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Subject: Economics

  • Confidentiality ring amendment and its impact on antitrust disputes

    Context

    Amazon (the defendant) decided to take the confidentiality route towards its submissions in an order dated March 7 passed by the DG-CCI on the Amazon dispute.

    About the Confidentiality Ring

    • In 2015, the EU mandated the creation of a data room to respect the confidentiality of certain documents.
    • The EU has to protect this mandate to ensure that the right of defence is not prejudiced. 
    • Articles 101 and 102 of the Treaty of the European Union, which states: “Through confidentiality rings, DG Competition (EU) can safeguard the rights of defence while respecting the legitimate interests in the confidentiality of the information providers.
    • In addition, confidentiality rings remove or reduce the burden of preparing non-confidential versions of documents.”

    Adoption of Confidentiality ring by CCI

    • CCI’s investigation under Sections 3, 4 or 5 of the Competition Act are related to the suo motu powers given to the director-general of the commission, which have now extended toward establishing a confidentiality ring.
    • The CCI has taken an alternative view by vaguely replacing the intent with the regulation.
    • The commission may provide the Confidentiality ring after providing a reasonable opportunity to the informant to represent its case before the Commission.
    • This casts an onus on the informant.
    • Turning to the provider of confidential information, the party seeking confidentiality has to submit reasons and the same must be rebutted by the informant, CCI or any other parties, largely driven by the CCI.

    Issues with the CCI adoption of the Confidentiality Ring

    1] Indiscriminate use of defendant’s reputation ground

    • What would happen if the informant seeks additional documents so that the agency is not prejudiced?
    • By hearing parties out, through redacted information the CCI is bound to be questioned as to the reasons for deciding in a certain manner and worse, could stifle the process at the start.
    • This is likely because the CCI has to hear the objections that the informant may have regarding the reasons for keeping information confidential.
    • The usual ground for seeking this protection is the defendant’s reputation.
    • However, this defence can be used to indiscriminately to subdue any counter that may arise from the informant, who may not possess the intricate details of how a cartel works.

    2] Rejection of informant’s right to know the information

    • The second question is about the relief under Section 35 of the Act that empowers the CCI to establish a confidentiality ring including the parties in dispute to disseminate the information for which the confidentiality clause is invoked.
    • However, this is immediately caveated by Regulation 8 of the “Confidentiality Ring” Amendment of April 8, which states that the informant shall not be part of the ring.
    • This will essentially lead the CCI to gather more information surreptitiously for the determination of the case.
    • Void the informant’s right to know information: It has also effectively rejected the informant’s right to know the information, which would be necessary to establish their claim.
    • Brings secrecy: This not only empowers the CCI to further its cause of suo motu investigation but also brings secrecy to cases of high-value disputes.

    3] It protects the defendant

    • The reason the CCI decided to establish a confidentiality ring is the opposite of the EU directive.
    • The EU would like to protect the information provider, but the CCI seems to want to protect the documents of the defendant.
    • This contradicts the intent in regulation 1 wherein the CCI intends to protect the informant and regulation 2, which gives unfettered rights to “parties” in the dispute to summarily drop the confidentiality card which, according to any reasonable person, includes the defendant.

    Conclusion

    The protection provided to the informants, unfortunately, turns out to be to the advantage of the defendants, who are usually large multi-billion dollar entities. It enables the CCI to ringfence its investigation creating legal immunity for “all” involved.

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  • Recent woes of the jute industry in West Bengal

    Member of Parliament (MP) from Barrackpore constituency in West Bengal met the Union Textile about issues concerning jute farmers, workers and the overall jute industry.

    What is the news?

    • The Barrackpore MP had earlier written to West Bengal CM, seeking her intervention into the “arbitrary decision” of capping the price for procuring raw jute from the mills.
    • He was referring to the Office of the Jute Commissioner (JCO)’s September 30 notification mandating that no entity would be allowed to purchase or sell raw jute at a price exceeding ₹6,500 per quintal.

    What is Jute?

