Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2-Foreign relations with Pakistan, Issues and need to resume the talks.
Context
Pakistan is changing significantly, which is good for itself and its neighbour as well.
Changing Pakistan
- Major stakeholders in favour of peace: The civil society, the political parties, and even the military establishment of Pakistan have come to favour peaceful and cooperative relations with India.
- Both the power-centre on the same page: Both Islamabad and Rawalpindi, Pakistan’s two centres of power, are now on the same page in seeking “honourable peace” with New Delhi on the basis of “sovereign equality”.
- Heavy price paid by Pakistan: There is a broad consensus in Pakistani society and polity that their country has paid a very heavy price by supporting the forces of Islamist extremism and terrorism.
- The futility of using terrorism as foreign policy: There is also consensus that using terrorism for achieving mistaken foreign policy ends in Afghanistan and India.
Conducive conditions for dialogues
- Four factors have influenced the welcome winds of change in Pakistan.
- First-Realisation that Pakistan has suffered a lot:
- Harm at home and to the global image: There is the across-the-board realisation that Pakistan has suffered a lot, both domestically and in terms of damage to its global image, by supporting religious extremism and terrorism.
- A large number of casualties: Terrorists have killed a shockingly large number of civilians -certainly far many more than in India. Several thousand soldiers have lost their lives in the army’s “war on terror”-more than the number of casualties in all the wars with India.
- The threat of FATF blacklisting: Furthermore, Islamabad is under relentless pressure from the Financial Action Task Force (FATF) to act decisively and irreversibly against terrorist organisations.
- Second-Decrease in religious radicalisation in Pakistan
- The decrease in the financial support to radicalism: What has contributed to the diminished importance of religious radicalism is also the shrinking inflow of petrodollars from Saudi Arabia and Gulf countries that promoted this agenda.
- The ideological influence of religious radicalisation on Pakistan’s civil society is clearly declining.
- Change in Saudi Government Policy: Export of Wahhabism is no longer a foreign policy priority of the Saudi Arabian government.
- Changing policies in UAE: The United Arab Emirates has gone a step further, under the leadership of Abu Dhabi’s Crown Prince Mohammed bin Zayed Al Nahyan, it is pursuing inter-religious tolerance with a zeal that has surprised Muslims and non-Muslims alike.
- Third-Interest of China
- Rise of China as an economic and security partner: The third factor is China, which has emerged as Pakistan’s most important economic and security partner.
- The China-Pakistan Economic Corridor (CPEC) and BRI: The flagship projects under Beijing’s BRI has begun to modernise Pakistan’s infrastructure spectacularly, but its security is which could be threatened by terrorism is also the concern for China.
- Connection with China’s Xinjiang Province: China has urged Pakistan’s ruling establishment to take firm steps to curb the activities of Islamist groups because they can easily foment trouble in China’s Muslim-majority Xinjiang province.
- India-China relation factor: Beijing is also engaged in a steady effort to improve relations with New Delhi, in recognition of India’s rising economic and geopolitical stature in Asia and globally.
- Possibility of India-China-Pakistan cooperation: China’s President Xi Jinping even mooted cooperation among China, India and Pakistan at Mamallapuram summit.
- Fourth-Military establishment in favour of peace.
- The military establishment seems to be fully convinced of the need for normalisation of India-Pakistan
- Opening of Kartarpur Sahib Corridor: The opening of the Kartarpur Sahib Corridor, perhaps the greatest confidence-building measure between the two countries since 1947, is almost entirely due to Gen. Bajwa’s personal commitment to the project.
- The economic crisis in Pakistan: Bajwa’s is also said to be convinced of the need to open the doors for economic and trade cooperation between the two countries given a serious economic crisis Pakistan is going through.
- Discussion on the Kashmir issue: The Pakistan Army may also be ready to discuss a solution to the Kashmir issue on the basis of a formula Gen. Pervez Musharraf had discussed with PMs Atal Bihari Vajpayee and Dr Manmohan Singh.
Conclusion
India needs to seize the opportunity to resume the talks with Pakistan on all the contentious issues and try to resolve the disputes so that the improved relations could help both the countries and the neighbouring countries.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Trade war, Globalization and effects on Indian economy.
Context
Given its increased heft in the global economic order, India ought to be at the leading edge of the current debate of the future of capitalism.
The emergence of “stakeholder capitalism”
- Interests of all shareholder: Klaus Schwab, who founded the World Economic Forum 50 years ago, wants capitalists to look beyond their shareholders and consider the interests of all the stakeholders.
- Long overdue debate: Some hope that the debate on stakeholder capitalism is a long-overdue recognition of the capitalist excesses of recent decades.
- Generating value for customers: Last August, the Business Roundtable in the US, which brings together some of the top American corporates, said American companies must now generate value for customers.
- Invest in their employees.
- Deal fairly with suppliers and support the communities in which they operate even as they service their shareholders.
- Scepticism over “interests of all shareholders”: Sceptics say that this is a nice way of saying the right things, repackaging old ideas on corporate social responsibility and creating illusions about reforming capitalism.
- Cynics insist that it will be business as usual for the world’s capitalists.
- Reflection of deeper crisis: Beyond this divide between optimists and pessimists, the discourse on “stakeholder capitalism” is a reflection of the deeper crisis afflicting the global economy today.
Three major challenges according to WEF
- In its annual survey on global risks, the WEF has identified many challenges. Three of them stand out.
- First Challenge: Polarised politics
- In the US Trump is unlikely to be defensive.
