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Subject: Economics

  • [pib] One District One Product (ODOP) Initiative

    As a major boost to Centre and State collaboration in promoting products under the ODOP Initiative – a State Conference was recently held by the Department for Promotion of Industry and Internal Trade (DPIIT).

    One District One Product (ODOP)

    • ODOP spearheaded by the Uttar Pradesh government in 2018, is an important initiative that is being adopted all over India to realize the true potential of each district.
    • ODOP is an initiative which is seen as a transformational step forward towards realizing the true potential of a district, fuel economic growth and generates employment and rural entrepreneurship.
    • It is operationally merged with ‘Districts as Export Hub’ initiative being implemented by DPIIT as a major stakeholder.
    • The main philosophy is to select, brand and promote one product from each district of India that has a specific characteristic feature to enable profitable trade in that product and generate employment.

    Why need this scheme?

    • India is home to several agricultural and non-agricultural (including manufacturing) products that are region-specific.
    • Every district has products that are unique and provide livelihoods and generate income.
    • This scheme is in tune with the PM’s call to transform every district into an export hub and realize the goal of Atmanirbhar Bharat.

    What needs to be done for its success?

    The important aspect that the policy initiatives in India should thus be mindful of are:

    • Ownership of the initiative should lie at the center of implementation.
    • The stakeholders irrespective of the sector along the value chain need to be identified and provided information and awareness.
    • It is important to streamline other initiatives such as registration of Geographical Indications (GI), formation and development of farmer producer organizations etc.

     

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  • [pib] Sela Pass Tunnel Project

    The final blast for the 980-metre long Sela Tunnel was recently conducted by the Border Roads Organisation (BRO) amidst inclement weather and heavy snowfall.

    Sela Pass Tunnel Project

    • The tunnel covers a total distance of 12.04 kms which consist of two tunnels of 1790 metres and 475 meters.
    • It is being built at an estimated cost of ₹687 crores by the Border Roads Organisation.
    • It aims to provide all weather connectivity to Tawang in Arunachal Pradesh — an area claimed entirely by China — and other forward areas.
    • Once built it will cut travel time to Tawang by at least an hour for Indian troops stationed in adjoining Assam’s Tezpur town — the headquarters of the Indian army’s IV Corps.

    Strategic Importance

    • The lack of motorable roads and rail connections in India’s northeast and Arunachal Pradesh in particular were seen as distinct disadvantages for India vis a vis China in the region.
    • Analysts had been warning of China building infrastructure including access roads right up to the Indian border that would give it a strategic advantage in any conflict with India.
    • Once completed this would result in all weather connectivity to Tawang and forward areas and reduction in more than one hour of travelling time from Tezpur to Tawang.

     

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  • A chance to support growth, fiscal consolidation

    Context

    The adverse effect of the third wave of COVID-19, which is mainly affecting the last quarter of 2021-22, may call for a further downward adjustment in the growth rate to about 9%.

    Growth in FY 2021-22

    •  As per the NSO’s advance estimates, at the end of 2021-22, the magnitude of GDP in real terms is estimated at INR₹147.5-lakh crore that is only a shade higher than INR₹145.7-lakh crore in 2019-20.
    • Thus, due to the three waves of COVID-19 that India has experienced, two years of real growth in economic activities have been wiped out. 
    • As per the advance estimates, the gross fixed capital formation (GFCF) relative to GDP at current prices stands at 29.6% in 2021-22.
    • Capacity utilisation in India continues to have considerable slack.
    • Private final consumption expenditure (PFCE) also shows a low growth of 6.9% in 2021-22.
    • Any pick-up in demand would continue to be constrained by low-income growth in sectors characterised by a high marginal propensity to consume (MPC) such as the trade, transport, et al. sector and the Micro, Small and Medium Enterprise (MSME) sector more broadly.
    • It may thus be prudent to expect a real GDP growth in the range of 6%-7%.
    • Growth in 2022-23 would also continue to be constrained by supply-side bottlenecks and high prices of global crude and primary products.
    • Growth in 2022-23 would depend on the basic determinants such as the saving and investment rates in the economy.

