Subject: Economics

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Child Labour

A multi-pronged strategy to tackle the problem of child labour

• Statutory and legislative measures <amendment to child labour act>
• Rehabilitation of children withdrawn from work through specific schemes and universal Social Infrastructure
• Employment and Human Development
• Elementary education #supplemented with economic rehabilitation of their families by way of convergence with existing programmes and schemes

Amendment to the Child Labour (Prohibition & Regulation) Act, 1986

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• Complete prohibition on employment of children below 14 years
• Two exceptions–
• 1. work done in family enterprises and on farmlands provided it is done after school hours and during vacations
• 2. working as artists in audio-visual entertainment industry, including advertisement, films, television serials  except the circus, provided that such work does not affect the school education.
• linking the age of prohibition with the age under the RTE Act 2009, and stricter punishment for employers
• barred employment of adolescents (14 to 18 years) in hazardous occupations and processes like chemicals and mines
• no penalty for parents for the first offence, the employer will be liable for punishment even for first violation

Criticism-

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• amendments partially legitimises child labour
• how it would be ensured that the child is working in a non-hazardous family enterprise and that he/she would be doing so only after school hours

National Child Labour Project (NCLP) Scheme

• Under this children rescued from work in the age group of 9-14 years are enrolled in NCLP special training centers
• they are provided bridge education, vocational training, midday meal, stipend, health care, etc., before being mainstreamed into formal education system.
• Children in the age group of 5-8 years are directly linked to the formal education system through close coordination with the Sarva Shiksha Abhiyaan (SSA)

Skills Gap and Employment

Why skill india

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1. Nearly 90% of employable people did not receive any vocational training <80% of German workforce formally skilled>
2. Imparting vocational education and training is an effective way of developing skills for improving the employability of the population

Why vocational education not popular in India

• perception that vocational education and skill development are meant for people who have failed to join mainstream education <attitudinal factors>
• perception is strengthened by the significantly lower wages paid to employees with vocational training vis-à-vis those with formal education

What has govt done so far?

1. Setting up of the NSDC
2. establishment of the National Skill Qualification Framework (NSQF) <it will facilitate increased adoption of skill development programmes, with availability of pathways for progression between higher education and skill development
3. funding initiatives such as the Standard Training and Assessment Reward (STAR) scheme <can you tell us more about STAR?> <What is Udaan scheme?>
4. Sector Skill Councils (SSCs) -autonomous industry led bodies
5. create National Occupational Standards (NOSs) and Qualification Packs (QP) for each job role in the sector
6. develop competency frameworks, conduct training of trainers
7. conduct skill gap studies and assess through independent agencies
8. certify trainees on the curriculum aligned to NOSs developed by them

Four big schemes

1. National Policy on Skill Development and Entrepreneurship
2. Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
3. Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY)
4. National Action Plan (NAP) for skill training  target of skilling 5 lakh differently-abled persons in next three years

For detail about these schemes read this story-  Mammoth task of skilling India  and this blog

Towards A Healthy India

Goal is to provide accessible, affordable and equitable quality health care, especially to the marginalized and vulnerable sections of the population

Challenge – paucity of resources (both financial -1.2% of GDP on Health and human, 1 doctor per 1400 as compared to WHO norm of min 1 doctor per 1000), weak social and environmental determinants such as age at marriage, nutrition, pollution, access to potable water and hygienic sanitation facilities

Health system in India –

Mix of Public – Sub Centre, Primary Health Centre, Community Health Centre, District Hospital, Medical Colleges and private as well as informal quacks

Outreach and community level services – provided through coordination b/w ASHA <Accredited Social Health Activist>, Anganwadi Workers (AWW) and the Auxiliary Nurse Midwife (ANM)

• Note 1– AWW works under ICDS scheme run by WCD ministry.
• Note 2 – ASHA is a woman resident of the village  married/ widowed/ divorced, preferably in the age group of 25 to 45 years educated up to class 10.  Her Primary role is community mobilization. She works under National Health Mission of Ministry of Health and Family Welfare

Imp. Points from NSSO survey -Key Indicators of social consumption in India: Health, 2015

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1. Private sector continues to play a significant role in the provision of outpatient and hospitalized care
2. there has been a nearly two-fold jump in the institutional deliveries since the last such survey.
3.  >60 % of all institutional deliveries are in the public sector and the Out of Pocket expenditures for childbirth in the public sector is about 1/10 that in the private sector
4. >70% (72 % <decreased from 78%> in the rural areas and 79 % in the urban areas) of non hospitalised treatment was sought in the private sector
5. 58% hospitalized treatment in private hospital in rural while 68% in Urban
6. > 85% population outside health insurance – coverage by government-funded insurance schemes only 13.1 % of rural India and 12 % of urban population
7. treatment in a private hospital costs four times as much as it does in a public hospital on an average

Health Indicators and MDG

Under five mortality -declined from 126 in 1990 to 49 in 2013, much faster than global rate of decline during the same period <target was to reduce it to 1/3 by 2015 i.e 42>

Maternal Mortality– declined from 437 to 167 <target was to reduce by 3/4 i.e. 109>

Immunization – From 36 % fully immunized in NFHS- 1,improved to 44 % in NFHS- 3 <NFHS 4 data is available only for 12 states>

Imp. – % of children who are fully immunized is lower in urban areas compared to rural areas in majority of the States. It indicates that the availability of preventive health care is through the public health system, which needs strengthening in urban areas and hence National Urban Health mission has been launched.

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What is govt doing?

