Note4Students
From UPSC perspective, the following things are important :
Prelims level: MSP
Mains level: Paper 3- Problems faced by the Punjab farmers and issue of MSP
The article analyses the state of agriculture in Punjab and the its dependace on the MSP regime and suggest the diversification as a solution to the MSP trap.
Punjab’s role in Green Revolution
- India was desperately short of grains in 1965, and heavily dependent on PL 480 imports from the US against rupee payments, as the country did not have enough foreign exchange to buy wheat at global markets.
- The entire foreign exchange reserves of the country at the time could not help it purchase more than 7 MMT of grains.
- It is against this backdrop that the minimum support price (MSP) system was devised in 1965.
India’s current grains management system: Issue of excess grains
- Today, the Food Corporation of India (FCI) stocks grains touched 97 MMT in June this year against a buffer stock norm of 41.2 MMT.
- The economic cost of that excess grain, beyond the buffer stock norm, was more than Rs 1,80,000 crore, a dead capital locked in without much purpose.
- That’s the situation of the current grain management system based on MSP and open ended procurement.
Decline in Punjab’s economic level
- In 1966 Punjab had the highest per capita income.
- Punjab’s position fell to 13th in 2018-19.
- There are several reasons behind this deterioration, ranging from lack of industrialisation to not catching up even with respect to the modern services sector like IT, financial services.
What explains Punjab’s prosperity
- Punjab’s agriculture is blessed with almost 99 per cent irrigation against an all-India average of little less than 50 per cent.
- The average landholding in Punjab is 3.62 hectare (ha) as against an all-India average of 1.08 ha.
- Punjab’s fertiliser consumption per ha is about 212 kg vis-à-vis an all-India level of 135 kg/ha.
- The productivity levels of wheat and rice in Punjab stand at 5 tonnes/ha and 4 tonnes/ha respectively, against an all-India average of 3.5t/ha and 2.6t/ha.
Assesing Punjab’s real contribution to income and agriculture
- In Punjab, the total farm families are just 1.09 million, a fraction of the all-India total of 146.45 million.
- The overall subsidy, from just power and fertilisers would amount to roughly Rs 13,275 crores.
- That means each farm household in Punjab got a subsidy of about Rs 1.22 lakh in 2019-20.
- This is the highest subsidy for a farm household in India.
- Let’s not forget that the average income of the Punjab farm household is the highest in India.[2.5 time’s the India’s average].
- But to assess the real contribution of farmers/states to agriculture and incomes, the metric is the agri-GDP per ha of gross cropped area of the state in question.
- This is an important catch-all indicator, as it captures the impact of productivity, diversification, prices of outputs and inputs and subsidies.
- On that indicator, unfortunately, Punjab has the 11th rank amongst major agri-states.
Way forward: Diversification of crops
- States in south India like Andhra Pradesh, Tamil Nadu and Kerala have a much more diversified crop pattern tending towards high-value crops/livestock — poultry, dairy, fruits, vegetables, spices, fisheries.
- If Punjab farmers want to increase their incomes significantly, double or even triple, they need to gradually move away from MSP-based wheat and rice to high-value crops and livestock, the demand for which is increasing at three to five times that of cereals.
- Punjab needs a package to diversify its agriculture — say a Rs 10,000 crore package spread over five years.
Conclusion
Once farmers diversify their farm output and double their incomes, they will not be stuck in the MSP trap.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: APMC Act
Mains level: Paper 3- Farmers protest against Farms Acts
Farmers protest against the Farm laws is based on the multiple reasons. The article analyses these concerns of the protesting farmers.
Three farm laws and response to it
- Three Farm Bills were passed by the Central government in September 2020.
- In the process, the regulatory role the state played hitherto with regard to these issues was watered down to a great extent.
- Apart from complex challenges that rural India confronts today, there is a substantial body of studies that demonstrates how the vagaries of the market and the role of the middlemen reinforce agrarian distress in India.
- However, organised farmers’ bodies are not in sync with the reasoning of the government.
Role of the states
- There is a debate around the constitutional provisions with regard to the respective domains of the State and the Union with regard to agricultural marketing,
- However, issues affecting the farming community have a far greater bearing on the States relative to the Centre.
- Ideally, given its immediacy, the States are the apt agencies to respond to a host of concerns faced by the farming community, which includes agricultural marketing.
- While enacting the Farm Bills, the Centre extended little consideration to the sensitivity of the States.
Role of APMC
- In Punjab and Haryana, tweaking the APMC system and its resultant bearing on Minimum Support Price (MSP) is seen by the farmers as a threat to an assured sale of their produce at a price.
- MSP system provides a cushion, wherein the farmer can anticipate the cost of opting for these crops and tap the necessary supports through channels he has been familiar with.
- Farmers are apprehensive of the vagaries of a competitive market where he would eventually be beholden to the large players including monopolies.
- There is widespread apprehension that the measures proposed by the Farm Acts in addition to the existing agrarian distress, are only going to make the lot of the farmer even more precarious.
- All across the country, the farming community is prone to sympathise with the demand to scrap the new laws, as they have little to offer to them in a positive sense.
Conclusion
Those with large holdings and produce for the market — are spearheading the present stand-off against the Farm Bills, as it affects them very deeply. But farming distress is shared in common by the different strata within the farming community, even though it has a differential impact on them.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Analysis of economic recovery post-Covid
The economies across the world are showing recovery driven by profits. However, one cannot neglect the implication of such recovery for the long term growth given the pressure such recovery has been exerting on the labour markets. The article deals with this issue.
3 Ways to look at GDP
- The first is what they tell us about the past.
- Here, the news has generally been better-than-expected.
- The US and India saw a much stronger recovery last quarter than previously envisioned.
- The second is sectoral, production side-agriculture, manufacturing, services- and the functional, expenditure side consumption, investment, net exports.
- But there’s a third way — the income side.
- Value addition must ultimately accrue to the different factors of production.
- On the income side, therefore, GDP is simply the sum of profits, wages and indirect taxes.
Profit-driven growth and impact on employment
- The economic recovery in many parts of the world is driven disproportionately by capital than labour.
- In India, the net profits of listed companies grew 25 per cent (in real terms) last quarter. This despite revenues shrinking.
- Revenue shrank because firms aggressively cut costs, including employee compensation.
- This implies that if listed company profits are growing 25 per cent, and yet GDP contracted 7.5 per cent, it reveals (by construction) significant pressure on profits of unlisted SMEs, wages and employment.
- Labour market pressures are evident in India too.
- Household demand for MGNREGA remains very elevated, suggesting significant labour market slack.
- The employment rate in some labour market surveys still reveal about 14 million fewer employed compared to February, and nominal wage growth across a universe of 4,000 listed firms has slowed from about 10 per cent to 3 per cent over the last six quarters.
Why this matters
- It may be rational for any one firm to boost profits by cutting employee compensation.
- But if every firm pursued that strategy, that simply reduces future aggregate demand and profitability for all firms.
- This is quintessential fallacy of composition that Keynes enumerated.
- Weak demand, in turn, disincentivises re-hiring, reinforcing the risks of settling into a sub-optimal equilibrium.
Need to remain vigilant about labour market
- Remaining vigilant about labour markets is particularly important for India.
- Private consumption was increasingly financed by households running down savings and taking on debt pre-COVID-19.
- Consequently, if job-market pressures induce households into perceiving this shock as a quasi-permanent hit on incomes, households will be incentivised to save, not spend in the future.
