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Subject: Economics

  • Trading with America

    Context

    Trump has made India’s trade headache more acute. But he has also opened up opportunities.

    Political polarisation in both countries

    • Impeachment attempt: The Democrats in the US have struggled to oust Trump from the White House and rarely find anything they can agree with their President on.
    • The deeper political divide in India: While ousting Narendra Modi through a legal process of impeachment is not an option in India, the political divide is even deeper.
    • No consensus on foreign policy
      • Under Trump, consensus on foreign policy in Washington has broken down.
      • In Delhi, the Opposition has never been willing to acknowledge the diplomatic successes of the government.
      • But the usually bipartisan support for foreign policy in the strategic community has eroded.
      • Many leading voices of the establishment who have a long and distinguished service have become major critics of foreign policy.

    Comparison of India’s trade with the US and China

    • Trade with the US: In 1995, total two-way trade, including goods and services, between India and the US was $11 billion.
      • In 2018, it crossed $140 billion.
      • It is reported to be around $150 billion in 2019.
      • In trade with the US, India enjoys a surplus of nearly $23 billion.
      • A 14-fold increase in trade turnover in 25 years is certainly not something to sneer at.
      • Can India and the US do better on trade? Yes, of course.
      • Only a few years ago, the two sides were looking at an annual trade target of $500 billion. That looks rather ambitious amidst the current disputes
    • Trade with China: India’s China trade too has risen, even more rapidly.
      • From a couple of hundred million dollars in the mid-1990s to nearly $90 billion in 2019.
      • India has a deficit of nearly $57 billion with China.

    Trade disputes between India-US

    • Trade has long been a contentious issue between Delhi and Washington.
    • There had been enduring tension since the late 1980s between the US demand for-
      • Greater market access.
      • Intellectual property protection.
      • And a host of other demands and India’s own cautious approach to economic liberalisation.
    • Rise in pressure under Trump administration: All recent US administrations have applied continuous pressure on India for trade agreements.
      • The pressure has significantly risen under President Trump.
    • Trade dispute at the centre of the relationship: If his predecessors were willing to cut some slack for India by citing larger political and strategic considerations in the bilateral ties, Trump has put trade disputes at the front and centre of the relationship.
      • Officials in the Department of Commerce and the US Trade Representative’s office have adopted extremely aggressive tactics in the negotiation with India.
    • Result of a radical reorientation of US trade policy: Trump has undertaken a radical reorientation of US trade policy.
      • For Trump, this is a matter of long-standing ideological conviction as well as a political convenience.
      • He has bet that the anti-free-trade White working classes in the American rust belt are the key to his re-election.
    • No option but to deal with it: Given America’s pole position in the global trading system, you have no option but to deal with it.
      • Trump is getting away with his demand for the restructuring of trade relations with key economic partners.
      • He has renegotiated the NAFTA with neighbours Canada and Mexico and has compelled China to start reducing the massive trade deficit with the US.
    • The difference in India and China’s response to the US: In response to Trump’s pressure, Xi reaffirmed his commitment to economic globalisation and domestic liberalisation and wooed American investors with even greater vigour than before.
      • India embracing protectionism: India appears to be sending the opposite signal — of a definitive drift towards protectionism. India’s trade troubles are certainly not limited to the engagement with the US.

    Problem with India’s trade policies

    • India walking away from RCEP: Delhi walked away at the very last minute from signing the RCEP agreement last year to deep disappointment among its partners including the ASEAN, Australia, Japan and New Zealand.
      • The trade deficit with China: One of the main arguments cited by India was the massive trade deficit with China and the potential danger of it widening further under RCEP.
    • Failure in negotiations with the EU: The European Union is reluctant so far to restart trade negotiations that ended in great frustration for Brussels some years ago.
    • No deal with Australia and New Zealand: Australia and New Zealand have given up.
    • Neighbours complaint: India’s immediate neighbours complain that India’s rhetoric on connectivity and regionalism is matched by the multiple non-tariff barriers that continue to constrain commerce across the South Asian frontiers.
    • Why so many deals are pending? It is certainly probable, statistically, one in a million, that the fault lies, always, with India’s partners. But one would think there might be a real problem with Delhi’s own trade policies.

