Note4Students
From UPSC perspective, the following things are important :
Prelims level: National Plan under DMA 2005
Mains level: Paper 2- Cooperative federalism amid Covid-19.
Federalism is part of Basic Structure (Doctrine) of the Constitution. The article is about the lack of cooperative federalism in some of the Central Government’s actions in its fight against the corona crisis. What are those actions? Read to know…
Opinion of political thinkers on federalism in India
- K.C. Wheare notes, federalism traditionally signifies the independence of the Union and State governments of a country, in their own spheres.
- The members of India’s Constituent Assembly carefully studied the Constitutions of other great federations like the US, Canada, Australia and Switzerland.
- However, they adopted a ‘pick and choose’ policy to formulate a system suited uniquely to the Republic’s need.
- As a result, India’s Constituent Assembly became the first-ever constituent body in the world to embrace what H. Birch and others have referred to as ‘cooperative federalism’.
- ‘Cooperative federalism’ is administrative cooperation between the Centre and the States, and a partial dependence of the States upon payments from the Centre.
- Accordingly, Indian constitutional law expert Granville Austin remarks that despite a strong Centre, cooperative federalism doesn’t necessarily result in weaker States.
- He also said that the progress of the Republic rests upon active cooperation between the two.
Lack of consultation with States under DMA 2005
- The zone classifications into ‘red’ and ‘orange’ has evoked sharp criticisms from several States.
- The States have demanded more autonomy in making such classifications.
- The Disaster Management Act of 2005 under which binding COVID-19 guidelines are being issued by the Centre to the States mandates consultation with the States.
- The Act envisages the creation of a ‘National Plan’ under Section 11, as well as issuance of binding guidelines by the Centre to States under Section 6(2), in furtherance of the ‘National Plan’.
- The ‘National Plan’ then is a broader vision document while the binding guidelines are its enforcement mechanism.
- Now, Section 11(2) of the Act mandates State consultations before formulating a ‘National Plan’.
- And when such binding guidelines are ultimately issued under it, they are expected to represent the views of the States.
- However, the Centre has not formulated the ‘National Plan’, and has chosen instead to respond to COVID-19 through ad hoc binding guidelines issued to States.
- Such guidelines thereby circumvent the legislative mandate of State consultations.
- This selective application of the Act serves to concentrate all decision-making powers with the Centre.
Lack of funds
- The Centre has declared that corporations donating to PM-CARES can avail CSR exemptions, but those donating towards any Chief Minister’s Relief Fund cannot.
- This directly disincentivises donations to any Chief Minister’s Relief Fund.
- And diverts crores in potential State revenues to PM-CARES; and makes the States largely dependent upon the Centre.
- Further, the revenue streams of several States have dried up because of the liquor sale ban; negligible sale of petrol/diesel; no land dealings and registration of agreements.
- States’ GST collections have also been severely affected with their dues still not disbursed by the Centre.
- All this has made it difficult for States to defray expenses of salaries, pensions and welfare schemes.
- As it is the States which act as first responders to the pandemic, supplying them with adequate funds becomes a pre-requisite in effectively tackling the crisis.
- This requires the Centre to view the States as equals, and strengthen their capabilities, instead of increasing their dependence upon itself.
Consider the question-“Cooperative federalism is the key in the country’s fight against the corona pandemic. Critically examine.”
Conclusion
Keeping the spirit of cooperative federalism alive whether in consultation with the States or taking care of their finances is essential as the country is fighting the pandemic. The Centre must realise that we have the best chance of winning the war against pandemic when we are united.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: DMA 2005, Residuary power of the Union legislature.
Mains level: Paper 2- Issues arising out of the use of the DMA 2005 to deal with the pandemic.
This article analyses the legal basis of application of the Disaster Management Act to deal with the pandemic by the Central Government. The Disaster Management Act had been enacted using the residuary power of the Union legislature. So, its application to deal with the pandemic gives rise to certain legal issues. Read to know more about such issues.
Two examples of why centralised approach may be counter-productive?
- One, the Central government has classified all districts in the country as red, orange or green zones.
- This classification was done in a bid to lift lockdown restrictions in an area-specific manner.
- Some States/Union Territories objected to the classification of certain areas/districts as red zones on the ground that these areas are very large.
- They pointed out that there was no need to keep economic activity on hold in an entire district when cases had been reported only from a small portion of that district.
- Two, Kerala, probably the best-performing State in terms of its response to COVID-19, was sent a missive by the Central government to refrain from relaxing restrictions in the State.
- The Central government did not trust the wisdom and judgment of the State government in the matter.
The federal scheme and residuary power to legislate
- Under the federal scheme, Parliament can legislate on matters under the Union List (List I).
- Stage legislatures can legislate on matters under the State List (List II).
- And both Parliament and State legislatures can legislate on matters under the Concurrent List (List III).
- The residuary power to legislate on matters that are not mentioned in either List II or List III vests with Parliament under Article 248 of the Constitution read with Entry 97 of List I.
- Furthermore, the rule of harmonious construction dictates that the entries in the legislative lists must be interpreted harmoniously.
- And in the event of any overlap between two or more entries, the specific subject matter contained in a particular entry must be deemed to have been excluded from another entry which may deal with a more general subject matter.
- Finally, as per Articles 73 and 162, the executive power of the Centre and the States is co-extensive with their respective legislative powers.
- Coextensive legislative and executive power means that the Central and State governments can only take executive actions in matters where Parliament and State legislatures, respectively, have powers to legislate.
So, which list contains Disaster Management?
- Disaster management as a field of legislation does not find mention in either List II or List III.
- Nor does any particular entry in List I specifically deal with this.
- Thus, the Disaster Management Act could only have been enacted by Parliament in the exercise of its residuary powers of legislation under Article 248 read with Entry 97 of List I.
Legal problems in using Disaster Management Act for pandemic
- The Disaster Management Act allows the Centre to issue guidelines, directions or orders to the States for mitigating the effects of any disaster.
- The definition of ‘disaster’ under the Act is quite broad and, literally speaking, would include a pandemic too.
- Such a reading of the Act would vest the Central government with powers to issue directions and guidelines to State governments for dealing with the pandemic in their States.
- However, ‘public health and sanitation’ is a specific field of legislation under Entry 6 of List II.
- This would imply that States have the exclusive right to legislate and act on matters concerning public health.
- Thus, the Centre’s guidelines and directions to the States for dealing with the pandemic trench upon a field of legislation and executive action that is exclusively assigned to the States — public health.
- The Supreme Court has held time and again that federalism is a basic feature of the Constitution and the States are sovereign.
- The Disaster Management Act cannot be applied to pandemics in view of the fact that the power to legislate on public health is vested specifically and exclusively with the States.
- Also, under Entry 29 of List III, both Parliament and State legislatures are competent to legislate on matters involving inter-State spread of contagious or infectious diseases.
- Therefore, theoretically speaking, Parliament would be competent to pass a law that allows the Central government to issue directions to the States to prevent inter-State spread of a disease like COVID-19.
- That law is not the Disaster Management Act which is concerned with disasters in general, and not pandemics in particular.
- ‘Prevention of inter-State spread of contagious and infectious diseases’ being a specific legislative head provided in List III, the same must be deemed to have been excluded from Parliament’s residuary legislative powers.
- Therefore, the Disaster Management Act, which has been enacted under Parliament’s residuary legislative powers, cannot be applied to the prevention of the inter-State spread of contagious and infectious diseases.
Role of Centre under Epidemic Diseases Act 1897
- The Epidemic Diseases Act, 1897, has the objective of preventing “…the spread of dangerous epidemic diseases.”
- However, under this Act, it is the State governments which have the prerogative to take appropriate measures for arresting the outbreak or spread of a contagious or infectious disease in their respective States.
- The Central government’s powers are limited to taking measures for inspecting and detaining persons travelling out of or into the country.
- Even if that Act were to be amended, it would not empower the Central government to issue directions to the States to contain the pandemic within the State.
- It can only deal with the inter-State spread of the disease.
Consider the question, “Use of the Disaster Management Act to deal with the Covid-19 pandemic gave rise to certain legal issues. Examine them.”
Conclusion
Instead of resorting to the Epidemic Diseases Act which gives powers to the States, the Centre has applied the Disaster Management Act. The States are not legally bound to observe the directions/guidelines being issued by the Central government and would be well within their rights to challenge them before the apex court.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Emergency provision dealing with internal disturbance/ Provisions related to ordinances
Mains level: Paper 2- Changes made in labour laws without consultation.
The article examines the changes made in the labour laws by several states. The legal route to make these changes are different. While some states used the Emergency provision, others used the Ordinance route. One major issue with these changes is that these were brought in without consultation.
What legal route was used by the States?
- Changes were made by the several state government in the labour laws dealing with the maximum working hours and other provisions.
- These changes have been made through notifications issued by the State governments and will be applicable for the next three months.
- M.P. has also suspended most provisions of the Industrial Disputes Act, 1946 (except those related to retrenchment and layoffs) for 1,000 days for State undertakings.
- In addition, M.P. issued an ordinance to amend two laws.
- The M.P. Industrial Employment Standing Orders Act will apply to establishments with more than 100 workmen (up from the existing threshold of 50), in line with the Central Act.
- The ordinance also enables the government to exempt establishments from the provision of another Act that provided for a labour welfare fund.
- The Uttar Pradesh government has approved an ordinance that exempts establishments from all labour laws for three years with some exceptions.
- As this will override provisions of some Central laws, it will require the assent of the President or, in effect, the assent of the Central government.
- The question is, was there sufficient consultation before all these changes were made?
Constitutional provisions for the legal route taken: Emergency and ordinance
- As per the Constitution, the legislature has the authority to make laws.
- Such laws could delegate powers to the government which are in the nature of detailing some requirements.
- For example, the Factories Act allows State governments to exempt factories from the provisions of the Act during public emergencies for a maximum period of three months.
- A public emergency is defined as a grave emergency whereby the security of India or any part is threatened by war, external aggression or internal disturbance.
- Most States have used this provision, presumably interpreting the current situation as an ‘internal disturbance’.
- Haryana has used a provision that allows relaxation of work hours “to deal with an exceptional press of work”.
- The Constitution also permits Central and State governments to make laws through the issuance of an ordinance when the legislature is not in session.
- Such a law needs to be ratified by the legislature within six weeks of the beginning of the next session. M.P. and U.P. are using this procedure.
Issues with the changes made
- Usually, any change in an Act follows a rigorous process of public consultation, scrutiny by committees of Parliament, and debates in the House before being approved.
- The changes described here have not gone through such a process.
- However, most of these have a three-month time limit, and any extension would need to be approved by the legislature.
The four labour codes
- The Parliament is consolidating 29 existing laws into four codes dealing with- 1) wages, 2) occupational safety and health, 3) industrial relations,4) social security.
- The first of these has been enacted, the Standing Committee on Labour has submitted the report on the next two, and is examining the last.
- The Code on Occupational Safety and Health does not specify the maximum hours of work but empowers the government to do so.
- The Standing Committee report states that the government agreed to incorporate a provision of maximum eight hours per day with overtime permitted for certain types of industry.