Way forward for fiscal consolidation
- While economic momentum is expected to slow as pent-up demand wears off, the level of output will progressively reach pre-COVID levels as the economy normalises.
- The question is what will drive growth after that?
- India’s fiscal response has been restrained thus far, with the Centre’s total spending similar to last year and state capex under pressure.
- It’s therefore important for the Centre to step up spending in the remaining months.
- More importantly, public investment, and a large infrastructure push, must be the leitmotif of the next budget.
- This will be crucial to boost demand, create jobs, crowd-in private investment and improve the economy’s external competitiveness.
- If higher infrastructure spending is financed by higher asset sales, the headline fiscal deficit (which matters for bond markets and interest rates) can be slowly reduced, even as the underlying fiscal impulse (which matters for growth and jobs) remains positive.
- This is the only way to undertake fiscal consolidation without incurring a fiscal drag.
- Monetary policy has led the charge in 2020. But with inflation continuing to remain sticky and elevated, the RBI has fewer degrees of freedom going forward.
Conclusion
The stronger-than-expected GDP print is very encouraging. But this is the start of a long journey back. Much, therefore, remains to be done. The excitement around the vaccine shouldn’t obscure this fundamental premise.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Scope of Article 25
Mains level: Paper 2- Freedom of conscience under Article 25
The order delivered by the Allahabad High Court underlines the most cherished values of our Constitution. The order examines the scope of individual choice and personal liberty on the touchstone of constitutional values.
Background
- The Allahabad High Court declared last month that religious conversions, even when made solely for the purposes of marriage, constituted a valid exercise of a person’s liberties.
- The petitioners had approached the High Court seeking orders to quash a First Information Report (FIR) that was lodged against them.
- The petitioners claimed that they were both adults competent to contract a marriage, and had, in fact, wedded in August 2019, as per Muslim rites and ceremonies, only after the girl had converted to Islam.
- The State argued that petitioner’s partnership had no sanctity in the law, because a conversion with a singular aim of getting married was illegitimate.
- In making this argument, the government relied on a pair of judgments of the Allahabad High Court, in particular on the judgment in Noor Jahan v. State of U.P. (2014).
- There, the High Court had held that a conversion by an individual to Islam was valid only when it was predicated on a “change of heart” and on an “honest conviction” in the tenets of the newly adopted religion.
- Additionally, the High Court had ruled that the burden to prove the validity of a conversion was on the party professing the act.
Major takeaways from the High Court order
- The Allahabad High Courtruled that the freedom to live with a person of one’s choice is intrinsic to the fundamental right to life and personal liberty.
- It order recognises that a person’s freedom is not conditional on the caste, creed or religion that her partner might claim to profess.
- And also that every person had an equal dominion over their own senses of conscience.
- The High Court’s order makes it clear that it is neither the province of the state nor any other individual to interfere with a person’s choice of partner or faith.
- By invoking the Supreme Court’s judgment in Puttaswamy, the High Court held that an individual’s ability to control vital aspects of her life inheres in her right to privacy.
- Term privacy includes the preservation of decisional autonomy, on matters, among other things, of “personal intimacies, the sanctity of family life, marriage, procreation, the home, and sexual orientation”.
- It Court that the judgment in Noor Jahan was incorrectly delivered.
- Marriage, the High Court said, is a matter of choice, and every adult woman has a fundamental right to choose her own partner.
Freedom of conscience under Article 25
- Article 25 of the Constitution expressly protects the choices that individuals make.
- In addition to the right freely to profess, practise and propagate religion, it guarantees to every person the freedom of conscience.
- The idea of protecting one’s freedom of conscience goes beyond mere considerations of religious faith.
Conclusion
When we fail to acknowledge and respect the most intimate and personal choices that people make — choices of faith and belief, choices of partners — we undermine the most basic principles of dignity. Our Constitution’s endurance depends on our ability to respect these decisions, to grant to every person an equal freedom of conscience.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Current account and capital account
Mains level: Paper 3- Policy options to revive the Indian economy
The article weighs in the policy options with the Indian policymakers to revive the India economy. This leads to the trilemma of managing the exchange rate, controlling the inflation and maintaining the capital account open all at the same time.
A brief overview of 1991 economic reforms
- The crisis in 1991 was centred on the balance-of-payments.
- Allowing the Indian rupee to fall from an artificially high level was a key part of the solution.
- Since the reforms, the Indian rupee has steadily depreciated, roughly according to a market-determined equilibrium.
- Extraordinarily high tariff barriers were reduced, allowing for welfare gains from greater international trade.
- Reforms of the domestic economy that increased market orientation was, in some sense, opportunistically combined with these externally-oriented measures.
What should be India’s foreign economic policy
- In terms of connections to the rest of the world, however, it is less clear what the right policy mix should be.
- We can think of three types of international flows: labour, goods and services, and capital.
1) Internation flow of Indian labour
- India has benefited from being able to send workers with a variety of skills to different types of economies: construction workers and nurses in the Persian Gulf, software engineers in the US, and so on.
- Direct benefits came from large remittances back to India.
- The pandemic and US immigration policy, have had some major impacts on this international connectivity, but new vaccines and a change in the US president are likely to reverse these shocks.
- In any case, there is not much that Indian policymakers can do or need to do on this front.
2) Trade in Goods and Service
- India has been able to grow its exports, both in a variety of agricultural and manufactured commodities and in services, from software services to tourism.
- It has been reasonably competitive in a range of goods and services.
- It was only in the last few years, even before the pandemic, have Indian exports struggled to register growth.
- Whereas the export powerhouses of East Asia consistently ran surpluses on the current account of the balance of payments, India has mostly run deficits, albeit manageable ones.
3) Capital Flow: Area where policymakers have option
- Current account deficits have to be covered somehow, though various forms of foreign capital.
- Whereas economic theory and economic policymakers mostly agree on the benefits of international trade in goods and services there is less of a consensus on the benefits of international capital flows.
- Capital flows can raise fears of instability if they are reversed, or make exports less competitive if they push up the value of the rupee.
- The country is a relatively attractive destination for foreign capital, both FDI and portfolio investment.
- But, these flows can make Indian exports less competitive if the rupee appreciates too much, requiring domestic demand to do more of the work of absorbing increased output.
Lesson from Japan
- Right now, India is trying to build its manufacturing capacity by raising tariffs, in an old-style push for import substitution.
- It is also providing direct incentives, such as the new scheme rewarding increases in production.
- Arguably, this did work in Japan in the 1960s, but it is not clear if India is well-off enough to sustain that domestic strategy.
- In addition, the lack of competitive discipline exporting can hinder the achievement of acceptable quality levels.
Way forward
- Capital controls to some extent can help mitigate the risk in this situation.
- The Reserve Bank of India do more to keep the rupee at competitive levels, by accumulating foreign exchange reserves.
Consider the question “In terms of links with the rest of the global economy, it is less clear what the right policy mix should be. Do you agree with the view that focus on simultaneously managing the exchange rate and domestic inflation while maintaining an open capital account would help in the revival of India’s economic growth
Conclusion
Lurking under the surface of these issues is the trilemma of being unable to simultaneously manage the exchange rate and domestic inflation while maintaining an open capital account, although foreign exchange reserves provide a way of softening the trade-offs. These are not new challenges, but they will need to be a focus for India’s policymakers as they seek renewed economic growth.
