Note4Students
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 âtrade areaâ 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 canât 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 âsocial contractâ between the stateâs 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 âto instil confidence among farmers for procurement of their produce, a legislation conferring on farmers âthe right to sell at MSPâ may be brought out.â
- Punjabâs amendments to farm Acts â 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.
- Â 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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Note4Students
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 Iranâs 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
- Â 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 Tehranâs 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 Iranâs 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 Israelâs Mossad.
- Â Iranâs 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 Tehranâs conflicts with the Arabs or the US.
2)Â 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.
- Pakistanâs 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 Bangladeshâs economy and foreign policy a big boost.
- For Israel, having Bangladesh and Pakistan, two of the worldâs 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 canât 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.
- Turkeyâs 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 canât 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 canât 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 10,130Â 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 farmerâs 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 âš200 to âš500 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 Farmersâ 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.”Â
Conclusion
The governmentâs 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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Note4Students
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.Â
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 âluxury emissionsâ 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 â rich, poor, developed, and developing â 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 âthe pathways to avoiding an even hotter world would require a swift and complete transformation not just of the global economy but of society tooâ. 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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Note4Students
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 â âThe State of Food Security and Nutrition in the World 2020â by the Food and Agricultural Organization of the United Nations and the 2020 Hunger report, âBetter Nutrition, Better Tomorrowâ by the Bread for the World Institute â 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 â 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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Note4Students
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 â 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.”Â
Conclusion
As we try to disaster-proof future welfare programmes, these are some of the considerations that deserve attention.
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Note4Students
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 Indiaâs 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 Chinaâs 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 TPFâs value as a venue for more regular discussions on a range of trade issues.
- 5) AÂ 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 âcan-doâ 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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Note4Students
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 â 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 â 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) Â 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-Ă -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 Chinaâs 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. Indiaâs 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 UPIâs popularity and impact.
- Lack of accessibility and user-friendliness would push users away from UPI towards other payment methods, or even cash.
2) Itâs 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 customerâs 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
- Â 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
Indiaâs 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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Note4Students
From UPSC perspective, the following things are important :
Prelims level: NBFCs
Mains level: Paper 3- Banking regulation and allowing corporate houses to own banks
The article argues against the suggestion of allowing the corporate houses in the banking sector in India.
Context
- An Internal Working Group of the Reserve Bank of India (RBI) has recommended that corporate houses be given bank licences.
Background of the idea
- In February 2013, the RBI had issued guidelines that permitted corporate and industrial houses to apply for a banking licence.
- No corporate was ultimately given a bank licence.
- None of the applicants had met âfit and properâ criteria.
- In 2014, the RBI restored the long-standing prohibition on the entry of corporate houses into banking.
- The RBIâs position on the subject has remained unchanged since 2014.
Advantages
- Corporate houses will bring capital and expertise to banking.
- Moreover, not many jurisdictions worldwide bar corporate houses from banking.
Risks involved
- As the report notes, the main concerns are interconnected lending, concentration of economic power and exposure of the safety net provided to banks
- Corporate houses can easily turn banks into a source of funds for their own businesses.
- In addition, they can ensure that funds are directed to their cronies.
- They can use banks to provide finance to customers and suppliers of their businesses.
- Adding a bank to a corporate house thus means an increase in concentration of economic power.
- Not least, banks owned by corporate houses will be exposed to the risks of the non-bank entities of the group.
- If the non-bank entities get into trouble, sentiment about the bank owned by the corporate house is bound to be impacted.
Suggestion by IWG and issues with them
- The Internal Working Group (IWG) believes that before corporate houses are allowed to enter banking, the RBI must be equipped with a legal framework to deal with interconnected lending and a mechanism to effectively supervise conglomerates that venture into banking.
- But there are following 4 issues with such suggestion-
- 1) Tracing interconnected lending will be a challenge.
- 2)The RBI can only react to interconnected lending ex-post, that is, after substantial exposure to the entities of the corporate house has happened.