- While the dominant sentiments see Trump as the very embodiment of nationalism and populism that are polarising politics around the world.
- Others point to the structural conditions that have bred these forces.
- America’s working-class whose wages haven’t risen in decades, whose jobs are less secure than ever rallied behind Trump.
- Politics in the US: Much the same happened in the British elections last year.
- Tory leader Boris Johnson won a sweeping mandate by breaking into the working-class strongholds of the Labour Party.
- Second Challenge: Trade war
- Trump had a long record of denouncing free trade.
- Many had hoped that Trump will moderate his anti-globalist rhetoric once in office.
- Attack on a core principle of globalisation: Trump has taken a pickaxe to the core principles of the globalised economic order – free trade, open borders and multilateralism.
- Renegotiating the treaties: The US has renegotiated a 25-year old trade agreement with America’s neighbours, Canada and Mexico.
- The threat of all-out-trade war with China: Trump’s threat of an all-out trade war with China over the last couple of years has led to an interim agreement.
- The agreement commits Beijing to reduce its trade surplus with the US by importing more.
- The trade deficit of the US with EU: At Davos, Trump is expected to turn his ire on the EU, which has a near $200 billion trade surplus with the US.
- Third challenge: Technology
- War in technology domain: The trade wars among the world’s major capitalist centres is accentuated by the technological revolution, especially in the digital domain.
- Need for coordination: The Davos report on global risks argues that the realisation of the full potential of new technologies depends on unprecedented coordination among all stakeholders.
- Digital fragmentation: What is emerging instead is “digital fragmentation” marked by the extension of geopolitical and geo-economic rivalries into the new domain.
- Digital issues have come to the front and centre of American arguments with Europe.
Conclusion
- India must find ways to take advantage of the new opportunities from the unfolding rearrangement of the global capitalist system.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- India-EU relations and scope and areas of cooperation.
Context
The EU-India Strategic Partnership has come a long way in recent years. The relationship is based on long-standing shared values and interests. There are numerous opportunities to unleash the full potential of EU-India cooperation.
India-EU Cooperation on Climate Change
- The EU has committed to becoming carbon neutral by 2050.
- But EU member states together only account for 9 per cent of global emissions.
- Need to engage with the rest of the world: EU-India cannot solve this problem unless they engage with the rest of the world to address it.
- India’s commitment, as one of the biggest democracies in the world, is a key part of the solution.
- The mixed outcome of the COP25 Climate Conference shows how much more remains to be done.
- Clean Energy and Climate Partnership (CECP): In 2016 Prime Minister Narendra Modi and European leaders agreed on an EU-India Clean Energy and Climate Partnership (CECP).
- EU and International Solar Alliance: In 2018, the EU joined efforts with the International Solar Alliance, headquartered in India.
Cooperation in trade
- Both are the members of WTO: India and EU both agree on the vital role of the World Trade Organisation (WTO) and the need to overcome the crisis of the dispute settlement system.
- Ministerial dialogue: The launch of a regular ministerial dialogue on economic, trade and investment issues could give additional impetus to the relations.
Cooperation on security
- Indian Navy vessels are now escorting World Food Programme ships in the framework of the EU Atlanta operation against piracy off the coast of Somalia.
- Cooperation on anti-terrorism: Counter-terrorism experts from Europe and India exchange experiences and best practices.
- As a result, an enhanced working relationship between our police officers is taking shape.
Digital economy and cyber
- Need to deepen cooperation: EU and India should deepen cooperation to protect fundamental freedoms in cyberspace and the free flow of data – and counter the drift towards high-tech “de-coupling”.
- India-EU does not want a split in cyberspace, forcing both to “choose sides” between competing systems and standards.
- India and EU both believe in fair competition, based on global standards, for 5G, AI, big data and the internet of things.
Conclusion
There is much that the EU and India have accomplished in recent years. But there is even more to be done to further strengthen our dynamic dialogue and cooperation in all areas of mutual interest and as players on the world stage.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- National accounting and problems in associated with the data collection and methods.
Context
As official statistics is a public good, giving information about the state of the economy and success of governance, it needs to be independent to be impartial.
GDP calculation and its significance
- What is GDP:
- Assigning a value to products and services: In effect, it adds apples and oranges, tractors and sickles, trade, transport, storage and communication, real estate, banking and government services through the mechanism of value.
- GDP covers all productive activity for producing goods and services, without duplication.
- The System of National Accounting (SNA): It is designed to measure production, consumption, and accumulation of income and wealth for assessing the performance of the economy.
- What is the significance of GDP data?
- Influence the market: GDP data influence markets, signalling investment sentiments, the flow of funds and balance of payments.
- The input-output relations impact productivity and allocation of resources.
- Demand and supply influences prices, exchange rates, wage rates, employment and standard of living, affecting all walks of life.
- Issues over the present series of GDP:
- Nominal GDP: The data on GDP are initially estimated at a current price known as nominal GDP.
- Real GDP: Nominal GDP minus the inflation effect is real GDP.
- Price Index: There is a way of adjusting inflation effect through an appropriate price index.
- Pricing series issue with the service sector: The present series encountered serious problems for the price adjustment, specifically for the services sector contributing about 60% of GDP.
- Absence of price index: There is an absence of appropriate price indices for most service sectors.
- What the absence of series means: The deflators used in the new series could not effectively separate out price effect from the current value to arrive at a real volume estimate at a constant price.
- Methodical issue: Replacing Annual Survey of Industries (ASI) with the Ministry of Corporate Affairs MCA21 posed serious data and methodological issues.