Consider the question “Several States made changes in the labour laws to deal with the problems caused by the corona pandemic. Examine the legal provisions used for making such changes by various States. What are the issues with such changes?”
Conclusion
Given the emergency, the government has to take quick action and change the response as the situation evolves. However, that should not be a reason to exclude the processes of consultation with and scrutiny by elected representatives. The legitimacy of state action in a parliamentary democracy comes from the fact that there is constant oversight and check by elected representatives.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: WTO
Mains level: Paper 3- Changes in trade politics in the US and opportunities for India.
The article focuses on the changes in the US trade politics fueled by the corona pandemic. Also there has been a growing demand for abandoning the WTO. So, amid this shift in the US politics, what are the opportunities for India at the global level?
What went wrong with the WTO: The US point of view
- Latest opposition to the WTO was expressed in a forceful article by a US senator, Josh Hawley.
- In his opinion, corona pandemic expresses the hard truth about the modern global economy: it weakens American workers and empowers China’s rise.
- So, what went wrong?
- Capital and goods moved across borders easier than before but so did jobs. And too many jobs left America’s borders for elsewhere.
- As factories closed, workers suffered, from small towns to the urban core.
- So, he wants US to abandon the WTO.
Rise of trade politics in the US
- Under Trump, the Republican Party has turned from the champion to a critic of free trade.
- The Democratic Party, which embraced globalisation since the early 1990s, has seen the erosion of working-class support.
- Elections this year could reveal if the shifting alignments on trade are now cast in stone or if anti-trade sentiment in America is deep and wide.
What alternatives are suggested by the senator?
- In replacing the WTO, Hawley suggests the following two measures-
- 1) The United States must seek new arrangements and new rules, in concert with other free nations, to restore America’s economic sovereignty.
- 2) This, in turn, involves building a new network of trusted friends and partners to resist Chinese economic imperialism.
How this matters for India?
- India will have to take a fresh look at the global economy battered by the coronavirus.
- India should pay close attention to Hawley’s theme on working with “trusted friends and partners” to restructure international trade.
- Hawley is not alone in articulating this view.
- Reuters reported from Washington that the Trump Administration is “turbocharging” an initiative to rearrange the global supply chains currently centered on China.
- This rearrangement of the global supply chain offers an opportunity for India to lead the future global supply chains.
Consider the question, “Critically analyse the opportunities presented to India by the changes in trade politics in the US”.
Conclusion
Hobbled as it was by shaky political coalitions and preoccupied by multiple domestic challenges, India in the mid-1990s struggled to cope with the profound changes in the global economic order. As the world trade system arrives at a contingent moment a quarter of a century later, India is hopefully better prepared.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: G-7, G-20, BRI etc.
Mains level: Paper 2- Recent changes in the global order that were hastened by the pandemic.
The article examines 7 trends that have been emerging in the global order for quite some time now. The corona crisis has only accentuated these trends. So, what are these trends? read to know more.
1. The rise of Asia
- The first trend which became clear in the aftermath of the 2008 global financial crisis is the rise of Asia.
- Economic historians pointed to its inevitability, recalling that till the 18th century, Asia accounted for half the global GDP.
- The Industrial Revolution accompanied by European naval expansion and colonialism contributed to the rise of the West, and now the balance is being restored.
- The 2008 financial crisis showed the resilience of Asian economies.
- And even today, economic forecasts indicate that out of the G-20 countries, only China and India are likely to register economic growth during 2020.
- Asian countries have also demonstrated greater agility in tackling the pandemic compared to the United States and Europe.
- This is not limited to China but a number of other Asian states have shown greater responsiveness and more effective state capacity.
- Consequently, Asian economies will recover faster than those in the West.
2. Decline of the US
- The second trend is the retreat of the U.S.after a century of being in the forefront of shaping the global order.
- The U.S. played a decisive role in shaping the world, from the World Wars to the leadership of the western world during the Cold War, molding global responses to threats posed by terrorism or proliferation or climate change.
- But recent examples show that interventions in Afghanistan and Iraq have become quagmires that have sapped domestic political will and resources.
- President Donald Trump called for “America first” and during the current crisis, the U.S.’s efforts at cornering supplies of scarce medical equipment and medicines and acquiring biotech companies engaged in research and development in allied states, shows that this may mean “America alone”.
- Moreover, even as countries were losing trust in the U.S.’s leadership, its mishandling at the home of the pandemic indicates that countries are also losing trust in the U.S.’s competence.
3. Weakening unity of the EU
- A third trend is the European Union’s continuing preoccupation with internal challenges.
- This internal disruption is generated three factors: 1) EU’s expansion of membership to include East European states 2) Impact of the financial crisis among the Eurozone members 3) Ongoing Brexit negotiations.
- Threat perceptions vary between old Europe and new Europe making it increasingly difficult to reach agreement on political matters e.g. relations with Russia and China.
- Rising populism has given greater voice to Euro-sceptics and permitted some EU members to espouse the virtues of “illiberal democracy”.
- Adding to this is the North-South divide within the Eurozone.
- This divide was seen when austerity measures were imposed on Greece, Italy, Spain and Portugal a decade ago by the European Central Bank.
- These austerity measures were persuaded by the fiscally conservative Austria, Germany and the Netherlands.
- The EU lacked solidarity when Italy was battling the pandemic alone.
- Further damage was done when Italy was denied medical equipment by its EU neighbours who introduced export controls.
- Schengen visa or free-border movement has already become a victim to the pandemic.
- The EU will need considerable soul searching to rediscover the limits of free movement of goods, services, capital and people, the underlying theme of the European experiment of shared sovereignty.
4. Rise of China
- China’s growing economic role has been visible since it joined the World Trade Organization in 2001.
- Its more assertive posture has taken shape under President Xi Jinping’s leadership with the call that a rejuvenated China is now ready to assume global responsibilities.
- In recent years, the U.S.-China relationship moved from cooperation to competition; and now with trade and technology wars, it is moving steadily to confrontation.
- A partial economic de-coupling had begun and will gather greater momentum.
- The Belt and Road Initiative involves investing trillions of dollars in infrastructure building as a kind of pre-emptive move against any U.S. attempts at containment.
- Even if Mr Xi’s leadership comes under questioning, it may soften some aggressive policy edges but the confrontational rivalry with the U.S. will remain.
5. Failure of multinational institutions
- With COVID-19, international and multilateral bodies are nowhere on the scene.
- The World Health Organisation (WHO) was the natural candidate to lead global efforts against the health crisis but it has become a victim of politics.
- The UN Security Council (UNSC), the G-7 and the G-20 are paralysed when the world faces the worst recession since 1929.
- The reality is that these institutions were always subjected to big power politics.
- During the Cold War, U.S.-Soviet rivalry blocked the UNSC on many sensitive issues and now with major power rivalry returning, finds itself paralysed again.
- Agencies such as WHO have lost autonomy over the decades as their regular budgets shrank.
- Budget constraints forced them to increasingly rely on voluntary contributions sourced largely from western countries and foundations.
- The absence of a multilateral response today highlights the long-felt need for reform of these bodies but this cannot happen without collective global leadership.
6. The oil prices
- The two trends were changing energy markets: 1)Growing interest in renewables and green technologies on account of climate change concerns. 2) The U.S. emerging as a major energy producer.
- Now, a looming economic recession and depressed oil prices will exacerbate internal tensions in West Asian countries which are solely dependent on oil revenues.
7. Stability of West Asia
- Long-standing rivalries in the region have often led to local conflicts but can now create political instability in countries where regime structures are fragile.
Consider the question “The Corona crisis contributed to speeding the failure of a global order which had been faltering before the pandemic afflicted the world. Examine the trends that have been accentuated by the pandemic.”
Conclusion
The vaccine may end the corona crisis when it comes, but the unfolding trends in the geopolitics have been altering the world even before the corona crisis and continue to do so after a pandemic is over.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: IBC 2016 provisions.
Mains level: Paper 3- IBC provisions and need for novel approach to deal with the economic fallout of the pandemic.
In this article the author suggests a new approach to deal with multiple bankruptcies and stressed assets that would come up post COVID. So, what is the new approach and how it is different from the existing IBC? Read further.
Why is speed of resolution important?
- First, because it is the only way to revive the economy.
- As revenues have dried up cash flow problems have cascaded down the supply chain.
- Firms will consequently be unable to restart production unless they first get credit to pay their suppliers and workers.
- But impaired firms cannot get credit and impaired banks cannot provide it.
- So, the entire economy will be stuck unless the balance sheet problem is sorted out.
- Second, speed will also minimise the losses from the COVID crisis.
- The value of bankrupt firms decays rapidly over time, and the bill for this loss will have to be borne ultimately by the government.
- So, speed is necessary to contain the damage to the government’s financial position, which has been badly eroded by the COVID crisis.
- But moving quickly will be difficult.
- The only real mechanism that currently exists to handle stress and bankruptcy is the Insolvency and Bankruptcy Code (IBC) system, which has been suspended for six months.
Why the IBC cannot help much?
- Many have therefore argued for bringing the IBC back into operation as soon as possible.
- Why such a strategy would not be very effective? The system is slow, with many cases taking two years or more; it could easily become overwhelmed completely if it is forced to absorb a large new set of bankrupt firms.
- In addition, the IBC envisages that banks maximise their recoveries by auctioning off the bankrupt firms to the highest bidder.
- But in a nation and indeed a world, where all balance sheets are damaged, it is not obvious who would be able to buy these firms, or at what prices.
- So recovery rates from sales could be low, undermining the objective of the exercise.
- Even if strong bidders could be found, there is a fundamental political, even philosophical, question of whether it is really right to take these firms away from their promoters.
- After all, many of these firms did nothing wrong; they got into financial difficulties because of the corona crisis.
So, what is the solution?
- What is needed is a new set of procedures that can utilise much of the existing IBC framework, but are simple, straightforward, and prompt, with a built-in expiry clause.
- Let’s Call them Special Non-Adversarial Procedures (SNAP).
- As soon as the lockdown is largely over, the IBC creditor committees (CoCs) could meet to assess the new wave of NPAs.
- The largest, most complex cases — say, those with debts exceeding Rs 10,000 crore — would be sent to the IBC for regular treatment.
- But all other cases would be eligible under SNAP
- After all, the wider the set of companies that are put back on their feet quickly, the stronger the recovery will be.
How would the SNAP work?
- Under SNAP, CoCs would, over the next three months, examine delinquent firms’ financial records, checking to see whether they are actually viable.
- If so, these firms would be designated as Lockdown Affected Enterprises (LAEs), eligible under SNAP.
- Since the basis of the designation would be that the firm is fundamentally sound but because of COVID impact, an Insolvency Professional (IP) appointed by the CoC would work with existing management (who would continue to run the firm) to arrange for interim finance.
- Then, the IP would assess how much of a debt reduction the firm needs, and within three months would present a specific proposal to the CoC.
- If the CoC can reach a two-third majority in favour of the proposal, the promoter would keep the firm, while the firm would be granted immediately released from bankruptcy.
- Since the National Company Law Tribunal (NCLT) is already overloaded, it would not be involved at all in SNAP.
- If the CoC cannot reach agreement within the three-month deadline, or if at any subsequent point the firm defaults on its newly reduced debt, it would be sent to the IBC for resolution.