- It is unlikely to be able to prevent such exposure.
- 3) Any action that the RBI may take in response could cause a flight of deposits from the bank concerned and precipitate its failure.
- 4) Pitting the regulator against powerful corporate houses could end up damaging the regulator.
Issues in allowing NBFC owning corporate house in banking
- Under the present policy, NBFCs with a successful track record of 10 years are allowed to convert themselves into banks.
- The Internal Working Group believes that NBFCs owned by corporate houses should be eligible for such conversion.
- This promises to be an easier route for the entry of corporate houses into banking.
- The Internal Working Group argues that corporate-owned NBFCs have been regulated for a while.
- However, there is a world of difference between a corporate house owning an NBFC and one owning a bank.
- Bank ownership provides access to a public safety net whereas NBFC ownership does not.
- The reach and clout that bank ownership provides are vastly superior to that of an NBFC.
- The objections that apply to a corporate house with no presence in bank-like activities are equally applicable to corporate houses that own NBFCs.
Consider the question “What are the concerns and challenges in allowing the corporate houses in the banking sector in India?”Â
Conclusion
Indiaâs banking sector needs reform but corporate houses owning banks hardly qualifies as one. If the record of over-leveraging in the corporate world in recent years is anything to go by, the entry of corporate houses into banking is the road to perdition.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Article 32
Mains level: Paper 2- Recourse to Article 32 and related issues
The article deals with the issue of recourse to Article 32 for violation of Fundamental Rights. But it is subject to fundamental principles of administration of justice.
Context
- The Chief Justice of India is reported to have stated during the hearing of journalist Siddique Kappanâs bail matter, that the Court was trying to âdiscourageâ recourse to Article 32.
Recourse under Article 32 is not absolute
- The apex judicial process shows clearly that the Court regards Article 32 as a judicial power subject to the fundamental principles of administration of justice.
- The Supreme Court has already extended rules and doctrines such as laches (delays) or res judicata (a matter already decided by a competent court) or any other principle of administration of justice.
- Article 32 keep open âthe doors of this courtâ and requires the state not to âput any hindranceâ to a person seeking to approach the Court.
- However, the Court must ignore all laws of procedure, evidence, limitation, res judicata and other provision.
- The Supreme Court has also said that faith âmust be inspired in the hierarchy of Courts [ Recourse under Article 226 should be sought before approaching the SC] and the institution as a wholeâ and notâ only in this Court aloneâ.
- So, even if there is a constitutional right to remedies it remains subject to the discipline of judicial power and process.
New facets of Article 32
- The Supreme Court has also discovered new facets of Article 32.
- As early as 1950, it has ruled that powers under Article 32 are not limited to the exercise of prerogative writs.
- In 1987 the Court ruled that it has powers to rule for compensation of violation of fundamental rights.
- In 1999 it said that this power extended to the rectification of its own mistakes or errors.
Comparing Article 226 and Article 32
- Article 226 is the very dimension; the high courtâs vast jurisdiction technically casts no duty on them to enforce fundamental rights.
- They have the discretion to act or not to; in contrast, the Supreme Court must.
- Fourth, Article 32 is not absolute, the Supreme Court decides on what âappropriate proceedingsâ should be for it to be so moved.
- But the Court may not prescribe any process as it likes but only that process which preserves, protects and promotes the right to constitutional remedies.
Need for effective bail system
- The just demand for an expeditious and effective bail system stems from manifest discrimination in bail .
- In several instances, one case is fast-tracked whereas others are consigned to slow-moving judicial action, even when rights to life and health are endangered.
- Scandalous judicial delays, measures of decongestion and diversion, and a bold resolution of âwho watches the watchmanâ syndrome now demand urgent apex response.
Consider the question “Seeking remedy from the Supreme Court for the violation of fundamental rights under Article 32 is also a fundamental right. However, enforcement of it is not absolute. In light of this, examine the challenges in its enforcement by the Supreme Court.”