    Suggestions

    • Extend GST compensation period: The GST compensation provision would also come to an end in June 2022.
    • This would cause a major revenue shock at least for some States such as Tamil Nadu, Kerala and Andhra Pradesh.
    • While this matter may be considered by the GST Council, the compensation arrangement should be extended by two years in some modified form.
    • With respect to non-tax receipts, the scope of the National Monetization Pipeline (NMP) may be extended to cover monetisation of government-owned land assets.
    • Disinvestment initiatives may have to be accelerated.
    • Expenditure prioritisation in 2022-23 should focus on reviving both consumption and investment demand.
    • Urban counterpart to MGNREGA: Since consumption demand remains weak, some fiscal support in the form of an urban counterpart to Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) may be considered.

    Focusing on fiscal consolidation

    • It would be appropriate now to consider a graduated return to fiscal consolidation while using fiscal policy to lay the base for faster growth in the years to come.
    • The Fifteenth Finance Commission had suggested a fiscal consolidation path where the Centre’s fiscal deficit was benchmarked at 5.5% of GDP for 2022-23.
    • In their pessimistic scenario, it was kept at 6% of GDP. 
    • It may be prudent to limit the reduction in fiscal deficit-GDP ratio to about 1% point of GDP in 2022-23.
    • This would imply a fiscal deficit in the range of 5.5%-6% of GDP.
    • From here on, a stepwise reduction of 0.5% points per year would enable a level of about 4% of GDP by 2025-26.
    • By this time, as suggested by the Fifteenth Finance Commission, a high-powered inter-governmental group should be constituted to re-examine the sustainability parameters of debt and fiscal deficit of the central and state governments.

    Conclusion

    Expenditure prioritisation in 2022-23 should focus on reviving both consumption and investment demand while aiming for the gradual return to the fiscal consolidation.

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  • Why 5G roll-outs are disrupting flights to the US?

    Air India said Boeing had cleared its B777 aircraft for flights to the US following concerns that the 5G roll-out there could interfere with critical aircraft functions.

    What is 5G Technology?

    • 5G or fifth generation is the latest upgrade in the long-term evolution (LTE) mobile broadband networks.
    • It’s a unified platform which is much more capable than previous mobile services with more capacity, lower latency, faster data delivery rate and better utilization of spectrum.

    How can 5G affect flight safety?

    • Airlines take off and land using auto-pilot systems, which use data from radar altimeters to determine the altitude of the aircraft.
    • Altimeters emit radio waves at 4.2-4.3 Gigahertz (GHz) frequency, which could interfere with a 5G band called C-Band, which lies between 3.7-4.4 GHz.
    • This interference can mess up the data. That’s the safety concern. Radio altimeters are used at airports and other low-altitude locations.
    • A different kind of altimeter, called pressure altimeter, is used for high altitude areas.
    • Not using auto-pilot would lead to more fuel consumption and higher costs for airlines.

    What happens to Air India’s operations?

    • While scheduled international flights, to and from India, remain suspended due to the pandemic, Air India operates flights to the US under an air bubble agreement.
    • These routes are served by the airline’s wide-body fleet of Boeing 777 and Boeing 787 planes.
    • The roll out of 5G is expected to primarily impact the operations of Boeing 777 and 747.

    Can this impact India’s 5G roll-out?

    • India’s 5G auctions are expected to include spectrum bands of 3.3GHz -3.6GHz, which means the C-Band may not be operational, at least in the near future.
    • Plus, aircraft equipment is manufactured globally, with certain standards.
    • The FAA tests will likely lead to standards for altimeters and applied internationally.
    • For aircraft makers, altimeters are key equipment. But they’re bought off-the-rack instead being designed in-house.
    • Once a standard is known, it can be implemented in all aircraft.

    Also read

    [Burning Issue] 5G Technology

  • The mobile phone sector has lessons for India’s economy

    Context

    The mobile phones and room air conditioners (RAC) sectors in recent times have shown us the formulae for expansion of the manufacturing sector and growing exports.

    How did India expand its mobile manufacturing base?

    • We were one of the largest consumers of mobile phones in 2014.
    • In 2014-15, our mobile phone imports exceeded $8 billion.
    • Our electronics imports were threatening to exceed our oil imports.
    • Steps taken by govt: The government took many steps like 100 per cent automatic FDI,
    • levy of import duties to protect local manufacturers,
    • the Phased Manufacturing Plan (PMP),
    • manufacturing clusters (EMC 2.0) and
    • the Production Linked Incentive (PLI) scheme.
    • They have attracted investments, created lakhs of jobs, and have moved us from being a net importer to a net exporter.
    • Our mobile phone manufacturing value has jumped more than eight times from Rs 0.27 trillion in 2013-14 to Rs 2.2 trillion in 2020-21.
    • We have surpassed the US and South Korea to become the second-largest manufacturer globally.