Need for the change in the approach of data collection
- The approach for the collection of data remains largely the same for long.
- Price and production indices are constructed using a fixed base Laspeyres Index.
- The yield rate for paddy is estimated by crop cutting experiments.
- The organisation of field surveys for collection of data on employment-unemployment, consumer expenditure, industrial output, assets and liabilities continue.
- Why data collection for yields need to change?
- Productivity and remunerative price of output are major concerns for agriculture.
- Data collection from diverse factors: It is necessary to collect data on factors such as soil conditions, moisture, temperature, water and fertilizer use determining yield, the impact of intermediary and forward trade on farm gate price and so on.
- Israel collects these data for analysis to support productivity.
- Need to leverage the e-governance: The initiative under e-governance enabled the capturing of huge data, which need to be collated for their meaningful use for the production of official statistics.
Data Logistics
- Need of data from the other areas: Along with GDP, we need data to assess-
- Inclusive growth.
- Fourth-generation Industrial Revolution riding on the Internet of things.
- Robotics-influencing employment and productivity.
- Environmental protection.
- Sustainable development and social welfare.
- How to deal with the data inconsistency
- We need systems which have the capability to sift through a huge volume of data seamlessly to look for reliability, validity, consistency and coherence.
- Such a system is possible through a versatile data warehouse as a component of big–data technology.
- Rangarajan Committee recommendation: Setting up of such system has been wanting as thoughtful and well-meaning key recommendations of the Rangarajan Commission and subsequent recommendations from 2006 onwards by successive National Statistical Commissions.
Way forward
- The need for a new system: The present national accounting and analytical framework miss out on many important dimensions of the economy.
- We need a new framework for analysis for such a complex system and evolutionary process.
- The system needs to take into account automation, robotisation and other labour-replacing technologies affecting profitability, structural change and general welfare.
- Need to find alternative avenues for the unemployed and jobs lost: In order to inject efficiency and stability, there is a need to have detailed data on how: markets clear, prices are formed, risks build-up, institutions function and, in turn, influence the lifestyle of various sections of the people.
- Knowing market microstructure: It is also needed to know in greater detail about market microstructure and optimality therein, the role of technology and advanced research, changing demand on human skills, and enterprise and organising ability.
- Monopoly must be contained: The loss caused to the economy through monopoly power, inefficient input-output mix, dumping, obsolete technology and product mix must be contained.
- Ensure distribution of wealth: The consensus macroeconomic framework of analysis assumes symmetric income distribution and does not get into the depth of structural issues.
- In the changed situation of availability of microdata, there is a need to build a system to integrate the micro with the macro, maintaining distributional characteristics.
Conclusion
Data is the new oil in the modern networked economy in pursuit of socio-economic development. The economics now is deeply rooted in data, measuring and impacting competitiveness, risks, opportunities and social welfare in an integrated manner, going much beyond macroeconomics. There is a need for commitment to producing these statistics transparently.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Lack of coverage of the public health system, Role of private sector and regulation.
Context
As the government tries to overhaul the public health system in India, its time to take into account the advent and the role played by the private sector and its implications.
The advent of the private sector
- Increase in the role of the private sector in the post-Independence era: Post-Independence, the private sector increased its footprint in India.
- Perpetual sub-optimal investments in public health allowed the private sector to capitalise, flourish, and increasingly gain the confidence of the masses.
- The private sector went from having about 1,400 enterprises in 1950 to more than 10 lakh in 2010-11.
- To doctors, this promised greater professional liberty, lesser restrictions, and higher incomes.
- After liberalisation, the greater focus shifted to the lucrative tertiary-care sector and led to an onslaught of sophisticated private health care in cities.
The dominance of the private sector and malpractices
- The scale of dominance: Private sector has over 70% of the health-care workforce and 80% of allopathic doctors, has meant that it is scarcely possible for a health-care provider to function in defiance of its norms.
- Pervasive malpractices: The pervasiveness of malpractices in this market has come to ensure that few could survive without condoning them.
- Nexus of the private players: Players in this market, in much of their malpractices, have also learnt to function as a harmonious family.
- Organised form to safeguard interest: The family plays its role in safeguarding its members, acquainting them with its norms and interests, and leveraging the power of its patriarchs to defend its interests in society.
- Standards of success dictated by the markets: It is little wonder that the market has also come to dictate the avenues of aggrandisement and yardsticks of professional success for health-care professionals.
- Benchmark of quality changed: Business finesse and social adroitness rather than clinical excellence and empathy become the touchstones of calibre in this market.
Failure of the government
- Absence of national system: The larger chunk of Indian health care (and health workforce) could not be brought under a “national system” having some form of overarching state control or involvement.
- If such a system existed it could avail of essential health care without most people having to rely on a vagarious market, except as a luxury.
- Example of the UK’s NHS: The National Health Service of the United Kingdom, remains the single largest health-care provider.
- NHS employs nearly the entire health-care workforce.
- NHS makes essential health care available to all practically free at the point of service.
- Consequences of the absence of such system: The absence ensures is that the profit-driven private sector, the minor component, caters mainly to the affluent lot as largely a matter of deliberate choice rather than desperate compulsion.
- Hopes of benefits of free-market belied: The Indian example, much like the United States’, bespeaks the failure of the idea that a free market will compel players to be more efficient.
- The exploitation of the loops by the private players: Rather than increasing efficiency, the players have found it expedient to scrupulously exploit the prevailing cracks in the system and employ devious methods in order to maximise profits.