Conclusion
Article 32 makes the apex court into a âpeopleâs courtâ. And future historians should not be able to conclude that the Court deliberately dealt deathblows to this âsoulâ of the Constitution, as Babasaheb Ambedkar described Article 32.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Challenges in securing RCEP
Asian centrality
- Chinaâs response is a âdual circulationâ strategy for self-reliance and military-technological prowess to surpass the U.S.
- The global governance role of the U.S. is already reduced.
- The U.S. now exercises power with others, not over them.
- Despite its military âpivotâ to Asia, the U.S. needs India in the Quad, to counterbalance the spread of Chinaâs influence through land-based trade links.
- India, like others in the Quad, has not targeted China and also has deeper security ties with Russia.
- With the ASEAN âcode of conductâ in the South China Sea, both the security and prosperity pillars of the U.S.-led Indo-Pacific construct will be adversely impacted.
- Leveraging proven digital prowess to complement the infrastructure of Chinaâs Belt and Road Initiative will win friends as countries value multi-polarity.
Atmanirbhar Bharat and Challenges
- âAtmanirbhar Bharatâ will leverage endogenous technological strength, data and population.
- With the Rafale aircraft purchase, India has recognised that there will be no technology transfer for capital equipment.
- Military Theatre Commands should be tasked with border defence giving the offensive role to cyber, missile and special forces based on endogenous capacity, effectively linking economic and military strength.
- The overriding priority should be infrastructure including electricity and fibre optic connectivity; self-reliance in semiconductors, electric batteries and solar panels; and skill development.
Conclusion
There are compelling geopolitical and economic reasons for shaping the building blocks of the Asia-led order, which is not yet China-led, to secure an âAtmanirbhar Bharatâ, and place in the emerging triumvirate.
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From UPSC perspective, the following things are important :
Prelims level: Gulf countries
Mains level: Paper 2- New possibilities in cooperation with the Gulf countries
The Gulf region offers new possibilities of cooperation to India. The article explains these possibilities.
Context
- External Affairs Minister S Jaishankarâs visit to Bahrain and the United Arab Emirates recently is a good moment to reflect on the structural changes taking place in the Gulf and the regionâs growing influence in the Indian Ocean.
Issues in approach towards the region
- For decades, Indiaâs mercantilism saw the Gulf as a source of oil and a destination for labour exports.
- India’s bureaucratic approach to the Gulf was incapable of a political engagement with the regionâs interests.
- The Indian elite has long viewed the Gulf as a collection of extractive petro-states run by conservative feudatories.
- Although the Gulf kingdoms were eager to build strong and independent political ties with India without a reference to Islamabad, India viewed them through the prism of Pakistan.
Influence in the Indian Ocean
- Delhiâs traditional focus in the Indian Ocean was riveted on Mauritius and the large Indian diaspora there.
- P.M.s visit to Mauritius and Seychelles in March 2015 saw the articulation of a long-overdue Indian Ocean policy and an acknowledgement of the strategic significance of the island states.
- Since then, India has brought Madagascar and Comoros along with Mauritius and Seychelles into the Indian Ocean Division.
- India also unveiled a maritime strategic partnership with France, a resident and influential power in the Western Indian Ocean.
- Earlier this year, Delhi became an observer at the Indian Ocean Commission â the regional grouping that brings Franceâs island territory of Reunion together with Comoros, Madagascar, Mauritius, and Seychelles.
- India has also become an observer to the Djibouti Code of Conduct â a regional framework for cooperation against piracy between the states of the Gulf, the Horn of Africa and East Africa.
5 Areas of new possibilities with the Gulf
1) Protecting India’s interests
- First is the immediate need to shield Indiaâs interests in the post-pandemic turbulence that is enveloping the region.
- As the Gulf considers cutting back on foreign labour, Delhi would want to make sure its workers in the region are insulated.
- Delhi is also eager to improve the working conditions of its large labour force â close to eight million â in the Gulf.
