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Subject: Economics

  • Understanding the opposition of farmers to agriculture Bills

    The article analyses the issue of farmers opposition to the three agricultural bills.

    Context

    • Farmers have been protesting against the three bills related to agriculture.
    • These three Bills are-
    • 1) The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020
    • 2) The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020.
    • 3) The Essential Commodities (Amendment) Bill, 2020.

    What are the aims of the bills?

    • The Bills aim to do away with government interference in agricultural trade by creating trading areas outside the structure of Agricultural Produce Market Committees (APMCs).
    • One of the bills aims at removing restrictions of private stockholding (under Essential Commodities Act 1955) of agricultural produce.
    • One of the bills deals with the regulation of contract farming.

    Issues with the Bills

    • The government has failed to hold any discussion with the various stakeholders including farmers and middlemen.
    • The attempt to pass the Bills without proper consultation adds to the mistrust among various stakeholders including State governments.
    • Farmer organisations see these Bills as an attempt to weaken the APMCs and eventual withdrawal of the Minimum Support Prices (MSP).
    • Farmers in Punjab and Haryana have genuine concern about the continuance of the MSP-based public procurement given the large-scale procurement operations in these States.

    Understanding the role of APMC

    • APMCs do play an important role of price discovery essential for agricultural trade and production choices.
    • The middlemen are a part of the larger ecosystem of agricultural trade, with deep links between farmers and traders.
    • The preference for corporate interests at the cost of farmers’ interests and a lack of regulation in these non-APMC mandis are cause for concern.
    • To understand the role of APMC, consider the example of Bihar.
    • After Bihar abolished APMCs in 2006, farmers in Bihar on average received lower prices compared to the MSP for most crops.
    • Despite the shortcomings and regional variations, farmers still see the APMC mandis as essential to ensuring the survival of MSP regime.

    Conclusion

    The protests by farmers are essentially a reflection of the mistrust between farmers and the stated objective of these reforms.

  • [pib] SPICe+ Portal

    The Ministry of Corporate Affairs has notified and deployed a web-form namely ‘SPICe+’ as a part of Govt of India’s Ease of Doing Business (EODB) initiatives.

    Try this MCQ:

    Q.The SPICe+ Portal sometimes seen in news is related to which of the following Ministry?

    (a) Ministry of Environment, Forest and Climate Change

    (b) Ministry of Commerce and Industry

    (c) Ministry of Corporate Affairs

    (d) Ministry of Agriculture & Farmers’ Welfare

    SPICe+ Portal

    • It offers 10 services by three Central Government Ministries and Departments (Ministry of Corporate Affairs, Ministry of Labour & Department of Revenue in the Ministry of Finance), one State Government (Maharashtra) and various Banks.
    • Thus it saves the procedure, time and cost for Starting a Business in India.
    • These 10 services are:-
    1. Name reservation
    2. Incorporation
    3. DIN allotment
    4. Mandatory issue of PAN
    5. Mandatory issue of TAN
    6. Mandatory issue of EPFO registration
    7. Mandatory issue of ESIC registration
    8. Mandatory issue of Profession Tax registration (Maharashtra)
    9. Mandatory Opening of Bank Account for the Company and
    10. Allotment of GSTIN (if so applied for)

  • Labour law Reforms

    This session of Lok Sabha has passed 3 Historic and path-breaking Labour Codes.

    UPSC may ask the major laws subsumed under these Labour Codes.

    What are the 3 bills?

    The 3 bills which were passed are

    1. Industrial Relations Code, 2020
    2. Code on Occupational Safety, Health & Working Conditions Code, 2020 &
    3. Social Security Code, 2020

    All the labour laws (29 in number) being amalgamated into 4 labour codes are :

    Name of the Code 

    Amalgamated laws
    Wage Code

     

    		 4 laws –

    1. The Payment of Wages Act, 1936
    2. The Minimum Wages Act, 1948
    3. The Payment of Bonus Act, 1965
    4. The Equal Remuneration Act, 1976
    IR Code

     

    		 3 laws –

    1. The Trade Unions Act, 1926
    2. The Industrial Employment (Standing orders) Act, 1946
    3. The Industrial Disputes Act, 1947
    OSH Code

     

