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Subject: Economics

  • The message from the government’s wheat export ban

    Context

    The ban on the export of wheat was not unexpected. The rather ambivalent approach to agriculture comes out clearly with this move.

    Understanding how this ban has come about

    • We are not comfortable with market forces operating in agriculture.
    • Nor are we quite sure whether we want the farmer to get a better price or the consumer to pay less.
    • Governments spend a lot of money in the form of subsidies to ensure farmers are enthused to produce more wheat.
    • The Centre keeps increasing the MSP for this purpose and states often pay a bonus for procurement.
    • There are political reasons too as the farmer lobby needs to be placated.
    •  There are political reasons too as the farmer lobby needs to be placated.
    • We have been taking credit for the production of wheat and every year we set a new record.
    • This year, the Ministry announced that wheat production will touch a record of 111 million tonnes, which has recently been revised downwards.
    • With the war, conditions have changed. Russia and Ukraine are large producers of wheat and their supply to world markets has been cut off due to sanctions and supply chain disruptions.
    • With supplies interrupted, there is an opportunity for other surplus nations to step in.
    • But the disruption has caused world prices to rise significantly.

    Opportunity for India

    • The World Bank data indicates that the price of US (soft red winter) wheat has gone up from $328/tonne in December to $672/tonne while US (hard red winter) wheat is up from $377 to $496/tonne.
    • Countries that produce abundant wheat now have a chance to leverage this opportunity to export.
    • However, in case of India it does appear that production will be lower than expected.
    • Low wheat stock: The government has also not been able to procure wheat as farmers are no longer selling at MSP (which is at Rs 2,015/quintal) as they are getting higher prices in mandis.
    • As of May 10, procurement was just 18 million tonnes against 43 million tonnes last year.
    • This is a significant fall.
    • But stocks with the Centre and other state agencies are 30.3 million tonnes, way above the buffer norms of 27.6 million tonnes.
    • The ban on wheat exports is because of this.

    Two constraints on the wheat economy

    • In 2007 and again in 2021, the government banned futures trading in wheat on grounds that it led to speculative pressure on prices even though the quantity traded and the open interest were minuscule.
    • At that time, it was a decline in expected output which triggered this action.
    • It does look like the wheat economy will continue to operate within two constraints that have become barriers to commercialisation.
    • MSP and government procurement: The first is MSP and government procurement, which feeds into the public distribution system.
    • Arhatiya system: The second is the arhatiya system of trading where middlemen have come in the way of any reform.

    Suggestions

    • Abolish MSP and procurement system: The MSP and procurement system needs to be dismantled.
    • Cash transfers: As the government has successfully expanded both the Aadhaar and Jan Dhan programmes, there should be simple cash transfers to beneficiaries.
    • Buffer stocks can be held to ease distress during a crisis, but government involvement should stop there.
    • Procuring unlimited quantities of wheat and keeping huge stocks has distorted the wheat matrix.
    • The mandi system too needs to be revisited and alternatives have to be made available so that farmers can choose the point of sale.

    Conclusion

    We have been talking about being a part of global supply chains to augment value addition and accelerate growth. But when it comes to agriculture it is a blow-hot blow-cold approach. This not only affects our credibility but also sends confusing signals to producers as to what is the best way out for them.

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  • FDI inflow ‘highest ever’ at $83.57 bn

    The foreign direct investment (FDI) in the financial year 2021-22 has touched a “highest-ever” figure of $83.57 billion.

    Get aware with the recently updated FDI norms. Key facts mentioned in this newscard can make a direct statement based MCQ in the prelims.

    Ex. FDI source in decreasing order: Singapore – Mauritius – Netherland – Ceyman Islands – Japan – France

    What is Foreign Direct Investment (FDI)?

    • An FDI is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.
    • It is thus distinguished from a foreign portfolio investment by a notion of direct control.
    • FDI may be made either “inorganically” by buying a company in the target country or “organically” by expanding the operations of an existing business in that country.
    • Broadly, FDI includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans”.
    • In a narrow sense, it refers just to building a new facility, and lasting management interest.

    FDI in India

    • Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then FM Manmohan Singh.
    • There are two routes by which India gets FDI.

    1) Automatic route: By this route, FDI is allowed without prior approval by Government or RBI.

    2) Government route: Prior approval by the government is needed via this route. The application needs to be made through Foreign Investment Facilitation Portal, which will facilitate the single-window clearance of FDI application under Approval Route.