    Conclusion

    • New opportunity: Trump has certainly made India’s trade headache more acute. But he has also opened up opportunities.
      • His trade war on China has put pressure on the global supply chains centred around China.
      • India not the beneficiary of the US-China trade war: Many companies are moving their production out of China, but only a few are turning towards India.
      • While Delhi has talked the talk on taking advantage of the US-China trade war, it is yet to get its act together.
    • No opposition against protectionism at home: What makes Delhi’s devaluation of trade as a key instrument of economic growth potentially irreversible is the fact that there is little domestic political opposition to it.
    • Time to take a hard look at trade policy: For now, though, India’s partnership with the US might not only survive the current trade tensions but advance during Trump’s visit.
      • There is so much happening elsewhere in the relationship — especially in the defence and security domain.
      • But the time has come for Delhi to take a hard look at its current trade policy that threatens to undermine India’s regional and international prospects.

     

     

     

     

  • [pib] Scheme for formation and promotion of Farmer Producer Organizations (FPOs)

    The Cabinet Committee has given its approval for 10,000 FPOs to be formed in five years period from 2019-20 to 2023-24 to ensure economies of scale for farmers.

    What are Farmer Producer Organizations?

    • A Producer Organisation (PO) is a legal entity formed by primary producers, viz. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen.
    • A PO can be a producer company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members.
    • In some forms like producer companies, institutions of primary producers can also become member of PO.
    • FPO is one type of PO where the members are farmers. Small Farmers’ Agribusiness Consortium (SFAC) is providing support forthe promotion of FPOs.

    About the Scheme

    • It would be a new Central Sector Scheme titled “Formation and Promotion of Farmer Produce Organizations (FPOs)” to form and promote 10,000 new FPOs.
    • Initially there will be three implementing Agencies to form and promote FPOs, namely Small Farmers Agri-business Consortium (SFAC), National Cooperative Development Corporation (NCDC) and National Bank for Agriculture and Rural Development (NABARD).
    • States may also, if so desire, nominate their Implementing Agency in consultation with DAC&FW.
    • DAC&FW will allocate Cluster/States to Implementing Agencies which in turn will form the Cluster-Based Business Organization in the States.

    Modes for promotion

    • FPOs will be promoted under “One District One Product” cluster to promote specialization and better processing, marketing, branding & export by FPOs.
    • There will be a provision of Equity Grant for strengthening equity base of FPOs.
    • There will be a Credit Guarantee Fund of up to Rs. 1,000.00 crore in NABARD.

    Benefits

    • Small and marginal farmers do not have the economic strength to apply production technology, services and marketing including value addition.
    • Through the formation of FPOs, farmers will have better collective strength for better access to quality input, technology, credit and better marketing access through economies of scale for better realization of income.

  • USTR takes India off Developing Country List

    Context

    The United States’s annual exercise of designating developing, and least developed countries has assumed importance for India this year: it has been dropped from the list of developing countries.

     ‘Developing’ or ‘developed’ country designation by the US

    • Last week, the United States officially designated developing and least-developed countries for the purposes of implementing the countervailing measures.
      • The division is provided by the Agreement on Subsidies and Countervailing Measures (ASCM) of the World Trade Organisation (WTO).
    • Why the designation matters?
      • The higher level of subsidies allowed: According to the ASCM, developing countries are allowed to grant higher levels of subsidies as compared to the developed countries before countervailing duties (CVD) can be imposed.
      • What are the limits? The maximum limit of the subsidy is-
      • For developed country: Limit is maximum 1% of the import value of the investigated product.
      • For developing country: Limit is a maximum 2% of the import value of the investigated product.
      • If the limit is breached the importing country can impose a countervailing duty on the product.

    India as a target by the US

    • Provision of self-designation: Under the WTO rules, any country can “self-designate” itself as a developing country.
    • No criteria specified by the WTO: The WTO does not lay down any specific criteria for making a distinction between a developed and a developing country member, unlike in the World Bank where per capita incomes are used to classify countries.
    • Arbitrary criteria used to designate India: Despite this clearly laid down criterion in the WTO rules, the United States Trade Representative (USTR) employed an arbitrary methodology that took into consideration-
      • “Economic, trade, and other factors, including the level of economic development of a country (based on a review of the country’s per capita GNI) and a country’s share of world trade” to exclude India from list of designated developing countries.
    • Second such instance after denying GSP: Excluding India from the lists of developing countries for the purposes of using countervailing measures or denying benefits of GSP are but two of the more recent initiatives that the U.S. has taken to challenge India’s status as a developing country in the WTO.