Source:-
https://www.financialexpress.com/opinion/trade-offs-for-growth-revival-why-indias-policymakers-need-a-new-roadmap/2142900/
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: The Convention on the Rights of Persons with Disabilities
Mains level: Paper 2- Provisions for persons with disability
Legal provisions not turning into reality through their implementation adds to the difficulties faced by persons with disabilities. The article deals with the idea of enabling persons with disability to contribute to society.
Context
- December 3 is the annual International Day of Persons with Disabilities, it is also a stark reminder of how far we in India need to go in meeting the needs of the disabled.
Lack of implementation of provisions
- The World Bank estimates that there may be well over 40 million Indians living with disabilities.
- The Rights of Persons with Disabilities Act was passed in 2016 but our country is still largely devoid of ramps on its footpaths or government buildings.
- The law promises them equality of opportunity and accessibility. Our practices deny them what the law promises.
Challenges faced by persons with disabilities
- Indians with disabilities are far more likely to suffer from poor social and economic development.
- 45 per cent of this population is illiterate, making it difficult for them to build better, more fulfilled lives.
- This is compounded by the community’s lack of political representation:
- In our seven decades of independence, we have had just four parliamentarians and six state assembly members who suffer from visible disabilities.
- This lack of representation, and these general attitudes, translate directly into policy that undermines the well-being of people with disabilities.
- Last year, for example, the government inexplicably decided to depart from convention and render people suffering from cerebral palsy ineligible for the Indian Foreign Service.
Initiatives and steps taken by the government
- The government has had some admirable initiatives to improve the lot of Indians with disabilities, such as the ADIP scheme for improving access to disability aids.
- The Sugamya Bharat Abhiyan, or Accessible India Campaign, has aimed to make public transport, buildings and websites more accessible.
- In 2017, the Mental Healthcare Act recognised and respected the agency of persons with mental-health conditions, expanding the presence of mental-health establishments across the country, restricted the harmful use of electroshock therapy, clarified the mental-health responsibilities of state agencies such as the police, and effectively decriminalised attempted suicide.
- In 2007, the UN passed the Convention on the Rights of Persons with Disabilities.
- India is a state party to the convention.
Conclusion
It is critical that the government work with civil society and individuals with disabilities to craft an India where everyone feels welcome and treated with respect, regardless of their disabilities. Only then can we welcome the next International Day of Persons with Disabilities without a sense of shame.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Freedom of conscience and conversion to other religion
The U.P. government’s ordinance seeking the prevention of illegal conversion has several provisions that go against the Constitution and restricts the freedom of conscience.
Objective of the ordinance
- The Uttar Pradesh Prohibition of Unlawful Conversion of Religion Ordinance, 2020 seeks to prevent “love jihad” in the state
- The ordinance makes it a criminal offence for a person to convert another by coercion, misrepresentation, fraud etc, which is unobjectionable.
- A marriage solemnised for the “sole purpose” of unlawfully converting the bride or the groom is required to be declared void by the competent court.
- There can be no objection to ordinance’s premise that converting somebody by fraud or misrepresentation is wrong.
- In fact, though the members of the Constituent Assembly included the right to “propagate” one’s religion they considered it a “rather obvious doctrine” that this would not include forcible conversions.
- However, the UP ordinance goes beyond this principle and does something quite strange.
Unconstitutional provisions and issues with the ordinance
1) Lack of clarity
- The ordinance makes it a criminal offence to convert a person by offering her an “allurement”.
- The term “allurement” is defined very broadly, to include even providing a gift to the person who is sought to be converted.
- The use of the words “or otherwise” in the definition of allurement is puzzling.
- The essential prerequisite of a criminal law is that it has to be precise.
- A person cannot be put behind bars for doing something that a penal law does not clearly and unequivocally prohibit.
- On this touchstone, the definition of “allurement” leaves much to be desired.
2) Reconversion to a person’s previous religion is not illegal
- It says that “reconversion” to a person’s previous religion is not illegal, even if it is vitiated by fraud, force, allurement, misrepresentation and so on.
- In other words, if a person converts from Religion A to Religion B of her own volition, and is then forced to reconvert back to Religion A against her will, this will not constitute “conversion” under the ordinance at all.
3) Unfairly treating all women in the same way
- Illegal conversion under the ordinance attracts a punishment of 1-5 years in prison.
- However, if the victim of the illegal conversion is a minor, a member of the Scheduled Castes or Scheduled Tribes or, strangely, a woman, the punishment is doubled — at 2-10 years behind bars.
- In other words, it does not matter who the woman is, if somebody converts her against her will, the punishment can go up to 10 years in prison.
- The ordinance unfairly paints all women with the same brush — assuming that all women are gullible, vulnerable and especially susceptible to illegal conversion.
4) Buden of proof
- The burden of proof in criminal cases is on the prosecution, and the presumption is that a person accused of committing an offence is innocent until proven guilty.
- The Uttar Pradesh ordinance turns this rule on its head.
- Every religious conversion is presumed to be illegal.
- The burden is on the person carrying out the conversion to prove that it is not illegal.
- The offence of illegal conversion is also “cognisable” and “non-bailable”, meaning that a police officer can arrest an accused without a warrant, and the accused may or may not be released on bail, at the discretion of the court.
Time to revisit the past judgement
- In Rev Stainislaus v State of Madhya Pradesh (1977), the Supreme Court held that the fundamental right to “propagate” religion does not include the right to convert a person to another religion.
- In that case, the court had upheld anti-conversion statutes enacted by the states of Orissa and Madhya Pradesh.
Conclusion
The ordinance puts an incredible chilling effect on the freedom of conscience and state must reconsider it.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Factors responsible for AMR
Mains level: Paper 3- Link between pollution and AMR
Rapidly rising antimicrobial resistance (AMR) poses the threat of the next health crisis if not addressed with urgency. The article examines the severity of the issue.
The severity of the antimicrobial resistance (AMR)
- Globally, about 35% of common human infections have become resistant to available medicines.
- About 700,000 people die every year because available antimicrobial drugs — antibiotics, antivirals, antiparasitic and antifungals — have become less effective at combating pathogens.
- Resistance to second- and third-line antibiotics — the last lines of defence against some common diseases — are projected to almost double between 2005 and 2030.
- In India, the largest consumer of antibiotics in the world, this is a serious problem.
Responsible factors
- Microorganisms develop resistance to antimicrobial agents as a natural defence mechanism.
- Human activity has significantly accelerated the process.
- The misuse and overuse of antimicrobials for humans.
- Livestock and agriculture but other factors also contribute.
Research points to role of environment and pollution
- Once consumed, up to 80% of antibiotic drugs are excreted un-metabolised, along with resistant bacteria.
- Their release in effluents from households and health and pharmaceutical facilities, and agricultural run-off, is propagating resistant microorganisms.
- Wastewater treatment facilities are unable to remove all antibiotics and resistant bacteria.
- In India, there is capacity to treat only about 37% of the sewage generated annually.
- Water, then, may be a major mode for the spread of AMR, especially in places with inadequate water supply, sanitation and hygiene.
- Wildlife that comes into contact with discharge containing antimicrobials can also become colonised with drug-resistant organisms.
Initiative to tackle the AMR
- The United Nations Environment Programme (UNEP) identified antimicrobial resistance as one of six emerging issues of environmental concern in its 2017 Frontiers Report.
- UN agencies are working together to develop the One Health AMR Global Action Plan (GAP) that addresses the issue in human, animal, and plant health and food and environment sectors.