    • India imposes a cap on equity holding by foreign investors in various sectors, current FDI in aviation and insurance sectors is limited to a maximum of 49%.
    • In 2015 India overtook China and the US as the top destination for the Foreign Direct Investment.

    Features of FDI

    • Any investment from an individual or firm that is located in a foreign country into a country is FDI.
    • Generally, FDI is when a foreign entity acquires ownership or controlling stake in the shares of a company in one country, or establishes businesses there.
    • It is different from foreign portfolio investment where the foreign entity merely buys equity shares of a company.
    • In FDI, the foreign entity has a say in the day-to-day operations of the company.
    • FDI is not just the inflow of money, but also the inflow of technology, knowledge, skills and expertise.
    • It is a major source of non-debt financial resources for the economic development of a country.

    Significance of rising FDI

    • This is a testament of India’s status among global investors.

    Recent amendments in 2020

    • The govt. has amended para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017.
    • In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership, such subsequent change in beneficial ownership will also require Government approval.

    The present position and revised position in the matters will be as under:

    Present Position

    • A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
    • However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route.
    • Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

    Revised Position

    • A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.

    [spot the difference]

    • However, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
    • Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

    In response to China

    • China accused that India’s recently adopted policy goes against the principles of the World Trade Organisation (WTO).
    • It tends to violate WTO’s principle of non-discrimination, and go against the general trend of liberalisation and facilitation of trade and investment.

     

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  • What is Pravaig Field Pack?

    A Bengaluru-based venture has produced a rugged tactical battery that it is now planning to sell to the North Atlantic Treaty Organisation (NATO) forces in Europe.

    Pravaig Field Pack

    • It is a heavy-duty power bank that is portable and weighs 14 kilograms.
    • It is of great utility to the digitally connected modern military and Special Forces personnel who have to operate in high-risk zones while using gadgets that require constant power back-up.
    • These batteries are designed, engineered and made in India.
    • The field pack can be used to charge a MacBook 60 times.

    Significance of Pravaig

    • This supply marks a major shift in the defense landscape of India — a tipping point in the reversal of India’s high technology defense industry, from users to developers, from importers to exporters.
    • The field pack can be used to energize a military person’s field duties and it can be used to deploy remote sensors.
    • A powerful tactical battery can be used even to operate larger military equipment such as drones and it can even help coordinate tactical operations which involve multiple weapons systems.

     

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  • Government lacking a coherent policy of food security

    Context

    The Government of India announced a sudden ban on export of wheat on May 13, 2022, a few days after Prime Minister Narendra Modi had stated that “at a time when the world is facing a shortage of wheat, the farmers of India have stepped forward to feed the world”.

    What led to the sudden wheat export ban?

    • Low public procurement: The sudden turnaround in the export policy appears to be on account of fears that low public procurement would affect domestic food security.
    • This summer, procurement of wheat by the Food Corporation of India (FCI) has been very low.
    • Last year, the FCI and other agencies procured 43.34 million tonnes of wheat.
    • For the current season, procurement has only been 17.8 million tonnes, as of May 10, 2022.
    • Given the low levels of procurement, the Government has reduced the procurement target for the current season from 44.4 to 19.5 million tonnes.
    • Low production: While wheat production this year has been lower than estimated on account of high heat and other factors in March, there is not a big shortfall in production relative to previous years.
    • Wheat production was 103.6 million tonnes in 2018-19, 107.8 million tonnes in 2019-20, and 109.5 million tonnes in 2020-21.
    • The most recent estimate of production for 2021-22, revised downwards from the earlier estimate, is 105.

    Public procurement in India

    • The system of public procurement has been in place since the mid-1960s, and has been the backbone of food policy in India.
    • As part of the liberalisation policy, many other economists suggested that food stocks be run down in India and that needs of food security be met through world trade and the Chicago futures market.