    What would the impact on India?

    • Loss of Special and Differential Treatment (S&DT): India would lose the ability to use the special and differential treatment (S&DT) to which every developing country member of the WTO has a right.
      • What is S&DT? In short, S&DT lessens the burden of adjustment that developing countries have to make while acceding to the various agreements under the WTO.
      • How S&DT benefited India?S&DT has been particularly beneficial for India in two critical areas: one, implementation of the disciplines on agricultural subsidies and, two, opening up the markets for both agricultural and non-agricultural products.
    • Limits on subsidies: The WTO Agreement on Agriculture(AoA) provides an elaborate discipline on subsidies.
      • Subsidies are classified into three categories, but two of these are virtually outside the discipline since the WTO does not limit spending on these categories of subsidies.
      • Limits on price support measures: The discipline exists in case of price support measures (minimum support price) and input subsidies which is the more common form of subsidies for most developing countries, including in India.
      • Limits on spending on prices support measures: For developing countries, spending on price support measures and input subsidies taken together cannot exceed 10% of the total value of agricultural production.
      • In contrast, developed countries are allowed to spend only 5% of their value of agricultural production.

    Shifting to DBT

    • Why shifting to DBT necessary? India is a major user of price support measures and input subsidies.
      • And given the constraints imposed by the AoA, the government has spoken about its intention to move into the system of direct benefit transfer (DBT) for supporting farmers.
      • No limit on spending through DBT: A shift to DBT is attractive for India since there are no limits on spending, unlike in case of price support measures and input subsidies.
      • Rework subsidies’ programme: Faced with on-going farm distress, the government has had to rework its subsidies’ programme in order to extend greater benefits, especially to small and marginal farmers.
    • Challenges in the implementation of DBT
      • Implementation of DBT in agriculture has several insurmountable problems.
      • Difficulty in identifying the beneficiary: Targeting potential beneficiaries of DBT seems difficult at this juncture for a number of reasons, including inadequate records of ownership of agricultural land on the one hand, and the presence of agricultural labour and tenants on the other.
      • This implies that in the foreseeable future, India would continue to depend on price support measures and input subsidies.
      • How it matters: Given this scenario, the government needs the policy space to provide adequate levels of subsidies to a crisis-ridden agricultural sector.
      • And therefore it is imperative that continues to enjoy the benefits as a developing country member of the WTO.

    Issue of tariffs

    • The issue of market access, or the use of import tariffs, is one of the important trade policy instruments.
    • Provision of no reciprocal tariff cuts: It has some key provisions on S&DT, which the developing countries can benefit from. The most important among these is the undertaking from the developed countries that they would not demand reciprocal tariff cuts.
      • Over the past two years, the government of India has been extensively using import tariffs for protecting Indian businesses from import competition.
      • With the increasing use of tariffs, almost across the board, India’s average tariffs have increased from about 13% in 2017-18 to above 17% at present.
    • Why it matters? Developed country members of the WTO have generally maintained very low levels of tariffs, and, therefore, India’s interests of maintaining a reasonable level of tariff protection would be well served through its continued access to S&DT, by remaining as a developing country member of the WTO.

    Conclusion

    With the changing stance of the US towards India, the government must ensure its international trade and agriculture at home is not adversely impacted.

     

  • The $5 trillion arithmetic

    Context

    The Indian government has set itself a big target, namely, that the Indian economy will have an aggregate income or gross domestic product (GDP) of $5 trillion by 2024-25.

    Lack of clarity

    • There is little effort to take it beyond a slogan.
    • When it comes to targets and aims pertaining to the economy, it is important to have-
      • The officials and advisers go beyond the headline.
      • To lay out the details and the road-map for the target.
    • Matter for investors: For international observers and particularly investors, not to see these details creates doubts about professionalism.

    What growth rate is required to reach that target?

    • How long will it take to achieve the target at the present growth rate?
      • In 2018-19, India’s GDP was $2.75 trillion.
      • India’s latest official growth rate happens to be 5 per cent.
      • Target will be reached in 2032-33: Continue in the same fashion to compute the size of the GDP and it becomes clear that the target of $5 trillion will be reached not in 2024-25, but in 2032-33.
    • What is the required rate? Set the target as $5 trillion dollars for 2024-25 the required rate turns out to be 10.48 per cent or, approximately, 10.5 per cent.