- SNAP would be disbanded by end-December 2020.
Checks and balances under SNAP
- Such a system would have a series of checks and balances, to prevent firms from securing undeserved debt reductions.
- Banks would need to certify that defaulters are truly LAEs.
- IPs would need to certify the size of the debt reduction.
- A large majority of creditor banks would need to agree to the IP’s proposal.
What should be the role of the government in SNAP?
- With these checks and balances in place, the government should then commit to two things.
- First, it should provide some legal cover, ensuring that bankers would not be subject to investigations by the anti-corruption agencies, as long as they followed the LAE rules.
- Second, the public sector banks would be compensated for the costs of the reduction in the value of the asset, automatically and fully.
Major advantage of SNAP
- Besides speed, SNAP would have one further major advantage.
- It would reduce the adversarial nature of the IBC process, arising because promoters are forced to cede their firms.
- Under the proposed system, promoters would not only have incentives to cooperate; they would actually want to take the initiative, applying for LAE designation themselves, in the hopes that they could get back to business as soon as possible.
- Such a system might seem difficult to envisage, but it is certainly feasible: It is a design feature under Chapter 11 of the American bankruptcy act.
- If SNAP succeeds, some of the special procedures could be introduced permanently into the IBC framework, adding a new dimension: Not just liquidation and rehabilitation under new promoters but rehabilitation under existing management.
Way forward
- After SNAP, repair of the financial system would have to go back to addressing the long-standing problems, which will have been aggravated by the crisis.
- Firms that were unviable even before the COVID crisis would be sent directly to the IBC, but with the IBC reformed.
- The government should issue guidelines focusing on the following three-
- 1. Focusing the COCs on the goal of maximising value, disregarding non-commercial objectives.
- 2. Directing the NCLT courts to focus on the CoCs’ adherence to the procedure rather than on the merits of their decisions.
- 3. Increasing competition in the auction by allowing promoters to bid for their assets, as long as they have not been declared wilful defaulters.
- For the power and real estate sectors, a sui generis approach via the creation of a bad bank is still the best way forward.
- Real estate resolutions need to take into account the interests of home-owners, something that is almost impossible to do under the IBC.
Consider the question, “Economic revival after the pandemic would require some tweaks in the IBC as it was not designed to handle such situations. Suggest the ways to handle the bankruptcies more effectively and changes that are desired in the IBC.”
Conclusion
Introducing three-pronged strategy quickly would set the stage for the economic recovery of India: 1) Special, expedited, non-adversarial and time-bound bankruptcy procedures (SNAP) for COVID-affected firms 2) A reformed IBC focused squarely on loss-minimisation 3)Bad banks for stressed assets in the power and real estate sectors.
Back2Baciscs: What is Insolvency and Bankruptcy Code-2016?
- The Code creates time-bound processes for insolvency resolution of companies and individuals. These processes will be completed within 180 days. If insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors.
- The resolution processes will be conducted by licensed insolvency professionals (IPs). These IPs will be members of insolvency professional agencies (IPAs). IPAs will also furnish performance bonds equal to the assets of a company under insolvency resolution.
- Information utilities (IUs) will be established to collect, collate and disseminate financial information to facilitate insolvency resolution.
- The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for companies. The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.
- The Insolvency and Bankruptcy Board of India will be set up to regulate functioning of IPs, IPAs and IUs.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: GVA, Fiscal deficit
Mains level: Paper 3- Extent of damage to various sectors of the economy and challenges ahead for the government.
Various projections of growth paint a grim picture of the Indian economy as well as the global economy. This article analyses the sector-wise impact and comes with the GVA projections for 2020-21. The government has to deal with serious challenges like financing huge fiscal deficits. So, what will be the growth rate for 2020-21 and what will be the size of GVA? Read to know!
Projections of growth and uncertainty
- Various institutions have assessed India’s growth prospects for 2020-21 ranging from 0.8% (Fitch)to 4.0% (Asian Development Bank).
- This wide range indicates the extent of uncertainty and tentative nature of these forecasts.
- The International Monetary Fund (IMF) has projected India’s growth at 1.9%, China’s at 1.2%, and the global growth at (-) 3.0%.
- The actual growth outcome for India would depend on: 1) the speed at which the economy is opened up 2) the time it takes to contain the spread of virus, and, 3) the government’s policy support.
Health of India economy before the crisis
- India slid into the novel coronavirus crisis on the back of a persistent economic downslide.
- There was a sustained fall in the saving and investment rates with unutilised capacity in the industrial sector.
- In 2019-20, there was a contraction in the Centre’s gross tax revenues in the first 11 months during April 2019 to February 2020, at (-) 0.8%.
- These trends continue to beset the Indian economy in this crisis.
Growth prospects for 20-21 from the output side
- In 2019-20, which would serve as the base year, India may show GVA growth of about 4.4%,
- This is well below the Central Statistics Office’s second advance estimate of 9%.
- The IMF’s GDP growth estimate for 2019-20 is at 2%.
- GVA is divided into eight broad sectors. Although all sectors have been disrupted, some may be affected less than the others. We divide the output sectors in four groups.
- Group A- This group is likely to suffer minimum disruption.
- Agriculture and allied sectors, and public administration, defence.
- Despite some labour shortage issues, agriculture sector may show near-normal performance.
- The public and defence services have been nearly fully active, with the health services at the forefront of the the COVID-19 fight.
- For the group A sectors, it may be possible to achieve 90% of the 2019-20 growth performance.
- Group D- This group is likely to suffer maximum disruption.
- This includes, trade, hotels, restaurants, travel and tourism under the broad group of “Trade, Hotels, Transport, Storage and Communications”.
- This sector may be able to show 30% of 2019-20 growth performance.
- Group B
- This comprises sectors which may suffer average disruption showing 50% of 2019-20 growth performance.
- These sectors are mining and quarrying, electricity, gas, water supply and other utility services, construction, and financial, real estate and professional services.
- Group C
- In this group come manufacturing which has suffered significant growth erosion in 2019-20.
- It is feasible to stimulate this sector by supporting demand.
- In this case a 40% performance factor on the average growth of the preceding three years is applied.
So, what are the estimates for 2020-21 GVA?
- Considering these four groups together, a GVA growth of 2.9% is estimated for 2020-21.
- Realising this requires strong policy support, particularly for the manufacturing sector which has a weight of 17.4%.
- It is also based on the assumption that the Indian economy may move on to positive growth after the first quarter.
- In the first quarter, GVA growth will be negative.
Policy support for the growth
- Monetary policy initiatives undertaken so far include a reduction in the repo rate to 4.4%, the reverse repo rate to 3.75%, and cash reserve ratio to 3%.
- The Reserve Bank of India has also opened several special financing facilities.
- These measures need to be supplemented by an appropriate fiscal stimulus.
- Cash-constrained central and State governments have taken expenditure reducing measures by announcing freezing of enhancements of dearness allowance and dearness relief.
- This may result in savings of ₹37,000 crore for the Centre and about ₹82,000 crore for the States, together amounting to 6% of GDP.
- There is also talk of substantially reducing non-salary defence expenditure.
- With lower petroleum prices, fertilizer and petroleum subsidies may be reduced.
- These expenditure cuts are contemplated to keep the fiscal deficit under some control.
Fiscal stimulus and fiscal deficit
- Fiscal stimulus can be of three types:
- 1) Relief expenditure for protecting the poor and the marginalised.
- 2) Demand-supporting expenditure for increasing personal disposable incomes or government’s purchases of goods and services, including expanded health-care expenditure imposed by the novel coronavirus, and,
- 3) Bailouts for industry and financial institutions.
- The Centre had earlier announced a relief package of ₹1.7-lakh crore.
- The Centre’s budgeted fiscal deficit of 3.5% of GDP may have to be enhanced substantially to 1) make up for the shortfall in budgeted revenues; 2) account for a lower than projected nominal GDP for 2020-21, 3) provide for a stimulus.
- Thus, the Centre’s fiscal deficit may increase to 6.0% of GDP.
- Expenditure on the construction of hospitals, roads and other infrastructure and purchase of health-related equipment and medicines require prioritisation.
- These expenditures will have high multiplier effects.
- Similar initiatives may be undertaken by the State governments which may also enhance their combined fiscal deficit to about 0% of GDP to account for 3.0% of GDP under their respective Fiscal Responsibility Legislation/Law and to provide for the shortfall in their revenues and some stimulus.
Challenges
- Financing of the fiscal deficit poses a major challenge this year.
- On the demand side, the Central (6.0%) and State governments (4.0%) and Central and State public sector undertakings (3.5%).
- These together present a total public sector borrowing requirement (PSBR) of 13.5% of GDP.
- Against this, the total available resources may at best be 9.5% of GDP.
- The gap of 4.0% points of GDP may result in increased cost of borrowing for the Central and State governments.
Consider the question, “Examine the sector-wise damage caused to the economy due to Covid-19 pandemic. What were the fiscal and monetary measures taken to mitigate the damage and challenges faced by the government in meeting the required revenue demands.”
Conclusion
The gap in requirement of resources and availability may be bridged by enhancing net capital inflows including borrowing from abroad and by monetising some part of the Centre’s deficit. The monetisation of debt can at best be a one-time effort. This cannot become a general practice.
Back2Basics: What is GVA?
- GVA it is a measure of total output and income in the economy.
- It provides the rupee value for the amount of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services.
- It also gives sector-specific picture like what is the growth in an area, industry or sector of an economy.
- While GVA gives a picture of the state of economic activity from the producers’ side or supply side, the GDP gives the picture from the consumers’ side or demand perspective.
- Both measures need not match because of the difference in treatment of net taxes.
- GDP = GVA + taxes on products – subsidies on products
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Changing global order presents opportunities for India.
The world is going through a transition phase. We are experiencing the rise of new powers and the decline of the old. India has to navigate its path through this changing order keeping its interests in mind. The double opportunity in current scenario for India is explained in the article. To know more about it, continue reading.
The changing global stage
- The world today is fragmenting and slowing down economically.
- Asia-Pacific is the new economic and political centre of the world with the rise of China, India and other powers — Indonesia, South Korea, Iran, Vietnam.
- Rapid shifts in the balance of power in the region have led to arms races and the US’s “America First” attitude has led to rising uncertainty.
- China-U.S. strategic contention is growing, uninhibited so far by their economic co-dependence.
- As China seeks primacy in a world so far dominated by the U.S., the world faces a destabilising power transition which may or may not be completed.
What should India’s response be to the new situation?
Alliance with the US?
- Many experts advocate that India should enter into an alliance with the U.S in the wake of rising China.
- But India is much greater and more resilient than these people think.
- Also, the aim of foreign and security policies of India has been the pursuit of strategic autonomy for India.
- Thus, in the present situation, India should retain the above initiative and not get entangled in others’ quarrels. (i.e. the US-China quarrel)
- Also, India should focus on pursuing its own national interest in this disorganized and uncertain world by creative diplomacy and flexibility.
- An alliance seems to be exactly the wrong answer.
China challenge
- One way to handle China could be to see whether the two countries can evolve a new modus vivendi.
- This new modus vivendi shall replace the one that was formalised in the 1988 Rajiv Gandhi visit.