    		 13 laws –

    1. The Factories Act, 1948
    2. The Plantations Labour Act, 1951
    3. The Mines Act, 1952
    4. The Working Journalists and other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955
    5. The Working Journalists (Fixation of Rates of Wages) Act, 1958
    6. The Motor Transport Workers Act, 1961
    7. The Beedi and Cigar Workers (Conditions of Employment) Act, 1966
    8. The Contract Labour (Regulation and Abolition) Act, 1970
    9. The Sales Promotion Employees (Conditions of Service) Act, 1976
    10. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
    11. The Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981
    12. The Dock Workers (Safety, Health and Welfare) Act, 1986
    13. The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996
    Social Security Code

     

    		 9 laws –

    1. The Employees’ Compensation Act, 1923
    2. The Employees’ State Insurance Act, 1948
    3. The Employees Provident Fund and Miscellaneous Provisions Act, 1952
    4. The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
    5. The Maternity Benefit Act, 1961
    6. The Payment of Gratuity Act, 1972
    7. The Cine Workers Welfare Fund Act, 1981
    8. The Building and Other Construction Workers Welfare Cess Act, 1996
    9. The Unorganised Workers’ Social Security Act, 2008

     

    Here are the key features of these bills:

     (A) Social Security Code, 2020

    • The facility of ESIC would now be provided in all 740 districts. At present, this facility is being given in 566 districts only.
    • EPFO’s coverage would be applicable on all establishments having 20 workers. At present, it was applicable only on establishments included in the Schedule.
    • Provision has been made to formulate various schemes for providing comprehensive social security to workers in the unorganised sector.
    • A “Social Security Fund” will be created on the financial side in order to implement these schemes.
    • Work to bring newer forms of employment created with the changing technology like “platform worker or gig worker” into the ambit of social security has been done in the Social Security Code.
    • Provision for Gratuity has been made for Fixed Term Employee and there would not be any condition for minimum service period for this.
    • With the aim of making a national database for unorganised sector workers, registration of all these workers would be done on an online portal and this registration would be done on the basis of Self Certification through a simple procedure.

     (B) Occupational Safety, Health & Working Conditions Code, 2020

    • Free health checkup once a year by the employer for workers which are more than a certain age.
    • A legal right for getting Appointment Letter given to workers for the first time.
    • Cine Workers have been designated as Audio Visual Worker so that more and more workers get covered under the OSH code. Earlier, this security was being given to artists working in films only.

    (C)  Industrial Relations Code, 2020

    Efforts made by the Government for quickly resolving disputes of the workers include:

    • Compulsory facility for Helpline for redressal of problems of migrant workers.
    • Making a national database of migrant workers.
    • Provision for the accumulation of one day leave for every 20 days worked when work has been done for 180 days instead of 240 days.
    • Equality for women in every sphere: Women have to be permitted to work in every sector at night, but it has to be ensured that provision for their security is made by the employer and consent of women is taken before they work at night.
    • In the event of the death of a worker or injury to a worker due to an accident at his workplace, atleast 50 % share of the penalty would be given. This amount would be in addition to Employees Compensation.
    • Provision of “Social Security Fund” for 40 Crore unorganized workers alongwith GIG and platform workers and will help Universal Social Security coverage
    • Occupational Safety & Health Code to also can now over cover workers from IT and Service Sector.
    • 14 days notice for Strike so that in this period amicable solution comes out.

  • On the GST issue, the Centre must lead

    The article deal with the issue of GST compensation and analyses the various estimates of revenue shortfall given by the Centre.

    Context

    • The Goods and Services Tax (GST) Council meeting has now been deferred to the first week of October due to sharp disagreement between the States and the Centre.

    Background of GST

    • The Centre had brought the States on board GST by promising higher revenue collection.
    • States were lured by the promise of 14% annual growth in GST revenue over the base year of 2015-16.
    • Any shortfall from this (for five years) was to be compensated by levying a cess on luxury and sin goods.

    What are the options given by the Centre

    •  The transfers due since April 2020 have been withheld.
    • In the last GST Council meeting held on August 27, the Centre gave the States two options.
    • First, they could borrow ₹97,000 crore (the shortfall in the GST revenue compensation) from the Reserve Bank of India (RBI) under a special window at a low rate of interest.
    • Second, borrow ₹2.35-lakh crore (the total compensation shortfall) from the market with the RBI facilitating it.
    • The burden of repayment would be borne by the future collections from the compensation cess.
    • It was proposed that this cess which was to end in June 2022 could be extended to facilitate the repayment of the debt.