    Steps need to be taken

    •  Our mobile phone exports are primarily limited to feature phones and low-value smartphones.
    • India must aim for a significant increase in exports from the current $4 billion.
    • China exports $200 billion, and Vietnam exports $60 billion worth of mobile phones.
    • The PLI scheme aims to achieve the same by allocating incentives of Rs 410 billion for the mobile phone category over the next five years.
    • Low value addition: Our value addition in mobile phone manufacturing is currently limited to 15-20 per cent versus more than 40 per cent in China.
    •  The scheme for promoting the manufacturing of electronic components and semiconductors (SPECS) is a step in the right direction.
    • We must focus on setting up a fabrication plant to manufacture semiconductor chips to facilitate complete vertical integration.

    The Room AC sector story

    •  We imported RACs worth Rs 41 billion in 2017-18.
    • The government initiated multiple measures such as the PMP scheme, banning the import of refrigerant-filled ACs, increasing the import duty on RACs and critical components, and the PLI scheme.
    • From 2017-18, RAC imports have declined by 56 per cent to Rs 18 billion in 2020-21.
    • Our import of RACs has shifted from China to an FTA country like Thailand, where import duty isn’t applicable.
    • A judicious mix of protection (levy of import duty/banning of finished goods) and incentives (PMP, PLI scheme, 100 per cent FDI) has developed local manufacturing, created jobs, and turned a trade surplus.

    Way forward

    • We missed the manufacturing/export bus in the 1980s.
    • We did excel in services like software to become back office to the world. With China+1 becoming a geopolitical imperative, it is an opportune time for us to expand the manufacturing sector and improve our export market share.
    • To achieve our true potential we need close coordination and seamless working between central, state, and local governments, the rule of law, improvements in infrastructure, especially logistics and flexible labour laws.

    Conclusion

    Many of our peers are ahead of us in ease of doing business, but none of them has a large domestic market like us. The automobile and generic pharma sector in the past and the mobile phone/RAC sectors recently have shown that we know the formulae.

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  • What the budget needs to do

    Context

    We need to insure the most vulnerable against shocks such as Covid, but even more, we need to create good job opportunities for the unskilled. What can the budget do?

    Impact on informal economy

    • The last two quarters have seen a substantive recovery in the Indian economy.
    • Corporate profitability of our largest firms has hit a new record this year.
    • So have GST collections, another indicator of the formal economy, with an average monthly collection of Rs 1.2 trillion in the second and third quarters.
    • The glass though is half full, the informal economy was particularly badly hit by Covid and its associated lockdowns.
    • Small enterprises, retail, hospitality, and construction were all hammered.
    • These were our main source of recent employment growth.
    •  Agricultural employment has risen in the last year-and-a-half, while manufacturing and services employment has fallen — this is the opposite of development.
    •  Informal service sector jobs may not seem like great jobs to us, but they are greatly prized relative to eking out a marginal existence in agriculture.
    • We need to insure the most vulnerable against such shocks, but even more, we need to create good job opportunities for the unskilled, equip people at all levels to participate more fully in the modern economy, and systemically promote wider policies of inclusion.

    What can the budget do?

    • Create good jobs for unskilled: The way it can do so directly is through accelerating spending on infrastructure.
    • The National Infrastructure Pipeline has identified a good set of projects.
    • The government should be complimented for its intention and ambition; what we need now is implementation.
    • Labour-intensive manufacturing: Most countries developed by putting millions to work in labour-intensive manufacturing.
    • We do not have the huge firms in export-oriented labour-intensive sectors that employ millions in China, Vietnam, and Bangladesh.
    •  Bangladesh has thrived by putting millions to work in manufacturing.
    • A booming garment sector employs 4.4 million.
    • As 80 per cent of those employed in garment factories are women, Bangladesh has twice the female labour force participation ratio of India.
    • Implement labour laws: In June and September 2020, the government passed four labour laws.
    • These laws have since been left dormant.
    • The budget should announce a time frame for implementation, notification by the Union government and then by the states.
    • Investment in education and skilling:  India has among the least skilled workforces in the world.
    • Under 5 per cent of our workforce is formally skilled, compared to 96 per cent in South Korea, 75 per cent in Germany and 52 per cent in the US.
    • That is why the work of the National Skills Development Corporation is so important.
    • Can the budget specify it as an independent entity controlled and run by the private sector that is then held accountable for delivering on our skilling targets.
    • Education is even more important, especially primary education.
    • Pratham’s education reports make for sobering reading.
    • The New Education Policy has a proposal that every second standard child should be able to read and do arithmetic at the second standard level as a foundation for further education.
    • This welcome initiative must receive greater dedication and focus from both government and industry.
    • School education is a state subject, so the Union budget can at best incentivise states to do the right things, say by linking the flow of additional funds to those that demonstrate improved second standard learning outcomes.
    • As a part of CSR, many companies work actively with schools.
    • Education is already the largest single area for CSR spending, accounting for one-third of the Rs 9,000 crore spent by the top 100 companies.