- The old framework is no longer working and the signs of stress in the relationship are everywhere.
- The more India rises, the more it must expect Chinese opposition.
- So, India will have to work with other powers to ensure that its interests are protected in the neighbourhood, the region and the world.
- The complexity of India-China relations suggests there is a scope for new modus vivendi.
- This would require a high-level strategic dialogue between the two sides about their core interests, red lines, differences and areas of convergence.
What India can do to keep the region multi-polar?
- As U.S. is withdrawing from the world, it will no longer be the upholder of international, economic and political order.
- There is uncertainty over how the US will choose to deal with China.
- India must work with other powers to ensure that this region stays multi-polar and that China behaves responsibly.
Double opportunity for India
- 1. Opportunity in the US-China contention
- US-China contention will continue in future. Hence, both China and the U.S. will look to put other conflicts (eg: conflicts with India on trade or border issue) and tensions on the back burner.
- This effect is already perceptible in the Wuhan meeting between China’s President Xi Jinping and Mr. Modi in early 2018.
- And the apparent truce and dialing back of rhetoric by both India and China.
- 2. Opportunity to Change national security Structures
- Today, India is more dependent on the outside world than ever before.
- It relies on the world for energy, technology, essential goods like fertilizer and coal, commodities, access to markets, and capital.
- Adding the new security agenda and the contested global commons in outer and cyberspace and the high seas to India’s traditional state-centred security concerns gives India a sense of insecurity.
- So, India needs to adapt to the changes and avoid imitating China.
Consider the question-“The global order is experiencing geopolitical churn, new powers are rising and older are staring at the decline. In such a scenario, examine the opportunities India can explore in the context of the US-China contention”.
Conclusion
India risks missing the bus to becoming a developed country if it continues business and politics as usual. The most important improvement that India needs to make concerns its national security structures and their work — introducing flexibility into India’s thinking and India’s structures. For change is the only certainty in life.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Adoption of technology by judiciary in its functioning.
COVID pandemic has been changing many aspects of our life and forcing us to innovate or embrace the novel changes. The judiciary is not immune to this change. This article advocates for the adoption and popularization of online court. But there were several attempts at the adoption of technology in the working of courts even before the pandemic. Time has now come to its adoption on a wider scale.
Three types of courts in our justice delivery system
- First, conventional courts located in court complexes where judges, lawyers and litigants are physically present.
- Second, online courts where the judge is physically present in the courtroom but the lawyer or litigant is not.
- This is the present arrangement, except that now the courtroom is the residential office of the judge, due to the lockdown.
- Third, virtual courts where there is no judge, lawyer or litigant and a computer takes a decision based on the inputs of the litigant.
Pilot project with Tihar Jail
- The pilot was for dealing with routine remand cases of prisoners.
- The procedure postulated prisoners being produced in court, not physically but through video conferencing (VC), hence an online court.
- The pilot project started tentatively with some hiccups but proved to be a success.
- Now several courts have adopted the online process with varying degrees of commitment.
District courts and High Courts’ adoption of online route
- A few district judges have taken a step forward and recorded the statement of parties in cases of divorce by mutual consent.
- As of now, several such cases, including those involving NRIs, are dealt with through VC in online courts.
- Punjab and Haryana judges have gone even further ahead. The online courts record the expert evidence of doctors from PGIMER through VC.
- This has freed the doctors from time-consuming trips to the courts and has resulted in savings of several crores for the exchequer.
- A determined and concerted effort is necessary to popularise online courts at the district level.
- Some high court judges in Delhi and Punjab and Haryana have completely dispensed with paper.
- In these high courts, everything is on a soft copy, through e-Filing and scanned documents.
- Lawyers and judges have made necessary adjustments to the new regime and the cases are conveniently heard and decided in “paperless courts”.
- A few other high courts initiated similar steps, but have yet to institutionalise “paperless courts”.
What are the problems?
- Unfamiliarity with the medium of communication is the major issue. Judges are simply not used to consciously facing a camera generally and in particular while hearing a case.
- Similarly, lawyers find it difficult to comfortably argue while seated.
- Body language, facial expressions, the tone and tenor, both of the judge and the lawyer, make for important signals and clues which cannot be captured in VC.
- Some technical problems in conducting online hearings have also surfaced. The bandwidth is not adequate or stable enough.
- The picture sometimes breaks or gets frozen and the voice often cracks.
- Consultations are also a problem. Lawyers occasionally need to consult their client or the instructing advocate; judges also need to consult each other during a hearing.
- Attention needs to be paid to these real-time issues otherwise lawyers will harbour misgivings about a fair hearing.
- The chairman of the Bar Council of India has voiced a concern that 90 per cent of the lawyers are not computer literate or tech-savvy.
eCourts Project: A virtual court
- A virtual court is a unique contribution of the eCourts Project.
- A pilot virtual court was launched in August 2018 in Delhi for traffic offences and it has been a great success.
- Virtual courts have been successfully tried out in Delhi, Haryana, Maharashtra and Tamil Nadu.
- A virtual court is a simple programme through which a person can find out if a challan has been issued to him or her through a search facility.
- If a challan has been issued, the details are available online and the person may plead guilty or not guilty.
- On a guilty plea, the minimum fine is imposed and on a not-guilty plea, the case is electronically transferred to the traffic court for trial.
- At the end of the day, a judge reviews the cases and disposes of them electronically depending on the option exercised.
- One judge is all it takes to manage the virtual court for Delhi or an entire state.
- With the launch of virtual courts, the daily footfalls to the courts have drastically reduced and thousands have pleaded guilty and paid the fine electronically.
Potential of the virtual courts
- The virtual court system has the potential of being upscaled and other petty offences attracting a fine such as delayed payments of local taxes or compoundable offences can also be dealt with by virtual courts.
- This will ease the burden on conventional courts and therefore must be strongly encouraged.
Consider the question- “Covid-19 pandemic has been forcing judiciary for faster adoption of technology. Discuss the issues and advantages of the adoption of technology such as video conferencing by the judiciary”
Conclusion
Post lockdown, justice delivery will certainly undergo a transformation. And judges, lawyers and litigants will need to adapt to the new normal. Several countries and courts have made adjustments not only for the period of the pandemic or lockdown but also for the future. We should certainly not be left behind but must also make a roadmap to meet the challenge.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Transforming military
The COVID blaze caused economic disruption and now even the military is feeling the heat. The military is grappling with multiple issues like freezing of fresh capital acquisition and delay in procurement. But this could also be considered as an opportunity to transform the Indian military. 4 areas where this transformation could start are discussed in this article. Read to know more.
The difference in approaches to security
- Pakistan’s approach: Pakistan stagnates in an existential-threat-based and India-centric approach to national security.
- What is China’s approach? China’s expansive global strategy and unbridled capability-based development surge have overcome the dangers of direct competition with the US.
- It has closed the gap through an “indirect approach to international security”.
- This indirect approach looks at building on strengths in areas such as cyberspace, non-contact warfare, economic and diplomatic coercion.
So, what should be India’s approach to security?
- Strategic guidelines for India’s must shift from a threat-based methodology to a multi-disciplinary capability.
- An outcome-based orientation to fit with the nation’s power aspirations.
4 most critical means to kick-start the transformation:
1. Creation of indigenous defence capability
- Doing this without brushing away the short and medium-term requirement of selective imports will be the key to a calibrated march to self-sufficiency.
2. Leadership
- India’s military leadership is very hierarchical and sequential in its approach.
- However, this same leadership has superb operational skills and possesses a quick understanding of technology, tactics, techniques and procedures.
- Consequently, strategic leaders need to be identified and their transition towards becoming more than mere executors of operational plans and campaigns needs to be enabled.
- Multi-disciplinary thinking, lateral assimilation and a world-view are among the specific skill-sets that need to be nurtured.
3. Training and Education
- Training and education form the next two silos in the process of transformation.
- The US example: Several military officers at the colonel level — fresh out of war colleges and the university environment where they spend a year of education (not training) — are posted at the Pentagon and NATO HQ.
- Here, they work alongside civilians, politicians, lawmakers, not forgetting their own joint leadership.
- In such an environment, it is not difficult to mark, train and recognise talent in ways that go beyond the mere rank structure.
- It is high time India goes down that road because even though economic globalisation may be on hold for a while post-COVID-19, there is going to be a flattening of the world from a security perspective.
- There will be common threats that would need to be fought jointly by nations.
- The three pre-requisites in these silos will be an amalgam of 1)service-centric and joint operations expertise, 2) operational acumen in a global environment, and 3) broad-based education that develops intellectual capital.
- Training in the Indian military is top-notch and needs a little tweaking to help officers and men understand the rules of engagement in a Volatile, Uncertain, Complex and Ambiguous (VUCA) world.
- It is diversified education at all levels of leadership that is a weak area.
4. Jointness and integration
- Finally, the silo of jointness and integration without losing identities and compromising competencies is an outcome that needs to be chased down with focus and determination.
Consider the question based on the issues discussed in the article “Strategic guidelines for India’s security managers must shift from a threat-based methodology to a multi-disciplinary capability and outcome-based orientation to fit with the nation’s power aspirations. Based on some expert committee reports, discuss the ways which the Indian military follow to achieve the transformation to satisfy the nation’s power aspirations.”
Conclusion
Some difficulties caused to the military due to COVID pandemic should be considered as an opportunity. It should be an opportunity to evolve a transformational culture in the Indian military. This should be based on clear political guidelines driven by existing and futuristic capabilities, expected strategic outcomes and anticipated strategic challenges.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Perpetual bonds.
Mains level: Paper 3- What are the option available with the government to raise the money to fight the covid pandemic?
The government is exploring ways to raise money to deal with the destruction caused by COVID pandemic. One of the suggestion is the monetisation of fiscal deficit. But this article looks into an alternative approach of issuing bonds based on the idea of Consol bond issued by the British government during WW 2. So, how much amount needs to be raised? and why a perpetual bond like Consol bond is a suitable option for India? Read to know!
A gathering financial storm
- India projected a deficit of ₹7.96-lakh crore in the Budget before the pandemic.
- Adding to the above concern: 1) Off-balance sheet borrowings of 1% of GDP. 2) The overly excessive target of ₹2.1 lakh crore through disinvestments.
- Thus, financial deficit number is set to grow by a wide margin owing to corona crisis.
- There will be revenue shrinkage from the coming depression that will most certainly be accompanied by a lack of appetite for disinvestment.
Need for stimulus package and measures taken by the RBI
- In addition to the expenditure that was planned, the government has to spend anywhere between ₹5-lakh crore and ₹6-lakh crore as a stimulus package.
- The stimulus provided by the government so far and recent announcements by the Reserve Bank of India (RBI) achieved little.
- All the RBI’s schemes are contingent on the availability of risk capital, the market for which has completely collapsed.
- The government and the RBI have tried several times to increase lending to below investment grade micro, small and medium enterprises, but have come up short each time.
- Furthermore, while the 60% increase in ways and means limits for States is a welcome move, many States have already asked for doubling the limits due to the shortages in indirect taxation collections from Goods and Services Tax, fuel and liquor.
- The government and the central bank need to understand that half measures will do more harm than good.
What is the Consol Bond?