    Why 10.5 rate is an ambitious target?

    • The only example of any nation growing for six consecutive years at an average annual rate of over 10.5 per cent was China from 2003 to 2009.
    • Can India achieve this rate?
      • From 1947 till now, India’s economy grew at over 10 per cent only twice — in 1988-89 and 2007-8.
      • Of these, the first may be dismissed because the previous year the economy had grown very slowly, by 3.5 per cent.
    • What we can learn from the past growth rate?
      • The only example to learn from: The only example from which we can learn is the remarkable growth in 2007-8, made all the more remarkable by the fact that India had been growing well for several years, starting from 2003.
      • And from 2005, India was actually growing over 9 per cent.
      • What factors played the role in high growth?
      • This was a period of professional fiscal policy and steady effort at building infrastructure.
      • India’s economy was making big news in the international media and investment poured in.
      • India’s investment-to-GDP rate climbed to an all-time record of 39 per cent.
    • Current investment-to-GDP ratio: Our investment-to-GDP ratio has crashed to 30 per cent and this takes time to re-build.
      • If we can get back to a growth rate of 7 per cent we will be lucky.

    Can inflation make the target achievable?

    • Combination of real growth and inflation can make it possible: Virtually all serious commentators agree that in purely real terms, the $5-trillion target is unreachable.
      • But maybe we can make it by a combination of real growth and inflation.
      • How the combination will work? One way India can get to the target is if alongside say 7 per cent growth, India has inflation of say 3.5 per cent.
      • Then India’s nominal GDP growth rate will be 10.5 per cent.
    • Why the inflation argument is flawed?
      • The five trillion target is in dollar terms.
      • Inflation will lead to depreciation: Typically, if India has higher inflation than the US, the rupee would depreciate vis-à-vis the dollar to account for that.
      • For the sake of pure arithmetic, assume US inflation is zero, India’s inflation is 10 per cent, and India’s real growth rate is 0.
      • In that case, in rupee terms, India’s economy will grow by 10 per cent. But how much will India’s economy grow in dollar terms?
      • The answer is zero.
      • Why is it so? This is because the rupee will typically depreciate by 10 per cent to match the inflation differential, and so the larger GDP of India in rupee terms, when converted to dollars will show no growth.
    • The other possibility of achieving the target?
      • What if the dollar loses value? But this should immediately make it clear that there is another way of getting to the target.
      • This can happen if the US dollar loses value.
      • We can then get to the target of $5 trillion because that will mean less in real terms.

    Conclusion

    There are two routes to achieve the target of $5 trillion: A huge policy initiative to boost real growth or the luck of dollar depreciation. The luck of dollar would mean nothing for us in the real term so the best course of action for the government is to seek the first option and try to achieve it.

  • RBI’s accounting year

    The Reserve Bank of India (RBI) is aligning its July-June accounting year with the government’s April-March fiscal year in order to ensure more effective management of the country’s finances.

    • Accordingly, the next accounting year will be a nine-month period which starts from July 2020 and ends on March 31, 2021. Thereafter, all the financial years will start from April every year, the RBI said.
    • The Bimal Jalan Committee on Economic Capital Framework (ECF) of the RBI had proposed a more transparent presentation of the RBI’s annual accounts and change in its accounting year from July to June to April to March from the financial year 2020-21.

    How did the RBI’s July-June accounting year come to be?

    • When it commenced operations on April 1, 1935, with Sir Osborne Smith as its first Governor, the RBI followed a January-December accounting year.
    • On March 11, 1940, however, the bank changed its accounting year to July-June.
    • Now, after nearly eight decades, the RBI is making another switch: the next accounting year will be a nine-month period from July 2020 to March 31, 2021, and thereafter, all financial years will start from April, as it happens with the central and state governments.

  • SUTRA PIC India Programme

     

    The government has unveiled SUTRA PIC programme to research on ‘indigenous’ cows.