1. Mission Indradhanush
2. Four new Vaccines – IPV, MR, Rotavac, Adult JE vaccine
3. National Iron Plus Initiative – to address anemia among children (6 months to 19 years) and women in reproductive age including pregnant and lactating women in both rural and urban areas
4. Rashtriya Bal Swasthya Karyakram (RBSK)
5. Rashtriya Kishor Swasthya Karyakram (RKSK)
6. National Programme for Prevention and Control of Cancers, Diabetes, Cardiovascular Diseases and Stroke (NPCDCS)- jointly by MoHFW and Ministry of AYUSH on pilot basis in six districts
7. Jan Aushadhi Scheme < what’s the differenece b/w generics and branded drugs>
8. Rashtriya Swasthya Suraksha Yojana, or National Health Protection Scheme (NHPS) – new name of RSBY – Cover of 1lakh plus additional cover of 30K for senior citizens
9. National Dialysis Service Programme – to provide dialysis facilities of chronic Kidney Disease Patients under PPP mode

Human Resource shortfall (Rural Health Statistics 2015)

• At the all-India level, CHCs are short of surgeons by 83 per cent of the total requirement <more shortfall in more backward states>
• Only 27 per cent of the sanctioned posts have been filled

The Universal Health Coverage (UHC) index

• developed by the World Bank to measure the progress made in health sector
• 4 indicators – immunization, diarrhea treatment, impoverishment (financial protection), inpatient admission
• India ranks 143 among 190 countries in terms of per capita expenditure on health ($146 PPP in 2011).
• It has 157th position according to per capita government spending on health which is just about $44 PPP

Housing Amenities, Sanitation, Hygiene and Health (Social Determinants of Health) (2011)

• access to drinking water within premises – 46.6 %
• access to tap water – 35.5 %
• latrine facilities within the household premises – 46. 9 %
• Great disparities among states

What is the govt doing?

Swachh Bharat Mission (Gramin)

• achieve universal sanitation coverage and eliminate open defecation by 2 October 2019 <150 b’day of Gandhi>
• aims to promote better hygiene amongst the population and improve cleanliness by initiating Solid and Liquid Waste Management (SLWM) projects

It will show results only if the constructed toilets are maintained after construction and also utilized by the beneficiaries <need attitude, mindset and behaviour change>

Poverty

Absolute Poverty – Basic needs are not fulfilled i.e food, clothing, shelter <basic needs can be anything, in modern societies electricity even internet>

Relative Poverty – it is in relation to something, say all those earning less than 2/3rd of median income to be considered poor or say bottom 1/3rd to be considered poor

Poverty line – consumption or income level below which people are considered poor

Calculating Poverty Line

Disclaimer- It’s a very crude way just for understanding

1. Basically idea is to compute minimum consumption level below which someone would be considered poor <consumption can include anything based on sensitivity so starvation line/ destitute line would include only calorie, some others would include health, education, recreation etc. as well>
2. Then assign a poverty line basket i.e 10 chapatis a day, 100 gm dal, 1 bananana based on a survey <you get the point, right>
3. Do a sample survey to find out how many people consume less than the poverty line consumption
4. It would give you % of people living BPL i.e So called Head Count Ratio of country as a whole as well as different states
5. Assign monetary value to the poverty line basket items based on prices in different states<price of roti, dal, health check up, education cost, rent charges etc.>
6. It would give you monetary value of poverty line
7. Poverty line would be different in different states as cost of living and inflation is different
8. We know how many people are poor in each state but we still don’t know who the poor are <we have only done a sample survey yet>. So now comes the identification problem
9. To identify the poor, we have to do census <so called BPL census>

N.C Saxena Committee submitted the methodology for BPL census in rural areas, Hashim Committee in Urban areas <inclusion criteria, exclusion criteria and ranking points based on assets, income, social status, other vulnerabilities etc.> <For More Info Google with the name of committess, this is to give you concept of poverty>

Recently Socio Economic Caste Census (SECC) was done which can also be used to better identify poor

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We presently use poverty line submitted by Tendulakar Committee but before we come to Tendulkar let’s look at the history of poverty estimation briefly

Pre independence poverty estimates: by Dadabhai Naoroji in his book, Poverty and the Un-British Rule in India

The poverty line proposed by him was based on the cost of a subsistence diet consisting of rice or flour, dhal, mutton, vegetables, ghee, vegetable oil and salt

National Planning Committee (1938) estimates were also based on mimium std of living perspective

Post independence poverty estimates:

1. Alagh Committee  (1979) – poverty line for rural and urban areas on the basis of nutritional requirements <Rural 2400 KCal, urban 2100 KCal>

For subsequent years adjust poverty line basket items price levels for inflation to arrive at poverty line

2. Lakdawala Committee (1993): consumption expenditure based on calorie consumption as earlier but suggested constructing state specific poverty lines

Updating them using the Consumer Price Index of Industrial Workers (CPI-IW) in urban areas and Consumer Price Index of Agricultural Labour (CPI-AL) in rural areas <assumes that the basket of goods and services used to calculate CPI-IW and CPI-AL reflect the consumption patterns of the poor>

Tendulkar Committee (2009) –  it was constituted due to 3 perceived shortcomings in the earlier methodologies

(i) Consumption patterns were linked to the 1973-74 poverty line baskets (PLBs) whereas there were significant changes in the consumption patterns of the poor since that time

(ii) issues with the adjustment of prices for inflation

(iii) earlier poverty lines assumed that health and education would be provided by the State and formulated poverty lines accordingly i.e did not include expenditure on health and education

It recommended following major changes

1. a shift away from calorie consumption based poverty estimation
2. a uniform poverty line basket (PLB) across rural and urban India <alag committee 2400 kcal for rural, 2100 for urban>
3. incorporation of private expenditure on health and education while estimating poverty
4. updating poverty lines based on changes in prices and patterns of consumption, using the consumption basket of people close to the poverty line
5. Poverty line was in form of Rs per capita per month

The Committee recommended using Mixed Reference Period (MRP) based estimates, as opposed to Uniform Reference Period (URP) based estimates that were used earlier <mixed meaning for some items you would ask how much did you consume in last 1 year say for footwear, clothing etc while for others in last 1 month. On the other hand, in uniform every consumption in just last 1 month>

4. Rangarajan Committee: Poverty line should be based on

1. Certain normative levels of ‘adequate nourishment’ plus clothing, house rent, conveyance, education < normative means desirable> < average requirements of calories, proteins and fats based on ICMR norms>
2. A behaviorally determined level of other non-food expenses <behavioral is consumption as per general behavior>

    

1. It reverted to old system of separate poverty line baskets for Rural and urban areas a<contrast with Tendulkar>
2. Used Modified Mixed reference period <MMRP> < Aparat from 1 month and 1 year data, it included last week data for some items like egg, fish meat>
3. It used Monthly expenditure of Household of five for the poverty line as living together decreases cost

We use Tendular data and based on this incidence of poverty declined from 37.2% in 2004-05 to 21.9% in 2011-12 <rural poverty 25.7%, urban 13.7%>

Discuss – Criticism of poverty line and Tendulkar methodology

World Bank Poverty Line – US $1.90 a day on Purchasing Power Parity basis

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P.S. – Human Development Index will be discussed in the next part in detail

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Infrastructure refers to structures, services and facilities necessary for an economy to function. Roads, bridges, airports, sewers, telecom facilities etc are examples of infrastructure or what we often call capital.