Conclusion
- Health-care providers, just like others, are moulded by their social surroundings. When necessary controls are loosened, the connatural vices are let loose; when the habitat is conducive to values, the right traits develop.
- A system that starts off with health care as an overt tradable commodity it threatens the development of virtues in the system.
- On the other hand, a system founded on the concept of equity cultivates a totally different culture of patient care.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- 'Make in India' , its performance, and reasons for not delivering on the set goals.
Context
Five years after its launch its appropriate time to take the stock of the progress made by ‘Make in India’.
Three major objectives of the initiative
- First- Manufacturing growth rate at 12-14 %: The first objective is to increase the manufacturing sector’s growth rate to 12-14% per annum in order to increase the sector’s share in the economy.
- Second-100 million jobs: The second objective is to create 100 million additional manufacturing jobs in the economy by 2022.
- Third-increase manufacturing’s contribution to GDP to 25%: The third objective is to ensure that the manufacturing sector’s contribution to GDP is increased to 25% by 2022 (revised to 2025) from the current 16%.
Assessment of the progress made so far
- As the policy changes were intended to usher growth in three key variables of the manufacturing sector — investments, output, and employment growth.
- Progress on the investment front:
- Slow growth: The last five years witnessed slow growth of investment in the economy.
- This is more so when we consider capital investments in the manufacturing sector.
- The decline in gross fixed capital formation: Gross fixed capital formation of the private sector declined to 28.6% of GDP in 2017-18 from 31.3% in 2013-14 (Economic Survey 2018-19).
- Gross Fixed Capital Formation is the measure of aggregate investment.
- Increase in private sector’s savings decrease in investment: Household savings have declined, while the private corporate sector’s savings have increased.
- This is a scenario where the private sector’s savings have increased, but investments have decreased, despite policy measures to provide a good investment climate.
- Progress on the output growth front:
- Double-digit growth only in two quarters: The monthly index of industrial production (IIP) pertaining to manufacturing has registered double-digit growth rates only on two occasions during the period April 2012 to November 2019.
- Below 3% for the most part: The data show that for a majority of the months, it was 3% or below and even negative for some months.
- The negative growth implies a contraction of the sector.
- Progress on the employment growth front:
- No progress: The employment, especially industrial employment, has not grown to keep pace with the rate of new entries into the labour market.
Problems with the policy
- The initiative had two major lacunae.
- First- Too much reliance on foreign capital: The bulk of these schemes relied too much on foreign capital for investments and global markets for produce.
- This created an inbuilt uncertainty, as domestic production had to be planned according to the demand and supply conditions elsewhere.
- Second-Lack of implementation: The policy implementers need to take into account the implications of implementation deficit in their decisions.
- The result of such a policy oversight is evident in a large number of stalled projects in India.
- The spate of policy announcements without having the preparedness to implement them is ‘policy casualness’.
- ‘Make in India’ has been plagued by a large number of under-prepared initiatives.
Three reasons why ‘Make in India’ failed to perform
- Too-much ambitious goals: It set out too ambitious growth rates for the manufacturing sector to achieve.
- Beyond capacity rate for the sector: An annual growth rate of 12-14% is well beyond the capacity of the industrial sector.
- Overestimation of implementation capacity: To expect to build capabilities for such a quantum jump is perhaps an enormous overestimation of the implementation capacity of the government.
- Dealing with too many sectors: The initiative brought in too many sectors into its fold.
- Lack of policy focus: Bringing in too many sectors under its fold led to a loss of policy focus.
- Lack of understanding of comparative advantages: Further, it was seen as a policy devoid of any understanding of the comparative advantages of the domestic economy.
- Ill-timed launch
- Given the uncertainties of the global economy and ever-rising trade protectionism, the initiative was spectacularly ill-timed.
Conclusion
- In order to revive the ‘Make in India’ there is a need to make necessary changes in the policy and root out the causes associated with the policy implementation.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3-Rationalization of subsidies on food in PDS and Fertilizers and need to reform them.
Context
As finance minister presents the budget the FM need to ensure transparency and to fully account for the food subsidy.
The excess buffer stock and need to reform
- A buffer stock norm and actual stock: A buffer stock norm is at 21.4 million tonnes (mt).
- Actual stock far exceeds the norm: The actual stocks of grains with the central pool stood at 75.5 mt.
- Which is 3.5 times what the government needs to hold.
- The economic cost of the excess stock: At its economic cost, the value of the excess stocks with the government stands at Rs 1.6 lakh crore.
- Potential for revenue: There is no better place to find revenue for the FM than to liquidate these stocks.
- Need for the reform in grain management system: Unless the grain management system is reformed, the inefficiency of the grain management system will keep on increasing and the nation will suffer.
Food subsidy reforms
- Link food prices to procurement price: It is the time to revise the central issue of price and link it to the procurement price-say at half the procurement price.
- Limit the population coverage: There is a need to limit this highly subsidised food of Rs 3/kg for rice and Rs 2/kg of wheat to say 40 per cent of the population.
- Move to DBT: The real fundamental reform would be to move towards direct cash transfers for the intended beneficiaries of food subsidy.
Fertiliser subsidy reforms
- Imbalance in the subsidisation: The real problem of this sector is the imbalance in the policy of fertiliser subsidisation.
- While urea (N) is subsidised to the extent of 75 per cent of its cost, phosphatic (P) and potassic (K) fertilisers are subsidised only to the tune of about 25 per cent of their cost.