2) New and long-term economic cooperation
- As the Gulf looks at a future beyond oil, they have embarked on massive economic diversification and are investing in a variety of new projects including renewable energy, higher education.
- India must get its businesses to focus on the range of new opportunities in the Gulf.
- India also needs to tap into the full possibilities of Gulf capital for its own economic development.
3) Financial power translating into political influence
- The Gulfâs financial power is increasingly translating into political influence shaping political narrative in the Middle East.
- The influence has been manifest in their successful transformation of the debate on Arab relations with Israel.
4) Influence on regional conflicts
- The Gulf’s ability to influence regional conflicts from Afghanistan to Lebanon and from Libya to Somalia has increased.
- The Gulf today delivers economic and security assistance to friendly states.
- The UAE currently chairs the Indian Ocean Rim Association (IORA) and has been eager to work with India in developing joint infrastructure projects.
- India needs to bring scale and depth to its regional initiatives on connectivity and security in the Indian Ocean.
5) Reforms taking place in the region
- The Gulf seek to reduce the heavy hand of religion on social life, expand the rights of women, widen religious freedoms, promote tolerance, and develop a national identity that is not tied exclusively to religion.
- The UAE has been the leader in this regard.
Consider the question “India’s engagement with the Gulf countries has been limited in several aspects. However, the region offers new possibilities of strategic and cooperation to India. Evaluate these possibilities.”Â
Conclusion
As India seeks to recalibrate it’s ties with the Gulf, the real challenge for South Block is to get the rest of the Indian establishment to discard outdated perceptions of the Gulf and seize the new strategic possibilities with the region.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Construction of dams Brahmaputra river by China
Scarcity of water in India and China
- As India and China continue to grow demographically as well as economically amid increased consumption among its citizenry, both nations face water constraints.
- China, which is home to close to 20 per cent of the worldâs population, has only 7 per cent of its water resources.
- Severe pollution of its surface and groundwater caused by rapid industrialisation is a source of concern for Chinese planners.
- Chinaâs southern regions are water-rich in comparison to the water-stressed northern part.
- The southern region is a major food producer and has significant industrial capacity as a consequence of more people living there.
- India is severely water-stressed as well.
- Similar to China, India has 17 per cent of the worldâs population and 4 per cent of water.
- As in China, an equally ambitious north-south river-linking project has been proposed in India.
Impact on downstream states
- The construction of several dams along the Yarlung (Brahmaputra) river on the Chinese side has been a repeated cause for concern for Indian officials and the local people.
- China has an ambitious plan to link its south and north through canals, aqueducts and linking of major rivers to ensure water security.
- In pursuit of these goals, China, being an upper riparian state in Asia, has been blocking rivers like the Mekong and its tributaries, affecting Southeast Asian countries like Thailand, Vietnam, Laos and Cambodia.
- It has caused immense damage to the environment and altered river flows in the region.
- China sees these projects as a continuation of their historic tributary system as the smaller states have no means of effectively resisting or even significant leverage in negotiations.
Challenges for India
- There are now multiple operational dams in the Yarlung Tsangpo basin with more dams commissioned and under construction. These constructions present a unique challenge for Indian planners.
- 1) Dams will eventually lead to degradation of the entire basin:
- Silt carried by the river would get blocked by dams leading to a fall in the quality of soil and eventual reduction in agricultural productivity.
- 2) The Brahmaputra basin is one of the worldâs most ecologically sensitive zones.
- It is identified as one of the worldâs 34 biological hotspots.
- This region sees several species of flora and fauna that are endemic to only this part of the world.
- The river itself is home to the Gangetic river dolphin, which is listed as critically endangered.
- 3) The location of the dams in the Himalayas pose a risk.
- Seismologists consider the Himalayas as most vulnerable to earthquakes and seismic activity.
- The sheer size of the infrastructure projects undertaken by China, and increasingly by India, poses a significant threat to the populations living downstream.