    Conclusion

    Other policies for economic inclusion must go beyond social inclusion. These include measures like reducing tariffs to benefit millions of consumers instead of thousands of firms. Industrial policies that help all firms such as the ease of doing business, instead of incentivising a selected few.

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  • What is World Economic Forum’s Davos Agenda ’22?

    PM Modi has made a special address ahead of the theme-setting World Economic Forum (WEF) Agenda on the ‘State of the World’ at Davos.

    About World Economic Forum (WEF)

    • WEF is an international non-governmental and lobbying organisation based in Cologny, canton of Geneva, Switzerland.
    • It was founded on 24 January 1971 by German engineer and economist Klaus Schwab.
    • The foundation, which is mostly funded by its 1,000 member companies – typically global enterprises with more than five billion US dollars in turnover – as well as public subsidies.
    • It aims at improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas.

    Major reports released:

    • Engaging Tomorrow Consumer Report
    • Inclusive growth & Development Report
    • Environmental Performance Index
    • Global Competitive Index
    • Global Energy Architecture Performance Index Report
    • Global Gender Gap Report
    • Global Information Technology Report
    • Human Capital Report
    • Inclusive growth & Development Report
    • Global Risk Report
    • Travel and Tourism Competitiveness Report by WEF

    Important agenda: Davos meeting

    • The WEF is mostly known for its annual meeting at the end of January in Davos, a mountain resort in the eastern Alps region of Switzerland.
    • The meeting brings together some 3,000 paying members and selected participants – among which are investors, business leaders, political leaders, economists, celebrities and journalists.

    Why is WEF important?

    • Common platform: The WEF summit brings together the who’s-who of the political and corporate world, including heads of state, policymakers, top executives, industrialists, media personalities, and technocrats.
    • Influence global decision-making: Deliberations at the WEF influence public sector and corporate decision-making.
    • Discusses global challenges: It especially emphasizes on the issues of global importance such as poverty, social challenges, climate change, and global economic recovery.
    • Brings in all stakeholders: The heady mix of economic, corporate, and political leadership provides an ideal opportunity for finding solutions to global challenges that may emerge from time to time.

    What are the main initiatives?

    • Agenda 2022 will see the launch of other WEF initiatives meant for:
    1. Accelerating the mission to net-zero emissions
    2. Economic opportunity of nature-positive solutions
    3. Cyber resilience

    Criticisms of WEF

    • WEF has been criticized for being more of a networking hub than a nebula of intellect or a forum to find effective solutions to global issues.
    • It is also criticized for the lack of representation from varied sections of the civil society and for falling short of delivering effective solutions.

    Way forward

    • WEF sees large-scale participation of top industry, business leaders, civil society, and international organizations every year.
    • This collaboration is necessary for addressing global concerns such as climate change and pandemic management.
    • It is one of such few platform, that provides an opportunity for collaboration through comprehensive dialogue.

     

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  • Highlights of the Inequality Kills Report

    The COVID-19 pandemic has heightened economic inequalities across the world says the Inequality Kills Report.

    Try substantiating this:

     

    Q. Extreme inequality is a form of ‘economic violence’—where structural and systemic policy and political choices are skewed in favor of the richest and the most powerful people. Critically examine.

    What is the “Inequality Kills” Report?

    • “Inequality Kills: The unparalleled action needed to combat unprecedented inequality in the wake of COVID-19” is a report released in January 2022 by Oxfam, a U.K.-based consortium.
    • The report argues for sustained and immediate action to end the pandemic, address global inequality and initiate concerted measures to tackle the climate emergency.
    • The central argument of the report is that inequality is a death sentence for people that are marginalized by social and economic structures and removed from political decision-making.