- Consequences of this imbalance: The result is the highly imbalanced use of N, P and K on farmers’ fields. Which results in
- Giving a very low fertiliser-to-grain response ratio.
- Degrading the soil.
- Degrading underground water.
- Degrading the environment with excessive nitrogen use.
- Discouragement to natural farming: The current fertiliser subsidy discourages those who want to pursue natural farming as they don’t get subsidy anywhere near the amount chemical-based fertilisers do.
- Reforms: There are two ways in which the fertiliser subsidy regime can be reformed.
- Bring nitrogenous fertiliser under NBS: The solution to the imbalance in use is to bring nitrogenous fertilisers under the Nutrient Based Subsidy (NBS) scheme.
- Cash transfer based on per hectare basis: The second option is to move towards direct cash transfers for fertilisers on a per hectare basis, with some adjustment for irrigated tracts.
- 50,000 Crore saving: The above-mentioned reforms could result in the saving of Rs. 50,000 crores to the public exchequer.
Way forward
- Investing the savings where it matters the most: The savings from the reforms could be invested in-
- Better water management, especially drip irrigation.
- Infrastructure for agri-markets.
- Solar trees: The investments could also be made in setting up the solar trees in the farm to harvest solar power on farmer’s fields with buyback agreements for surplus production.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3-Potentials of UPI in increasing digital payments.
Context
UPI has brought digital payments to the common man and it has immense scope for growth.
Zero MDR rate
- Recently the finance minister made the announcement of the zero merchant discount rate (MDR) policy for payments through RuPay debit cards and Unified Payments Interface (UPI) instruments.
- What does it mean? This policy dictates that when a consumer pays a merchant using RuPay or UPI, the bank may not charge the merchant a commission on the sale value that it usually charges a merchant.
- Criticism of the move: Critics of this policy lament that it would begin to reverse the progress India has made in recent years to expand the digital payments network.
Some facts and figures
- Setting up of NPCI: In 2008 the National Payments Corporation of India (NPCI) was set up as an umbrella organization for operating retail payments and settlements in India.
- UPI: In 2016, NPCI introduced UPI.
- UPI has since registered 100 million users.
- UPI now clocks more than 1 billion transactions every month.
- Growth prospects for mobile payments: According to the NITI Aayog, mobile payments in India are expected to grow nearly 20-fold to $190 billion in the next three years.
- Digital payment for the common man: There are 1 billion mobile phone users in India.
- 420 million users have a feature phone, these users can use the *99# USSD service to dial into 13 different languages.
- Which would connect them to UPI and brings digital payments to the common man.
Need for innovation
- We are far behind: India is far behind china, where 55% of spending is done digitally, compared to only 11% in India.
- The outlook for future growth is mind-boggling.
- There is a need for innovation at three levels.
- First level-Adoption
- A better understanding of human behaviour, technology, use cases and dis-use cases will facilitate the 10x growth necessary in adoption rates to cover the entire population.
- Second level-Policy
- The government has the rare opportunity to develop a data-centric understanding of how the economy conducts itself and uses money, and can set taxes accordingly.
- Third level-Technology
- Voice for authentication: At the technology level, there is an opportunity to use voice as a means for authentication and conduct transactions across multiple local languages.
- Data analysis: Copious amounts of data from payment transactions can be analysed to understand user needs and develop personalized loans and financial solutions at scale.
Taking UPI to Global Level
- UPI in Singapore and UAE: The NCPI is gearing up to take UPI to other countries, beginning with Singapore and the United Arab Emirates.
- NCPI is working with its counterpart in Singapore, the Network for Electronic Transfers for Singapore, to bring UPI live in Singapore.
- The low hanging fruit is to provide payment solutions to Indians travelling abroad.
- Competition with global peers: The bigger and tougher game is to increase its usage among local people in countries outside India.
- This would put UPI in competition with the likes of PayPal and Skrill.
Conclusion
We have seen just the tip, albeit a very substantial tip, of the digital payments iceberg. In the coming years, young business leaders of today must learn to uncover the iceberg itself.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Reforms in banking sector and financial stability, Deposit Insurance and its significance.
Context
The amendments to the FRDI Bill, 2017—now renamed the Financial Sector Development and Regulation (Resolution) Bill, 2019—are being worked out.
Three crucial issues
- Specifics are being worked out in the bill on three crucial issues.
- First issue: The first issue is regarding the increase in the deposit insurance cover of customers.
- Second issue: To iron out the contentious issues related to the bail-in clause
- Third issue: To decide whether this resolution framework should apply to the public sector banks.
- Advantages of the move: At a time when the public sector banks have come under the stress of bad loans, increasing the deposit insurance coverage limit would be a welcome approach.
- Increasing the depositor’s confidence: The move will reinforce depositors’ confidence in the banking system in general, and the public sector banks in particular.
The issue of the government “ownership” of the banks and financial stability
- Ownership of government: The role of the “ownership” of banks towards financial stability is a much-debated issue in the country.
- RBI is positive about govt. ownership: The Reserve Bank of India (RBI) has attributed a positive role to the government ownership of banks in attaining financial stability.
- The issue of competitive neutrality: Committee to Draft Code on the Resolution of Financial Firms has blamed govt. ownership for causing a “lack of competitive neutrality” in the financial sector.
- Need of level playing field: Committee argued for the need of a “level playing field” for both the public and private sector financial firms for the sake of competitive neutrality.
- The concept of an overarching resolution framework for all financial firms gained traction.
Would the all-encompassing Resolution Corporation be efficacious?