    • Jute is the only crop where earnings begin to trickle in way before the final harvest.
    • The seeds are planted between April and May and harvested between July and August.
    • The leaves can be sold in vegetable markets for nearly two months of the four-month jute crop cycle.
    • The tall, hardy grass shoots up to 2.5 metres and each part of it has several uses.
    • The outer layer of the stem produces the fibre that goes into making jute products.
    • But the leaves can be cooked, the inner woody stems can be used to manufacture paper and the roots, which are left in the ground after harvest, improve the yield of subsequent crops.
    • A ‘Golden Fibre Revolution’ has long been called for by various committees, but the jute industry is in dire need of basic reforms.

    Jute production in India

    • India is the world’s biggest producer of jute , followed by Bangladesh.
    • Jute is primarily grown in West Bengal, Odisha, Assam, Meghalaya, Tripura and Andhra Pradesh.
    • The jute industry in India is 150 years old.
    • There are about 70 jute mills in the country, of which about 60 are in West Bengal along both the banks of river Hooghly.
    • Jute production is a labour-intensive industry. It employs about two lakh workers in the West Bengal alone and 4 lakh workers across the country.

    Significance of Jute

    • Compared to rice, jute requires very little water and fertiliser.
    • It is largely pest-resistant, and its rapid growth spurt ensures that weeds don’t stand a chance.
    • Jute is the second most abundant natural fibre in the world.
    • It has high tensile strength, acoustic and thermal insulation, breathability, low extensibility, ease of blending with both synthetic and natural fibres, and antistatic properties.
    • Jute can be used: for insulation (replacing glass wool), geotextiles, activated carbon powder, wall coverings, flooring, garments, rugs, ropes, gunny bags, handicrafts, curtains, carpet backings, paper, sandals, carry bags, and furniture.

    Why in news now?

    • Mills are now procuring raw jute at prices higher than what they are selling them at after processing.
    • The government has a fixed Minimum Support Price (MSP) for raw jute procurement from farmers, which is ₹4,750 per quintal for the 2022-23 season.
    • However, as the executive stated, this reached his mill at ₹7,200 per quintal, that is, ₹700 more than the ₹6,500 per quintal cap for the final product.
    • Though the Union government has come up with several schemes to prevent de-hoarding, the executive believes the mechanism requires a certain “systematic regulation”.

    What happened to supply?

    • What made the situation particularly worrisome recently was the occurrence of Cyclone Amphan in May 2020 and the subsequent rains in major jute producing States.
    • These events led to lower acreage, which in turn led to lower production and yield compared to previous years.
    • Additionally, as the Commission for Agricultural Costs and Prices (CACP) stated in its report, this led to production of a lower quality of jute fibre in 2020-21 as water-logging in large fields resulted in farmers harvesting the crop prematurely.
    • Acreage issues were accompanied by hoarding at all levels – right from the farmers to the traders.

    Where does India stand in comparison to Bangladesh?

    • As per the Food and Agriculture Organisation (FAO), India is the largest producer of jute followed by Bangladesh and China.
    • However, in terms of acreage and trade, Bangladesh takes the lead accounting for three-fourth of the global jute exports in comparison to India’s 7%.
    • This can be attributed to the fact that India lags behind Bangladesh in producing superior quality jute fibre due to infrastructural constraints and varieties suitable for the country’s agro-climate.
    • Further, as the CACP report stated, Bangladesh provides cash subsidies for varied semi-finished and finished jute products.
    • Hence, the competitiveness emerges as a challenge for India to explore export options in order to compensate for the domestic scenario.

    What is at stake?

    • The jute sector provides direct employment to 3.70 lakh workers in the country.
    • It supports the livelihood of around 40 lakh farm families, closure of the mills is a direct blow to workers and indirectly, to the farmers whose production is used in the mills.
    • West Bengal, Bihar and Assam account for almost 99% of India’s total production.

     

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  • Health Star Rating System of FSSAI for Packaged Food

    The “health star rating” system that the Food Safety Standards Authority of India (FSSAI) plans to adopt in order to help consumers reduce their intake of unhealthy foods has been opposed by close to a dozen consumer and health advocacy groups.