- Close to a million people live in the Brahmaputra basin in India and tens of millions further downstream in Bangladesh.
- 4) Damming Brahmaputra would result in water security in an era of unprecedented shifting climate patterns.
- This security extends beyond water, as there is the potential to significantly change the flow rate during times of standoffs and high tensions.
Way forward
- Both sides must cease new constructions on the river and commit to potentially less destructive solutions.
- Building a decentralised network of check dams, rain-capturing lakes and using traditional means of water capture have shown effective results in restoring the ecological balance while supporting the populations of the regions in a sustainable manner.
Conclusion
There are alternate solutions to solving the water crisis. Â It is in the interest of all stakeholders to neutralise this ticking water bomb.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Ground level pollution and its impact on agriculture
Mains level: Paper 3- Interplay between agri-subsidies and pollution
Agriculture’s contribution to air pollution
- Agricultureâs contribution to air pollution runs deeper than what happens between crop seasons.
- The Indo-Gangetic plain is also one of the worldâs largest and rapidly-growing ammonia hotspots.
- Atmospheric ammonia, which comes from fertiliser use, animal husbandry, and other agricultural practices, combines with emissions from power plants, transportation and other fossil-fuel burning to form fine particles.
Impact of pollution on agriculture
- It is important to note that agriculture is a victim of pollution as well as its perpetrator.
- Particulate matter and ground-level ozone formed from industrial, power plant, and transportation emissions among other ingredients cause double-digit losses in crop yields.
- Ozone damages plant cells, handicapping photosynthesis, while particulate matter dims the sunlight that reaches crops.
- Agriculture scientist Tony Fischerâs 2019 estimates of the two pollutantsâ combined effect suggest that as much as 30 per cent of Indiaâs wheat yield is missing (Sage Journals, Outlook on Agriculture).
- Earlier, B Sinha et al (2015), in Atmospheric Chemistry and Physics Discussions, found that high ozone levels in parts of Haryana and Punjab could diminish rice yields by a quarter and cotton by half.
Role played by subsidies
- The current system of subsidies is a big reason that there is stubble on these fields in the first place.
- Free power â and consequently, âfreeâ water, pumped from the ground â is a big part of what makes growing rice in these areas attractive.
- Open-ended procurement of paddy, despite the bulging stocks of grains with the Food Corporation of India, adds to the incentives.
- Subsidies account for almost 15 per cent of the value of rice being produced in Punjab-Haryana belt.
- Fertiliser, particularly urea in granular form, is highly subsidised.
- It is one of the cheapest forms of nitrogen-based fertiliser, easy to store and easy to transport, but it is also one of the first to âvolatilise,â or release ammonia into the air.
- This loss of nitrogen then leads to a cycle of more and more fertiliser being applied to get the intended benefits for crops.
Way forward
- We need to shift the nature of support to farmers from input subsidies to investment subsidies.
- This could involve the conversion of paddy areas in this belt to orchards with drip irrigation, vegetables, corn, cotton, pulses and oilseeds.
- All of the above consume much less water, much less power and fertilisers and donât create stubble to burn.
- A diversification package of, say, Rs 10,000 crore spread over the next five years, equally contributed by the Centre and states, may be the best way to move forward in reducing agriculture-related pollution.
- The approach to diversification has to be demand-led, with a holistic framework of the value chain, from farm to fork and not just focused on production.
- On the fertiliser front, it would be better to give farmers input subsidy in cash on per hectare basis, and free up the prices of fertilisers completely.
Conclusion
Taken together, these measures could double farmersâ incomes, promote efficiency in resource use, and reduce pollution â a win-win solution for all.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Key trends in India's economic history
Mains level: Paper 3- Analysing India's economic progress
The article analyses India’s economic trajectory after independence and divides it into five phases. India’s progress is also compared with Pakistan’s as both countries have had much in common.
What drives economic growth
- Examining the experiences of different countries to analysing the growth may seem a promising approach.
- However, generalising from specific experiences can be misleading since ground conditions vary hugely across countries.