- The FRDI Bill, 2017 sought to amend as many as 20 legislations for the diverse financial sector in this country, which is regulated by various institutions, like-
- RBI for the banks and the non-banking financial corporations.
- Insurance Regulatory and Development Authority (IRDA) for the insurance markets,
- Securities and Exchange Board of India (SEBI) for securities markets and mutual funds.
- The Pension Fund Regulatory and Development Authority for pension funds.
- The pertinent question
- The pertinent question is whether an all-encompassing resolution corporation can be really efficacious for the much-discussed financial stability of this country.
Fundamental issues
- Neutrality of ownership
- Different motives behind operations: While private financial institutions are predominantly governed by profit motives, for the public sector agencies, various social obligations, such as “financial inclusion,” assume primacy.
- Reason for commoner’s confidence: It is the sense of the government’s involvement (or ownership) that has forged commoners’ confidence to park their financial savings with them.
- The move may end up destabilising the financial sector: If the sovereign guarantee and resolving power are taken away from the government domain to some resolution corporation, it may destabilise the financial system.
- The Bail-in clause
- Deposit over 1 lakh included in bail-in mechanism: The FRDI Bill 2017 suggests that deposit amounts over and above the cover limit (which currently is at one lakh) will be included in the bail-in mechanism.
- Further, despite the RBI’s caution against financial instability, short-term debts and uncategorised client assets are also currently under this mechanism.
- The falling growth rate of deposits: These provisions and the bill per se came against the backdrop of the Financial Stability Report, 2017 that revealed a 3.3% drop in the year-on-year growth rate of deposits for all scheduled banks in the country.
Conclusion
In the context of decelerating financial stability, the government needs to undertake these resolution reforms with caution that the reforms do not end-up eroding depositors’ faith in the domestic financial institutions.
.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Relations with Pakistan and need to resume the talks to resolve the issues.
Context
India announced that it will invite all heads of government of Shanghai Co-operation Organisation member countries, including Pakistan.
Significance of the invitation
- First since 2014: The summit will assume significance should Pakistan Prime Minister accept the invitation.
- As it will be the first by a head of government or state of that country to India since former Prime Minister Nawaz Sharif attended the swearing-in ceremony of Prime Minister in 2014.
- Hopes belied: Nothing came from that meeting and hopes created by the invitation were belied.
- Failed attempts to engage: Attempts to engage after that failed, including at a previous SCO summit at Ufa in 2015.
Latest events that further reduced the engagement
- Pulwama attack: First, there was the February 2019 Pulwama attack, India’s Balakot response, and Pakistan’s counter-response.
- Article 370: After India did away with Jammu & Kashmir’s special status, India and Pakistan have downgraded even their diplomatic presence in each other’s countries.
- Both the countries withdrew their high commissioners after the Article 370 issue.
- Trade stopped completely: Bilateral trade, which had managed to survive earlier shocks to relations, has stopped completely.
Opportunities presented by SCO summit
- “Inputs of all stakeholders”: In deciding whether to accept the invitation, the Pakistan PM will have to take into consideration “inputs of all stakeholders”.
- A polite way of saying that the final yes or no will rest with the Pakistan Army.
- A chance for a high-level meeting: Even if Imran Khan stays away and sends a minister instead, it would still be a chance for a high-level bilateral meeting.
- The world wants India and Pakistan to engage: The world wants India and Pakistan to engage, and this was evident in the way the UNSC refused to take up the Kashmir issue, saying it was not the forum for it.
- Opportunity for India to make a start: India has declared several times recently that it wants to peel away from historical foreign policy baggage.
- India should make a start with Pakistan by making it possible for such a meeting to take place.
- Making acceptance of invitation easier: India can make it easier for the Pakistan Prime Minister to accept the invitation.
- Resuming trade: A start could be made by resuming trade, which has ground to a dead halt
- Sending High Commissioner back: India can start by sending India’s High Commissioner back to his office in Islamabad.
Conclusion
The SCO summit presents an opportunity for both the countries to end the long hiatus in the relations which is essential for both the countries to resolve the long-standing issues and progress of both the countries.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2-Protection of vulnerable section and mob lynching.
Context
The spate of incidents of lynching over the past few years has led to a heightened sense of insecurity among the marginalised communities. The Centre should specify penal action against officials and doctors accused of dereliction of duty.
2018 Supreme Court Judgement
- In 2018, the Supreme Court described lynching as a “horrendous act of mobocracy”.
- The Court exhorted the Centre and State governments to frame laws specifically to deal with the crime of lynching.
- The SC laid down certain guidelines to be incorporated in these laws including
- Fast-track trials.
- Compensation to victims, and
- Disciplinary action against lax law-enforcers.
The State laws
- Manipur bill for the law against lynching: The Manipur government came up first with its Bill against lynching in 2018, incorporating some logical and relevant clauses.
- Provision of nodal officer: The Bill specified that there would be nodal officers in each district to control such crimes.
- Compensation to the victim: The law provides for adequate monetary compensation to the victims or their immediate kin.
- Punishment for failure to enforce the law: Police officers who fail to prevent the crime of lynching in their jurisdiction are liable to be imprisoned for a term that may extend from one to three years with a fine limit of ₹50,000.
- No concurrence of state for the prosecution of the police: No concurrence of the State government is required to prosecute them for dereliction of duty.
- Rajasthan bill: The government has accepted only a few guidelines issued by the apex court.
- No action against police officers: The bill is also silent on any action to be initiated against police officers who may be accused of dereliction of duty.