    What is the Health Star Rating System?

    • In February, the FSSAI decided to adopt the “health-star rating system”, which gives a product 1/2 a star to 5 stars, in its draft regulations for front of package labelling (FOPL).
    • The HSR format ranks a packaged food item based on salt, sugar, and fat content and the rating will be printed on the front of the package.
    • The underlying premise of the HSR is that positive ingredients such as fruits and nuts can offset negative nutrients such as calories, saturated fat, total sugar, sodium to calculate the number of stars ascribed to a product.
    • The decision was based on the recommendations of a study by the IIM-Ahmedabad the regulator had commissioned in September 2021.
    • In the same meeting, the regulator decided that FOPL implementation could be made voluntary for a period of four years.

    What is FoPL?

    • In India, packaged food has had back-of-package (BOP) nutrient information in detail but no FoPL.
    • Counter to this, FoPL can nudge people towards healthy consumption of packaged food.
    • It can also influence purchasing habits.
    • The study endorsed the HSR format, which speaks about the proportions of salt, sugar, and fat in food that is most suited for consumers.
    • Countries such as the UK, Mexico, Chile, Peru, Hungary, and Australia have implemented FoPL systems.

    What warranted the HSR rating in India?

    • Visual bluff: A lot of Indian consumers do not read the information available at the back of the packaged food item.
    • Burden of NCDs: Also, India has a huge burden of non-communicable diseases that contributes to around 5.87 million (60%) of all deaths in a year.
    • Healthy dietary choices: HSR will encourage people to make healthy choices and could bring a transformational change in the society.
    • Supreme Court order: A PIL seeking direction to the government to frame guidelines on HSR and impact assessment for food items and beverages was filed in the Supreme Court in June 2021.

    Which category of food item will have HSR?

    • All packaged food items or processed food will have the HSR label.
    • These will include chips, biscuits, namkeen, sweets and chocolates, meat nuggets, and cookies.
    • However, milk and its products such as chenna and ghee are EXEMPTED as per the FSSAI draft notified in 2019.

    Will there be pushback from food industry?

    • Negative warning: Some experts opposed the use of the HSR model in India, suggesting that consumers might tend to take this as an affirmation of the health benefits rather than as a negative warning of ill effects.
    • Lack of awareness: This is significant because there is lack of awareness on star ratings related to consumer products in India.
    • Impact on Sale: Certain organisations fear it might affect the sale of certain food products.

    Arguments against health star rating

    • Experts argue that “warning labels” instead have been most effective in various countries.
    • They said the HSR system adopted in countries like Australia and New Zealand has not resulted in any meaningful behavior change.
    • Even after eight years of their implementation, there is still no evidence of HSRs having a significant impact on the nutritional quality of people’s food and beverage purchases.
    • Also, the HSR system “misrepresents nutrition science”.
    • The algorithm of adding and subtracting nutrients does not fit with our understanding of biology.
    • For example, the presence of fruit in a fruit drink juice does not offset the impacts of added sugar in the body.

     

     

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  • Managing the fiscal shock of the Russia-Ukraine conflict

    Context

    The Union Budget 2022-23 received a great deal of attention even before the financial year began due to the Russia-Ukraine conflict, and the consequent rise in inflation. There has been considerable speculation on whether the fiscal targets will be altered due to the evolving conditions.

    Estimate of GDP

    •  The critical estimate of GDP growth assumed for this year has certainly changed, with the RBI also adjusting its earlier forecast.
    • However, the budget was conservative to begin with, assuming an 11.1 per cent growth estimate on which its revenue collection targets were based.
    • Given that real GDP growth has been scaled down by the RBI to 7.2 per cent, and as inflation has gone up, on balance, the 11.1 per cent assumption looks tenable.
    • Hence, inflation has been a positive for the government in this respect.