    Need for effective PDS

    • Higher than buffer stock norm: Stocks of wheat in the central pool as of April 30, 2022 were 30.3 million tonnes, much lower than the 52.5 million tonnes of last year, but comfortably higher than buffer stock norms.
    • While the Government procurement in this marketing season has been lower than the previous two years, the stock position so far is similar to 2019, when we had 35.8 million tonnes of stock in April.
    • An important role in pandemic: In the two COVID-19 years (2020-21 and 2021-22), the Public Distribution System (PDS) played a stellar role, and, its role showed the wisdom of not dismantling it.
    • Total offtake of rice and wheat was 102.3 million tonnes in 2021-22 when distribution through the PDS and other welfare schemes is combined.
    • It is essential that the PDS and open market operations be used to cool down food price inflation.
    •  While most States have high inflation rates, States with better PDS, such as Kerala and Tamil Nadu, have low inflation rates.

    Way forward

    • Provide remunerative prices: To promote production, a key aspect of food policy in India has been to provide remunerative prices to farmers.
    • As is well known, after the reports of the National Commission on Farmers, the announced minimum support price (MSP) for wheat has often been inadequate to cover costs of cultivation for several regions and classes of farmers, especially if comprehensive costs (or Cost C2) are taken as the base. 
    • Over the last two years, costs of production have risen sharply, one important component being the spiralling price of fuel.

    Conclusion

    India’s flip-flop on the export of wheat is an example of the Government lacking a coherent policy of food security.

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  • Agri-exports

    Context

    In the fiscal year 2021-22 (FY22), agri-exports scaled an all-time high of $50.3 billion, registering a growth of 20 per cent over the preceding year.

    What are the contributing factors?

    • The all time high agri-export was made possible largely by rising global commodity prices, but also by the favourable and aggressive export policy of the Ministry of Commerce and its various export promotion agencies like APEDA, MPEDA, and commodity boards.
    • Sustainability issue: From a strategic point of view, an important question that arises is how sustainable is this growth in agri-exports, given India’s resource endowments and the country’s domestic needs?
    • To answer this question rationally, let us first look at the composition of agri-exports.

    Composition of agri-exports

    • Among the several agri-commodities exported in FY22, rice ranks first with exports of $9.6 billion in value (with 21.2 million metric tonnes (MMT) in quantity).
    • It is followed by marine products worth $7.7 billion (1.4 MMT), sugar worth $4.6 billion (10.4 MMT), spices worth $3.9 billion (1.4 MMT) and bovine (buffalo) meat worth $3.3 billion (1.18 MMT) (see figure).
    • Concerns with Rice and Sugar: Of these, two commodities, rice and sugar, are water guzzlers and serious thought should be given to their global competitiveness and environmental sustainability.

    Competitiveness and environmental sustainability concerns with Sugar and Rice cultivation

    • India’s exports of 21 MMT constituted 41 per cent of a global rice market of 51.3 MMT.
    • Low export price: When most of the other commodity prices were surging in global markets, the price of rice (Thailand supplies 25 per cent) collapsed by about 13 per cent from $484/tonne in April 2021 to $429/tonne in April 2022, largely due to India’s massive exports.
    • This means that India had to export a greater quantity of rice to get the same amount of dollars.
    • In trade theory, it is a classic case for levying the optimal export tax of 5 to 10 per cent.
    • Optimal export: India should optimally not go beyond 12 to 15 MMT of rice exports, else the marginal revenue from exports will keep falling.
    • Subsidised water: Taking an average of about 4,000 litres of water per kg of rice, and assuming that half of this percolates into groundwater, exporting 21MMT of rice would mean the virtual export of 42 billion cubic meters (m3) of water.
    • Sugar is another water guzzler, whose exports touched 10.4 MMT in FY22.
    • Subsidies crossing WTO limits: It was backed partly by subsidies (including export subsidy) that crossed the 10 per cent limit mandated by the World Trade Organisation, bringing India into a dispute with other sugar exporting countries at the WTO.
    • However, from a sustainability point of view, we must note that exporting one kg of sugar amounts to roughly exporting 2,000 litres of virtual water.
    • That means in FY22, India exported at least 20 billion m3 of water through sugar exports.
    • So, by exporting 21 MMT of rice and 10 MMT of sugar in FY22, India exported at least 62 billion cubic meters of virtual water.
    • Much of this water is extracted from groundwater — as is being done in much of the Punjab and Haryana belt (for rice), where the water table is receding by 9.2 metres and 7 metres over the last two decades (2000-19), and in Maharashtra and Uttar Pradesh for sugar.
    • This can lead to a water disaster. 
    • Anthropogenic methane emission: Rice production systems are among the most important sources of anthropogenic methane emissions, contributing to 17.5 per cent of GHG emissions generated from agriculture (2021).
    •  This is all because of the distortionary policies of free power and highly-subsidised fertilisers, especially urea.