- Consol bond is a form of British government bond that has no maturity and that pays a fixed coupon.
- Consols are basically rare examples of actual perpetual bonds.
- The bonds were issued in 1917 as the government sought to raise more money to finance the ongoing cost of the First World War.
So, why bond like Consol Bonds is a good option for India?
- There is no denying the fact that the traditional option of monetising the deficit by having the central bank buy government bonds is one worth pursuing.
- Citizens’ active participation is ensured in Consol Bond type alternative.
- Furthermore, with the fall of real estate and given the lack of safe havens outside of gold, the bond would offer a dual benefit as a risk-free investment for retail investors.
- When instrumented, it would be issued by the central government on a perpetual basis with a right to call it back when it seems fit.
- An attractive coupon rate for the bond or tax rebates could also be an incentive for investors.
- The government can consider a phased redemption of these bonds after the economy is put back on a path of high growth.
The solution of bond offered here could be a valuable addition in points to the answer to the question which asks about the ways to raise money. Consider the question, “Economic devastation caused by the COVID pandemic has forced the government to explore the various ways to raise the money. Discuss the options available with the government and issues associated with the options.”
Conclusion
Politicians and epidemiologists across the world have used the word “war” to describe the situation the world is currently in. So, to raise the money to fight this war against Covid-19, we can take the cue from past and issue bond based on the Consol bond.
Back2Basics: What is fiscal deficit?
- A fiscal deficit is a shortfall in a government’s income compared with its spending.
- The government that has a fiscal deficit is spending beyond its means.
- A fiscal deficit is calculated as a percentage of gross domestic product (GDP).
- There can be different types of deficit in a budget depending upon the types of receipts and expenditure we take into consideration. Accordingly, there are three concepts of the deficit, namely-
- Revenue deficit = Total revenue expenditure – Total revenue receipts.
- Fiscal deficit = Total expenditure – Total receipts excluding borrowings.
- Primary deficit = Fiscal deficit-Interest payments.
- Primary deficit shows how much government borrowing is going to meet expenses other than interest payments.
- Thus, zero primary deficits mean that the government has to resort to borrowing only to make interest payments.
- To know the amount of borrowing on account of current expenditure over revenue, we need to calculate the primary deficit.
- Thus, the primary deficit is equal to fiscal deficit less interest payments.
Perpetual Bonds
- A perpetual bond, also known as a “consol bond” or “prep,” is fixed income security with no maturity date.
- This type of bond is often considered a type of equity, rather than debt. One major drawback to these types of bonds is that they are not redeemable.
- However, the major benefit of them is that they pay a steady stream of interest payments forever.
- Perpetual bonds exist within a small niche of the bond market.
- This is mainly due to the fact that there are very few entities that are safe enough for investors to invest in a bond where the principal will never be repaid.
- AT-1 bonds which were recently in news due to YES bank failure is an example of a perpetual bond.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Fiscal deficit.
Mains level: Paper 3- Stimulus package to tackle the covid-19 impact.
There are many suggestions and expectations around the stimulus package deal to revive the economy crippled post corona pandemic. While everyone agrees over the need of stimulus but there are several opinions and suggestion around the various aspects of the package like size, time, source of revenue etc. But we must be mindful of the pitfalls and constraints while thinking about the stimulus package. So, what are the suggestion and expectation and what are the limitations? Read to know!
1. Supply-side constraints on stimulus
- It is argued that a fiscal stimulus package has to follow the timeline.
- But you cannot ‘stimulate’ an economy during a supply-side lockdown.
- And that there are ‘announcement effects’ — both good and bad — that go with the stimulus.
- So, any ‘good stimulus’ can only come into effect post lockdown and extensive consultations are on with everyone for that.
2. What should be the size of the stimulus package?
- While thinking about the stimulus, we cannot forget that government revenues too will be seriously hit.
- The government revenue will be hit by 2-3% of GDP, given that disinvestment target itself is 1% of GDP and the realisation is likely to be close to zero in the current financial year.
- So, the effective fiscal deficit is going to be somewhere around 7.5 % if you take into account all the off-balance sheet borrowings.
- The U.S. government has set aside $2 trillion for bailouts or 9% of its GDP.
- India’s starting point is going to be at around 7.5% of GDP fiscal deficit, then how much more can we afford on top of that?
- On top of this is all the ‘merit expenditure’ on health and direct income support to the poor cannot be reduced.
- Can we still formulate a stimulus package comprising 10% of GDP, to be footed by the Central government alone?
Monetising the deficit and debt-to-GDP ratio
- From 1947 to 1997, the Central government always routinely monetised its deficit, without leading to high rates of inflation, much less hyperinflation.
- The Fiscal Responsibility and Budget Management (FRBM) limits are hardly a success and routinely all governments have broken the barrier.
- Other countries with huge debt-to-GDP ratios like Japan (>200%) and U.S. (125%) get away with barely a rap on the knuckles.
- But India is pulled up for minor slippages on a 70% debt-GDP ratio.
3. Should we pay attention to needs and forget about affordability?
- Some have argued that bailouts should be based on need and not affordability.
- Can printing money be a solution out of this situation?
- Possible dangers of printing money: The currency could plunge, inflation soar high and rating agencies could downgrade us to junk.
- So, shouldn’t there be a more nuanced approach to what constitutes a ‘good’ stimulus?
4. The problem of low credit flow despite high liquidity
- There is a lot of liquidity in the economy, but limited credit is flowing due to anaemic lending.
- Thus, another mantra being espoused is that bank managers should be incentivised to lend and the government should indemnify loans given during this period.
- This could well lead to bogus companies springing up overnight to grab the stimulus in collusion with banks.
- The government owes about ₹1 lakh crore on tax refunds and also had promised to make up for any difference to the States, if the GST did not grow by 14% per annum.
- This is the time for it to transfer this to the States as a grant, for one year, to offset the revenue loss to States.
5. Should we go to the IMF?
- There is talk of going to the International Monetary Fund (IMF).
- Do we really need the IMF’s bailout which comes with conditions when there is no foreign exchange crisis for financing rupee expenditure?
- Moreover, there is a perceived global stigma attached to doing so.
- Won’t the conditionality-led cure be worse than the disease?
Consider the following question based on the issue “Economic crises accentuate the role of governments. Covid-19 has not been different. In light of the above statement, discuss the various issues that the government faced while coming up with a stimulus package to revive the economy. What are the sources of revenue to be tapped by the government?”
Conclusion
Fate is what happens to us. Destiny is what we make in spite of our fate. India’s destiny appears relatively safe, if we cast the mind’s eye around the globe. Lifting the lockdown will be the first step towards a good stimulus and one does need to un-handcuff a billion people to save their lives too.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: 73rd and 74th Constitutional Amendments
Mains level: Paper 2- Need for strengthening the panchayat raj institutions in the letter and spirit enshrined in the Constitution.
The article brings to the fore untapped potential held by the panchayats and municipalities. However, there is a need for devolution in letter and spirit by the states to tap this potential. The article explains how the panchayats and municipalities could contribute effectively in the fight against Covid-19.
Cooperative federalism amid COVID-19
- An unintended but welcome consequence of the struggle against COVID-19 is that the “confrontational federalism” is on the decline with the revival of “cooperative federalism”.
- There is a realisation that there is no way the COVID-19 situation can be tackled except through a measure of cooperation between the Centre and the states.
- Consultative process: The Centre is offering flexibility to states to adopt guidelines to their respective circumstances and states are accepting guidelines from the Centre.
- A principal reason for Kerala’s amazing performance in “flattening the curve” is their robust system of effective devolution. Such devolution helped the Kudumbashree programme to function in association with the panchayats.
The concept of 3 tier devolution: Centre-State-Panchayats
- Article 243G provides that state legislatures “may, by law, endow the Panchayats with such powers and authority as may be necessary to enable them to function as institutions of self-government”.
- This means state governments cannot and must not treat panchayats as extensions of the state government but as “institutions of (local) self-government”.
- The logic of “cooperative federalism” is that states must function not as implementation arms of the central government but as autonomous units within the federation.
- By the same logic panchayats too must be conceived not as an extension of state governments but as “units of self-government”.
- It is thus that panchayats need to be brought into the three-tier devolution system envisaged in the Constitution: Centre-State-Panchayats (and municipalities).
How could devolution help in the fight against Covid-19?
- In line with the rising cooperation between the Centre and the states, the focus should be on further devolution in keeping with the constitutional obligations under the 73rd and 74th amendments.
- The starting point could best be Entry 23 of the Eleventh Schedule that reads, “Health, sanitation, including hospitals, primary health centres and dispensaries”
- Entry 23 is among the list of 29 subjects illustratively set out for devolution to the panchayats, subject to conformity legislation being enacted by state legislatures.
- All state legislation has included this subject for devolution.
- Therefore, empowering the panchayats in this regard with functions, finances and functionaries is now a statutory obligation under state law under Article 243G.
- With the migrant workers returning to their native villages, it is important to fully involve village panchayats and municipalities as “institutions of self-government” – 243W in the anti-COVID-19 campaign.
- Entry 28 of the Eleventh Schedule mentions the “public distribution system” as among the subjects for devolution.
- There are many other entries in the Schedule that are relevant to this exercise.
- There is an army of 32 lakh elected representatives in the panchayats and about two lakh more in the municipalities to contribute in the fight against Covid-19.
- Well over a third of them, some 10-12 lakh, are drawn from the Scheduled Castes and Tribes and, therefore, in touch with the most destitute in every village and town.
- There are some 14 lakh women who have established themselves by election as village leaders.
- Imagine a constructive role such women can play as “front-line workers” in the battle against the coronavirus.
- The most important requirement is planning to receive the migrant labour influx.
- Last-mile delivery can only be comprehensively ensured by empowered panchayats and municipalities reporting to their respective gram sabhas and ward sabhas mandated under Articles 243 A and 243 S.
- Planning for withstanding the ingress of COVID-19 requires the full deployment of the mechanisms for district planning envisaged in Article 243 ZD.
Consider the question asked by the UPSC in 2018-“Assess the importance of the Panchayat system in India as a part of local government. Apart from government grants, what sources the Panchayat can look out for financing developmental projects?”
Conclusion
As the cooperative federalism underlines India’s fight against Covid-19, devolution to the third tier –panchayats and municipalities would give a much needed fillip to the fight against Covid-19.
Back2Basics: 73rd and 74th Amendments
- 73rd and 74th Constitutional Amendments were passed by Parliament in December, 1992.
- Through these amendments local self-governance was introduced in rural and urban India.
- The Acts came into force as the Constitution (73rd Amendment) Act, 1992 on April 24, 1993 and the Constitution (74th Amendment) Act, 1992 on June 1, 1993.
- These amendments added two new parts to the Constitution, namely, 73rd Amendment added Part IX titled “The Panchayats” and 74th Amendment added Part IXA titled “The Municipalities”.
- The Local bodies–‘Panchayats’ and ‘Municipalities’ came under Part IX and IXA of the Constitution after 43 years of India becoming a republic.
Salient Features
- Basic units of democratic system-Gram Sabhas (villages) and Ward Committees (Municipalities) comprising all the adult members registered as voters.