For instance as an economy grows and people become wealthier, there will be more trade and more cars on the road but if existing stock of infrastructure i.e road is not augmented, there will be congestion on the road and infrastructure will put breaks on economic growth. That’s why it is said that 1st class modern economies can not be built on 2nd class medieval infrastructure.

But now it has been clearly recognized that health care systems, education systems, skill set of population etc are also of critical importance for an economy to function and these softer aspect of infrastructure is termed as social or soft infrastructure / human capital in contrast to hard physical infrastructure. As economy grows, there will be more and more jobs which will require highly educated, highly skilled workforce but if education system is not ready to provide such people, if work force is not healthy, there will be no one to take up such jobs and economy will stagnate.

Investment in human capital thus improves productivity and welfare of population and such investment is critical for India to reap its demographic dividend <working age population 63.3% in 2013 from 57% in 1991>

Let’s analyse some trends in social sector expenditure-

As we saw in this chapter controlling for both the level of economic and political development (democracy), India seems to tax less and spend less and this is most significant with respect to social expenditure (on health and education)

India spends about 3.3% of GDP on education and 1.3% on health i.e 4.6% total while comparable democracies at similar level of economic development spend 8% on health and education. And there has not been any significant increase in expenditure in last decade.

Some facts to be written in mains

1. Way back in 1966, Kothari commission recommended 6% of GDP to be spent on education, same was reiterated in education policy of 1968 and reaffirmed in new education policy of 1986 and its revision in 1992 <we spend < 4%>
2. Proportion of population in the age group of 6 to 21, which needs to be educated, is 29% for India compared to 18% for OECD and 23% for Brazil and so we need proportionately much more funding than these countries <presently we spend way below their level>
3. Draft national health policy and working group on Universal Health Coverage (UHC) recommended increasing spending on health progressively to about 2.5% of GDP <we spend about 1.3%>

But it’s important to note that, increase in expenditure per-se may not always guarantee appropriate outcomes and achievements. The efficiency of expenditure incurred should be assessed, accountability should be fixed and regular corrective measures should be taken <for instance teacher absenteeism, doctor-nurses absenteeism, governance issues would not go away simply by increasing fund allocation>

Let’s now discuss educational challenges

As per Annual Status of Education Report (ASER) 2014 <conducted by an NGO Pratham>-

1. Decline in enrollment in govt schools in rural areas from 73% in 2007 to 63% in 2014 <pvt schools are expensive> and this also reflects poor quality of teaching in govt schools and lack of faith in them
2. Poor and declining learning outcomes in both govt and pvt schools – less than half the std 5th children can read std 5th books or can do division
3. India ranked second last among the 73 countries that participated in the Programme for International Student Assessment (PISA). Later India withdrew from the test citing socio cultural disconnect in the questions asked

The quality of education determines the quality of human capital and we need to make more efforts to improve quality of education.

Teacher Training

• Only 79% of teachers are professionally qualified and in higher secondary level, only 69% are qualified.
• As only qualified, trained and motivated teachers can impart quality education, There is need to increase the percentage of qualified teachers and also the training of both qualified and under-qualified teachers

Gender parity in Education-

• Except for ST, we have achieved gender parity in all levels of education except higher education <0.89 gender parity>
• We need to bridge the gender disparity in higher education among total and at all levels of education for ST students.

Govt Initiatives

Digital Gender Atlas for advancing girl’s education– was launched on women’s day in 2015 in partnership with UNICEF

Three Components

1. Composite Gender Ranking based on aceess, infrastructure, teachers, outcomes
2. Trend Analysis of Gender Indicators across 3 years period
3. Vulnerabilities based on (i) rural female literacy (ii) percentage girls/boys married below the legal age of marriage (iii) working children

• It will help identify low-performing geographic pockets for girls, particularly from marginalized groups.
• It provides comparative analysis of individual gender-related indicators

National scholarship portal-  a single window system for various types of scholarship schemes administered by different Ministries/ Departments (like Pre-matric from Class I to X, Post-matric from XI to Ph.D. and Meritcum-Means for technical and professional courses), has been introduced under Direct Benefit Transfer (DBT) mode.

Beti Bachao Beti Padhao – Read this story to know more 

Issue of No detention Policy

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• Under this policy, the students up to class VIII are automatically promoted to the next class even if they do not get a passing grade.
• The policy was implemented as part of the Continuous and Comprehensive Evaluation (CCE) under the RTE Act in 2010 to ensure all-round development of students.
• The concept of CCE imported from the West, which emphasises on evaluating a child through the year, and not just based on performance in one or two term exams.

Why this policy

• detention system led to increased dropouts among students, especially from economically and socially weaker sections.
• It will allow children to learn in an environment free from fear, anxiety and stress <stress of one end of the year high stakes exam>
• Learn at their own pace

What’s the problem then?

• students developing a lackadaisical attitude towards their studies.
• Parents also didn’t bother as their children cannot be held back in the class.
• Quality of learning going down <ASER survey mentioned above>

Geeta Bhukkal Committee report 2012

• No-detention policy has had a “very bad” impact on the children.
• no-detention policy be implemented in a phased manner so that all stakeholders understand what it entails instead of interpreting it as zero assessment.
• it should be applied only till Class V instead of Class VIII.
• government should make it mandatory for students to register minimum attendance of 80 per cent in their classes so that they are benefited by the CCE under the RTE Act.