- West Bengal bill: Most other guidelines of the Supreme Court have been adopted by the State.
- Stringent punishment: Punishment for lynching to death is punishable with the death penalty or life imprisonment and a fine of up to ₹5 lakh.
What the Centre can do
- Adoption of the SC guidelines: The Centre should adopt the guidelines provided by the SC to deal with the crime.
- Action against doctors: Centre would do well to incorporate sections in the law for penal action against doctors who stand accused of-
- Dereliction of duty.
- For delay in attending to victims of lynching.
- For submitting false reports without carrying out a proper and thorough medical examination of the victims.
- The compensation scheme for victims: Under the compensation scheme for the victims, the amount to be paid to the victims should be recovered from the perpetrators of the crime.
- Collective fines: Collective fines should be imposed on the villagers where the lynching takes place.
- Punishment for a political leader for inciting the mob: Centre could even provide for punitive action against political leaders found guilty of inciting mobs.
- Punitive action against police: Punitive action to be taken against police officers accused of dereliction of duty, as incorporated in the law enacted by Manipur government, could be replicated in the Central law too.
- Punitive action as a deterrent: It would deter police officials acting in a partisan manner in favour of the lynch mob.
Conclusion
Until a zero-tolerance attitude is adopted in dealing with mob lynching, this crime will continue to show a rising trend.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Threat of Left Wing Extremism and ways to deal with it.
Context
When much is made of peace talks with rebels in Northeast India, avoidance of peace talks with Maoist rebels is strange.
States left to deal with the Maoists
- Scale and extent of the problem: Officially in 2019, there are 11 states and 90 affected districts.
- State subject: This is because policing and maintaining law and order are matters devolved to states.
- The approach adopted to deal with the problem: According to MHA-
- Capacity building: Primarily by capacity building of the state governments.
- Areas of capacity building: Capacity building is to be carried out in areas of security and development. This will continue with the-
- Better police training.
- Better intelligence gathering.
- Reinforcing police stations in conflict zones.
- And recruiting locals into auxiliary forces.
- Support by MHA: MHA will continue to provide the Central Reserve Police Force (CRPF) and other paramilitaries under its command.
- Support of NTRO: Intelligence gathering outfits such as the National Technical Research Organisation (NTRO).
- NTRO has in the past year increased drone surveillance over the densely forested Abujhmad area in southwest Chhattisgarh, which remains the main rebel hub.
The success achieved so far
- Influence reduced to 90 districts: The policies so far has certainly contained the rebels across 90 affected districts.
- Surrender and rehabilitation policy: Most Maoist-affected states in India have a surrender and rehabilitation policy.
- Surrender policy along with search and destroy : Surrender policy rides in tandem with search-and-destroy missions that police and paramilitaries provide.
- This pincer has massively depleted rebel leadership and ranks with regular killings, arrests, and surrender of its leaders and cadres.
Return of conflict displaced people
- It is crucial for the conflict-displaced to return to their homes.
- Issues related to return of displaced: Agencies discourage those returning from going back to their old home and instead are offered state-mandated enclaves.
- No or little economic imperatives: Those returning are offered little economic imperative besides daily wage labour and scrambling for government handouts.
- Some government jobs: For some, jobs are offered in
- That is, in any case, the present for much of the 50,000 or so who did not manage to escape to Telangana and elsewhere.
Conclusion
- The central government would do well to focus here and in beginning negotiations for peace.
- The Left-wing rebellion, a reality for over 50 years, is difficult to end until poor governance is improved.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Inflation targeting by RBI, and other mandates of RBI.
Context
The RBI’s responsibility to regulate the financial sector may have taken a back seat after the adoption of inflation targeting as the main objective. Has a fixation with inflation rate made the RBI take its eyes off the loan books of the banks?
Evolution of the role of the Central Banks
- Maintaining financial stability: The establishment of some of the world’s oldest central banks was inspired by the goal of maintaining financial stability.
- Harm to the depositors: It was recognised that when private commercial banks fail, whether due to malfeasance or misjudgement, they harm their trusting depositors.
- Harm to the entire system: But when banks fail they not only harm the depositors they can also take down with them the rest of the financial system.
- Banks lending to one another: The entire financial system also gets harmed when banks have lent to one another, which is not uncommon.
- The collapse of credit: In the crisis that ensues, there is a collapse of credit which, in turn, leads to a downturn in economic activity.
- Lender of last resort: To avoid this, the central bank was conceived of as the lender of last resort.
- Prevention of run on the banks: Lender of last resort is the one that could pre-empt a run on banks and give them time to put their books back in order.
- Regulation of banks: However, this was to be accompanied by the adoption of a tough regulatory stance.
- Whereby the central bank would stay hawk-eyed towards the activities of banks, particularly risky lending.
- Rise of neo-liberalism and change in a role: With the rise of neoliberalism, the central tenet of which is that markets should be given free play, the regulatory role of central banks took a back seat.
- Inflation control as primary role: The Central banks came to be primarily mandated with inflation control.
Inflation targeting and regulation of the financial market by RBI
- Multiple indicator approach: In India, the RBI had earlier pursued a ‘multiple indicators approach’.
- What was the multiple indicator approach: The approach involves concern for outcomes other than inflation, including even the balance of payments.
- Discouraging the approach: Developments in economic theory discouraged ‘multiple indicators approach’.
- It was argued that having economic activity as an objective of monetary policy leads to higher inflation.
- Favouring low inflation over lower unemployment: Discouraging the ‘multiple indicator approach’ encouraged low inflation over low unemployment.