    Issues with the estimates

    • Given the uncertainty, how accuracy of the estimates of ₹97,000 crore and ₹2.35-lakh crore offered to the States is questionable.
    • When the Ministry of Finance is refusing to give a figure for growth in 2020-21, how such estimates are arrived at gains significance.

    Budgetary calculations

    • The Union Budget presented on February 1, 2020 assumed a nominal growth of 10%.
    • But optimistically, the Centre’s budgetary calculations will be off by at least 20%.
    • Revenue will fall by much more than 20%.
    •  So, income tax collection will also be short by much more than 20%.
    • The direct tax/GDP per cent may be expected to fall from 5.5% last year to less than 4% this fiscal.
    • Thus, at an optimistic guess, if the economy declines by only 10%, the total tax collection will be down by about ₹12-lakh crore in 2020-21.

    Conclusion

    As many predictions are that the economy will be down by much more than 10% used in the calculations above, the revenue shortfall is likely to be far greater. This points to the dire position of the Centre (and the States) and the inevitability of a large borrowing programme. Only the Centre is in a position to do such massive borrowing.

    Back2Basics: Two options for the GST compensation

    • Option 1 has a special window for states, coordinated by the Finance Ministry, to borrow the projected shortfall of Rs 97,000 crore only on account of GST implementation — and not the Covid-19 pandemic.
    • This amount can be fully repaid from the compensation cess fund, without being counted as states’ debt.
    • Option 2 takes into account the impact of the pandemic, proposing states to borrow the entire Rs 2.35 lakh crore and bearing the interest burden though principal will be repaid from the cess proceeds.
    • The GST shortfall amount (Rs 97,000 crore) will not be counted as states’ debt, while the rest of the amount of Rs 1.38 lakh crore will be counted in the books of the states.

    Source:

    https://indianexpress.com/article/business/economy/gst-compensation-centre-gives-states-2-options-easier-terms-for-lower-borrowing-6575499/

  • CAROTAR 2020 Rules

    The Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR, 2020) shall come into force from September 21.

    Try this PYQ:

    Q.In the context of the affairs of which of the following is the phrase “Special Safeguard Mechanisms” mentioned in the news frequently?

    (a) United Nations Environment Programme

    (b) World Trade Organization

    (c) ASEAN- India Free Trade Agreement

    (d) G-20 Summits

    CAROTAR rules

    • Importers will have to do their due diligence to ensure that imported goods meet the prescribed ‘rules of origin’ provisions.
    • This is the essential availing concessional rate of customs duty under free trade agreements (FTAs).
    • A list of minimum information, which the importer is required to possess, has also been provided in the rules along with general guidance.
    • Also, an importer would now have to enter certain origin related information in the Bill of Entry, as available in the Certificate of Origin.

    Why need CAROTAR?

    • CAROTAR 2020 supplements the existing operational certification procedures prescribed under different trade agreements.
    • India has inked FTAs with several countries, including Japan, South Korea and ASEAN members.
    • Under such agreements, two trading partners significantly reduce or eliminate import/customs duties on the maximum number of goods traded between them.
    • The new rules will assist customs authorities in the smooth clearance of legitimate imports under FTAs.

    Its significance

    • The ASEAN FTA allows imports of most items at nil or concessional basic customs duty from the 10-nation bloc.
    • Major imports to India come from five ASEAN countries — Indonesia, Malaysia, Thailand, Singapore and Vietnam.
    • The benefit of concessional customs duty rate applies only if an ASEAN member country is the country of origin of goods.
    • This means that goods originating from China and routed through these countries will not be eligible for customs duty concessions under the ASEAN FTA.

  • [pib] Kosi Rail Mahasetu

    PM has dedicated to the nation the historic Kosi Rail Mahasetu (mega-bridge).

    Kosi Rail Mahasetu

    • The Kosi Mega Bridge line project was sanctioned during 2003-04.
    • The bridge is 1.9 km long. It is of strategic importance along the India-Nepal border.
    • In 1887, a meter gauge link was built in between Nirmali and Bhaptiahi (Saraigarh).
    • During the heavy flood and severe Indo Nepal earthquake in 1934, the rail link was washed away and thereafter due to meandering nature of river Kosi no attempt was made to restore this Rail link for long period.
    • The dedication of the mega-bridge is a watershed moment in the history of Bihar and the entire region connecting to the North East.