    SUTRA PIC

    • SUTRA PIC stands for Scientific Utilization Through Research Augmentation-Prime Products from Indigenous Cows.
    • To be funded by multiple scientific ministries, the initiative, SUTRA PIC, is led by the Department of Science and Technology (DST).
    • It has the Department of Biotechnology, the CSIR, the Ministry for AYUSH (Ayurveda, Unani, Siddha, Homoeopathy) among others and the Indian Council of Medical Research as partners.
    • It has five themes:
    1. Uniqueness of Indigenous Cows,
    2. Prime-products from Indigenous Cows for Medicine and Health,
    3. Prime-products from Indigenous Cows for Agricultural Applications,
    4. Prime-products from Indigenous Cows for Food and Nutrition,
    5. Prime-products from indigenous cows-based utility items

    Aims and objectives

    The proposals under this theme aim to:

    • perform scientific research on the complete characterization of milk and milk products derived from Indian indigenous cows;
    • scientific research on nutritional and therapeutic properties of curd and ghee prepared from indigenous breeds of cows by traditional methods;
    • development of standards for traditionally processed dairy products of Indian-origin cow

    Other facts

    • In 2017, SEED constituted a National Steering Committee (NSC) for ‘Scientific Validation and Research on Panchgavya (SVAROP)’.
    • Panchgavya is an Ayurvedic panacea and is a mixture of five (pancha) products of the cow (gavya) — milk, curd, ghee, dung and urine.
    • Its proponents believe it can cure, or treat a wide range of ailments.

  • [pib] Soil Health Card Scheme

     

    The Soil Health Card Scheme has completed 5 years since its launch.

    Soil Health Card Scheme

    • Soil Health Card (SHC) is a Government of India’s scheme promoted by the Department of Agriculture & Co-operation under the Ministry of Agriculture and Farmers’ Welfare.
    • It is being implemented through the Department of Agriculture of all the State and Union Territory Governments.
    • A SHC is meant to give each farmer soil nutrient status of his/her holding and advice him/her on the dosage of fertilizers and also the needed soil amendments, that s/he should apply to maintain soil health in the long run.
    • The scheme was launched by PM on 19.02.2015 at Suratgarh, Rajasthan.

    Details on the SHC

    • SHC is a printed report that a farmer will be handed over for each of his holdings.
    • It contains the status of his soil with respect to 12 parameters, namely N,P,K (Macro-nutrients) ; S (Secondary- nutrient) ; Zn, Fe, Cu, Mn, Bo (Micro – nutrients) ; and pH, EC, OC (Physical parameters).
    • Based on this, the SHC also indicate fertilizer recommendations and soil amendment required for the farm.
    • It provides two sets of fertilizer recommendations for six crops including recommendations of organic manures. Farmers can also get recommendations for additional crops on demand.

    Other details

    • The State Government will collect samples through the staff of their Department of Agriculture or through the staff of an outsourced agency.
    • The State Government may also involve the students of local Agriculture / Science Colleges.
    • It will be made available once in a cycle of 3 years, which will indicate the status of soil health of a farmer’s holding for that particular period.
    • The SHC given in the next cycle of 3 years will be able to record the changes in the soil health for that subsequent period.
    • Soil samples will be drawn in a grid of 2.5 ha in irrigated area and 10 ha in rain- fed area with the help of GPS tools and revenue maps.

     Why needed such scheme?

    • Soil testing is developed to promote soil test based on nutrient management.
    • Soil testing reduces cultivation cost by application of right quantity of fertilizer.
    • It ensures additional income to farmers by increase in yields and it also promotes sustainable farming.

  • National Groundwater Management Improvement Programme

    The Government of India and the World Bank have signed a $450 million loan agreement to support the national programme to arrest the country’s depleting groundwater levels and strengthen groundwater institutions.

    About the Programme

    • The World Bank-supported programme will be implemented in the states of Gujarat, Maharashtra, Haryana, Karnataka, Rajasthan, Madhya Pradesh, and Uttar Pradesh and cover 78 districts.
    • These states span both the hard rock aquifers of peninsular India and the alluvial aquifers of the Indo-Gangetic plains.
    • They were selected based on several criteria, including degree of groundwater exploitation and degradation, established legal and regulatory instruments, institutional readiness, and experience in implementing initiatives related to groundwater management.
    • This programme will contribute to rural livelihoods and in the context of climatic shifts, build resilience of the rural economy.

    Objectives

    The programme will, among others, enhance the recharge of aquifers and introduce water conservation practices; promote activities related to water harvesting, water management, and crop alignment; create an institutional structure for sustainable groundwater management; and equip communities and stakeholders to sustainably manage groundwater.