- The Ministry of Environment, Forest and Climate Change (MoEF&CC) issued draft standards which set limits for residues of 121 antibiotics in treated effluents from drug production units.
- The Ministry of Health and Family Welfare and MoEF&CC constituted the inter-ministerial Steering Committee on Environment and Health, with representation from WHO and UNEP.
Way forward
- The Centre and State governments in India can strengthen the environmental dimensions of their plans to tackle antimicrobial resistance.
- It is important to promote measures that address known hotspots such as hospitals and manufacturing and waste treatment facilities.
Consider the question “Being the largest consumer of antibiotics in the world, India faces a grave threat from growing anti-microbial resistance. What are the factors responsible for it? Suggest the ways to deal with it.”
Conclusion
We saw how quickly a pandemic can spread if we are not ready. This is an opportunity to get ahead of the next one.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: RCEP countries
Mains level: Paper 3- India's decision to not join RCEP
The article analyses government’s decision to stay out of RCEP and factors responsible for it.
What India chose not to join RCEP
- By joining RCEP, India would have further risked a flood of cheap Chinese imports in sectors like electronics.
- India had tried and failed to win substantial concessions in areas like work visas for its information technology-enabled services.
- Two of India’s proposals—an RCEP business travel card and an RCEP service supplier card—failed to find favour with a majority of the bloc’s members.
Arguments in favour of India joining the RCEP
- First argument made is RCEP would have provided an excellent opportunity for Indian firms to get integrated with regional value chains.
- However, merely joining a trade bloc does not automatically result in integration with global value chains.
- The complex nature of global production networks requires a lot of economic and trade policy reforms on the domestic front.
- Second important argument made is that India would lose an opportunity to access RCEP’s common market.
- But this argument too doesn’t hold much water if Indian producers are not competitive.
- Competitiveness is driven by factors both within and beyond the control of domestic industry.
- So it would be an over-simplification to assume that Indian industry does not have the capability or appetite to be competitive.
- Often, global competitiveness inside factory gates gets diluted by costs borne outside those gates.
What past data suggests
- India’s merchandise exports grew at an annual rate of more than 18% between 2000-01 and 2010-11, which was largely a pre-FTA period.
- In this period, India activated only two FTAs—with Sri Lanka and Singapore.
- India joined the FTAs in a big way from 2010 onwards.
- It operationalized big trade agreements with the 10-nation Association of South East Asian Nations (ASEAN), Japan, Korea, and separately with Malaysia.
- However, despite these deals, India could realize annual merchandise export growth of only 2.5% between 2010-11 and 2019-20.
- This disappointing performance shows that FTAs are not conducive for exports.
Conclusion
While RCEP may theoretically offer India new opportunities for exports and integration with pan-Asian production networks, we have a lot of work to do internally before we are in a position to make the most of free-trade deals.
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From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Farmers protest against farm laws
The article suggests the policy options with the government to deal with the protest of the farmers against the recently enacted farm laws.
Context
- Farmers have protested against the recently enacted farm laws by converging on Delhi’s highways connected to neighbouring states.
Why farmers are protesting
- There is a gross communication failure on the part of the central government to explain to farmers what these laws are, and how they are intended to benefit them.
- Neither do the laws say anything about it, nor is the MSP/APMC system going to disappear with these laws.
- Nothing can be further from the truth.
1) Should government repeal the laws
- Punjab farmer leaders, including two major political parties, demand repeal of these laws.
- However, repealing would mean bringing back controls, licence raj and the resultant rent-seeking.
- Milk, poultry, fishery, etc. don’t go through the mandi system and their growth rates are 3 to 5 times higher than that of wheat and rice.
- Overall, almost 90 per cent of the agri-produce is sold to the private sector.
2) Should the government make MSP legally binding
- Another demand is making the MSP statutory and legally binding even on the private sector.
- This is impractical as there are 23 commodities for which MSPs are announced, but in actual practice only wheat and rice enjoy MSPs in any meaningful manner, and that too only in 6-7 states.
- Punjab is the biggest gainer as its 95-98 per cent of market arrivals of wheat and paddy are procured at MSP by state agencies on behalf of the Food Corporation of India (FCI).
- The FCI is overloaded with grain stocks that are more than 2.5 times the buffer stock norms.
- Such high stock indicates massive economic inefficiency in the grain management system.
- If the government cannot cope up with excess production of just wheat and rice in any meaningful way, think of how it will handle 23 commodities under MSP.
- In case of excess production the government will not have the wherewithal to buy all and stock them without any viable outlet.
- It will massively distort markets, make Indian agriculture non-competitive and stocking of these will be financially unsustainable.
- And then, why only 23 commodities, why not 40?
- This type of state socialism is a sure path to financial disaster.
3) Optio of the Price Stabilisation Scheme
- The third policy option is to use the Price Stabilisation Scheme to give a lift to market prices by pro-actively buying a part of the surplus whenever market prices crash.
- It can be done directly by NAFED-type agencies that are already active in the case of pulses and oilseeds.
- Farmers can use Commodity Derivatives Exchanges where farmers can buy “put options” at MSP before they even sow their crops, and if the market prices at the time of harvest turn out to be below MSP, government can compensate them partly for lower market prices.
4) Decentralise MSP: Let the states decide it
- The fourth option is to totally decentralise the MSP, procurement, stocking, and public distribution system (PDS).
- MSP and procurement exist basically to support farmers for supplying grains to the FCI to feed into the PDS.
- So, the whole money on food subsidy can be allocated to states on the basis of their share in all-India poverty/proportion of vulnerable population, all-India wheat and rice production, all-India procurement of wheat and rice, etc.
- A step further could include another Rs 1,00,000 crore of fertiliser subsidy and free up fertiliser prices from any controls.
- Still further, even include another Rs 1,00,000, say, of MNREGA.
- Let the Finance Commission work out a formula for distribution of this Rs 3,00,000 crore amongst states based on some tangible performance indicators.
- And the Centre should get off from MSP, PDS, fertiliser subsidy, and MNREGA.
Conclusion
This would be true decentralisation, and can be accomplished provided enough ground work is done well in advance. But will this be acceptable to farmer leaders/opposing states/activists? Only time will tell.
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From UPSC perspective, the following things are important :
Prelims level: APMC Act
Mains level: Paper 3- Addressing the farmers apprehension about MSP
Farmers are protesting the farm laws which brought changes in the agri-produce marketing and the contract farming. Farmers are also demanding the legal backing of MSP. The article analyses the issues and suggests the measures to address them.
Analysing merits and feasibility of demands of protesting farmers
1) The Farmer Produce Trade and Commerce (Promotion and Facilitation) Act
- The Act creates a new “trade area” outside the APMC market yards/sub-yards.
- Any buyer with a Permanent Account Number (PAN) can buy directly from farmer sellers outside APMC market.
- The state government can’t impose any taxes on such a transaction.
- Therefore, it is expected that this would lower buying costs for buyers and that would automatically mean higher prices for farmers.
Concerns with the law
- Buyers buying at lower cost does not necessarily mean they would pass on the cost saved on procurement to selling farmers.
- The claim is also made that now farmers would have a choice of channels.
- However, the majority of the farm produce across India with the exception of states like Punjab and Haryana does not go through APMCs.
- Anybody with a PAN card allowed to buy agricultural produce could mean a free-for-all situation, which is not desirable.
2) The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act
What necessitated law on contract farming?
- Contract farming has shown that marginal and small farmers are generally excluded.