    About Kosi River

    • The Kosi is a trans-boundary river which flows through Tibet, Nepal and India.
    • The river crosses into northern Bihar, India where it branches into distributaries before joining the Ganges near Kursela in Katihar district.
    • Its unstable nature has been attributed course changes and the heavy silt it carries during the monsoon season, and flooding in India has extreme effects.
    • It is also known as the “Sorrow of Bihar” as the annual floods affect about 21,000 km2 of fertile agricultural lands thereby disturbing the rural economy.

  • Agricultural reform bills introduced in Parliament

    Farmers in Punjab and Haryana have been protesting against three ordinances promulgated by the Centre back in June this year.  After the Monsoon Session of Parliament began this week, the government has introduced three Bills to replace these ordinances.

    Try this PYQ:

    The economic cost of food grains to the Food Corporation of India is Minimum Support Price and bonus (if any) paid to the farmers plus:

    (a) Transportation cost only

    (b) Interest cost only

    (c) Procurement incidentals and distribution cost

    (d) Procurement incidentals and charges for godowns

    What are these ordinances?

    The ordinances included:

    • The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020;
    • The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020; and
    • The Essential Commodities (Amendment) Ordinance, 2020 (It is the Bill replacing the third that has been passed in Lok Sabha)

    The cause of discontent

    • While farmers are protesting against all three ordinances, their objections are mostly against the provisions of the first.
    • Their concerns are mainly about sections relating to “trade area”, “trader”, “dispute resolution” and “market fee” in the first ordinance.

    What is a ‘trade area’, as mentioned in the Bill?

    • Section 2(m) of The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 defines “trade area” as any area or location, place of production, collection and aggregation.
    • It includes (a) farm gates; (b) factory premises; (c) warehouses; (d) silos; (e) cold storages; or (f) any other structures or places, from where the trade of farmers’ produce may be undertaken in the territory of India.
    • In effect, existing mandis established under APMC Acts have been excluded from the definition of trade area under the new legislation.
    • The government says the creation of an additional trade area outside of mandis will provide farmers with the freedom of choice to conduct trade in their produce.

    Why are farmers protesting?

    • The protesters say this provision will confine APMC mandis to their physical boundaries and give a free hand to big corporate buyers.
    • The APMC mandi system has developed very well as every mandi caters to 200-300 villages.
    • But the new ordinance has confined the mandis to their physical boundaries.

    What is ‘trader’ and how is it linked to the protests?

    • Section 2(n) of the first ordinance defines a “trader” as “a person who buys farmers’ produce by way of inter-State trade or intra-State trade or a combination thereof.
    • Thus, it includes processor, exporter, wholesaler, miller, and retailer.
    • According to the Ministry of the Agriculture and Farmers’ Welfare, “Any trader with a PAN card can buy the farmers’ produce in the trade area.”
    • In the present mandi system, arhatiyas (commission agents) have to get a licence to trade in a mandi.
    • The protesters say arhatiyas have credibility as their financial status is verified during the licence approval process.

    Why does the provision on ‘market fee’ worry protesters?

    • Section 6 states that no market fee or cess or levy, by whatever name called, under any State APMC Act or any other State law, shall be levied in a trade area.
    • Government officials say this provision will reduce the cost of the transaction and will benefit both the farmers and the traders.
    • Under the existing system, such charges in states like Punjab come to around 8.5% — a market fee of 3%, a rural development charge of 3% and the arhatiya’s commission of about 2.5%.
    • By removing the fee on trade, the government is indirectly incentivizing big corporates.

  • What are Interest Rate Derivatives (IRDs)?

    The RBI has proposed allowing foreign portfolio investors (FPIs) to undertake exchange-traded rupee interest rate derivatives transactions subject to an overall ceiling of ₹5,000 crores.