- There are two ways to avoid the pitfalls of generalising from specific cases.
- 1) The first is to examine the same country over time to look for changes in outcomes at specific points in time.
- 2) A second approach is to compare countries with shared history, culture and geography.
- If there are stark differences in outcomes between them, then there may be some policy lessons to be drawn.
The Indian subcontinent provides lessons from both approaches. The 73 years of post-Independence India has generated a lot of evidence across different political-economic regimes. This period has also provided us with the contrasting experiences of India and Pakistan, two countries that share history, geography and socio-cultural mores.
5 phases of India’s economic progress in 73 years: first approach
- 1) The first phase was the period 1950-65. This was the Nehruvian period of state-led industrialisation.
- Starting in 1950 annual per person GDP growth averaged 2 per cent during this period.
- This translated to aggregate annual GDP growth of around 4 per cent since the population was growing at close to 2 per cent.
- 2) The second phase of post-Independence India was during 1965-84.
- This period was an unmitigated economic disaster with negative per capita growth.
- The phase was marked with increasing state control of the economy, nationalisation of industry, closing of the economy to trade and a systematic weakening of institutions.
- 3) The third phase is 1984-91 when the government ushered in the first round of economic reforms by liberalising capital goods imports as well as starting industrial de-licensing.
- These reforms were rewarded by a growth take-off. Indiaâs annual per capita GDP growth averaged 3.1 per cent while aggregate GDP grew at 5.2 per cent during 1984-91.
- 4) The period 1991-2004 is typically classified as the liberalisation phase.
- The reform effort was reflected in the 4.9 per cent annual per capita GDP growth during 1991-2004.
- 5) India embarked on a distinctive phase of faster growth post-2004 on the back of large investments in infrastructure.
- Per person GDP growth in the period 2004-2015 averaged 7.7 per cent.
- The corresponding aggregate GDP growth averaged 9 per cent.
- This came at a cost, as a number of these infrastructure projects later caused problems in the banking sector on account of burgeoning NPAs, a problem that continues till today.
Comparison with Pakistan
- In 1950, Pakistanâs per person GDP was almost 50 per cent greater than India that year.
- Due to political uncertainty, Pakistan stagnated throughout the 1950s while a politically stable India grew.
- As a result, by 1960, India had almost caught up with Pakistan in per capita GDP terms.
- Unfortunately, from 1964, India went into two decades of economic stagnation while Pakistan opened up to foreign capital.
- By 1984, Pakistanâs per capita income was more than double that of Indiaâs.
- Pakistanâs slowdown began in the 1980s.
- This period coincided with the reforms in India.
- Nevertheless, it wasnât till as recently as 2010 that Indiaâs per capita GDP finally overtook Pakistan.
4 takeaways
- Â First, openness to trade and private enterprise usually has positive effects on growth.
- Second, rapacious and exploitative democratic systems do not necessarily promote growth. Pakistan in the 1950s, 1990 and post-2010 is a good example.
- Third, the socio-economic environment surrounding religious fundamentalism may be inimical to growth.
- Fourth, degradation of institutions that regulate, arbitrate and enforce laws can be costly.
Conclusion
India’s growth when analysed from both the perspective offers valuable lessons for India and these lessons must guide India’s future economic trajectory.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: RCEP countries
Mains level: Paper 3- RCEP and India's concerns about it
The article examines the significance of the RCEP and India’s concerns over its provision.Â
Significance of RCEP
- Last week, 15 East Asian countries signed the Regional Comprehensive Economic Partnership (RCEP), the largest free trade agreement (FTA) ever.
- In 2019, RCEP members accounted for about 30% of world output.
- More importantly, about 44% of their total trade was intra-RCEP, which is a major incentive for the members of this agreement.
- The deal could contribute to the strengthening of the regional value chains.
Comparing RCEP with Trans-Pacific Partnership (TPP)
- The TPP included several regulatory issues including labour and environmental standards and âanti-corruptionâ.