- The problems they face include the following-
- Highly one-sided i.e. pro-contracting agency contracts.
- Delayed payments.
- Undue rejections and outright cheating.
- Poor enforcement of contract farming regulation by the state governments.
Concerns with the law
- The Act defined FPOs (farmer producer organisations) as farmers, which restricts them to the supply side.
- But there is hardly any FPO in farm production.
- Further, the contract farming Act does not provide for remedies when companies cancel contracts or there is delay in taking delivery of produce.
- The Act says that sponsor would also pay, besides the minimum guaranteed price, a premium or bonus which will be linked to APMC or e-trading price.
- This goes against the very concept of contract farming.
- The contract price should be left to the contracting parties to decide.
- Further, if the understanding is that mandis are not discovering prices well, then why peg the contract price to such mandi price?
Lessons from 2003 APMC Act
- The government must go back to the 2003 Model APMC Act, which also had model contract agreement with mandatory and optional provisions in a contract.
- In the 2003 Model APMC Act, the APMC was supposed to resolve the disputes.
- Further under 2003 APMC Act when a licence is given to a trader or commission agent, there is a counterparty risk assurance.
Apprehensions about MSP
- The Shanta Kumar Committee report and the CACP reports had suggested reducing procurement and an end to open-ended procurement from states like Punjab to cut down costs of FCI.
- It is feared that FCI itself may start procuring directly from the new trade area to cut down buying costs like market fees and arhtiya commission.
- It is more about the changes in the “social contract” between the state’s farmers and the Union government.
- The demand for legal backing to MSP also arises from the fact that the government has been announcing MSP for 23 crops, but procurement is limited to a few crops.
- Also, CACP in one of its reports in 2017-18 (kharif) suggested that “to instil confidence among farmers for procurement of their produce, a legislation conferring on farmers ‘the right to sell at MSP’ may be brought out.”
- Punjab’s amendments to farm Acts — making MSP mandatory for wheat and paddy are ill-advised as this law will discourage private buyers from buying.
- It is difficult to enforce such a law. Private agricultural markets cannot be run through such diktats.
- By creating stringent rules (fine or imprisonment), the government may create a situation where farmers would not be able to sell at all.
- Maharashtra attempted this legality in 2018 in its APMC Act but had to reverse it after protests by traders.
Consider the question “What are the factors that necessitated the robust contract farming Act? What are the issues related to the Act? Suggest the measures to address these issues.”
Conclusion
Apprehension among the farmers related to the farm laws needs to be addressed and the concern in the laws need to be addressed.
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From UPSC perspective, the following things are important :
Prelims level: Countries of the Middle East
Mains level: Paper 3- Trends from the Middle East and implications for the Indian subcontinent
Three broad trends emerging from the Middle East and its implication for the region have been discussed here.
Growing vulnerability of Iran and implications for subcontinent
- The brazen murder of a top Iranian nuclear scientist highlights the Islamic Republic of Iran’s growing strategic vulnerabilities.
- This geopolitical turbulence in the Middle East has major consequences for the subcontinent.
- Whether they want to or not, India, Pakistan and Bangladesh must deal with three broad trends that define the new Middle East.
3 Trends in the Middle East
1) Iran’s growing isolation
- The Trump administration and the Republicans, Israel and the Gulf Arabs have a shared interest in preventing the next US President from renewing nuclear diplomacy with Iran and ending Tehran’s isolation.
- The assassination of Fakhrizadeh is about achieving that political objective.
- If Iran retaliates vigorously, it will invite an all-out confrontation with Israel and the US.
- Holding back will expose Iran’s weakness and sharpen internal divisions between pragmatists who want to engage the US and the hardliners.
- The frequent attacks on high-profile Iranian targets indicate hostile penetration of its society such that domestic opponents of the regime are now willing to collaborate with foreign security agencies, including Israel’s Mossad.
- Iran’s internal political weakness is compounded by the massive economic pain imposed by the Trump administration through sanctions.
- Iran has much goodwill in South Asia, but India and its neighbours have no desire to get sucked into Tehran’s conflicts with the Arabs or the US.
2) Transformation of Arab relations with Israel
- The fear of Iran has been driving Gulf Arabs to embrace Israel.
- In the last few months, Bahrain and the United Arab Emirates have normalised ties with Israel.
- There is speculation of an impending normalisation of ties between Israel and Saudi Arabia.
- Pakistan’s Prime Minister has talked of pressure, apparently from Saudi Arabia and the UAE, on recognising Israel.
- If Pakistan recognises Israel, Bangladesh would not want to be left behind.
- Economic and technological collaboration with Israel will give Bangladesh’s economy and foreign policy a big boost.
- For Israel, having Bangladesh and Pakistan, two of the world’s largest Islamic nations, recognise it would be a great ideological and political bonus
- An India that proclaims the virtues of engaging all sides in the Middle East can’t grudge the same privilege for Israel in South Asia.
3) Rivalry between Saudi Arabia and Turkey
- While Saudi Arabia, Egypt, and the UAE want to return the Middle East towards political and religious moderation, the once secular Turkey has become the new champion of political Islam.
- Turkey’s contestation with Saudi Arabia is already having an impact on India and Pakistan.
- Turkey is now hostile to India and has joined Pakistan in taking up the Kashmir question at international forums.
- For Pakistan, this seemed a useful counter to the Gulf Arabs, who were ramping up strategic ties with India.
- However, UAE and Saudi Arabia have the option to put massive costs on the Pakistani economy that can’t be plugged by Turkey or Malaysia.
Conclusion
Although India has made some important adjustments to its engagement with the Middle East in recent years, Delhi can’t take its eyes off the rapid changes in the region.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: FPTC Act 2020
Mains level: Paper 3- Agri marketing and related issues.
The article examine issue of agriculture produce marketing. The passage of FPTC Act 2020 sought to address the challenges faced by the farmers. However, these are several issues the Act fails to resolve. These issues are discussed here.
Why do farmers sell outside mandis?
- Official data show that even for paddy and wheat, respectively, only 29% and 44% of the harvest is sold in a mandi.
- In other words a large proportion of Indian harvest is not directly sold in a mandi.
- Farmers are forced to sell outside the mandis for two reasons.
1) There are not enough mandis
- The National Commission on Agriculture (NCA) had recommended that every Indian farmer should be able to reach a mandi in one hour by a cart.
- Thus, the average area served by a mandi was to be reduced to 80 km2.
- For this, the number of mandis was to increase to at least 41,000.
- But there were only 6,630 mandis in 2019 with an average area served of 463 km2.
- Using another set of criteria, a government committee in 2017 had recommended that India should have at least 10,130 mandis.
- So, by all counts, India needs not less but more mandis.
2) Transport cost
- Most small and marginal farmers, do not find it economical to bear the transport costs to take their harvests to mandis.
- Thus, they end up selling their harvest to a village trader even if at a lower price.
- Even if private markets replace mandis, small and marginal farmers will continue to sell to traders in the village itself.
- The situation will change only if economies of scale rise substantially at the farm-level.
Why there is poor private investment in markets?
- Already, 18 States have allowed the establishment of private markets outside the APMC; 19 States have allowed the direct purchase of agricultural produce from farmers; and 13 States have allowed the establishment of farmer’s markets outside the APMC.
- Despite such legislative changes, no significant private investment has flowed in to establish private markets in these States.
- The reason for poor private investment in markets is the presence of high transaction costs in produce collection and aggregation.