    Particulars of the programme

    • The programme will introduce a bottom-up planning process for community-driven development of water budgets and Water Security Plans (WSPs).
    • Water budgets will assess surface and groundwater conditions (both quantity and quality) and identify current and future needs.
    • The WSP, on the other hand, will focus on improving groundwater quantity and incentivize selected states to implement the actions proposed.
    • Such community-led management measures will make users aware of consumption patterns and pave the way for economic measures that reduce groundwater consumption.
    • Crop management and diversification will be the other focus areas.

  • Let’s think afresh about how to govern India’s gig workforce

     Context

    The gig economy plays to employment patterns in India, where most of the workforce is engaged in “informal” jobs in the “unorganized” sector.

    Employment pattern in India

    • Non-contractual employment: A recent study of employment patterns over a 13-year period ended 2017 for the Prime Minister’s Economic Advisory Council finds that non-contractual employment grew by 68 million over the period.
      • And “has been a hero of employment generation growing by about 5% annually“.
      • There were 145 million people in non-contractual employment in 2017-18.
      • Professionals constituted the most rapidly growing occupations, with older, better educated and skilled witnessing higher growth.
    • Unorganised sector growing at much higher rate than organised sector: The study also found that unorganized sector employment grew by 65 million between 2004 and 2017, compared to only 27 million new jobs in the organized sector.
      • What does the asymmetric rate suggests? It suggests that businesses are finding it more convenient to sustain themselves when they are below the radar of the government.
    • Potential for growth of gig economy: As technology and business models take the gig economy across the country and implant it more deeply into the Indian economy, we can expect to see a lot more people find employment through online marketplaces and technology platforms.

    Regulation of labour laws and expanding the tax base

    • Social Security Code: In December, the government introduced legislation in Parliament that seeks to consolidate a number of labour laws into a Social Security Code.
      • Who will be covered in the code? The new statute encompasses self-employed professionals, freelancers and platform workers, such as those employed by taxi aggregators and food delivery companies.
    • Widening the tax base: The tax person is not far behind.
      • Recent reports suggest that revenue officials are leaning on platforms and aggregators to get gig workers registered with the goods and services tax (GST) network.
      • Need to reflect on how to govern the gig workforce? While it is just as well that the government is attempting to rationalize labour regulations and expand the country’s tax base, it is important to step back and reflect on how the gig workforce ought to be governed.

    The new approach to classification of jobs: Income and volatility

    • Classification on the basis of two fundamental characteristics: If we discard the mental model that has long classified jobs as formal and informal, and look at work afresh, we observe that jobs vary along with two fundamental characteristics:
      • The level of income they generate and-
      • The volatility of this income.
      • Example: A security guard at a company might earn a few thousand rupees a month, but with the assurance of a regular monthly paycheque.
    • More informative way: Instead of the old binary formulation of informal versus formal jobs, it is more informative to see jobs being distributed on a spectrum depending on how much they pay and how volatile the income flows they provide are.
      • Wherever a job lies in this spectrum, the objective of public policy ought to be to ensure a “trimurti”.

    Ensuring Trimurti

    • Frist-Providing dignified working conditions: Promoting dignified working conditions include-
      • Ensuring fairness.
      • Respect.
      • Safety.
      • Protection against exploitation and-
      • Arrangements for retirement.
      • Need to ensure the obligation from employers: This means that even as labour laws are rationalized to eliminate outdated and hard-coded regulations, it is necessary to ensure that all employers retain an obligation to promote the dignity of all their employees.
    • Second-Need to lower the barriers: Real wages grow not because the government imposes minimum wages, but when productivity rises.
      • Productivity growth occurs when barriers to trade, investment and travel are lowered.
      • A closed economy cannot be a successful gig economy.
    • Finally-A re-imagined social security system: A re-imagined social security system for the 21st century must tap government, corporate and social contributions for insurance and retirement accounts.
      • Such a multi-contribution system is possible today and the proposed Social Security Code is an opportunity to put in place such a future-proof framework.

    How to handle the dispute arising out of the gig economy

    • Start online dispute resolution system: The gig economy is perhaps the best place for India to start its first online automated dispute resolution system.
      • You can’t govern the 21st-century economy with 18th-century technology.

    Conclusion

    While ensuring the application of the labour code to the gig economy and bringing them in the tax net the government also ensure the conducive environment for the gig economy to flourish and contribute significantly in the growth of the country.