    Tax collection

    • Another positive that emerged last year was that overall tax collections were even more buoyant than expected.
    • From the budgeted figure of Rs 22.17 lakh crore, the revised estimates raised the target to Rs 25.16 lakh crore.
    • In comparison, actual collections have turned out to be even higher at Rs 27.07 lakh crore.
    • If this buoyancy is maintained, then the government can expect the 2022-23 target of Rs 27.57 lakh crore to be exceeded by around Rs 2.5 lakh crore (of this, around 30 per cent will go to the states).
    • This additional revenue would ideally flow from enhanced GST collections, corporate tax, and customs.
    • Central to GST collections increasing is private consumption.
    • Today, high inflation erodes the purchasing power of households, which will divert a larger portion of their incomes for necessities that have become expensive.
    • Therefore, there will be uncertainty here. 
    • Corporates did well last year as they did manage to pass on higher input costs to the consumers, especially in the second half of the year.
    • Can they do it for the second time is the question.
    • High growth in trade volumes led to the government raking in higher customs collections. W
    • ith global growth set to slow down in 2022, a similar flow is unlikely.

    Excise collection and challenges

    • The government will be watchful of excise collections as it is possible that rising fuel prices will lead to lower consumption.
    • Also, in case crude oil continues on the current path and remains in the region of $100-120/barrel, a call may have to be taken by the government on the excise duty: Once the prices of diesel and petrol remain at a new threshold, there will be a tendency for freight rates to be increased permanently.
    • This will have a secondary impact on inflation. 

    Disinvestment challenges

    • On the revenue side, the LIC disinvestment that was to happen last year will materialise this year.
    • The disinvestment has been pushed through for May, but would be of a much lower amount (around Rs 21,000 crore) than envisaged earlier.
    • It will be interesting to see if this would be a part of the Rs 65,000 crore target for this year.

    Uncertainty on the expenditure side

    • The biggest concern will be the fertiliser subsidy, which has been a volatile expenditure item.
    • Higher prices of natural gas have meant that fertilisers have been more expensive and so, the budgeted amount of Rs 1.05 lakh crore will have to be revisited.
    • With inflation already high and agriculture expected to be the bright spot again, the government cannot risk ignoring the subsidy element on fertilisers because there can be an impact on farm product prices.
    • The food subsidy will also need to be examined.
    • The present rise in food prices globally has meant that there is a good global market, especially for wheat.
    • Exports for wheat and maize might rise but can distort the procurement process.

    Interest rate and its implications for borrowing

    • The budget had assumed that interest rates would be stable.
    • However, conditions have changed quite quickly with bond yields moving up by almost 50 bps for the 10-year G-secs.
    • This will mean that the entire Rs 15.95 lakh crore of gross borrowing will have to be carried out at a higher cost.
    • This can result in an additional Rs 8,000 crore of interest if the 50 basis points increase holds through the year. There could be an upward bias if rates go up further.

    Conclusion

    The longer the conflict continues the greater will be the impact. While the government has adeptly managed the fiscal numbers in the last couple of years, this year will be particularly challenging considering the nature of the shock.

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  • How to shock-proof India’s power sector

    Context

    The reports of coal-shortage induced power outages across states continue to pour in.

    Reasons for volatility in the power sector

    • Demand-supply mismatch: As economic activity resumed after the Covid-induced lockdowns, the demand-supply mismatch for commodities such as coal widened globally, leading to a surge in prices.
    • Geopolitical factors: Global supply disruptions due to the Russia-Ukraine conflict have sent coal prices touching historical highs.
    • The cost of imported coal in India is expected to be 35 per cent higher in the fiscal year 2022-23 compared to the past year.
    • Sudden rise in energy demand: Even as coal stocks available with state thermal power plants fell, India also witnessed a sudden rise in energy demand in March — the hottest in its recorded history.

    Suggestions to make the power sector resilient

    • The Ministry of Power has taken a host of measures to alleviate the crisis.
    • This includes giving directions to ensure maximum production of coal at captive mines, rationing of coal to non-power sectors, and a price cap of Rs 12 per unit on electricity traded on exchanges.
    • But we need to do more to enhance the sector’s resilience to such disruptions from exogenous factors.