- When private players try to take over the role of mandis and the village trader, they incur considerable costs in opening collection centres and for salaries, grading, storage and transport.
- Corporate retail chains face additional costs in urban sales and storage, as well as the risk of perishability.
- This is why many retail chains prefer purchasing from mandis rather than directly from farmers.
Issue of mandi tax
- Many commentaries treat taxes in mandis as wasteful. This assertion is not fully true for two reasons:
- 1) Much of the mandi taxes are reinvested by APMCs to improve market infrastructure.
- A fall in mandi taxes would reduce the surplus available with APMCs for such investment.
- 2) In States such as Punjab, the government charges a market committee fee and a rural development fee.
- The Punjab Mandi Board uses these revenues to construct rural roads, run medical and veterinary dispensaries, supply drinking wate etc.
- Such rural investments will also be adversely affected if mandis are weakened.
Weakening of MSP regime
- Many policy signals point to a strategic design to weaken the MSPs.
- 1) Rising input and labour costs necessitates a regular upward revision of MSPs to keep pace with costs of living.
- However, MSPs are rising at a far slower rate over the past five to six years than in the past.
- 2) The government has not yet agreed to fix MSPs at 50% above the C2 cost of production.
- As a result, farmers continue to suffer a price loss of ₹200 to ₹500 per quintal in many crops.
- 3) The Commission for Agricultural Costs and Prices (CACP) has been recommending to the government that open-ended procurement of food grains should end.
- These policy stances have set alarm bells ringing among farmers.
- The farmers Punjab, Haryana and western Uttar Pradesh feel that if mandis weaken and private markets with no commitment to MSPs expand, they fear a gradual erosion of their entitlement to a remunerative price.
Steps to be taken
- 1) India needs an increase in the density of mandis, expansion of investment in mandi infrastructure and a spread of the MSP system to more regions and crops.
- 2) This increase in density should happen hand-in-hand with a universalisation of the Public Distribution System.
- 3) APMCs need internal reform to ease the entry of new players, reduce trader collusion and link them up with national e-trading platforms.
- The introduction of unified national licences for traders and a single point levy of market fees are also steps in the right direction.
Consider the question “The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 was passed with a view to address the challenges faced by the farmers in selling their produce. However, there are concerns with the provision of the Act and its efficacy to addresss these challenges. What are the issues with the Act? Suggest the measures to address these issues.”
Conclusion
The government’s must try to allay the fears of farmers over the Farm Bills and it is never too late to rethink. Unconditional talks with farmers would be an appropriate starting point.
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From UPSC perspective, the following things are important :
Prelims level: Kyoto Protocol, Rio Declaration, Copenhagen Accord etc
Mains level: Paper 3- Paris Agreement and issues with it
The article highlights the fact that the provisions of the Paris Agreement would not be enough to avert the catastrophic and irreversible changes resulting from the global emissions.
Past efforts for environmental protection
- The most hopeful time for global cooperation in protection of the planet was between the time of the Stockholm Conference (1972) and the time of the Rio Conference (1992).
- Scientific evidence about role anthropogenic emission in global warming led to political initiatives to harmonise development and environment.
- The historic consensus in Rio led to the adoption of the UN Framework Convention on Climate Change (UNFCC).
- A distinction was made between the “luxury emissions” of the developed countries and the survival emissions of the developed countries, which were allowed to increase.
- Moreover, a huge financial package was approved to develop environment-friendly technologies in developing countries.
Copenhagen Accord: Abandonment of Rio Principles
- After the adoption of UNFCC, Conference of the Parties was held in Berlin in 1995 where developed countries backed off from their commitments.
- Though the G-77 was split, the Rio principles were maintained.
- The Kyoto Protocol enshrined the Rio principles.
- It fixed emission targets for developed countries and a complex set of provisions was included to satisfy their interests.
- The end of the Kyoto Protocol and the abandonment of the spirit of the Rio principles were reflected in the Copenhagen Accord (2009).
- Argument given was that a global climate action plan would be possible only if all reductions of the greenhouse gases were made voluntary.
Paris Agreement: Making emission reduction voluntary
- The Paris Agreement moved away from the principle of common but differentiated responsibilities.
- All countries were placed on an equal footing by making reduction of greenhouse gas emissions voluntary.
- It requires all parties to put forward their best efforts through nationally determined contributions (NDCs)
Shortcomings in Paris Agreement
- The NDCs so far submitted will not result in the desired objective of limiting increase of global warming to below 2°C.
- The Paris Agreement requires that all countries — rich, poor, developed, and developing — slash greenhouse gas emissions.
- But no language is included on the commitments the countries should make.
- Nations can voluntarily set their emissions targets and incur no penalties for falling short of their targets.
- Further temperature rise, even of 1.5°C, may result in catastrophic and irreversible changes.
- Even a 1°C hotter planet is not a steady state, says a report of the Intergovernmental Panel on Climate Change (IPCC).
Conclusion
The IPCC report acknowledges that “the pathways to avoiding an even hotter world would require a swift and complete transformation not just of the global economy but of society too”. This will only be possible if the world rejects nationalism and parochialism and adopts collaborative responses to the crisis. The Paris Agreement falls short of that imperative.
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From UPSC perspective, the following things are important :
Prelims level: National Food Security Act 2013
Mains level: Paper 3- Food Security
The article takes stock of the food insecurity and malnutrition in India with the aid of two recently published reports.
Reports about food security in India
- Two recent reports — “The State of Food Security and Nutrition in the World 2020” by the Food and Agricultural Organization of the United Nations and the 2020 Hunger report, “Better Nutrition, Better Tomorrow” by the Bread for the World Institute – document staggering facts about Indian food insecurity and malnutrition.
- The reports use two globally recognised indicators, Prevalence of Undernourishment (PoU) and the Prevalence of Moderate or Severe Food Insecurity (PMSFI).
- Using these indicators, the reports indicate India to be one of the most food-insecure countries, with the highest rates of stunting and wasting among other South Asian countries.
Comparing rate of reduction in malnutrition with neighbouring countries
- Malnutrition in India has not declined as much as the decline has occurred in terms of poverty.
- On the contrary, the reduction is found to be much lower than in neighbouring China, Pakistan, Nepal and Bangladesh.
- The decline in China is way higher than that of India, even though it had started with lower levels of PoU in 2000.
Food security during pandemic and National Food Security Act 2013
- Two crucial elements still got left out in the National Food Security Act – 2013.
- These two elements are the non-inclusion of nutritious food items such as pulses and exclusion of potential beneficiaries.
- Because of this, the current COVID-19 pandemic would make the situation worse in general, more so for vulnerable groups.
- Though States have temporarily expanded their coverage in the wake of the crisis, the problem of malnutrition is likely to deepen in the coming years.
- Hence, a major shift in policy has to encompass the immediate universalisation of the Public Distribution System which should definitely not be temporary in nature.
Conclusion
The need of the hour remains the right utilisation and expansion of existing programmes to ensure that we arrest at least some part of this burgeoning malnutrition in the country.
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From UPSC perspective, the following things are important :
Prelims level: PM-Kisan
Mains level: Paper 2- Geo-targeted aid during disasters
The article suggests the provision for a safety net with geographic targeting in case of disasters as most disasters are location specific.
Safety net in the U.S.
- The US Congress enacted in March a Coronavirus Aid, Relief and Economic Security (CARES) Act to sends $1,200 to each individual below the income threshold of $75,000.