- All of these issues could raise regulatory barriers and severely impede trade flows.
- In contrast, RCEP includes traditional market access issues, following the template provided by the World Trade Organization (WTO).
- RCEP also includes issues like electronic commerce, investment facilitation that are currently being discussed by WTO members to âreform the multilateral trading systemâ.
Would RCEP be able to realise trade and investment liberalisation?
- In case of trade in goods, RCEP members have taken big strides towards lowering their tariffs.
- However, commitments made by RCEP members for services trade liberalisation do look shallow in terms of the coverage of the sectors.
- Movement of natural persons, an area in which India had had considerable interest, is considerably restricted.
- The areas of investment and electronic commerce, in both of which India had expressed its reservations on the template adopted during RCEP negotiations, the outcomes are varied.
- The text on investment rules shows that it is a work-in-progress.
- The rules on dispute settlement procedures are yet to be written in.
Will India’s concerns get addressed in near future?
- The answer seems to be unambiguously in the negative on two counts.
- 1) Two of the concerns India had raised, namely, the deep cuts in tariffs on imports from China, and provisions relating to the investment chapter, have become even more significant over the past several months.
- 2) Indiaâs Atmanirbhar Bharat Abhiyan is primarily focused on strengthening domestic value chains, while RCEP, like any other FTA is solely focused on promoting regional value chains.
Consider the question “What were India’s concerns about RCEP that resulted in India not signing it? ”Â
Conclusion
This suggests that the prospects of India joining the RCEP in the near future appears bleak.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Challenges to democracy
Democracies across the world are facing several challenges. The article examines these challenges.
Threats to democracy
- Efforts by Donald Trump, to negate the result of the recently held presidential elections, indicates a new set of tactics, previously seen only in dictatorships.
- In the case of the U.S., one of the worldâs oldest democracies, what we are witnessing is a deep divide.
- This division is evident in many other democratic nations today.
- This is true of many other democracies as well and must be viewed as a wake-up call.
- What is evident is that issues of identity, or threats to identity, are becoming an important issue in elections across democracies.
- Democracies already confront such problems, but it will become still more evident as time passes.
- Manipulation of grievances by using psychometric techniques (as done by Cambridge Analytica), and the use of âdeep fakesâ made possible through Artificial Intelligence, further enhances the threat to current notions of democracy.
Troubles to democracy in Europe
- Europe will have to deal with the declining importance of America in global politics.
- An uncertain Brexit will further damage the prospects of both the United Kingdom and Europe.
- Russia, under Vladimir Putin, remains an enigma, for despite its military strength and strategic congruence with China, its future appears increasingly uncertain.
- France displays even greater fragility and French values appear to be undergoing major changes.
- The recent wave of terrorist attacks has been a major trigger, raising questions about long-held secular beliefs.
Return of terrorism
- Terrorism is resurfacing, and with renewed vigour.
- The al-Qaeda is again becoming prominent. The IS, which many thought had been vanquished has returned in full force.
- Recently IS has carried out spectacular attacks in France and in Austria which is a reminder of the transnational character of the threat it poses to democratic countries.
- They combine symbolism with spectacular violence.
- The intent is to shock the public at large, and produce a reaction across the entire Muslim world, reigniting the fading embers of a religio-cultural conflict.
Information manipulation
- Alongside the above issues, there is a growing concern across the globe about increasing efforts to manipulate information in order to perpetuate power.
- Manipulation of information â and also events â to achieve certain desired ends, is becoming the stock-in-trade of many a democratic regime as well.
- Many democratic nations today resort to manipulating data to support or prop up the governmentâs version of events. Informational autocracy is, hence, the latest danger that threatens democracies.
India’s challenges
1) Threat to democracy
- In some regions, especially where mid-term elections are scheduled, as in West Bengal, the atmosphere today is highly polarised.
- The ghosts of the Citizenship (Amendment) Act and the National Register of Citizens have by no means been laid to rest.