    1] Create an enabling ecosystem to ensure power plants work efficiently

    • India has about 200 GW of coal-based generation capacity which accounts for nearly 70 per cent of the total electricity generated in the country.
    • However, according to a CEEW assessment, a disproportionate share of generation comes from older inefficient plants, while the newer and efficient ones remain idle for want of favourable coal supply contracts or power purchase agreements.
    • Revisiting fuel allocation and supporting the priority dispatch of efficient plants could help India reduce coal demand by up to 6 per cent of our annual requirement, and set aside more coal for the proverbial rainy day.

    2] Smart assessment and management of demand

    •  Enable discoms to undertake smart assessment and management of demand.
    • We have advanced tools for medium- and short-term demand forecasting.
    • However, few discoms have embraced these to inform their procurement decisions.
    • Introducing time-of-day pricing and promoting efficient consumption behaviour would help shave peak demand and avoid panic buying in the market.

    3] Empower electricity regulators to help bring down discom losses

    • Despite two decades of sectoral reforms, the aggregate losses of discoms stand at 21 per cent (2019-20).
    • This is reflective of both operational inefficiency and poor recovery of dues from consumers, including those affiliated with state governments and municipal bodies.
    • These losses are also the reason for discoms not being able to pay the generators on time, resulting in payment delays to Coal India, which, in turn, is reluctant to supply coal on request.
    • Infuse payment discipline: Besides the ongoing initiatives like introducing smart meters and network strengthening, empowering regulators would be critical to infuse payment discipline across the supply chain of the electricity sector and to keep cost recovery as a key metric.

    Conclusion

    Given the country’s development aspirations, India’s power demand is set to rise substantially and become more variable. We need to act now for the long-term resilience of India’s power sector.

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  • ECGC to seek RBI nod for payment in forex to exporters

    ECGC Ltd., the government enterprise that provides export credit insurance, will soon approach the Reserve Bank of India for approval to deal in foreign currency for the benefit of exporters.

    What is ECGC?

    • ECGC is an acronym for Export Credit Guarantee Corporation of India Ltd.
    • It is a government owned export credit provider.
    • It is under the ownership of Ministry of Commerce and Industry and is based in Mumbai.
    • It provides export credit insurance support to Indian exporters.
    • Its topmost official is designated as Chairman and Managing Director who is a central government civil servant under ITS cadre.
    • The GoI had initially set up Export Risks Insurance Corporation (ERIC) in July 1957.
    • It was transformed into Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation of India in 1983.

    Functions of ECGC

    • ECGC provides a range of credit risk insurance covers to exporters against loss in export of goods and services as well.
    • It offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them.
    • It provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan and advances.

    Facilities by ECGC

    • It offers insurance protection to exporters against payment risks.
    • It provides guidance in export-related activities.
    • It makes available information on different countries with its own credit ratings.
    • It makes it easy to obtain export finance from banks/financial institutions.
    • It assists exporters in recovering bad debt.
    • It provides information on the creditworthiness of overseas buyers.

    Why need export credit insurance?

    • Payments for exports are open to risks even at the best of times.
    • The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world.
    • An outbreak of war or civil war may block or delay payment for goods exported. Ex. Ukraine War.
    • Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. Ex. Sri Lankan Crisis.
    • In addition, the exporters have to face commercial risks of insolvency or protracted the default of buyers.
    • Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss.

     

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  • [pib] MSME Sustainable (ZED) Certification Scheme

    The  Union Ministry for Micro, Small and Medium Enterprises has launched the MSME Sustainable (ZED) Certification Scheme.

    MSME Sustainable (ZED) Certification Scheme

    • This Scheme is an extensive drive to enable and facilitate MSMEs adopt Zero Defect Zero Effect (ZED) practices.
    • It aims motivate and incentivize them for ZED Certification while also encouraging them to become MSME Champions.
    • Through the ZED Certification, MSMEs can reduce wastages substantially, increase productivity, enhance environmental consciousness, save energy, optimally use natural resources, expand their markets, etc.