    Key highlights

    • Billionaire variants: Identifying this process as “the billionaire variant”, the report says that this vertical aggregation of global wealth into the hands of a few is “profoundly dangerous for our world”.
    • Pauperization: 160 million people were rendered poor during the pandemic, while the ten richest people doubled their fortunes since the start of the pandemic.
    • Vaccine apartheid: Holding governments to account the report identifies “vaccine apartheid” (unequal access to vaccines between countries) and the lack of universal vaccination programs in many countries.
    • Inflation: It also demonstrates how emergency government expenditure (estimated at $16 trillion) that was meant to keep economies afloat during this crisis, inflated stock prices.
    • Collective: This resulted in billionaires’ collective wealth increasing by $5 trillion during the pandemic.

    Why does the report say that inequality kills?

    • For the writers of the report inequality is not an abstract theory.
    • Instead, they see it as institutionalized violence against poorer people.
    • Extreme inequality is a form of ‘economic violence’—where structural and systemic policy and political choices that are skewed in favor of the richest and the most powerful people.
    • This results in direct harm to the vast majority of ordinary people worldwide.

    Implications of inequality

    • Crime and violence: The report identifies higher inequality with more crime and violence and less social trust.
    • Impact on marginalized: The brunt of inequality and the violence is borne, for instance, by women across the world, Dalits in India, Black, Native American and Latin persons in the US and indigenous groups in many countries.
    • Victimization of women: Pointing to the example of women, the problem runs a lot deeper as 13 million women have not returned to the workforce and 20 million girls are at risk of losing access to education.

    Way ahead

    The “Inequality Kills” report proposes far-reaching changes to structures of government, economy and policy-making to fight inequality.

    • Vaccine sharing: It urgently asks for “vaccine recipes” to be made open-source so that every qualified vaccine manufacturer can manufacture them.
    • Taxing the opportunists: The report then asks for governments to claw back the wealth from billionaires by administering solidarity taxes higher than 90% especially on the billionaires that have profited during pandemic.
    • Taxation reforms: The report asks for permanent cancellation of tax havens, progressive taxation on corporations and an end to tax dodging by corporations.
    • Welfare: The report then suggests that this regained wealth be redirected towards building income safety nets, universalizing healthcare for everyone, investing in green technologies and democratizing them, and, investing in protecting women from violence.

     

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  • How  do  SDRs  help maintain Balance of Payments (BoP)?

    A recent report by the RBI shows that India received support of $17.86 billion in August 2021 by way of Special Drawing Rights (SDRs) has helped cushion the worsening current account deficit.

    What are Special Drawing Rights (SDRs)?

    • SDRs, created by the IMF in 1969, are an international reserve asset and are meant to supplement countries’ reserves.
    • Adding SDRs to the country’s international reserves makes it more financially resilient.
    • Providing liquidity support to developing and low-income countries allows them to tide over the balance of payments (BOP) situations like the one India has been experiencing due to the pandemic and the one it faced earlier in 1991.
    • SDRs being one of the components of foreign exchange reserves (FER) of a country, an increase in its holdings is reflected in the BOP.

    What are the key components of BOP?

    The BOP divides transactions of a country with the rest of the world into two accounts:

    1. Current Account: It consists of net trade of exports and imports of products and services, net earnings on cross-border investments and net transfer payments.
    2. Capital Account: It constitutes a country’s transactions in financial instruments i.e. assets and liabilities constituting of direct investment, portfolio investment, loans, banking capital, and other capital.

    What does the SDR support signify?

    • Pandemic impact: Countries worldwide are going through one of the worst health and economic crises, and India has been no exception.
    • Domestic business underperformance: It is also indicative of the fact that the domestic business environment is failing to attract foreign direct investment.

    Is dependence on SDR a matter of concern?

    A BOP dependent on an SDR-dependent capital account surplus to cushion the country’s widening current account deficit is not a comfortable position to be in.

    • Compulsion for reforms: Importantly, IMF support comes with a baggage of conditions as was the case in 1991—the support came with the condition that India initiates big-ticket economic reforms.
    • Sovereign decisions: Any democratic country would be more comfortable with sovereign rights to design its policy strategy.

    Back2Basics:  Foreign Exchange Reserve

    • Foreign exchange reserves are important assets held by the central bank in foreign currencies as reserves.
    • They are commonly used to support the exchange rate and set monetary policy.
    • In India’s case, foreign reserves include Gold, Dollars, and the IMF’s quota for Special Drawing Rights.
    • Most of the reserves are usually held in US dollars, given the currency’s importance in the international financial and trading system.
    • Some central banks keep reserves in Euros, British pounds, Japanese yen, or Chinese yuan, in addition to their US dollar reserves.