- Jammu and Kashmir (J&K) is witnessing a kind of surface calm, but beneath this, there are evident tensions.
- Aggravating this situation are Pakistanâs efforts to push in terrorists in ever larger numbers.
Uncertain external environment
- The downward spiral in its relations with China has not been arrested.
- 15 Asia-Pacific nations, including China, have signed on to the worldâs biggest trade bloc, the Regional Comprehensive Economic Partnership (RCEP) â from which India has been excluded.
- The RCEP, which covers almost a third of the worldâs economy, is perceived as the springboard for future economic recovery across the region.
- India’s absence from RCEP represents a cardinal failure of Indiaâs bargaining strategy.
- Indiaâs isolation is evident from the fact that even a weak Pakistan is pursuing a policy of provocationâ the latest provocation being the holding of Assembly elections in Gilgit-Baltistan.
- India is again being steadily marginalised in Afghanistan, where the control of the Taliban is increasing, with all other players accomodating Taliban.
Consider the question “What are the various challenges faced by the democracies across the world and India is no exception to it. In the context of this, examine the issues facing democracy in India.”
Conclusion
Though democracies across the world are facing several issues, resilience inherent in them will help them clear the chaos created by these issues.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: RCEP
Mains level: Paper 3- Economic liberalisation and its impact on Indian economy
The article counters the argument made by External Affairs Minister S. Jaishankar about the impact of economic liberalisation on India’s economy.
Impact of liberalism on India
- Indiaâs External Affairs Minister S. Jaishankar recently disapproved of free trade and globalisation.
- About FTA’s he said that âthe effect of past trade agreements has been to de-industrialise some sectors.â
- These observations were made days after countries of the Asia-Pacific region signed the Regional Comprehensive Economic Partnership (RCEP) agreement.
- He said that , âin the name of openness, we have allowed subsidi[s]ed products and unfair production advantages from abroad to prevail”
Flaws in the argument
- Â There are several flaws in Mr. Jaishankarâs arguments.
1) India cannot be the part of global value chain
- India is now truly at the margins of the regional and global economy.
- With trade multilateralism at the World Trade Organisation (WTO) remaining sluggish, FTAs are the gateways for international trade.
- By not being part of any major FTA, India cannot be part of the global value chains.
- Indiaâs competitors such as the East Asian nations, by virtue of they being part of mega-FTAs, are in an advantageous position to be part of global value chains and attract foreign investment.
2) Indian economy has bee relatively closed economy
- India is surely a much more open economy than it was three decades ago, globally, India continues to remain relatively closed when compared to other major economies.
- According to the WTO, Indiaâs applied most favoured nation import tariffs are 13.8%, which is the highest for any major economy.
- Likewise, according to the United Nations Conference on Trade and Development, on the import restrictiveness index, India figures in the âvery restrictiveâ category.
- From 1995-2019, India has initiated anti-dumping measures 972 times (the highest in the world) trying to protect domestic industry.
3) Economic survey accepts the benefits of FTAs
- The External Affairs Minister is contradicting governmentâs economic survey presented earlier this year.
- The survey concluded that India has benefitted overall from FTAs signed so far.
- Blaming FTAs for deindustrialisation means ignoring real problem of the Indian industry â which is the lack of competitiveness and absence of structural reforms.
4) India has been a major beneficiary of economic globalisation
- It cannot be ignored that India has been one of the major beneficiaries of economic globalisation â a fact attested by the International Monetary Fund (IMF).
- Post-1991, the Indian economy grew at a faster pace, ushering in an era of economic prosperity.
- According to the economist Arvind Panagariya, poverty in rural and urban India, which stood at close to 40% in 2004-05, almost halved to about 20% by 2011-12.
- This was due to India clocking an average economic growth rate of almost 8%.
Conclusion
Desire to make India a global destination for foreign investment is a pipe dream because it is naive to expect foreign investors to be gung-ho about investing in India if trade protectionism is the governmentâs official policy.
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