- Nonetheless, as The Washington Post reported, even in October, millions of households were yet to receive their stimulus payments.
- The tax authorities who were charged with disbursing the funds had no way of knowing how to send the cheques.
- But the poor had to cross several hurdles to get this money and the computer system did not make it easy for them to register their claim.
Safety net in India and issues with it
- In contrast to U.S., 23 per cent of Indians living in Delhi-NCR received a payment of Rs 500 in their Jan Dhan accounts within three weeks of the lockdown being declared.
- Farmers registered for PM-KISAN also received Rs 2,000 in their accounts immediately.
- However, there were some issues for example, recipients of PM-KISAN were not amongst the poorest households, nor were these the households that were most affected by the COVID-related lockdown.
- The PM-Kisan Yojana applies to landowners, thereby excluding agricultural labourers as well as the urban informal sector workers who were most affected by the lockdown.
- Similarly, for the PMJDY payment, BPL and non-BPL households record similar receipt transfers.
Twin challenges in designing social safety nets
- Unless a registry containing data about individuals and their bank accounts exists, money cannot be transferred expeditiously.
- 1) Registries based on specific criteria (for example, identified BPL households) may not identify individuals most vulnerable to crises.
- 2) Factors that contribute towards alleviating poverty may differ from the ones that push people into it — indicating the challenge of targeting welfare beneficiaries in response to shocks.
- About 40 per cent of the poor in 2012 were pushed into poverty by special circumstances and would not have been classified as being poor based on their 2005 conditions.
- Such exclusion errors can get magnified in the event of large-scale disasters when using pre-existing databases, since many people are likely to fall into poverty from an economy-wide negative shock, leading to coverage errors.
Way forward
- Recent estimates from the World Bank suggest that 88 to 115 million people could slide into poverty in 2020.
- These observations suggest that in a disaster response situation, we cannot rely on registries based on individual characteristics to identify beneficiaries.
- Most disasters are geographically clustered.
- If there is a way for us to set up social registries that identify individuals, their place of residence, and their bank accounts, these linkages can be used to transfer funds to everyone living in the affected area quickly.
- Aadhaar linkages of individuals and bank accounts already exist.
- If residential information in the Aadhaar database can be efficiently structured, this would allow for geographic targeting.
- Issue of violation of individual privacy can be addressed by providing that such social registries store only basic information such as location, instead of more sensitive identifiers.
Consider the question “Disasters underscores the importance of social safety nets. However, designing a social safety net that identifies and reach the vulnerable suffers from several challenges. What are these challenes. Suggest ways to address these challenges.”
Conclusion
As we try to disaster-proof future welfare programmes, these are some of the considerations that deserve attention.
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From UPSC perspective, the following things are important :
Prelims level: Trade Policy Forum
Mains level: Paper 3- India-U.S. trade ties
After tumultuous years of Trump administration in trade policies, the article examines the new possibilities under the next U.S. President in trade ties with India.
Approach towards WTO and India
- The new U.S. administration will have more constructive stance on multilateral issues in the World Trade Organization (WTO).
- The Trump administration went out of its way in seriously undermining WTO institutions when the organisation was already in need of reform and new direction.
- The Biden administration is less likely to engage in unilateral tariff increases and more likely to pursue remedies in the WTO.
- In case of India, the Trump administration it pursued an aggressive approach to resolve market access concerns through threats to eliminate India’s benefits under the Generalized System of Preferences programme.
- However, the follow-through was weak.
- The administration was on the brink of concluding a historic bilateral trade deal, yet it lost focus.
5 likely developements
- 1) It is clear that Mr. Biden plans to focus on domestic concerns first.
- There may be trade aspects to some of these efforts, but they may have limited early relevance for a future U.S.-India trade policy.
- 2) Two, as it turns to trade policy, the Biden administration is not likely to place India among its top few priorities.
- Among top priorities will include formulating its approach with China, such as finding alternatives to the Regional Comprehensive Economic Partnership to set new global standards that address China’s practices.
- That said, India should be among the priorities at the next level down.
- 3) The trade deal still pending with the Trump administration remains compelling.
- There could be an early opportunity to conclude these negotiations and for the Biden administration to get credit.
- A bilateral deal will not lead to serious consideration of FTA negotiations any time soon.
- But this first trade agreement could pave the way for later additional small agreements.
- 4) The existing Trade Policy Forum (TPF) met only once over the last four years.
- It seems likely that the Biden administration will see the TPF’s value as a venue for more regular discussions on a range of trade issues.
- 5) A reinvigorated TPF will present new opportunities for the two countries to take up a range of cutting-edge trade issues that will be critical in determining whether the U.S. and India can converge more over time or will drift further apart.
- These include digital trade issues, intellectual property rights and approaches to nurturing innovation, better health sector alignment, and more regular regulatory work on science-based agricultural policies.
Conclusion
The future looks bright for U.S.-India trade under a Biden administration, but that does not mean it will be any easier. It will be critical for leadership on both sides to commit to strong efforts to put the trade relationship on a new footing, which will have to involve a ‘can-do’ attitude to solving problems.
Back2Basics: Trade Policy Forum
- It was established in 2005.
- The Forum is part of the overall United States-India Economic Dialogue, replacing the Trade Policy Working Group pillar.
- It convenes on a regular basis.
- The Forum provides an opportunity to work together to expand trade between the two countries.
- The agenda could cover the following subjects: tariff and non-tariff trade barriers; foreign direct investment; subsidies; customs procedures; standards, testing, labeling and certification intellectual property rights protection; sanitary and phytosanitary measures; government procurement; and services.
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From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Challenges in allowing industrial houses to own an operate banks
The article analyses the risks involved in allowing the corporate houses to own and operate the banks.
Context
- An internal working group of the RBI has recently made a recommendation to permit industrial houses to own and control banks.
Encourage bank but not owned by banks
- According to the report, the main benefit is that industry-owned banks would increase the supply of credit, which is low and growing slowly.
- Credit constraints are indeed a real problem, and creating more banks is certainly one way of addressing the issue.
- But this is an argument for encouraging more banks but it is not an argument for creating banks specifically owned by industry.
- The other powerful way to promote more good quality credit is to undertake serious reforms of the public sector banks.
Problems in allowing industrial houses in banking
- The problem with banks owned by corporate houses is that they tend to engage in connected lending.
- This can lead to three main adverse outcomes:
1) Over-financing of risky activities
- Lending to firms that are part of the corporate group allows them to undertake risky activities that are not easily financeable through regular channels.
- Precisely because these activities are risky, they often do not work out.
- And when that happens, it is typically taxpayers who end up footing the bill.
- In principle, connected lending can be contained by the regulatory authority.
- However, experiences in other nations show that regulating connected lending is impossible convincing most advanced countries that regulating connected lending is impossible.
- Indonesia tried to regulate the practice: It banned the practice.
- The only solution is to ban corporate-owned banks.
- Regulation and supervision need to be strengthened considerably to deal with the current problems in the banking system before they are burdened with new regulatory tasks.
2) Lack of exit
- The economic landscape is littered with failed firms, kept alive on life support, making it impossible for more efficient firms to grow and replace them.
- While some progress was initially made under the Insolvency and Bankruptcy Code (IBC), this had stalled even before the pandemic, largely because existing promoters and owners mounted a stiff resistance.
- If industrial houses get direct access to financial resources, their capacity to delay or prevent exit altogether will only increase.
3) Increasing dominance
- The Indian economy already suffers from over-concentration.