- Three-tier system of panchayats at village, intermediate block/taluk/mandal and district levels except in States with population is below 20 lakhs (Article 243B).
- Seats at all levels to be filled by direct elections [Article 243C (2)].
- Seats reserved for Scheduled Castes (SCs) and Scheduled Tribes (STs) and chairpersons of the Panchayats at all levels also shall be reserved for SCs and STs in proportion to their population.
- One-third of the total number of seats to be reserved for women. Onethird of the seats reserved for SCs and STs also reserved for women. One-third offices of chairpersons at all levels reserved for women (Article 243D)
- Uniform five year term and elections to constitute new bodies to be completed before the expiry of the term. In the event of dissolution, elections compulsorily within six months (Article 243E).
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Provision of biofuels policy 2018
Mains level: Paper 3- Trade offs involved in making fuels from food grains.
The article discusses the recent decision of the government to make alcohol from rice. The move was bound to trigger the debate over food security of the country with a population ravaged by hunger and poverty. While the 2009 biofuel policy had stressed the use of non-food resources, the 2018 updated policy allowed using excess grains. We all want to make a shift towards a green economy but is this the right time? Let’s find out.
What decisions did the government take?
- The National Biofuel Coordination Committee (NBCC) chaired by the Union Minister of Petroleum and Natural Gas decided to use “surplus” rice available with the Food Corporation of India (FCI) for conversion to ethanol.
- The objective is to make alcohol-based hand-sanitisers and for the blending of ethanol with petrol.
- This decision is not only audacious but also an affront to the millions of people who are deeply affected by food insecurity.
The food question
- In 2009, the National Policy on Biofuels stressed on the use of non-food resources to avoid a possible conflict between food and fuel.
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Take the US’s example: In 2018-19, an astounding 37.6 per cent of the corn produced in the US is used for making ethanol.
- In addition to cereals, oilseed crops like rapeseed, soybean and sunflower were used for biofuel production.
- Rise in food prices: Such diversion of food crops to produce biofuel was considered one of the reasons for the rise in food prices globally.
What should be India’s strategy in this debate?
- There is rampant poverty, hunger, and malnutrition in India.
- India’s position in the Global Hunger Index has slipped nine places, ranking 102 among the 117 countries in 2019.
- The National Family Health Survey (NFHS-4) 2015-16, found that 38.4 per cent of children under five years are “stunted” (height for age) and 21 per cent are “wasted” (low weight for height).
- In fact, over a period of 10 years, wasting has increased from 19.8 per cent in NFHS-3 to 21 per cent in NFHS-4.
The dictums of 2018 Policy
- The 2018 National Policy on Biofuels had a target of 20 per cent blending of ethanol in petrol and 5 per cent blending of biodiesel in diesel by 2030.
- This was to be achieved by increasing production using second-generation bio-refineries and developing new feedstock for biofuels.
- It allowed the production of ethanol from damaged food grains like wheat and broken rice, which are unfit for human consumption.
- The new policy allowed the use of excess food grain for ethanol in a bounty crop year, if endorsed by the Union Ministry of Agriculture.
Possible dangers
- The quantity of rice from which ethanol will be produced has not been announced, nor do we know the price at which such rice will be sold by the FCI.
- About 85 per cent of rice is Kharif crop, heavily dependent on monsoon.
- Despite the prediction of a normal monsoon, What happens if the monsoon predictions go wrong? Will we be able to import grain?
- Less damaged grains: Despite the commonly held belief of a lakh of tonnes of rotting grains, the FCI’s storage practices are actually quite good.
- Damaged grains as a percentage of total quantity issued by the FCI has been just about 0.01 per cent to 0.04 per cent in the last five years.
- Hardly any ethanol can be made from such a small amount of damaged grains.
- Making ethanol from sound quality grains deprives food to humans as well as livestock.
- At the time when uncertainties are looming large, it is imperative that food security and food price stability be given the highest priority.
Way forward
- Ethanol can be produced from other ingredients such as B and C heavy molasses, sugar, sugar syrup, and sugarcane juice.
- Ethanol has also been blessed with a low GST and enjoys relaxed conditions for inter-state movement if used for blending with petrol.
- Since the economy faces a bleak prospect due to the impact of COVID-19, the government should first use the food grains to meet the requirement of about 10 to 20 crore people without ration cards.
The UPSC could ask a question on the following lines “Diverting food grains for making fuels has always been a contentious issue from the food security angle. At the same time reducing India’s dependence on import for fuels is as much a serious concern. The National Policy on Biofuels-2018 sought to strike the balance between the two. Critically analyse the various provisions of National Policy on Biofuels-2018 which were different from 2009 policy.”
Conclusion
The government must ensure the food safety of the country first and if it still has surplus rice, it must facilitate export to friendly countries which are suffering an adverse impact of COVID-19 on their economies.
Back2Basics: Generations of biofuels
- There are three types of biofuels: 1st, 2nd and 3rd generation biofuels.
- They are characterized by their sources of biomass, their limitations as a renewable source of energy, and their technological progress.
- The main drawback of 1st generation biofuels is that they come from biomass that is also a food source.
- This presents a problem when there is not enough food to feed everyone.
- 2nd generation biofuels come from non-food biomass, but still compete with food production for land use.
- Finally, 3rd generation biofuels present the best possibility for alternative fuel because they don’t compete with food.
- However, there are still some challenges in making them economically feasible.
Important Provision of ‘National Policy on Biofuels, 2018
- The government aims at increasing the utilization of biofuels in the energy and transportation sectors of the country by promoting the production of biofuels from domestic feedstock in the coming decade through this policy.
- Larger goals such as the adoption of green fuels, national energy security, fighting climate change, generating employment, etc. would be facilitated through this policy. Along with that, technological advancements in the field of biofuels will also be encouraged.
- MNRE has set an indicative target of 20% blending of ethanol in petrol and 5% blending of biodiesel in diesel to be achieved by 2030.
- The percentage of the same currently stands at around 2% for petrol and less than 0.1% for diesel.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: NDMA, NDMA-2005 and its provisions.
Mains level: Paper 3- Lowering of environment standard is not a good strategy to revive the economy in the wake of corona pandemic.
As the world struggles to restart the economic activities amid the pandemic, various strategies are being advised to salvage the damaged economies. One amongst them is to cut down on the environmental standards to spur the economic activities. This article explains why India should not be short-sighted to lower the environmental standards.
What is this fuss about environment and lockdown?
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The lockdown exit strategies are focused on saving livelihoods.
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But the lockdown is causing fiscal pressures on governments which further motivates it to lower the environmental standards, suspend environmental monitoring requirements and reduce environmental enforcement. (Well to save some bucks.)
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And also in the belief that this is necessary to secure economic growth.
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But it would be a mistake to assume that there is a trade-off between saving livelihoods and protecting the environment.
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The crisis of COVID-19 has highlighted that improving the quality of air in our country is not a matter of choice but an emergency.
How countries around the world are reacting?
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The US announced a significant reduction in fuel efficiency standards for new cars.
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This move could result in increased gasoline consumption by 80 billion tonnes, pumping increased carbon emissions into the atmosphere.
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The US Environmental Protection Agency has announced that it will not be enforcing compliance with routine monitoring and reporting obligations of environmental protection, for an indefinite period.
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13 European ministers have been outspoken about resisting the temptations of short-term solutions in response to the present crisis- need to maintain and strengthen EU’s effective regulatory tools to stick to its 2030 climate goals.
5 Arguments that Indian authorities that look into viz a viz environmental standards
1. Pollution increases risk to COVID-19
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People living in areas with higher levels of air pollution face increased risk of premature death from COVID-19.
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New Delhi was the world’s most polluted capital city for the second straight year in 2019.
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And India was also home to 21 of the world’s 30 most polluted cities, Swiss-based group IQ AirVisual said in a recent study.
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The State of Global Air 2019 Report finds air pollution responsible for over 1.2 million deaths in China and India each, based on 2017 data.
2. The poor are the most affected by air pollution
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There is enormous inequality in the impact of the COVID-19 fallout.
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Those who suffer the most from air pollution are the millions who live and toil in the open, who cannot afford air-purifiers or other mitigating measures, as also the elderly and children.
3. Risk of future pandemics
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There is good evidence that three-quarters of the emerging infectious diseases migrate from wild or domesticated animals into humans.
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This includes Ebola, SARS, MERS and now COVID-19.
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Deforestation, industrial agriculture, illegal wildlife trade, climate change and other types of environmental degradation increase the risk of future pandemics.
4. Public support for environment protection
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From Delhi to Sao Paulo, Bangkok to Bogota, the dramatic improvement in the quality of air and water in the most polluted cities around the world has been transmitted by social media.
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This may well result in a groundswell of public support for measures to protect the environment.
5. The environment will get the value it deserves
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The corona pandemic will jolt the markets into giving a clean, healthy and sustainable environment the economic value it deserves.
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There’s a possibility that the gulf between what markets value, and what people value, will close.
Environment conservation as a silver lining in this Pandemic
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We have never treated air pollution as a national emergency, failing to coordinate between the Centre and state governments.
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The COVID pandemic has been declared a national disaster in India, under the National Disaster Management Act, 2005.
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This legislation mandates the disaster authorities coordinate among themselves and take measures for the prevention and mitigation of the pandemic.
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Preventing and mitigating the risks of COVID-19, therefore, means the mandate for the disaster authorities is also to tackle air and other forms of pollution head-on.
Questions based on disasters have been a recurring theme in the UPSC. In 2014, a question was asked with respect to drought, the same could be asked about air pollution. In 2017 again a question based on role of NDMA and tsunami was aksed. In 2018, a question based on Sendai Framework was asked.
Conclusion
The NDMA is a platform which should be used to combat air pollution as an emergency, similar coordination will be required at an international level to continue to work towards reduced emissions under the Paris Agreement. It is a great pity that it takes a pandemic to bring the realisation that economic growth versus clean air is a false dichotomy.
Back2Basics: NDMA
- On 23 December 2005, the Government of India enacted the Disaster Management Act, which envisaged the creation of the National Disaster Management Authority (NDMA).
- It is headed by the Prime Minister, and State Disaster Management Authorities (SDMAs) headed by respective Chief Ministers.
- It aims to spearhead and implement a holistic and integrated approach to Disaster Management in India.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: FCI.
Mains level: Paper 3- Role of the FCI.
FCI, indeed, has remained a crucial topic from the examination viewpoint. Mostly it is highlighted for its issues, corruption and wastages in the godowns. Be it MS Swaminathan or the latest Shanta Kumar committee all focus on how to revamp this giant institution. This article, however, points to the relevance of the FCI in the times of pandemic and suggests areas where there is scope for improvement in fulfilling its role. Stay tuned to find out what are the major concerns with FCI which needs consideration by the government.
A background check on FCI
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The FCI was set up under the Food Corporations Act 1964.
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In its first decade, FCI was at the forefront of India’s quest of self-sufficiency in rice and wheat following the Green Revolution.
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Its functions involved managing procurement and stocking grain that supported a vast Public Distribution System (PDS).
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Over time it became a behemoth that had long outlived its purpose and Its operations were regarded as expensive and inefficient.
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Even in the 1970s and 1980s, poor storage conditions meant a lot of grain was lost to pests, mainly rats; diversion of grain was widespread.
