
    • Seamless planning and coordinated execution: The plan aims ‘to synchronise the operations of different departments of 16 Ministries including railways and roadways.
    •  Revamping corporate governance structure of PSUs: As enunciated in the Economic Survey 2020-21, an important step for the Government to take to strengthen public sector businesses would be to completely revamp their corporate governance structure in order to enhance operational autonomy augmented with strong governance practices including listing on stock exchange for greater transparency and accountability.
    • Initiative to boost domestic production of steel: The Economic Survey also highlights the Government’s initiatives as part of the Atmanirbhar Abhiyaan in order to boost domestic production in the steel sector.
    • Under it, four different types of steel are included for incentives under the production linked incentive (PLI) scheme; selling steel to Micro, Small and Medium Enterprises (MSMEs), affiliated to Engineering Export Promotion Council of India at export parity price under the duty drawback scheme of the Directorate General of Foreign Trade (DGFT);
    • It also include measures to provide preference to domestically produced iron and steel in government procurement, where aggregate estimate of iron and steel products exceeds ₹25 crore;
    • Protection of domestic industry from unfair trade practices: Protecting industry from unfair trade through appropriate remedial measures including imposition of anti-dumping duty and countervailing duty on the products on which unfair trade practices were adopted by the other countries.

    Conclusion

    More such out-of-the-box policy initiatives are needed to rule out public asset monetisation schemes such as the NMP in future.

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  • The stepping stones in the post-pandemic world

    Context

    The COVID-19 pandemic has profoundly impacted lives and livelihoods across the world. Governments, global institutions, industry, academia and non-profit organisations around the world have joined hands to tackle the global challenge and help countries rebuild their economies.

    Criticality of international cooperation and role for India

    • The novel coronavirus pandemic has once again highlighted the criticality of international cooperation in combating current and future challenges.
    • Areas of cooperation: Key among these include economic growth, building competitiveness of the investment climate, ensuring sustainable development paths and adapting to technology acceleration.
    • Strengthening global partnership: Building resilience to cope with the threats posed by pandemics and other man-made and natural disasters has necessitated strengthening global partnerships now more than ever.
    • Global partnerships help in building mutual trust and understanding by agreeing upon common rules and standards and sharing of best practices.

    Areas to focus on

    [1] Challenge of long term sustainability of growth process

    • While the world economy is rebounding strongly, the long-term sustainability of the growth process needs to be strengthened.
    • Exit from the massive stimulus packages itself may pose risks of economic and financial instability.

    [2] Challenges of supply chain management:

    • The pandemic severely disrupted global supply chains and set the global trade trajectory on a downward path.
    • Even as the world emerges from the pandemic, facilitating medical supplies and essentials will continue to remain a top priority and for this, supply chains will need to be kept flowing.
    • For this year, the United Nations Conference on Trade and Development (UNCTAD) indicates an increase of 22.4% in the value of global merchandise trade compared with 2020.
    • World trade is expected to stand about 15% higher than before the COVID-19.
    • FDI flows in developing economies also increased significantly, totalling $427 billion in the first half of 2021.
    •  Cooperation on trade facilitation for enhancing open and transparent markets, technical assistance and reduction of complex process and arrangements must be promoted.

    [3] Increasing competitiveness

    • Competitiveness will be key in facilitating growth and inclusive development.
    • New opportunities and avenues across potential high growth sectors such as manufacturing and start-ups must be leveraged.
    • An ecosystem of entrepreneurship and innovation with targeted policies and interventions will contribute to enhancing productivity and generating employment.

    [4] Structural changes with the emergence of digital economy

    • Certain structural changes are likely to become permanent in the future and this is especially true of the digital economy
    • Equitable adaptation: The rise of telemedicine, remote work and e-learning, delivery services, etc. necessitates equitable adaptation to advanced technologies and tools, building robust infrastructure, and occupational transitions.
    • Skill development and worker training, investments in education and vocational training, and capacity building would be some key areas of focus for filling technology gaps and nurturing new and existing talent.
    • Investment in innovation: At the same time, investments in innovation will be crucial, especially during a crisis.

    [5] Climate change

    • Matter of urgency: Climate change has now acquired urgency from policymakers around the world, as seen in the recent COP26 at Glasgow.
    • International alliances and cooperation on building sustainable solutions, green technology, resource efficiency, sustainable finance, etc., must be promoted to fast-track meeting the sustainable development goals and for ensuring all-round development.

    Opportunities for India

    • Attaining faster growth path: India’s recent reforms, role in combating the pandemic, and startup vibrancy, among other factors, have attracted global attention and can help it attain a faster growth path, provided its integration with the world economy and trade gains strategic intensity.
    • Reliable and trusted player: With multiple strategic shifts, India’s role as a reliable and trusted player in the comity of nations stands enhanced.

    Way forward

    • In the post-pandemic world, it will be critical for India to improve on its investment climate and systematically target its export capabilities across sectors and regions.
    • Ease of doing business and new free trade agreement with major markets will help it integrate closely with the world through trade and investment partnerships.

    Conclusion

    The time for India is here and it must leverage international partnerships for ensuring a robust and sustained economic growth path.

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