     

     

  • A crisis deferred

    Context

    Union budget missed the opportunity to undertake reforms in the grain management system and food security act.

    The massive reduction in food subsidy and its implications

    • Subsidy slashed by 75,552 crores: The revised estimates (RE) for food subsidy for 2019-20 have been slashed by a whopping Rs 75,552 crore -from the budgeted estimate (BE) of Rs 1,84,220 crore to Rs 1,08,668 crore (RE).
      • For the next fiscal year, the budget estimate has been kept at Rs 1,15,570 crore.
    • No major reforms in grain management system: One wonders whether any major reforms have been undertaken in the grain management system or in the National Food Security Act such that this massive reduction in budget estimates is feasible. But no such reforms are undertaken.
      • The Food Corporation of India (FCI) has been asked to borrow more from myriad sources, but most importantly from the National Small Savings Fund (NSSF).
      • An item that should have been in the budget, is now getting reflected as outstanding dues of FCI.
    • Implications of the move–postponing of the crisis:  In order to gauge how much is the effective food subsidy in the country, the budget numbers are becoming totally irrelevant.
      • One needs to add the actual subsidy numbers reflected in the budget to the outstanding dues of FCI.
      • Effective food subsidy: If one adds the due, the effective food subsidy turns out to be Rs 3,57,688 crore.
      • By not provisioning for it fully in the budget, and not undertaking any reforms in the foodgrain management system or the NFSA, the government is only postponing the crisis.

    Need to bring down the coverage: The Economic Survey

    • Bringing down the coverage at 20 %: While the Economic Survey clearly states that the coverage under NFSA needs to be revisited, and brought down to say 20 per cent of the population.
      • The budget did not bite this bullet.
      • Cost of procurement to go up: The expected cost of rice to FCI in 2020-21 is going to be about Rs 37/kg, and for wheat it will be Rs 27/kg.
      • The issue price, that covers 67 per cent of the population, is just Rs 3/kg and Rs 2/kg respectively.

    Excessive stock with the FCI

    • Actual stock in excess of buffer stocks: Compared to a buffer stock norm of 4 million tonnes, actual stocks with FCI (including unmilled paddy) were 3.5 times higher.
      • It speaks of a colossal waste of scarce resources, especially when tax revenues have been sluggish.
    • Stocks likely to increase further: Given that Skymet has predicted that the coming wheat crop is going to be one of the best in many years-the stocks is likely to touch 113 million tonnes.
      • With procurement prices being above global prices, the chances of wheat exports are bleak unless there is a subsidy for exports.
      • And that will be challenged in the WTO.
      • The FCI may run out of stock capacity: So, one should expect a piling up of grains stocks with a record procurement of wheat.
      • FCI may run out of storage capacity. Stock levels may touch 85-90 million tonnes, or even more, by July 1, 2020.

    Fundamental questions

    • First: Is the government ignorant of the impending crisis of plenty?
    • Second: Does it realise that the policy of procurement prices (50 per cent above cost A2+FL), without looking at the demand side, is likely to create more troubles for the government?
    • Third: Does the government have any plan to reform the public distribution system under NFSA?

    Way forward

    • Reforms in foodgrain management: Reforms in foodgrain management have to start with reforming the PDS system.
      • With moving gradually moving away from grains to cash transfers.
      • Think over implementing the Shanta Kumar Committee reports recommendations.
    • Stop open-ended procurement in Punjab-Haryana belt: The policy of procurement prices, with open-ended procurement in the Punjab-Haryana belt, is doing more damage by depleting the water table and not letting crop diversification take place.
      • This is very unfortunate as the “dead loss” in grain management runs to more than Rs 1,00,000 crore.
    • Rationalise the fertiliser subsidy: The other part related to this is the fertiliser subsidy, which is largely used in wheat and rice.
      • The budget estimates for 2020-21 show a reduction in the subsidy, while dues of the fertiliser industry keep on piling.
      • The fertiliser industry estimates that by April 2020, the dues will be roughly Rs 60,000 crore.
      • Demoralised fertiliser industry: While FCI has been asked to borrow, the fertiliser industry does not have that type of window.
      • It is feeling totally demoralised.
      • No private player wants to come and invest in this sector.

    Conclusion

    Instead of postponing the crisis by compelling the FCI to borrow, the government need to reform the foodgrain management system, rationalise the fertiliser subsidy and limit the coverage under the NFSA.