What role can FCI play amid Covid-19?
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The FCI has consistently maintained the PDS, a lifeline for vulnerable millions across the country.
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In the middle of the COVID-19 pandemic, it can play a major role in avoiding hunger and starvation.
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Before the lockdown, with 77 million tonnes of grains in its godowns, the FCI was facing a serious storage problem.
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This was worrying not just because of a shortage of modern storage facilities but also because the FCI lacked a “pro-active liquidation policy” for excess stocks.
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Post-COVID: FCI has opened up the godowns to release food stocks to those affected by the lockdown.
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The FCI has also enabled purchases by States and non-governmental organisations directly from FCI depots, doing away with e-auctions typically conducted for the Open Market Sale Scheme (OMSS).
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With rabi procurement underway in many States, it seems that the country will secure ample food supplies to cope with the current crisis.
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Given the extended lockdown, the FCI is uniquely positioned to move grain across State borders where private sector players continue to face formidable challenges of transport.
5 suggestions for the FCI to perform better
1. Using roads along with rails:
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In 2019-2020 (until February) only 24% of the grain moved was by road.
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The FCI has long recognised that road movement is often better suited for emergencies and for remote areas.
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Containerised movement too, which is not the dominant way of transporting grain, is more cost-effective and efficient.
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Now, more than ever, it is imperative to move grain quickly and with the least cost and effort, to areas where the need is greatest.
2. Store grain near demand hotspot
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The FCI already has a decentralised network of godowns.
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In the current context, it would be useful for the State government and the FCI to maintain stocks at block headquarters or panchayats in food insecure or remote areas.
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This would allow State governments to respond rapidly.
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It will also provide a sense of assurance and psychological comfort to vulnerable communities.
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This is especially relevant for regions that are chronically underserved by markets or where markets have been severely disrupted.
3. Release stocks over and above existing allocation
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The central government need to look beyond the PDS and the Pradhan Mantri Garib Kalyan Yojana and release stocks over and above existing allocations.
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This would provide flexibility to local governments to access grains for appropriate interventions at short notice and to sell grain locally at pre-specified prices until supply is restored.
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This would allow the state government to engage in feeding programmes, free distribution to vulnerable and marginalised sections, those who are excluded from the PDS, etc.
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In many States, there is a vibrant network of self-help groups formed under the National Rural Livelihoods Mission (NRLM) which can be tasked with last mile distribution of food aid other than the PDS.
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Consultative committees presumably exist already in each State to coordinate with the FCI on such arrangements.
4. Suspend FIFO principle
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Typically, the FCI’s guidelines follow a first in, first out principle (FIFO).
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FIFO mandates that grain that has been procured earlier needs to be distributed first to ensure that older stocks are liquidated, both across years and even within a particular year.
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It is time for the FCI to suspend this strategy, that enables movement that costs least time, money and effort.
5. Support the farmers trying to reach out to consumers directly
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In many places, farmer producer organisations (FPOs) have been at the forefront of rebuilding these broken supply chains.
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The FCI along with the National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED), is well placed to rope in expertise to manage the logistics to support these efforts.
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NAFED has already taken the initiative to procure and transport horticultural crops.
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The FCI should similarly consider expanding its role to support FPOs and farmer groups, to move a wider range of commodities including agricultural inputs such as seeds and fertilizers, packing materials and so on.
Major concerns regarding FCI’s role
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Cost of food subsidy: The first is a long-term concern regarding the costs of food subsidy.
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An analysis of FCI costs spanning 2001-16 suggests that on average about 60% of the costs of acquisition, procurement, distribution and carrying stocks are in fact transfers to farmers.
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Not all of what is counted as subsidy therefore represents a waste of resources.
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The government needs to address the FCI’s mounting debts — an estimated ₹2.55 lakh crore in March 2020 in the form of National Small Saving Funds Loan alone.
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Depressing food prices: A second concern is that extended food distribution of subsidised grain is akin to dumping and depresses food prices locally.
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The depressed prices, in turn, affect farmers.
The Covid-19 pandemic has brought into sharp focus the relevance of the FCI. This makes PDS and Food security in prelims as well as in mains examination focus area. So, questions based on the topic are likely to be asked by the UPSC, for ex- “The FCI’s role in providing succour has been proved many times in the past and it lived up to its reputation amid Covid-19 pandemic as well. In the light of the above statement, discuss the relevance of the FCI and suggest the ways to improve its performance in the times of disasters”
Also consider a question asked by the UPSC in 2019, “What are the reformative steps taken by the Government to make the food grain distribution system more effective?”
Conclusion
In 2015, the Shanta Kumar report recommended repurposing the organisation as an “agency for innovations in Food Management System” and advocated shedding its dominant role in the procurement and distribution of grain. There is no doubt that the FCI needs to overhaul its operations and modernise its storage. At the same time, the relevance of an organisation such as the FCI or of public stockholding, common to most Asian countries, has never been more strongly established than now.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Share of informal economy in the country's economy.
Mains level: Paper 3- Huge presence of the informal sector in the Indian economy and ways to formalise it.
The article discusses the issues around the informal workforce in the economy. What are the factors responsible for the high informal sector in India? How is this sector responding in times of COVID? Are there some easy solutions to mainstream the informal sector into our formal economy? These are some of the points one should ponder upon while reading this article.
The vulnerability of the informal workforce
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Developing countries such as India are economically vulnerable to Covid-19 because of the presence of huge informal workforce.
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Lack of protection: This vast informal workforce, which has no labour, social or health protection, is woefully ill-equipped to cope with the medical and economic shocks of the virus.
The humongous size of the informal economy in India
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Share of the informal sector: As per Periodic Labour Force Survey, 2017-18, 90.6 per cent of India’s workforce was informally employed.
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This estimate includes those who are employed in informal enterprises (unincorporated small or unregistered enterprises).
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It also includes informal workers in the formal sector (workers in the formal sector who are not provided any social security benefits by employers).
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Take another example: Between 2004-05 and 2017-18, a period when India witnessed rapid economic growth, the share of the informal workforce witnessed only a marginal decline from 93.2 per cent to 90.6 per cent.
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Covid effect: Looking ahead, it is likely that informal employment will increase as workers who lose formal jobs during the COVID crisis try to find or create work (by resorting to self-employment) in the informal economy.
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Also, formal enterprises are likely to continue hiring informal workers as they seek more flexibility and attempt to cut labour costs to cope with the COVID-19 induced economic uncertainty.
Why is the informal more favourable over the formal?
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The basic reason: necessity to eke out a subsistence living in the absence of alternative employment opportunities.
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The ‘not so basic’ reasons: Some self-employed persons choose to be in the informal economy voluntarily to avoid registration or taxation.
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Many are deterred by the costs of formalisation or don’t see much benefit from formalisation.
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Finally, the phenomenon of informalisation of wage employment in the formal sector is a consequence of formal firms trying to avoid payroll taxes and employer’s contributions to social security or pensions to reduce labour costs.
Some solution to smoothen the crooked road
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A multi-pronged and comprehensive approach is needed to facilitate the transition.
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Labour intensive growth: It requires creating more formal jobs through labour-intensive growth so that informal workers can move to these jobs.
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Registering and taxing informal enterprises: The Indian experience of compelling informal firms to register and become tax compliant through demonetisation and introduction of GST formalised them only in a legal sense.
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There is a need for increasing productivity of informal enterprises and incomes of the informal workforce by providing them with technical and business skills, infrastructure services, financial services, enterprise support and training to better compete in the markets.
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Promoting the path to entrepreneurship in the informal economy.
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Many informal enterprises would welcome efforts to reduce barriers to registration and related transaction costs as they expect to reap the benefits of formalising.
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Reducing decent work deficit: This requires protecting informal workers by providing them a social protection floor, ensuring a set of basic working conditions (adequate living wages, limits on hours of work and safe and healthy workplaces).
A direct question based on the issue of the informal sector can be asked by the UPSC, for ex- “There is a humongous presence of the informal sector in the Indian economy. What are the factors responsible for this? Suggest ways to transform the informal sector into the formal sector.”
Conclusion
Questions around the role of government and who bears the onus of protecting workers deserve careful consideration in the backdrop of the rising incidence of informal employment in the formal sector and the growth of the gig economy. It is apparent that in our relentless pursuit of economic growth, we have ignored the voices of India’s informal sector for too long.
Back2Basics: What is the informal economy?
- An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government.
- Although the informal sector makes up a significant portion of the economies in developing countries, it is sometimes stigmatized as troublesome and unmanageable.
- However, the informal sector provides critical economic opportunities for the poor.
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From UPSC perspective, the following things are important :
Prelims level: Various economies of the world and their share in the world economy.
Mains level: Paper 3- Impact of pandemic on globalisation.
The article discusses the future of the Globalisation after Covid-19. Globalisation 2.0 which has been dominated by China will see several changes in the post-pandemic world. Investment decisions and Global Value Chains would undergo a paradigm shift. The article is concluded by expressing the hope that pandemic doesn’t end Globalisation 2.0 but it will certainly usher in the new rules of capitalism.
Globalisation 2.0 and issues with the flow of labour
- What is Globalisation 2.0? In strictly economic terms, globalisation is about the free movement of capital, goods and labour across national borders.
- Globalisation 2.0 began in the early 1980s and has lasted for four decades.
- Under the 2.0 phenomenon, the labour flows were never as free as the movements of capital and goods.
- This is because one does not necessarily see who produced the goods or capital coming into the borders.
- But migrants are distinguishable, one can directly observe how ethnically, racially, religiously different they are from the mainstream.
Rise of right-wing politics in the US and UK due to labour flows
- Labour flows is a major reason for triggering right-wing politics of nativism in present times.
- Donald Trump directed his political campaign against non-white immigrants, especially Hispanics and Muslims.
- He criticised businessmen who, in search of lower costs, had made China the destination of their accumulated investments, transferring jobs away from America’s industrial heartland.
- Thus, his policies to levy higher tariffs to curtail freer trade. These policies made sure that the American corporations bring capital back to the US.
- In Europe, a similar politics has been led by the UK, though less vociferously.
How China has benefited from Globalisation 2.0?
- In 1980, China was the 48th largest economy in the world: with GDPs at roughly $200 billion, Indian and Chinese economies were similar in size.
- In 2018, China, with a GDP of $13.6 trillion, was the second-largest economy in the world, behind the US ($20.5 trillion). But far ahead of Japan ($4.9 trillion), Germany ($4.0 trillion), Britain ($2.8 trillion), France ($2.8 trillion) and India ($2.7 trillion).
- Not only in terms of GDP, but China had also become the largest trading nation in the world by 2018:
- Exports: worth $2.5 trillion, substantially ahead of the US ($1.6 trillion).
- FDI in China: In 2018, China attracted over $203 billion worth of net FDI, much more than India ($42 billion), and second only to the US ($258 billion).
Is COVID-19 a sign of ending Globalisation 2.0?
- Despite the pure economic logic of how easy it is to manufacture at scale in China, the global leader today are more concerned about the political overtones.
- Given all the doubts about how China handled the information about the origins of the virus in Wuhan, anger against China in world capitals is evident.