    Components of the scheme

    • Under the Scheme, MSMEs will get subsidy as per the following structure, on the cost of ZED certification:
    1. Micro Enterprises: 80%
    2. Small Enterprises: 60%
    3. Medium Enterprises: 50%
    • There will be an additional subsidy of 10% for the MSMEs owned by Women/SC/ST Entrepreneurs OR MSMEs in NER/Himalayan/LWE/Island territories/aspirational districts.
    • In addition to above, there will be an additional subsidy of 5% for MSMEs which are also a part of the SFURTI OR Micro & Small Enterprises – Cluster Development Programme (MSE-CDP) of the Ministry.
    • Further, a limited purpose joining reward of Rs. 10,000/- will be offered to each MSME once they take the ZED Pledge.

    Back2Basics: Zero Defect Zero Effect Scheme

    • Launched in 2016 by the Ministry of MSME, the ZED scheme is an integrated and comprehensive certification system.
    • The scheme accounts for productivity, quality, pollution mitigation, energy efficiency, financial status, human resource and technological depth including design and IPR in both products and processes.
    • Its mission is to develop and implement the ‘ZED’ culture in India based on the principles of Zero Defect & Zero Effect.
    • ZED principles include:
    1. Zero Defect: Zero non-conformance or non-compliance
    2. Zero Effect: Zero wastage, liquid discharge, solid waste; zero pollution

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  • Tackling the inflation

    Context

    Expectations that commodity and oil prices would cool down in 2022 as the pandemic ebbed were belied by the Russia-Ukraine conflict, which exacerbated existing pressures. Fresh lockdowns in China are also extending the pandemic-induced supply-chain bottlenecks.

    Challenges for central banks

    • Systemically important central banks that viewed the consistent uptick in inflation as transitory — caused by post-pandemic supply shocks — are now finding it hard to bottle the genie.
    • Inflation in the time of weak growth: What central banks like even less is having to deal with rising inflation in times of weak growth.
    • Because the primary tool they have to fight it — the interest rate hike — can be recessionary.

    Inflation in India

    • CPI inflation averaged 6.3 per cent in the January-March 2022, above the RBI’s target range of 2-6 per cent.
    • The RBI forecasts inflation for April-June at 6.3 per cent.
    • One more quarter over the 6 per cent mark, and the central bank would owe the government an explanation.
    • Factors driving inflation: Fiscal 2021-In fiscal 2021, inflationary pressures came largely from food and, to some extent, core which excludes fuel and food.
    • Fiscal 2022- In fiscal 2022, crude prices hardened to emerge as the new driver. Core inflation firmed up further.
    • But the drop in food inflation offset this, so overall inflation was lower at 5.5 per cent compared with 6.2 per cent the previous year.

    Understanding inflation in fiscal 2023

    • What makes this fiscal worrying is, all three-fule, food and core are firmly pointing in the same direction — up.
    • Fuel inflation, in double digits for a year now, shows no signs of easing.
    • Energy prices have risen sharply across the board — from crude oil to coal and natural gas.
    • The cut in excise duties on petrol and diesel in November 2021 is insufficient to bring down fuel inflation, in the event crude prices stay above $90 per barrel this fiscal.
    • Food inflation: Food is the most volatile component and biggest mover of CPI inflation, given that it occupies 39 per cent weight in the average consumption basket.  
    • On the positive side, India looks set to enjoy a fourth successive year of normal monsoon and still has good buffer stocks of rice and wheat.
    • What is certain, though, is the rising cost of food production.
    • Prices of fertilisers, pesticides, diesel and animal feed are all surging.
    • Already pricey edible oils are set to get even costlier, with Indonesia’s recent ban on refined palm oil exports adding pressure.
    • No wonder then, food inflation is expected to rise.
    • Core inflation: Core inflation, a barometer of demand pressures, will continue to climb despite an environment of weak demand due to the persistence of supply shocks.
    • For producers, the bump-up in international prices across energy and metal commodities since the war has brought more pain.
    • But a weak and uneven demand recovery means producers had limited ability to pass on cost pressures to consumers.
    • Such pass-through has been partial, at best.
    • For most goods, CPI inflation has been much lower than the corresponding WPI last fiscal.
    • The pattern of recovery is also uneven across different segments, with contact-intensive services lagging formal manufacturing.
    • But contact-based services will catch up sooner or later, as restrictions become a thing of the past.
    • The last time we saw such broad-basing of inflationary pressures was after the Global Financial Crisis.
    • The difference this time around is consumer demand, which remains weak and will limit the extent of pass-through.