    Way forward: Support farmers smartly

    • AWD and DSR: Innovative farming practices such as alternate wetting drying (AWD), direct seeded rice (DSR) that can save up to 25-30 per cent water and micro-irrigation that can save up to 50 per cent irrigation water, could be game-changing technologies in reducing the crop’s carbon footprint.
    • Switching to other crops: The real solution lies in incentivising the farmers to switch some of the area under rice and sugar cultivation to other, less water-guzzling crops.
    • Haryana has come up with two schemes, Mera Pani, Meri Virasat and Kheti Khaali, Fir Bhi Khushali.
    • A closer evaluation of non-basmati rice exports brings out another interesting fact.
    • The unit value of these exports was just $354/tonne, which is below the MSP of rice ($390/tonne).
    • One possibility is that a substantial part of the supplies through the PDS and PM Garib Kalyan Anna Yojana (PMGKAY) are leaking out and swelling rice exports.
    • Introduce the option of direct cash transfer: From a policy angle, it may be high time to introduce the option of direct cash transfers in lieu of almost free grains under the PDS and PMGKAY.
    • This will help plug leakages as well as save costs.

    Conclusion

    The best way to tackle this upcoming environmental disaster would be to support farmers smartly, by giving them aggregate input subsidy support on a per hectare basis and freeing up the input prices of fertilisers and power to be determined by market forces and their costs of production.

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  • What is ‘Storage Gain’ in Wheat?

    Punjab’s state procurement agencies (SPAs) are seeking a waiver of ‘storage gain’.

    What is ‘storage gain’ in wheat?

    • Wheat, considered a ‘living grain’, tends to gain some weight during storage.
    • This is known as ‘storage gain’ and it mostly happens due to absorption of moisture.
    • There are three parts of the grain — bran (outer layer rich in fibre), germ (inner layer rich in nutrients) and endosperm (bulk of the kernel which contains minerals and vitamins).
    • The moisture is mostly absorbed by the endosperm.

    Who compensates whom for ‘storage gain’?

    • State procurement agencies, which purchase and store wheat at their facilities, are required to give one kg wheat extra per quintal to the Food Corporation of India (FCI).
    • While 20% of wheat, procured by the FCI and the SPAs, is moved immediately after procurement.
    • It is usually on the remaining 80%, which is moved out after July 1 every year that storage gain has to be accounted for due to longer storage duration.

     

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  • States have equal powers to make GST-related Laws: SC

    The Supreme Court has held that Union and State legislatures have equal, simultaneous and unique powers to make laws on Goods and Services Tax (GST) and the recommendations of the GST Council are not binding on them.

    What is the case?

    • The apex court’s decision came while confirming a Gujarat High Court ruling that the Centre cannot levy Integrated Goods and Services Tax (IGST) on ocean freight from Indian importers.

    Key takeaways of the Judgment

    • The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and the States.
    • They are recommendatory in nature. They only have a persuasive value.
    • To regard them as binding would disrupt fiscal federalism when both the Union and the States are conferred equal power to legislate on GST.

    Basis of the Judgment

    • The court emphasised that Article 246A of the Constitution gives the States power to make laws with respect to GST.
    • It treats the Union and the States as “equal units”.
    • It confers a simultaneous power (on Union and States) for enacting laws on GST.
    • Article 279A, in constituting the GST Council, envisions that neither the Centre nor the States are actually dependent on the other.

    What are the articles added/modified to the Constitution by the GST Act?

    (1) Article 246A: Special Provision for GST

    • This Article was newly inserted to give power to the Parliament and the respective State/Union Legislatures to make laws on GST respectively imposed by each of them.
    • However, the Parliament of India is given the exclusive power to make laws with respect to inter-state supplies.
    • The IGST Act deals with inter-state supplies. Thus, the power to make laws under the IGST Act will rest exclusively with the Parliament.
    • Further, the article excludes the following products from the scope of GST until a date recommended by the GST Council:
    1. Petroleum Crude
    2. High-Speed Diesel
    3. Motor Spirit
    4. Natural Gas
    5. Aviation Turbine Fuel

    (2) Article 269A: Levy and Collection of GST for Inter-State Supply

    • While Article 246A gives the Parliament the exclusive power to make laws with respect to inter-state supplies.
    • The manner of distribution of revenue from such supplies between the Centre and the State is covered in Article 269A.
    • It allows the GST Council to frame rules in this regard. Import of goods or services will also be called as inter-state supplies.
    • This gives the Central Government the power to levy IGST on import transactions.
    • Import of goods was subject to Countervailing Duty (CVD) in the earlier scheme of taxation.
    • IGST levy helps a taxpayer to avail the credit of IGST paid on import along the supply chain, which was not possible before.