    India’s forex reserves cover:

    1. Foreign Currency Assets (FCAs)
    2. Special Drawing Rights (SDRs)
    3. Gold Reserves
    4. Reserve position with the International Monetary Fund (IMF)

    Significance of these reserves

    • Import support: Holding liquid foreign currency provides a cushion against such effects and provides confidence that there will still be enough foreign exchange to help the country with crucial imports in case of external shocks.
    • USD reserves: All international transactions are settled in US dollars and, therefore, required to support India’s imports.
    • Exchange rate regulation: More importantly, they need to maintain support and confidence for central bank action, whether monetary policy action or any exchange rate intervention to support the domestic currency.
    • Cushion against inflation: It also helps to limit any vulnerability due to sudden disturbances in foreign capital flows, which may arise during a crisis.

    Initiatives taken by the government to increase forex

    • Self reliance: To increase the foreign exchange reserves, the GoI has taken many initiatives like Atmanirbhar Bharat, in which India has to be made a self-reliant nation so that India does not have to import things that India can produce.
    • Duty remission: The government has started schemes like Duty Exemption Scheme, Remission of Duty or Taxes on Export Product (RoDTEP), Nirvik (Niryat Rin Vikas Yojana) scheme, etc.
    • FDI and EoDB: Apart from these schemes, India is one of the top countries that attracted the highest amount of Foreign Direct Investment, thereby improving India’s foreign exchange reserves.

     

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  • How predatory pricing is affecting distributors and traders

    Context

    Consumer goods distributors in Maharashtra has been protesting against Colgate’s alleged unfair treatment of traditional distributors vis-à-vis B2B (Business-to-Business) technology companies such as Reliance’s JioMart, Udaan and others.

    The disruption caused by B2B companies

    • Nearly half-a-million of India’s distributors pick up goods from consumer companies such as Colgate and deliver them to 13 million small local stores located in 7,00,000 villages and towns across the country through a web of millions of traders and other intermediaries.
    • Enter the new age technology B2B companies.
    • They have developed technologies to connect directly to the kirana store through a mobile phone app, bypassing the intermediaries.
    • They supply goods to the local store for lower prices than the charged by the distributor.
    • Unable to match such prices and facing the peril of losing business, India’s distributors claim these are unfair practices and want manufacturers such as to stop supplying goods to the technology companies.

    Issue of disruption caused by the pricing power and predatory pricing

    • Creative destruction: New innovations disrupting an existing process and rendering incumbents futile is generally a healthy process of ‘creative destruction’, as the Austrian economist, Joseph Schumpeter, postulated.
    • But this disruption in India is driven not entirely by technology innovation but also through pricing power.
    • These technology companies bear the loss on the products they sell to the local store.
    • Further, they offer extensive credit terms and working capital to the local stores.
    • In other words, these technology companies rely not just on their mobile phone app innovation but also steep price discounting and cheaper financing to win customers.
    • Evidently, these companies use the money to not only build new technologies but also to undercut competitors and steal market share. 
    • This practice, called predatory pricing, is illegal in most countries including India.
    • These companies are supplied with funds from foreign venture capital firms, which in turn are largely funded by American pension funds and university endowments.
    • The flip side is that India’s millions of distributors and intermediaries have no access to such finance.
    • These small companies are cut off from the endless stream of free foreign money that gushes into new age ‘startups’ and established large corporates.

    Problems created by predatory pricing

    • While consumers may benefit from lower prices, the livelihoods of millions of distributors, traders and their families suffer.
    • To be sure, this is not just an India problem but a global one.
    •  Social media companies such as Facebook give away their products for free and e-commerce companies such as Amazon sell at lower prices, benefiting consumers enormously, but also causing immense social strife and disharmony.
    • But in India’s case, there is an added complexity of foreign capital flows.
    • Access to this capital is only available to a tiny proportion of Indian businesses but threatens the livelihoods of millions of Indian families, as in the case of distributors, causing massive income and social disparities.
    • This unequal access to capital creates leads to anti-competitive behaviour.

    Consider the question “What is predatory pricing? What are the issues created by predatory pricing?”

    Conclusion

    To be clear, this is not a Luddite argument against e-commerce or technological innovations. The issue is about illegal predatory pricing and abuse of pricing power by startups and big corporates through preferential access to easy foreign money.

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