    Conclusion

    Forecasting inflation in such uncertain times is fraught with risk. The RBI has predicted ~5.7 per cent consumer inflation this fiscal, while professional forecasters see it at 5.6 per cent. The odds currently favour a higher inflation print, and a rate hike in June.

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  • State of (un)employment in India

    Data from the Centre for Monitoring Indian Economy (CMIE) shows that India’s labour force participation rate (LFPR) has fallen to just 40% from an already low 47% in 2016.

    What is LFPR?

    • Before understanding LFPR, we need to define the labour force itself.
    • According to the CMIE, the labour force consists of persons who are of age 15 years or older, and belong to either of the following two categories:
    1. are employed
    2. are unemployed and are willing to work and are actively looking for a job
    • There is a crucial commonality between the two categories — they both have people “demanding” jobs.
    • This demand is what LFPR refers to. While those in category 1 succeed in getting a job, those in category 2 fail to do so.
    • Thus, the LFPR essentially is the percentage of the working-age (15 years or older) population that is asking for a job; it represents the “demand” for jobs in an economy.
    • It includes those who are employed and those who are unemployed.
    • The Unemployment Rate (UER), which is routinely quoted in the news, is nothing but the number of unemployed (category 2) as a proportion of the labour force.

    What is the significance of LFPR in India?

    • Typically, it is expected that the LFPR will remain largely stable.
    • As such, any analysis of unemployment in an economy can be done just by looking at the UER.
    • But, in India, the LFPR is not only lower than in the rest of the world but also falling. This, in turn, affects the UER because LFPR is the base (the denominator) on which UER is calculated.
    • The world over, LFPR is around 60%. In India, it has been sliding over the last 10 years and has shrunk from 47% in 2016 to just 40% as of December 2021.
    • This shrinkage implies that merely looking at UER will under-report the stress of unemployment in India.
    • Recent trend suggests that not only that more than half of India’s population in the working-age group is deciding to sit out of the job market, but also that this proportion of people is increasing.

    How is it under-reported?

    • Imagine that there are just 100 people in the working-age group but only 60 ask for jobs — that is, the LFPR is 60% — and of these 60 people, 6 did not get a job. This would imply a UER of 10%.
    • Now imagine a scenario when the LFPR has fallen to 40% and, as such, only 40 people are demanding work. And of these 40, only 2 people fail to get a job.
    • The UER would have fallen to 5% and it might appear that the economy is doing better on the jobs front but the truth is starkly different.
    • The truth is that beyond the 2 who are unemployed, a total of 20 people have stopped demanding work.
    • Typically, this happens when people in the working-age get disheartened from not finding work.

    So, what is the correct way to assess India’s unemployment stress?

    • When LFPR is falling as steadily and as sharply as it has done in India’s case, it is better to track another variable: the Employment Rate (ER).
    • The ER refers to the total number of employed people as a percentage of the working-age population.
    • By using the working-age population as the base and looking at the number of people with jobs, the ER captures the fall in LFPR to better represent the stress in the labour market.

    ER trends in India

    • If one looks at the ER data (Chart 1), it becomes clear that while India’s working-age population has been increasing each year, the percentage of people with jobs has been coming down sharply.
    • Looking at the absolute numbers makes the stress even more clear.
    • In December 2021, India had 107.9 crore people in the working age group and of these, only 40.4 crore had a job (an ER of 37.4%).
    • Compare this with December 2016 when India had 95.9 crore in the working-age group and 41.2 crore with jobs (ER 43%).
    • In five years, while the total working-age population has gone up by 12 crore, the number of people with jobs has gone down by 80 lakh.