    (3) Article 279A: GST Council

    • This Article gives power to the President to constitute a joint forum of the Centre and States called the GST Council.
    • The GST Council is an apex member committee to modify, reconcile or to procure any law or regulation based on the context of GST in India.

    (4) Article 286: Restrictions on Tax Imposition

    • This was an existing article which restricted states from passing any law that allowed them to collect tax on sale or purchase of goods either outside the state or in the case of import transactions.
    • It was further amended to restrict the passing of any laws in case of services too.
    • Further, the term ‘supply’ replaces ‘sale or purchase’.

    (5) Article 366: Addition of Important definitions

    Article 366 was an existing article amended to include the following definitions:

    1. GST means the tax on supply of goods, services or both. It is important to note that the supply of alcoholic liquor for human consumption is excluded from the purview of GST.
    2. Services refer to anything other than goods.
    3. State includes Union Territory with legislature.

    Back2Basics: GST Council

    • The GST Council is a federal body that aims to bring together states and the Centre on a common platform for the nationwide rollout of the indirect tax reform.
    • It is an apex member committee to modify, reconcile or to procure any law or regulation based on the context of goods and services tax in India.
    • The GST Council dictates tax rate, tax exemption, the due date of forms, tax laws, and tax deadlines, keeping in mind special rates and provisions for some states.
    • The predominant responsibility of the GST Council is to ensure to have one uniform tax rate for goods and services across the nation.

    How is the GST Council structured?

    • The GST is governed by the GST Council. Article 279 (1) of the amended Indian Constitution states that the GST Council has to be constituted by the President within 60 days of the commencement of the Article 279A.
    • According to the article, the GST Council will be a joint forum for the Centre and the States. It consists of the following members:
    1. The Union Finance Minister will be the Chairperson
    2. As a member, the Union Minister of State will be in charge of Revenue of Finance
    3. The Minister in charge of finance or taxation or any other Minister nominated by each State government, as members.

    Terms of reference

    • Article 279A (4) specifies that the Council will make recommendations to the Union and the States on the important issues related to GST, such as the goods and services will be subject or exempted from the Goods and Services Tax.
    • They lay down GST laws, principles that govern the following:
    1. Place of Supply
    2. Threshold limits
    3. GST rates on goods and services
    4. Special rates for raising additional resources during a natural calamity or disaster
    5. Special GST rates for certain States

     

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  • Ethanol blend in petrol to be raised to 20% in 3 years

    The Union Cabinet has approved amendments to the National Policy on Biofuels, 2018, to advance the date by which fuel companies have to increase the percentage of ethanol in petrol to 20%, from 2030 to 2025.

    What is the news?

    • The policy to introduce 20% ethanol in petrol will take effect from April 1, 2023.

    Why such move?

    • A 2021 report by the NITI Aayog said that 20% ethanol blending by 2025 could accrue immense benefits such as:
    1. Saving ₹30,000 crore of foreign exchange per year
    2. Increased energy security
    3. Lowered carbon emissions
    4. Better air quality
    5. Self-reliance
    6. Better use of damaged foodgrains
    7. Increase farmers’ incomes and investment opportunities

    What is the present status of ethanol blending in India?

    • India achieved 9.45% ethanol blending as on March 13, 2022, according to the Ministry of Petroleum and Natural Gas.
    • The Centre projects that this will reach 10% by the end of financial year 2022.
    • The government first announced its plans of advancing the 20% blending target in December 2020.

    Why is it so difficult to raise the blending?

    • A 10% blending of petrol does not require major changes to engines.
    • But a 20% blend could require some changes and may even drive up the prices of vehicles.
    • A greater percentage of blending could also mean more land being diverted for water-intensive crops such as sugar cane, which the government currently subsidises.