Devnani Committee Report 2015

1. A‘learning level’ must be fixed for each class to check whether a student is eligible for the class that he or she is in.
2. The committee notes, Students must not be detained in Classes VI and VII. However, they must meet the required ‘learning levels’.
3. A month’s time would be given to students to retake tests and attain the required learning levels, failing which the students would have to be detained.

Why are educationists’ complaining then?

• it places the blame on the student for not being able to perform while absolving the school of any blame.
• It will prove to be most damaging for poor students as they will be the first to be pushed out of the system
• Instead of failing the child, the government needs to asks what it has done to create an enabling, learning environment for children
• Across the world, the no-detention policy has been successfully implemented with great results for students.
• If it can be done everywhere, why not India

Way Forward-

1. Invest in education <Kothari commission 6%, achieve pupil-teacher ratio, train teachers>
2. Train Teachers in the art of CCE
3. Schools must offer bridge course for slow learners

Let’s see what’s the process in UK

• In the UK, a student is promoted to the next grade irrespective of his level of progress.
• If students underperform, their assessment grades are compared with national data of progress levels and a ‘targeted intervention’ is made.
• The teachers analyse the reason for poor performance and find solutions to help the child perform better in the future.

Tell us in comments what should be done with No Detention Policy

Employment Situation

As per Fourth Annual Employment-Unemployment Survey 2013-14, Labour Bureau <quote this surveyor as different surveys give different numbers> unemployment rate is 4.9% with 4% for males and 7.7% for females. NSSO gives 2.7% total unemployment rate

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• Of particular concern is low female labor force participation rate (LFPR) of just 26% compared to >74% of males.
• Female LFPR in India is amongst the lowest in the world and the second lowest in South Asia after Pakistan
• In urban areas female LFPR is even lower – just 18.5%

Some definitions 

• LFPR- % of population in job or seeking job
• WPR – it’s worker population ratio i.e % of population in jobs
• Unemployment rate  LFPR-WPR/LFPR

We read in this chapter, to reap demographic dividend we need to create many more good jobs i.e formal sector jobs that pay well and come with some social security but a peculiar feature has been the rise of informalization in formal or organized sector

• share of informal employment in the organized sector increased from 48 % to 54.6 % in 2004-5 to 2011-12
• Share of informal employment in total employment is above 90%

To catalyze job creation, promote complaince and ensure ease of doing business govt while safeguarding safety, health and social security of all workers, govt has initiated many reforms in labor market–

1. The Payment of Bonus (Amendment) Act 2015
2. National Career Services Portal
3. Shram Suvidha Portal
4. Universal Account Number

For more on labour reform, read this economic survey chapter , this story- labour reform in India, and Shramev jayate Karyakram

To improve female LFPR-

1. 33% of jobs in MGNREGA mandated for women <to date women take up about 57% of NREGA jobs>
2. National Rural Livelihood Mission (NRLM)– aims at organizing all rural poor households and nurturing and supporting them till they come out of abject poverty, by organizing one woman member from each household into affinity-based women SelfHelp Groups (SHG) and their federations at village and higher levels by 2024-25.
3. Bihar govt’s quota of 35% for females

Reasons of low LFPR-

Demand side issues -non availability of suitable flexible jobs near home

Supply side issues – economic, social and cultural issues and care work distributions in the home

There’s also a U-shaped relationship between years of education and FLFP, not just in India but elsewhere. How and why?

• FLFP is high among illiterate women (> 20%), the lowest among literate women with some schooling or just high school (10-15%) , and highest among university graduates (25%),which creates a U-shape.
• At very low levels of education and income, women have no choice but to work to help support the family
• But as men in the family start earning more income, women tend to cut back their work in the formal economy to concentrate more on household activities.
• It is the women in the middle – those who are literate but have at most some schooling or have only completed high school – who are squeezed both by the pressure to stay at home and by a lack of plentiful jobs that match their intermediate level of skills and education.
• Patriarchal attitudes <stigma attached to women working outside the home – especially if it involves work considered ‘menial> , social restriction on mobility, concerns about commuting time and about security at work and the difficulties of managing domestic responsibilities along with the paid jobs are the other impediments.

To improve FLFP –

1. Deal with concerns about women’s security, focus on education that reduces the number of female dropouts and improves quality
2. Generate suitable, flexible work near homes
3. Address the huge issue of unpaid work, by recognising it ,reducing it, and redistributing it..

Issue of unpaid work and care work distribution at home

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• Conventional employment and unemployment surveys have not been able to capture the various types of unpaid work that women engage in both within and outside households in rural and urban areas in India <for instance Household maintenance, care of children>
• Globally, men’s share in paid work is around 1.8 times that of women, while women have a share three times that of men in unpaid work
• Paid work which is visible and accounted for by the System of National Accounts (SNA) is dominated by men, while unpaid work which is not accounted for is dominated by women and remains unrecognized and unaccounted for.

A pilot time use survey in 1999 revealed that-

• Out of 168 hours in a week, males on an average spent about 42 hours in SNA-captured activities as compared to only about 19 hours by females.
• However, in the extended SNA activities, women spent 34.6 hours which included unpaid work home and outside, as opposed to only about 3.6 hours by men.

Extended SNA activities <would have to pay somebody else to do same work if not done by wives and daughters>

• Household maintenance, management and shopping for own household
• Care for children, the sick, elderly and disabled for own household
• Community service and help to other households

Time Use Surveys are important to design gender-sensitive policies for employment and to make women’s and men’s work visible.

In this regard  Ministry of Statistics & Programme Implementation (MOSPI) has conducted a pilot TUS in the states of Bihar and Gujarat in 2013 to test the NCATUS i.e National Classification of Activities for Time Use Studies

P.S.- Rest of the issues, Health sector, Skills Gap, HDI etc will be covered in the next part

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Power or electricity is very essential constituent of infrastructure affecting economic growth and welfare of the country. India is the 5th largest producer of electricity in the world. At an electricity-GDP elasticity ratio of 0.8 <for 1% increase in GDP, 0.8% increase in electricity generation required>, electricity will continue to remain a key input for India’s economic growth.