    Why is India’s LFPR so low?

    • The main reason for India’s LFPR being low is the abysmally low level of female LFPR.
    • According to CMIE data, as of December 2021, while the male LFPR was 67.4%, the female LFPR was as low as 9.4%.
    • In other words, less than one in 10 working-age women in India are even demanding work.
    • Even if one sources data from the World Bank, India’s female labour force participation rate is around 25% when the global average is 47%.

    Why do so few women demand work?

    • One reason is essentially about the working conditions — such as law and order, efficient public transportation, violence against women, societal norms etc — being far from conducive for women to seek work.
    • The other has to do with correctly measuring women’s contribution to the economy.
    • There are methodological issues in formally capturing women’s contribution to the economy since a lot of women in India are exclusively involved within their own homes.
    • Lastly, it is also a question of adequate job opportunities for women.

    How do people who leave the labour force survive?

    • Households with more than one working member often witness this phenomenon.
    • The fall in the LFPR since 2016 has been accompanied by a fall in the proportion of households where more than one person is employed.
    • The fall in LFPR has largely been the result of the additional person employed in a typical household losing a job.

     

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  • State Taxes on Fuels

    PM has said that fuel prices were too high in some States ruled by other parties and they were not passing on the benefits of the Centre’s excise duty cut to the people.

    Why are states reluctant?

    • The reluctance to reduce excise duty and VAT on fuel stems from the fact that it constitutes an important source of revenue for both the Union government and the states.
    • Excise duty on fuel makes up about 18.4 per cent of Centre’s gross tax revenues.
    • Petroleum and alcohol, on an average, account for 25-35 per cent of the own tax revenue of states

    Present taxation of Fuels

    What is Excise Duty?

    • Excise duty is a form of tax imposed on goods for their production, licensing and sale.
    • It is the opposite of Customs duty in sense that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country.
    • At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc.
    • Excise duty was levied on manufactured goods and levied at the time of removal of goods, while GST is levied on the supply of goods and services.

    Purview of excise duty

    • The GST introduction in July 2017 subsumed many types of excise duty.
    • Today, excise duty applies only on petroleum and liquor.
    • Alcohol does not come under the purview of GST as exclusion mandated by constitutional provision.
    • States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST.
    • After GST was introduced, excise duty was replaced by central GST because excise was levied by the central government.
    • The revenue generated from CGST goes to the central government.

    Types of excise duty in India

    Before GST, there were three kinds of excise duties in India.

    (1) Basic Excise Duty

    • Basic excise duty is also known as the Central Value Added Tax (CENVAT).
    • This category of excise duty was levied on goods that were classified under the first schedule of the Central Excise Tariff Act, 1985.
    • This duty applied on all goods except salt.

    (2) Additional Excise Duty

    • Additional excise duty was levied on goods of high importance, under the Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957.
    • This duty was levied on some special category of goods.

    (3) Special Excise Duty

    • This type of excise duty was levied on special goods classified under the Second Schedule to the Central Excise Tariff Act, 1985.
    • Presently the central excise duty comprises of a Basic Excise Duty, Special Additional Excise Duty and Additional Excise Duty (Road and Infrastructure Cess) on auto fuels.

    Present taxation of Fuels

    • Currently, taxes on petroleum products are levied by both the Centre and the states.
    • While the Centre levies excise duty, states levy value-added tax (VAT).
    • For instance, VAT on petroleum products is as high as 40% in Maharashtra, contributing over ₹25,000 crores annually.
    • By being able to levy VAT on these products, the state governments have control over their revenues.
    • When a national GST subsumed central taxes such as excise duty and state levies like VAT on July 1, 2017, five petroleum goods – petrol, diesel, ATF, natural gas and crude oil – were kept out of its purview.

     

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