    Every year, there is a question on a capital market instruments. Make note of all such separately. Also, try this PYQ:

    Q. Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly? (CSP 2019)

    (a) Certificate of Deposit

    (b) Commercial Paper

    (c) Promissory Note

    (d) Participatory Note

    Interest Rate Derivatives (IRDs)

    • An IDR is a financial instrument with a value that is linked to the movements of an interest rate or rates.
    • These may include futures, options, or swaps contracts.
    • They are often used by institutional investors, banks, companies, and individuals to protect themselves against changes in market interest rates.
    • The proposed directions by RBI are aimed at encouraging higher non-resident participation, enhance the role of domestic market makers in the offshore market, improve transparency, and achieve better regulatory oversight, according to the central bank.

    Back2Basics: Foreign portfolio investment (FPI)

    • FPI involves holding financial assets from a country outside of the investor’s own.
    • FPI holdings can include stocks, ADRs, GDRs, bonds, mutual funds, and exchange-traded funds.
    • Along with foreign direct investment (FDI), FPI is one of the common ways for investors to participate in an overseas economy, especially retail investors.
    • Unlike FDI, FPI consists of passive ownership; investors have no control over ventures or direct ownership of property or a stake in a company.

    FPI vs FDI

    • With FPI—as with portfolio investment in general—an investor does not actively manage the investments or the companies that issue the investments.
    • They do not have direct control over the assets or the businesses.
    • In contrast, foreign direct investment (FDI) lets an investor purchase a direct business interest in a foreign country.

  • Urban unemployment in India

    The article discusses the issue of vulnerability of informal jobs in India and suggests the steps to address the problem.

    The urban unemployment in India crept up to 9.83% in August as against 9.15% in July, according to monthly unemployment data released Tuesday by the Center for Monitoring Indian Economy (CMIE). In other words, roughly one in every 10 person in urban areas cannot find work

  • Indian IT industry must seize the opportunity of Chinese tech exit

    The article analyses the significance of the Indian ban on Chinese apps. The ban also presents Indian IT companies with unique opportunity.

    Context

    • The current India-China border standoff has entered into cyberspace.

    How China took lead in IT

    • The Chinese government censored and banned several popular Western websites and applications years ago.
    • In the intervening years the Chinese Internet market exploded and has grown to over 900 million users.
    • The Chinese government insulated Chinese entrepreneurs from Big Tech in Silicon Valley.
    • Home-grown apps at first were faithful reproductions of Silicon Valley, but soon morphed into distinctly Chinese applications tailored solely to the home market.
    • According to the 2016 White House report, the Chinese have leapfrogged even the U.S. in AI research.
    • In this case, the intellectual property being produced actually belongs to China and is not a faithful duplicate of someone else’s product or technology.
    • This has far-reaching implications.

    Significance of India’s ban

    • India now has the lowest Internet data costs in the world.
    • In its attempt to dominate the rest of the world, the Chinese Internet industry desperately needs India’s 500-plus million netizens to continue to train AI algorithms they put together.
    • The ban on apps in India is not only a geopolitical move but also a strategic trade manoeuvre that can have a significant economic impact.
    • Ban on Chinese apps allows our home-grown IT talent to focus on the newly arrived Internet user.
    • However, India’s focus remains on exporting IT services while paying little attention to servicing our own nation’s tech market.
    • India spent the last two decades exporting technology services to developed countries in the West, the vacuum created as the Indian Internet grew has been filled by American Big Tech and by the Chinese.
    • After the removal of more than 118 Chinese apps, Indian techies have started trying to fill the holes.

    Way forward

    • The primary Indian IT objective must shift from servicing others to providing for ourselves.
    • Focus should not be simply to replace what the exiting firms have so far been providing.
    • Focus should be on providing services and products of high quality that will be used by everyday Indians across the country.
    • The aim of providing netizens with the same services across diverse markets is overarching — regional barriers created by language exist within our own nation.
    • The fundamental focus of the new digital products should be to provide for hyper-regional necessities and preferences.
    • Hyper-local and hyper-regional services with great accessibility that are also portable across our linguistic diversity, are likely to succeed in creating one of the strongest Internet markets in the world.

    Consider the question “What are factors responsible for the lack of innovation in the Indian IT industry? How the ban on Chinese apps provide the IT industry with the opportunity to fill the vacuum?”

    Conclusion

    Indian IT companies must seize the opportunity provided by the exit of Chinese IT companies and come up with products transcending regional barriers and allowing accessibility.