Uninterrupted, reliable power at reasonable cost is essential for the success of make in India which in turn is critical for the transformation of industrial sector which would provide jobs to burgeoning young population entering the labour force every month <1m new entrants to labour force every month>.

High tariffs and erratic supply for industry have led to a slow but steady decline in the growth of industrial electricity purchases from utilities and a gradual transition towards captive generation often using diesel gen sets which is more expensive as also more damaging to the environment.

Status of diesel gensets in India-

• 47% of firms report using a diesel generator
• Total capacity of the diesel generators (DG) in the country may be as high as 72 GW and growing at the rate of 5 GW per year
• DG capacity for industrial loads greater than 1 MW is 14 GW
• A substantial portion of the rest (58 GW) may be contributed by micro and small industries, with load capacities of less than 1 MW

Effect of captive power generation using diesel gen sets

• This particularly affects SMEs as they are unable to shift to captive power generation and when they do, they are unable to absorb the higher costs as their margins are generally very low.
•  Agro based and other industries are not able to develop in peri urban or rural areas and rural population either remain stuck in unremunerative agriculture or migrates to urban areas in search of jobs (distress migration)
• It affects competitiveness of our industry and our exports suffer
• Pollution, environmental degradation, climate change, global warming

What are the other issues in India’s power sector?

A- Complexity of tariff schedules

• There are separate tariffs for poultry farms, pisciculture, wetland farms (above and below a certain size), mushroom and rabbit farms, etc <complexity of tariff structure>
• It prevents economic actors from responding sufficiently to price signals due to the high cost of processing the price information <if it’s so complex, our mind can not take economically rational decisions>

Suggestion – Simplification of tariffs with, perhaps no more than 2-3 tariff categories <say low tariff below certain level of power consumption, high after that level and separate category for industrial tariff>

It will improve transparency and may well yield consumption and collection efficiency, along with governance benefits <consumers will be able to take rational decisions, no scope for rent seeking>

B- Tariffs And Cost-

Cmmon sense suggests avg tariff (AT) should not be less than avg cost of supply (ACS) but in India-

• Average tariffs in some cases are set below the average cost of supplying electricity
• Even after adjusting ACS for Aggregate Technical and Commercial (AT&C) losses AT continues to stay below the adjusted level of ACS in most states i.e tariff are set way below the required level <what are AT&C losses? Answer in comments>

Suggestion- -Tariffs reflecting costs are a necessary condition for discoms to sustain themselves over the long-run. So avg tariffs need to be raised while giving relief to poorer section of society. How?

Exploiting Progressivity to Lower Tariffs for the poor

• There is, at present, no specific policy guidelines on the intra-category cross subsidisation or subsidy provisioning
• The tariff schedule is progressive as the consumption increases, although, Avg billing rates (ABR) for all the consumption categories lies below the average cost of supply (ACS) implying that costs are not fully recovered even from high end consumers i.e state or industry subsidizing consumption of rich
• Other countries such as Bangladesh, Sri Lanka, South Korea, Vietnam and Brazil better exploit the progressivity of electricity tariffs in the domestic category <higher ratio of tariffs charged to the rich relative to poor>

Suggestion- make tariff schedule after welfare analysis and charge consumers progressively much more for higher consumption while simplifying tariff schedule

Advantage- cross-subsidisation occurs within the residential consumers itself< rich and consumers with high consumption intensity within the residential sectors subsidise prices for consumers with lower consumption>

Given their relatively inelastic price elasticity, rich consumers will continue to maintain their consumption even after price increase. The net effect is that the residential revenue collection becomes cost neutral for the discoms (loss making at present)

What has govt done so far?

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Open access policy and it’s present status

What is open access– simple- open to access electricity from any seller i.e. consumers being able to purchase directly from power producers rather than distribution companies.

Advantage- As it allows generators to sell power to the highest bidders while consumers can source their needs from the most economic seller, it promotes competition and efficiency

Open Access (OA) policy introduced under Electricity Act 2003, allows consumers with electricity load above 1 MW to procure electricity directly from electricity markets

OA provides an aggregation of the country-wide supply and demand on the same platform. Therefore, this constitutes a first step towards discovering a single market price for power around the country <if anyone can buy and sell from anybody freely it would ultimately create a single price for electricity and thus one market for power>

Barriers to open access-

Price barriers- cross subsidy surcharge– Industrial consumers procuring power from discoms subsidize residential consumers but they don’t have to do so if they procure power through open access, electricity regulator levies a surcharge to cover the cost of residential subsidy known as cross subsidy surcharge.

Idea was that cross-subsidy surcharge to be levied on OA consumers would come down over time. Nonetheless, cross-subsidy surcharges over the years have gone up as discoms lobby hard to increase surcharge.

Non price barriers- delay in granting open access, transmission constraints and congestion and transmission losses

In short price and non-price barriers come in the way of single-nationwide electricity prices through open access

Some achievements –

• highest ever increase in generation capacity <in 2014-15 the addition to plant capacity in utilities was 26.5 GW, much higher than the average annual addition of around 19 GW over last five years>
• bringing down the peak electricity deficit in the country to the lowest ever level of 2.4%
• Indian Railways (IR) attempting to shift to open access (OA) for power purchase
• From power deficit to power surplus <it’s possible because discoms are so much under debt that they just don’t want to purchase any more power, all the more important to expedite the shift to open access>
• Grid parity for solar generation is on its way to becoming a reality <tariffs reached an all-time low of R4.34/kWh in latest auction> <What’s grid parity? Why is it important? Answer in comments>/

Some policy decisions of govt of India-

A- Ujwal DISCOM Assurance Yojana (UDAY)  

• States shall take over 75 per cent of discom debt outstanding as of September 2015.
•  Reduction of Aggregate Technical & Commercial (AT&C) losses to 15 per cent by 2018-19.
•  Reduction in difference between average cost of supply and average revenue realized (ARR) by 2018-19.
•  Increased supply of domestic coal to substitute for imported coal.
• States shall take over future losses of discoms in a phased manner.
• Banks/FIs not to advance short term debt to discoms for financing losses.

B. Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY)

• Electrification of all villages <how many villages are unelectrified? what is criteris for calling a village electrified? Answer in comments. >
• Metering of unmetered connections for reducing losses.
• Separation of feeders to ensure sufficient electricity to agriculture and continuous supply to other categories.
• Improvement of sub-transmission and distribution network to improve the quality and reliability of supply.

C. Integrated Power Development Scheme (IPDS)

• Strengthening of sub-transmission and distribution network in urban areas.
• Metering of distribution transformers /feeders / consumers in urban areas.
• IT enablement of distribution sector and strengthening of distribution network.

D. Domestic Efficient Lighting Program (DELP)

77 crore LED bulbs to replace household and street light incandescent bulbs

E. National Tariff Policy, 2016

• Cross subsidy surcharge formula revised.
• Regulator will devise power supply trajectory to ensure 24X7 power supply for all consumers latest by 2021-22 or earlier

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Installed capacity in India as of 31st march 2016 (ratta laga lo)

• Thermal – 210 GW (185 Coal)
• Renewable – 85 GW ( 43 Hydro plus 42 others)
• Nuclear – 5780 MW
• Total – 301 GW

Break up of renewable energy

• Wind- 27 GW
• Solar- 6.7GW
• Biomass and bagasse cogeneration -4.8GW <what is cogeneration?>
• Small hydel- 4.3 GW
• Total- 43GW

Renewable energy target by 2022

• 100 GW solar power,
• 60 GW wind energy
• 10 GW small hydro power,
• 5 GW biomass-based power

The target for solar is split into 40 GW Rooftop and 60 GW through Large and Medium Scale Grid Connected Solar Power Project

Nuclear energy target

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Earlier the target was 63,000 Mwe by 2032 but now govt seems to have slashed it to just about 14,500 Mwe by 2024 as India-USA nuclear deal seems to be floundering (for more refer this link)

Electricity amendment bill 2014

• The Bill amends the Electricity Act, 2003.
• It seeks to segregate the distribution network business and the electricity supply business, and introduce multiple supply licensees in the market i.e separation of content and carriage<distribution network will now become like wires which anybody would be able to access just as we can obtain telecom services from any service provider, we would be able to get electricity from any provider>
• The Bill introduces a supply licensee who will supply electricity to consumers.
• The distribution licensee will maintain the distribution network <like present discoms> and enable the supply of electricity for the supply licensee.

For more info refer to PRS bill analysis here 

P.S.- This completes economic survey volume one in full retail with all the relevant concepts.

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India is midway through its demographic dividend <what is demographic dividend? Answer in comments>. To exploit this dividend India’s economy needs to do three things-

1. Movement of workers from agriculture to industry <pull factor of higher income in industry not push factor of distress in agriculture>
2. Shift of workers from informal to formal sector < good jobs– jobs that are safe and pay well, and encourage firms and workers to improve skills and productivity>
3. Rapid urbanization <it will automatically follow industrialization>

Note 1- there is lot of confusion b/w informal and unorganized sector. For the sake of simplicity, sectors not covered under factory act, 1948 (<10 workers with power, <20 without power) is unorganized sector. Informal sector is virtually synonymous with it.

Note 2- Formal jobs are jobs with some social security i.e insurance, pension, provident fund etc. Formal jobs would be there in organized or formal sector only but in formal sector, there can be informal jobs i.e contract workers not provided with social security.

Note 3-  NCEUS estimated in 2005 that out of total 470 million workers, there were 423 million informal workers in India of which 395 million belonged to the informal sector. The remaining 28 million were informal workers in the formal sector. <You can do the math of percentages>

For detailed information regarding, formal/ informal click here 

Let’s come back to main topic

Of the 10.5 million new manufacturing jobs created between 1989 and 2010, only 3.7 million (35%) were in the formal sector i.e. informal firms account for most employment growth, that’s why the need to promote entrepreneurship.

But informal sector jobs are much worse than formal sector jobs as-

1. Wages are, on average, more than 20 times higher in the formal sector.
2. Formal sector jobs also score better on some non-pecuniary grounds. For example, they allow workers to build employment history— which is important for gaining access to cheaper formal credit, getting better jobs in other enterprises.
3. Social security

Thus the challenge of creating “good jobs” in India could be seen as the challenge of creating more formal sector jobs, which also guarantees worker protection.

But why have formal sector jobs not increased? Also why has informalization < hiring of contract workers >increased even in formal sector jobs.

One of the reason is complex maze of labour laws which raise compliance costs as firms hire more workers forcing them to stay small. Needless to say, employers have started to get around them and one of the strategy is use of contract labour which is leading to informalisation of formal sector.  Also in the absence of reforms by parliament, states have taken upon themselves the task of reforming labour laws. You can read more abut need for reforming labour laws in this story, labour reforms in India

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Contract Labour

It provides two key benefits:

1. The firm essentially subcontracts the work of following regulations and managing inspectors to the contract labour firm
2. Because contract workers are the employees of the contractor and are not considered workmen in the firm, the firm stays small enough to be exempt from some labour law (<10 employees not under factory act, <100 employees not under industrial dispute act>

For these reasons, contract workers increased from 12% of all registered manufacturing workers (formal sector workers) in 1999 to over 25 per cent in 2010.

But this strategy is not without costs

1. Hiring workers through a contractor can be more expensive
2. Contract workers do not feel as much loyalty to the company as regular workers would, reducing employers’ incentive to invest in their training <low skilled workers, low productivity>
3. Worker protection and worker rights go down the drain

Hiring contract workers today hurts a firm’s productivity tomorrow, precisely because contract workers do not accumulate firm specific human capital.