    Back2Basics: Ethanol Blended Petrol (EBP) Programme

    • EBP programme was launched in January, 2003 for supply of 5% ethanol blended petrol.
    • The programme sought to promote the use of alternative and environment-friendly fuels and to reduce import dependency for energy requirements.
    • OMCs are advised to continue according to priority of ethanol from 1) sugarcane juice/sugar/sugar syrup, 2) B-heavy molasses 3) C-heavy molasses and 4) damaged food grains/other sources.
    • At present, this programme has been extended to the whole of India except UTs of Andaman Nicobar and Lakshadweep islands with effect from 01st April 2019 wherein OMCs sell petrol blended with ethanol up to 10%.

    Also read:

    [RSTV ARCHIVE] Ethanol Blending: Significance & Road Ahead

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  • Places in news: Sela Tunnel

    The strategically-significant Sela Tunnel project in Arunachal Pradesh is nearing completion well before the deadline.

    What is Sela Tunnel Project?

    • The Sela Tunnel is the longest bi-lane road tunnel in the world.
    • The total length of the project, including the tunnels, the approach and the link roads, will be around 12 km.
    • The tunnel is being constructed by the Border Roads Organisation at an altitude of 13,800ft near the Indo-China border.
    • It is being built on the 317km long Balipara-Charduar-Tawang (BCT) road which connects West Kameng, East Kameng and Tawang districts of Arunachal Pradesh to the rest of the country.

    Why is the project important?

    • All-weather connectivity to Tawang and other forward areas in the sector will be the most important advantage that the project promises.
    • At the moment, Sela pass stays closed for a few winter months.
    • The project will provide a new alignment on the axis towards the LAC, and allow movement of military and civil vehicles all through the year.

    Significance of the tunnel

    • China is undertaking massive infrastructure development and troop build-up in the Rest of Arunachal Pradesh (RALP) area.
    • In military parlance, the RALP is an area in Arunachal Pradesh other than the Kameng area.
    • Other than the Kameng area consisting of East and West Kameng districts, the rest of the State is referred to by the Army as the RALP.

     

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  • India’s Total Factor Productivity (TFP)

    India’s total factor productivity (TFP) growth has seen a moderate decline compared to the global experience, though it remains above that of emerging markets and developing economies, according to a recent report.

    What is Total factor productivity (TFP)?

    • Productivity levels measure the relationship between total products or output, and inputs or factors of production employed.
    • Labour productivity is a measure of total output divided by the units of labour employed in the process of production.
    • However, TFP is a measure of total output divided by a weighted average of inputs; i.e., labour and capital.
    • Improvements in TFP bring down production costs, raise output levels, and lead to a higher gross domestic product.
    • While total productivity measures all-inclusive productivity, TFP is a measure of production efficiency.

    How has India fared thus far?

    • A recent Reserve Bank of India (RBI) report points to a moderate decline in TFP growth compared to the global experience.
    • TFP growth rate for India during the 2010-2019 period was approximately 2.2%, as against -0.3% for emerging markets and developing economies.
    • During the pandemic, the TFP for India declined by 2.9% in 2020 and marginally improved by 0.1% in 2021.
    • In 2022, TFP growth rate is projected to increase to 2%.
    • As per estimates, TFP growth contributed to 30% of India’s GDP growth during 2010-2018.
    • It was largely driven by public administration, quality education and social works.

    What has been the TFP trend across the world?

    • Global productivity growth has witnessed a prolonged slowdown since 2010, with the deceleration sharper in emerging and developing economies.
    • This is ascribed to a weakening investment climate, and lower employment growth levels in developed economies, among others.
    • TFP growth for the world economy was 0.7% in 2021 and may shrink by 0.5% in 2022.

    What are the ways to improve TFP?

    • India’s initiatives around skill development and the new education policy are steps in the right direction, since they focus on boosting manpower employability.
    • Quality education, better healthcare, nurturing of innovation, introduction of efficient technology and processes in domestic companies and reduction in misallocation of resources can help improve TFP levels.
    • Though the country’s ranking in the Global Innovation Index, 2021 has improved to 46, it still has some distance to go.

    How can the industry improve productivity?

    • Improved TFP minimizes per-unit cost facilitating the horizontal expansion of consumption demand, thereby improving the standard of living.
    • Employers have fortunately started acknowledging the fact that manpower is an essential component in profit earnings.
    • Today, the focus has shifted to retaining talent, which is limited in supply.
    • This positive transformation seen after the pandemic needs to be further extended.

     

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