- Such anger can have impact on the rules of globalisation.
- Strict regulation of labour laws: We can expect labour flows will now be more strictly regulated than before.
- Political risks in investment decisions: Western investors will also have to factor in political risks in their investment decision-making.
- National security concern: New concerns like what if China threatens supply disruptions for critical materials.
- Instead of chasing lower labour costs, investors will either bring capital back to domestic shores or geographically restructure their supply chains.
- To summarize it, Globalisation will not end, but it will be pushed into greater retreat. Thus, changing the rules of the BIG game of capitalism.
A question based on the impact of the pandemic on the global trade, issues associated with and opportunities for India could be asked in the Mains Paper 3.
Also the Idea of Globalisation is important from the aspect of paper 1 and Essay. “Globalisation’ vs ‘Nationalism’ was one of the topic in Essay paper in 2009.
Conclusion
For the foreseeable future, economic efficiency, the cornerstone of market-based systems, will not be high on priority. Politics will drive new economic policies, not market-based rationality.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: National Food Security Act.
Mains level: Paper 3-Ensuring food security with all its dimension amid corona pandemic.
The article discusses the three dimensions of food security-1)Availability 2)Acces 3) Absorption. The first two are also dependent on job security. All these are now being threatened by the pandemic. Ways to safeguard food security along with its 3 dimensions are suggested at the end of the article.
1. Availability of food in the market
- The first is the availability of food in the market, and this is seen as a function of production.
- Fortunately, thanks to the Green Revolution, today we have enough food in the market and in government godowns.
- This is a great accomplishment by Indian farmers who converted a “ship to mouth” situation to a “right to food” commitment.
- Yet we cannot take farmers’ contributions in terms of sustaining production for granted.
- Some special exemptions have been given to the agricultural sector, farmers are confronted at the moment with labour shortages.
- But many of the inputs, including seeds, are expensive or unavailable, marketing arrangements including supply chains are not fully functional, pricing is not remunerative, and public procurement is also not adequate.
- There is no room for complacency, as in the absence of demand, the lack of storage or value addition facilities, especially for perishable commodities, we do not yet know exactly what the impact of the current pandemic will be on the kharif sowing and food availability in the future.
2. Access to food
- The second dimension is the access to food, which is a function of purchasing power, as unless you are a farmer and grow your own food, others have to buy it.
- Fortunately, the government, through the National Food Security Act (NFSA) and the PDS, has assured some additional food to every individual during this crisis.
- Strengthening the food basket: This should be further strengthened and the food basket widened by including millets, pulses and oil.
- Hidden hunger: Steps should also be taken to avoid hidden hunger caused by the deficiency of micronutrients in the diet.
- In light of the closure of schools and anganwadi centres, and the consequent disruptions in the provision of midday meals or other nutritional inputs, it is important to pay attention to the life cycle approach advocated in the NFSA, particularly the first thousand days in a child’s life, when the cognitive abilities of the child are shaped.
- We may otherwise see negative effects on nutritional security in the medium to longer term.
After reading the article you’ll be able to answer the question such as this one- “In the ongoing crisis, maintaining the level of food security has become one of the most essential need. In light of the above statement, critically examine the priority areas for maintaining food security in the country. Suggest measures to make accessibility and availability of food easier for all.”
Job security to ensure food security and access to food
- Food security and access to nutritious, good quality food is also contingent on job security.
- Today, a lot of people employed both on farms and in the non-farm sector are without jobs.
- If job security is threatened, then so is food and nutrition security.
- We have to ensure people do not lose their jobs, and one way of doing this will be to ensure value addition to primary products.
- One example of such value addition is the Rice Biopark in Myanmar, wherein the straw, bran, and the entire biomass are utilised.
- This would mean some attention to and investment in new technologies that can contribute to biomass utilisation.
- The Amul model provides a good example from the dairy sector of improved incomes to milk producers through value addition.
- Similar attention needs to be given to the horticulture sector on a priority basis.
- Women farmers are at the forefront of horticulture and special attention needs to be given to both their technological and economic empowerment during this crisis.
- A second pathway to livelihood security is strengthening the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
- Need to cover skilled work: Given the lack of jobs and incomes during the COVID-19 crisis, it is imperative to expand the definition of work in MGNREGA to cover skilled work related to farmers and their farming activities.
- This is particularly important for women farmers and workers, who should not just be given tasks of carrying stones or digging mud.
- Apart from farming, they engage in a range of essential care tasks, including caring for children, the elderly and sick people.
- These tasks, often invisible, need to be recognised as work and supported with appropriate education, including on nutrition.
3. Absorption of food in the body and its utilisation
- The third dimension of food security is the absorption of food in the body or its utilisation.
- Absorption and utilisation of food is dependent importantly on sanitation, drinking water and other non-food factors, including public health services.
- Ensuring that these services are functional depends on the capacities of the local panchayats and their coordination with other local bodies.
- The lack of adequate clean water, in particular, has come to the fore in both rural areas and urban slums in the context of COVID-19, where one of the key measures for stopping transmission relates to frequent hand-washing.
Food security threatened by pandemic
- If we can ensure food availability, food access and food absorption, then we have a fairly robust system of food and nutrition security.
- All the above dimensions are, however, now threatened by the novel coronavirus, as discussed earlier.
- It is very critical to highlight the linkages between agriculture, nutrition and health.
- The inability to harvest, transport and market perishable fruits and vegetables at remunerative prices during the current crisis has deprived farmers of incomes and livelihoods.
- It has also deprived consumers of micronutrients in their diets.
- Farmers making losses, and agriculture moving from being job-led to jobless, raise questions about the sustainability of the production cycle.
- At the same time, this can have long-term consequences on nutrition and health security.
A question based on the dimension of the food security can be asked by the UPSC for ex- “Food security involved the security of food in all three dimensions, availability of food, access to food and absorption of food. How far the food security act is effective in ensuring security in all three dimensions?”
Conclusion
India avoided what could have been a big famine in the 1960s through the help of technology and public policy, which actively worked with and supported farmers to achieve significant increases in yield. Through a combination of farmers’ cooperation, technological upgrading and favourable public policies in procurement, pricing and distribution, we can deal with the fallouts of the pandemic.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Opportunity cost.
Mains level: Paper 2- Easing the lockdown, strategy that could be adopted.
The article discusses the performance of India so far and the strategy for reopening of the economy. Dividing the districts based on the number of cases and adopting a suitable approach for opening the economy there while keeping the spread of the virus in control is suggested in the article.
India performing better
- While the OECD countries are reeling under the COVID-19 impact, India is clearly ahead of the curve.
- This is not merely in terms of the confirmed cases in the country but is also strongly reflected in very low mortality numbers (8.5 deaths per lakh population) compared to other nations (4,040 in the UK and 1,930 in the US).
- While the first cases were reported in most hotspot countries and India around the same time (last week of January), today, the outbreak is far more manageable in India than in most other countries.
- It was pragmatic for a resource-poor country to be pre-emptive and declare a national lockdown when the total number of cases were still low at 500.
- The subsequent growth of the pandemic clearly shows a perceptible decline in the number of cases due to the lockdown.
- Though stringent, this was much-needed and a timely policy intervention by the government.
- It is important, however, to appreciate the high and growing opportunity costs that are involved during a lockdown.
- We must brace ourselves for long-term pandemic management (18 to 24 months) with significant economic impact on our lives.
Policy interventions by government and two major concerns
- The immediate costs of the lockdown are borne by the most economically vulnerable people in society.
- This perhaps was the rationale behind the first round of economic policy interventions announced by the finance minister within a few days of the lockdown.
- They targeted front-loading of cash transfers through PM-Kisan, support to construction workers, self-help groups, food distribution through the public distribution system, among others.
- Two major concerns: Beyond welfare concerns, there are significant growth concerns that are mounting with every day of economic inactivity in the country.
- Companies are struggling to honour payroll and maintain their workforce against cancelling orders and declining demand for their goods and services.
- These in turn will lead to greater delays and defaults in loan repayments, thereby further weakening the fragile banking sector and struggling credit markets.
The RBI’s intervention and increasing damage to the economy
- The Reserve Bank of India stepped in for some timely monetary interventions.
- However, the longstanding climate of risk aversion within the banking sector will mean that transmission of these monetary interventions is unlikely to be timely or adequate.
- All eyes are set expectantly in one direction.
- Historically, when economies are faced with major calamities, governments step in to stabilise the environment and boost confidence within the business community.
- We have seen this response from all major economies disrupted by COVID-19 over the last several weeks.
- India will not be an exception to this as the government fine-tunes its strategy to support and kickstart our immobilised economy.
- The opportunity cost of time, however, is ballooning with each passing day.
- Just like the spread of the virus, we are up against the full force and power of compounding.
- Mindful policy interventions, when timed well, can cut growing losses and the misfortune of many.
How the states are performing against Covid-19?
- While we have succeeded in slowing the growth of the virus at the national level, the true gains and pains are at the state and local level.
- As the data reveals, currently we have three states that have made remarkable gains and “flattened the curve” of COVID cases.
- These are Kerala, Haryana and Tamil Nadu where recoveries are growing and active cases are rapidly declining.
- States like Karnataka and Telangana are improving their recovery rates consistently, despite fluctuations.
- Every state and local administration has to keep eternal vigil and double down on containment and testing.
- They have to aggressively improve their contact tracing efforts with the help of their police who are trained in debriefing, call record mapping and have more manpower than public health departments of local administrations.
The article contains the policy and governance aspects which are important from Mains Paper-2, and economic issues such as the size of the package and opportunity cost of time involved are important from the Mains Paper-3 perspective. Take note of these issues.
What should be the strategy?
- Given the scale and variation in infection control across the country, our national strategy needs to be informed and calibrated.
- Currently, there are more than 300 districts in the country which have reported zero COVID-19 cases.
- This can be confirmed quickly with some random testing and the lockdown can be lifted effective immediately.
- Then there are about 225 districts which have reported less than 10 cases each.
- With adequate ring-fencing at the level of the block where these cases are reported, these districts too can afford to lift their lockdowns.
- There are, however, approximately 30 districts across the country which have reported large numbers of confirmed cases and are identified as “hotspots”.
- The lockdown in these places needs to continue with some relaxations for basic trade and essential services.
- Not surprisingly, these “hotspots” are also important economic centres of the country.
- The capacity of the local administration to develop and enforce appropriate strategies of containment, contact tracing and testing, should determine their decisions to ring-fence and isolate blocks while allowing other parts of the district/city to resume economic activity.
Way forward
- Given the uncertainty of the virus, we seem prepared for large hospitalisation and care if the need arises.
- The efforts now must be to further contain the growth of the infection.
- Acting against the power of compounding: If the current rate persists, we will reach over lakh cases within three weeks. That is the power of compounding we are against.
- Public health support team: Beyond knowledge sharing across states and adopting successful containment strategies from each other, there is a role for the central government in providing “NSG-like” public health support teams to states that need them.
- Economic package: On the economy front similarly, the central government’s timely economic package should flatten the curve of exponentially rising opportunity costs across the sectors.
Conclusion
Given the relative scale and virulence of the COVID-19 virus in India, the odds seem stacked in favour of a calibrated opening of the economy.
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