Competitive federalism

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As labour comes under concurrent list <lists come under which schedule of constitution? What’s the procedure for amending the various lists? Answer in comments>, states have taken initiatives to reform labour laws. <But how can states enact laws repugnant to central laws? Answer in comments>

So Rajasthan govt has amended various labour laws <Quote these in mains answer or essay>

1. Industrial Disputes Act– government permission will not be required for retrenchment of up to 300 workers <only 100 workers in central act>
2. Trade Unions act- increased the percentage of workers needed for registration as a representative union from 15 per cent to 30 per cent<necessary as trade unions have become highly politicized>
3. Contract Labour Act -the amendments raise the applicability of the Act to companies with more than 50 workers from the current 20
4. Factories Act– currently applicable to premises with more than 10 workers with power and 20 without power, the amendments raise these numbers to 20 and 40, respectively

Good labour reforms should simultaneously increase social security and worker protection <unemployment allowance, reskilling of workers, pension, insurance etc> but Rajasthan govt has not any step in that direction in labour reforms.

There may be a possibility of competitive federalism becoming too competitive, inducing a race to the bottom with states pushed into giving too many concessions. But India seems far from such a situation. For example, changes that certain states are considering—such as Haryana’s proposed online filing of returns through a single form covering 12 separate labour laws and e-maintenance of all labour-related records—would likely improve compliance and worker welfare

Labour reforms help in entry of large firms <as compliance cost decreases, there is no incentive to remain small or any disincentive to hire more workers> and the benefits of the entry of a large manufacturing company to a state can go beyond scale, depending on the kind of products they manufacture. How ans Why-

1. What you export matters because exporting develops a country’s local know-how and supply chain networks, bringing it closer to the global frontier for the exported good <best product available in world market>
2. Skills may be more transferable across certain industries than others. For example, it may be easier to make cars—a complex product—once a country has developed expertise in making bicycles—a simpler but related product.
3. In this sense, what a country manufactures today matters not just because it affects employment and growth today, but also because it shapes the set of products a country can profitably produce tomorrow
4. For instance when China first entered the mobile phone assembly space, it was producing only electrical connectors and cables; now it is producing sophisticated, high growth and high valued-added products such as smartphones and tablets.

Lesson is that we should promote entry of manufactures which help develop know how which can be transferred across sectors to move to manufacturing high value addition goods with mobile phone manufacturing being a good example.

Relocation

Apart from the complex maze of labour regulations, there are some other factors which prevented development of labour intensive manufacturing in India

1. High cost of living in metros <it increases labour cost>
2. High transport and logistics costs and weak connectivity from suburbs to metro  <good connectivity and low cost transport would allow workers to commute to work to metros>
3. Low female labour force participation rate <suitable jobs not available near their homes>

For instance apparel industry is highly labour intensive, with 30% of costs from wages. Only 2-3% of costs are due to capital-intensive inputs like power. And yet India is ceding market share in the global apparel industry to countries like Bangladesh and Vietnam.

Formal sector apparel firms are about 15 times more productive than informal sector yet India’s apparel sector is dominated by informal firms while in China there are large apparel firms and now other countries are taking over.

To get around this some firms are now reloacting to smaller town and rural areas and it has several benefits for economy-

1. It spreads economic development to underdeveloped areas
2. Reduces spatial mismatch in the labour market <workers can work near their homes>
3. Improve competitiveness by raising firms’ access to lower cost labour <low cost of living in smaller towns>
4.  It improves female labour force participation, more earning, financial security for women, women empowerment but? How <very very important>

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• Most explanations of low labour force participation in India focus on supply side factors like cultural norms that frown on women working outside the home
• Less attention has been given to demand-side explanations, which essentially emphasise that a key determinant of female labour force participation (LFP) is the availability of suitable jobs <flexible jobs near their homes>
• It is a striking fact that the areas in India that have seen the greatest decline in female labour force participation in the last decade are those villages that have rapidly urbanised and are now part of towns and small cities.
• Farming jobs in these areas are no longer available, but women-friendly service sector jobs are yet to take their place

From this perspective, female LFP can be expected to depend on the availability of ‘suitable jobs’, which are flexible and located close to home located in small cities, utilizing women’s comparative advantage in garments, flexible working hours and childcare on site

Till know we say how firms are getting around the problem and how states are reforming labour laws but what should be the centre’s role?

It should be to ensure worker centric labour regulations by expanding workers’ choice and reducing mandatory taxes on formal sector employment.

Let’s understand this with the example of epf

What is EPF?

Employees provident fund is a scheme under which it’s mandatory for workers (organized private sector workers) earning less than 15k to deposit 12% of their income in EPF account. Employers contribute equivalent amount. EPFO invests it in mainly govt securities and they get annual interest rate based on return. They get principal plus interest at retirement thus it is meant to provide lump sum benefits to workers at the time of retirement.

Higher income individuals are not mandated to deposit any amount but they still do to take advantage of EEE provision. Read more about this provision and subsidy for rich in this economic survey chapter

Let’s analyse impact of EPF on workers-

1. From worker’s choice perspective, they are being forced to deposit significant proportion of salary in EPF (12% when they already earn so little)
2. They don’t get any tax advantage either (already outside tax bracket)
3. Various surveys have suggested workers would rather like cash in hand as majority of them are liquidity constrained
4. Further it’s difficult to access the account.

Though govt has taken some initiative to make it easier for them to access the account. For instance, uniform single account number portable across jobs and locations, e-filing and e-withdrawal etc, survey suggests giving workers the choice to get cash, remain in epf or move to NPS while keeping employers’ contribution intact.

Giving choice is important as EPF has high administrative costs. The EPFO requires that employers pay an administrative charge of 0.85% of the worker’s salary. This may not seem large, but it amounts to service charges of 3.54% (=0.85/24) which are higher than the rates of most private mutual funds. Competition will help bring down administrative cost.

Govt sought to reform EPF but buckled under pressure and rolled back all three reforms

Three EPF fliplops

1. Tax on withdraw- At present epf is EEE.  Proposal entailed taxing 60% of withdrawals and if that 60% is used to buy annuity it would be tax free i.e 40% of withdrawal tax free, tax on 60% if no annuity is bought

What is annuity-

It is a form of insurance or investment entitling the investor to a series of annual sums. Basically if you have 1000 rs and you buy annuity, pension fund manager will invest it in bonds and equities and you will get some amount every year based on your initial corpus and return on investment

Talking about annuity, why don’t you revise the hybrid annuity model of PPP project here

Objectives

• Idea was to make EPF equivalent to NPS which earlier was an EET scheme. Subsequently 40% was made tax free and remaining 60% would be tax free if used to buy annuity.
• Ultimate aim was to make India a pensioned society. As lump sum withdrawals are often used immediately, there’s nothing left for rest of the life. Learn about social security schemes in India here 

Protest– Of course salaried class wouldn’t like this idea. Government has no business deciding for them what they do with their money plus taxation is big no.