- We not only have concentration within industries, but in some cases the dominance of a few industrial houses spans multiple sectors.
- If large industrial houses get banking licences, they will become even more powerful, not just relative to other firms in one industry, but firms in another industry.
Impact on regulator and government
- The power acquired by getting banking licences will not just make them stronger than commercial rivals, but even relative to the regulators and government itself.
- This will aggravate imbalances, leading to a vicious cycle of dominance breeding more dominance.
Impact on quality of credit
- Indian financial sector reforms have aimed at improving not just the quantity, but also the quality of credit.
- The goal has been to ensure that credit flows to the most economically efficient users, since this is the key to securing rapid growth.
- If India now starts granting banking licences to powerful, politically connected industrial houses we will effectively be abandoning that long-held objective.
Impact on economy and democracy
- Indian capitalism has suffered because of the murky two-way relationship between the state and industrial capital.
- If the line between industrial and financial capital is erased, this stigma will only become worse.
- Corporate houses that are already big will be enabled to become even bigger allowing them to dominate the economic and political landscape.
- A rules-based, well-regulated market economy, as well as democracy itself — will be undermined, perhaps critically.
Consider the question “What are the challenges and opportunities in allowing the industrial houses to own and operate the banks.”
Conclusion
The conclusion is clear. Mixing industry and finance will set us on a road full of dangers — for growth, public finances, and the future of the country itself.
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From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Policy approach for industrial development
The article suggests the policy approach to achieve industrial growth while avoiding the isolationist approach in pursuit of AtmaNirbharBharat.
Issue of policy binary
- The goals of the Make in India initiative and now the AatmaNirbharBharat Abhiyan are driving a major shift in policy.
- Import duties are being raised.
- Production-linked incentives are being offered to firms across a wide canvas of 10 priority sectors.
- At the same time, there is considerable unease at the rolling back of trade liberalisation.
- This binary is not very useful.
Steps needed to gain competitive advantage
1) Infrastructure
- It would still take India many years to develop its physical infrastructure to the levels required for international competitiveness.
- Until then, large industrial parks for textiles, electronics, toys or shipbuilding need to be developed by state agencies with soft financing.
- Competitive logistics are essential.
- This was critical for the success of the information technology (IT) industry where world-class infrastructure was created within the software parks.
- High-speed broadband real-time connectivity to the US market was provided through public investment.
- This was done well before general telecom modernisation began.
2) Closing the financing gap
- Long-term financing for world-class infrastructure is still a gap.
- The central government can either use one of its existing financial institutions or create a new development financial institution to provide long-term low-interest rate debt.
- The sovereign needs to provide risk-mitigation through an implicit guarantee. It can afford to do so.
3) Prevent real exchange rate appreciation
- Before considering specific increases in import duties, real exchange appreciation should be undone.
- This would have the effect of raising tariffs across the board.
- It is high time the government and the Reserve Bank of India (RBI) agreed on this objective.
4) Change the regime for SEZ
- Allow SEZ to sell into the domestic area with import duties at the lowest applicable rate with any trading partner and the same value-addition norms.
- Tax exemption on profits could be dispensed with while continuing to provide a duty-free import regime.
- This would create a level-playing field for production vis-à-vis competitive locations overseas.
- Large zones would have to be developed by the state.
- The private sector can be partners in the process, but achievement of scale is only possible by the state.
- Production for the domestic as well as the global market would become easier.
5) Encourage domestic value addition
- Domestic value-addition can be incentivised by-
- 1) Reducing duties to zero for all primary raw materials and inputs.
- 2) then progressively higher rates for intermediates with the highest rate for the finished product.
- In short, have just the opposite of the inverted duty structure we have had for computers.
- This would change investment and production decisions if other costs of production in India have been made competitive.
6) Commitment of procurement of full production
- In some industries, commitment of procurement of full production for a few years would suffice to get investment.
- Bids could be invited for solar panels, or for battery storage for the grid, for annual supply for, say, five years with the condition that full value-addition has to be done in India.
- Such commitment would provide for amortisation of the capital investment and make it a risk-free investment.
- If the bid size is large enough, the best global firms would come and invest.
- If the bids are repeated, prices would come down and a competitive industry structure would be created.
7) Encourage public investment
- Public investment in firms should not be ruled out altogether.
- In some cases, it may be the best way to create competitive capacity.
- Maruti Suzuki is a good example in India.
- Volkswagen was set up by a state government in Germany, which is still a substantial shareholder.
- This is a policy instrument that can be used to create competitive advantage.
8) Creation of fund
- There should also be willingness to create a fund that looks at modest returns, but aims at creating national and global champions through start-ups.
Conclusion
The foundation of China’s incredible success was laid by Deng Xiaoping with the maxim on economic policy that one should not bother about the colour of the cat as long as it caught mice. India’s policies have tended to be doctrinaire. We need a heavy dose of pragmatism to achieve our full potential.
Source:-
https://www.financialexpress.com/opinion/industrial-growth-the-right-policy-mix-for-success/2136735/
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: UPI
Mains level: Paper 3- Cap on UPI transactions by TPAPs and issues with it
The article deals with the recent NPCI decision to cap the number of transactions by third party application providers (TPAPs).
Context
- The National Payments Corp of India (NPCI), in its recent guidelines imposed a 30% volume-based cap on the share of transactions by TPAPs and payment service providers (PSPs), effective from January 2021.
5 issues with the volume-based cap
1) It undermines cashless economy
- The growth and recognition of UPI would not have been possible had a cap been in place.
- Typically, customers limit themselves to one or two TPAPs of their choice.
- A transaction cap that forces users to use multiple apps may result in more transaction failures and dilute UPI’s popularity and impact.
- Lack of accessibility and user-friendliness would push users away from UPI towards other payment methods, or even cash.
2) It’s an anti-consumer decision
- Open markets and user choice have been crucial factors in the exponential increase seen in UPI adoption and its transactions.
- A volume-based cap would compel TPAPs to either limit the number of transactions on their platforms or stop enrolling new users, which in turn would restrict the customer’s use of UPI.
- TPAPs will likely be forced to redact customer incentives like cashbacks, coupons and the like.
- This could go against consumer interests by reducing choice.
3) It will also make the Indian market less attractive for investors:
- The cap would raise compliance and regulatory costs for players in the sector, which could deter new investors from entering.
- It would also adversely affect the growth potential of existing UPI players.
4) No regulatory impact assessment
- The idea of a volume-based cap does not appear to have undergone an assessment of its impact on the sector.
- As a general principle, before any such rule is imposed, an RIA (Regulatory Impact Assessment) needs to be undertaken.
- Systemic risks are not restricted to UPI and are common in all financial systems; yet, a similar cap has not been suggested for, say, retail bank transactions.
5) Impact on Atmanirbhar Bharat
- In order for Indian businesses to grow and compete at the global level, we need to integrate business processes with the global economy.
- Indian start-ups, in particular, need tools and infrastructure that lets them gain an international edge.
- Atmanirbhar Bharat envisions a self-reliant India that thrives on innovation, technology and entrepreneurship.
- But this vision cannot be fulfilled if our policies restrain the growth of a cashless economy.
Conclusion
India’s UPI ecosystem is nascent, but has demonstrated significant growth and has had a positive impact on the economy by providing the backbone needed to move towards cashless commerce. Any policy decision by regulators at this point should aim at catalysing innovation in this space. Stifling it would serve India badly.
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