2. Restrictions on premature withdrawal -It was announced that workers will not be able to withdraw employer share till 58 years of age. At present, they can empty entire corpus if they remain unemployed for two months or at 54 years of age.

Objective– Idea was to prevent premature withdrawals so that something is left for the old age

Protest– It;s our money. you govt don’t tell us what to do. Further, often times we don’t have any job after 50 years of age. How would we survive for eight years without EPF money.

3. Reducing interest rate on EPF to 8.7% from 8.8%-

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Objective-

• Aligning them with market determined interest rates. If all interest rates are falling and return on govt securities also falling as inflation comes down, there’s no reason for epf interest rate to not fall
• As in future even inactive accounts will get interest benefits, future surplus would fall and future rates would come down drastically, so start cutting rates now <at present accounts which show no activity for three years don’t get any interest>

Protest- that EPFO had generated enough return to warrant high interest rates

What I don’t understand is how EPFO generate such a high rate of return when it invests almost entire corpus (95%) in govt securities and if everything is to be invested in govt securities, what’s the need of an organization called EPFO? <Ye mere man ki baat hai>

Before we end this chapter, let’s learn in brief about National Pension Scheme (NPS)

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• It is a pension scheme <defined contribution scheme i.e. employees contribute while they earn and get pension according to corpus accumulated during the working years> which is mandatory for govt workers (except armed forces) who joined the service after 1st july 2004. <Earlier there was defined benefit scheme in which pension amount was fixed based on years of service
• Employees deposit 10% of their salary which matching amount by govt.
• Even private sector workers can choose to invest in NPS voluntarily (unorganized sector workers not covered under EPF) <EPF is compulsory and only salaried employees under organized sector can invest in EPF>
• Minimum investment towards NPS is 6000 rs per year
• With NPS, people have the flexibility to choose between different asset classes to invest in — equity, corporate bonds and government securities <In EPF >90% investment in govt securities while NPS is allowed to invest up to 50% in equities>
• As people get to take some exposure with equity, they can earn higher returns over the long term <flip side is that there is no assured return in NPS while there is assured return on EPF>
• The Pension Fund Regulatory and Development Authority(PFRDA), an agency under the administrative control of the Finance Ministry is the regulator

Read about all the labour reforms of the present govt here

What happens when you cross metaphors with economic ideologies? Controversies, as the RBI Governor discovered after calling the Indian economy a one-eyed king in the land of the blind. Many an eye popped with disapproval, many an eyebrow was raised delicately, many a pert nose wrinkled in metaphorical distaste and all hell broke proverbially loose.

The poor, poor man must have wondered what he’d said that was so very wrong. He was just trying to say that a 7.5% growth rate was not a bright spot by itself; it still was short of hitting the potential growth rate in India. So compared to a lacklustre world, we may seem to be quite the economic miracle, but well, a miracle that could get more miraculous. A one-eyed king in the land of the blind. Uh-oh!

Miffed, the Commerce Minister sniffed at the choice of words. Jayant Sinha too got into the fray with gusto claiming that to confuse the shining star with the shining one-eye was so not done. The FM, who after the Budget debate on Times Now, has discovered the lethal power of silencing loud critics with statistics, merely chose to say in a clipped, dignified fashion that 7.5% growth rate is enough to get celebrating. It’s rather unfair, to get so righteous about metaphors after having used them profusely through sher-o-shaayari to take interesting potshots at the opposition during budget speeches. Remember this, folks? “Kuch to phool khilaye humne, aur kuch phool khilane hai. Mushkil yeh hai bag me ab tak, kaante kai purane hai.” Ha!

Just as the NDA was busy meta-reacting to the poor Governor, Mani Shankar Aiyar, much to the delight of the UPA, chose to give his opinion on the issue. He cleverly and deviously converted the metaphor into an allegory to claim that the PM is in fact the one-eyed king of India, causing a kind of an allergetic or allegoristic reaction all across the NDA. The UPA must have, by now, gleefully decided that henceforth, every RBI monetary policy review will be followed by a press release personally crafted by Mani Shankar Aiyar. The RBI, which on normal days issues good monetary guidance, and on special occasions, well, issues good monetary guidance for variety, is really not used to such excitement and adrenalin. Recoiling in complete horror, it is said to be currently debating whether the Indian economy won’t be better off with only one review in every 8 years, rather than 8 reviews in every 1 year.

In the meanwhile, there was a complete kahaani mein twist as P. Chidambaram, whilst reacting to the nation’s demands about Ishrat Jahaan, chose to declare full and final support to the RBI Governor. Does the excitement never end? The Commerce Minister dished back her criticism, no holds barred. State of the economy, Indian and global, notwithstanding, this has now become a full fledged fight between the Commerce Minister and P. Chidambaram, whereas the RBI Governor, I’m sure, has decided to quit giving speeches for a while and just stick to good old monetary guidance.

Metaphorically speaking, the entire controversy is also perhaps indicative of the differences in the delivery mechanisms of the fiscal and monetary policies. The fiscal policy is passed as an Act of the Parliament; its tone does not lend itself to interpretation, its clauses have to be spelled out in black and white. The monetary policy in the Indian context, has always treaded that fine line between growth and inflation; in that sense, it has been more interpretative, more guidance oriented. It’s kind of a déjà vu, that as inflation targeting pushes monetary policy into a more concrete format, the RBI Governor faces ire for having been metaphorical in stating the stance of the Indian economy vis-a-vis the globe.

It was Alan Greenspan, a Central Banker from another time and another zone who had famously remarked, “I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant.” The RBI Governor may not have been in concurrence of the expansionary monetary policy that Greenspan unleashed on the US prior to the crisis, but even he will not be able to find a fault line in this particular statement by Greenspan.