- Inflation targeting as the sole objective of monetary policy: The Indian government also instituted inflation targeting as the sole objective of monetary policy.
- The fixed target for the RBI: The RBI was permitted to exceed or fall short of a targeted inflation rate of 4% by a margin of 2 percentage points.
- But have the RBI’s original mandate as a central bank been met?
- IL&FS crisis: In 2018, within three years of the adoption of inflation targeting goal, a crisis engulfed IL&FS, a non-banking financial company in the infrastructure space.
- Not a small player: It operated over 100 subsidiaries and was sitting on a debt of ₹94,000 crores.
- Effects of default: Given this, IL&FS default had a chilling effect on the investors, banks and mutual funds associated with it both directly or indirectly.
- PMC bank crisis: In 2019, a run on the Punjab and Maharashtra Co-operative Bank had to be averted by imposing withdrawal limits.
- Outright fraud in PMC case: While in the case of IL&FS, some part of the problem may have been caused by a slowing economy, outright fraud underlay the crisis at PMC Bank.
- Raghavendra Sahakara Bank case: In early 2020, curbs have had to be placed on withdrawals from the Bengaluru-based Sri Guru Raghavendra Sahakara Bank.
- Pertinent question
- Regulatory sector at the backseat? It is not too early to ask if the RBI’s responsibility to regulate the financial sector may have taken a back seat after the adoption of inflation targeting as the main objective.
- Has a fixation with inflation rate made the RBI take its eyes off the loan books of the banks?
The recent rise in inflation and shortfall of currency notes
- Inflation at 7%: At over 7%, the inflation rate in December is the highest in five years.
- Not cause of concern: This may not be the reason to panic, for the price rise could be seasonal and may well abate.
- Question on inflation targeting: But it does raise a question on the efficacy of inflation targeting as a means of inflation control.
- Reason for moderate inflation so far: If the inflation rate was within the intended range so far, that may have been due to both declining food prices and, for a phase, oil prices.
- The shortfall of notes: The central bank has a monopoly on the issue of notes.
- There is an absolute shortage of small denomination notes in the bazaars of India.
- Small-denomination notes are mostly unavailable.
Conclusion
While focusing on the inflation, the Central bank also needs to keep the other mandates especially the regulation of the finance sector in check.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Adoption of policy of auctioning of resources and periodic review of the policy.
Context
Governments regulations and restrictions in the markets, believing that policies could artificially restrict either supply or demand, or both, often results in unrealistic or unworkable prices.
Adoption of the auctioning process to allocate resources
- Design of process makes the difference: While auctions may be the cleanest way to allot scarce natural resources to private parties, their design makes all the difference.
- Three things needed to get the desired results from auctions:
- Clear policy goal: Define clear policy goals for the allotment of the resource whether coal blocks, spectrum or land.
- The proper process of periodic review: Define a proper process for periodic review of the design itself, since it may not be possible to get everything right in the first instance.
- Make the process non-partisan: Make the political oversight process as non-partisan as possible, so that regime changes do not keep upending policies.
What went wrong in spectrum allocation case?
- Arbitrary tweaks in policy: Arbitrary tweaks were made in the telecom licence and spectrum allocation policy.
- Which is what forced the apex court to intervene and cancel those licences.
- The claim of revenue loss: Cancellation followed a claim by the CAG that the “presumptive” revenue losses may have been as high as ₹1.76.
- Result of the two events-policy of revenue maximisation: The net result was that all subsequent auctions were designed to maximize spectrum bids.
- Winner’s curse: The policy finally ended up becoming a winner’s curse, evident in the pile of debt incurred by the telecom sector.
- Why did this happen? This happened because of the absence of a clear policy goal.
Real estate sector
- High land prices: The same goes for real estate, which is struggling right now due to high land prices because the bureaucracy prevents price reduction in land.
- Unaffordable to middle-income buyers: That make most properties unaffordable for middle and lower-middle-income buyers.
- Low FSI issue: Urban land prices are high due to artificial constriction of supplies through the fixing of low floor space indices (FSIs) even in land-scarce localities.
Technology and periodic review of policy
- Technology can lower costs: Spectrum or land or coal mines are not always in short supply, for new technology lowers costs.
- Efficient spectrum use: The same spectrum can, with the use of newer technology, be used more efficiently.
- 3D printing in construction: Better infrastructure and improved building technologies (even 3D printing techniques for mass housing projects in non-urban areas) can lower housing costs enormously.
- Automated coal mining: Automated coal mining can lower coal production costs, enabling higher profitability even with relatively high auction bids.
- Need for periodic policy review: Technology can reduce the prices of the resources and hence the periodic review of the prices at which the resources are allocated need to be taken to for balanced pricing.
Conclusion
- Policies on the allocation of scarce resources need to evolve based on actual experience and changing technologies and processes.
- The success or failure of a specific policy cannot be judged purely from a revenue or transparency point of view.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3-Indian power sector-Problems faced by the Discoms and their solutions.
Context
Five years after the launch of UDAY, power-sector once again seems to be going deep into the troubles.
Where the Discoms stand now?
- Losses increased: The losses of state-owned distribution companies (discoms) risen.
- Dues increased: Discom’s dues for power purchases have also surged.
- Dues owed by discoms to power producers, both independent and state-run entities, stood at Rs 80,930 crore.
- Of these, Rs 71,673 crore extends beyond the allowed grace period of 60 days.
- Rajasthan leads the states with the most dues, followed by Tamil Nadu and Uttar Pradesh.
Components of UDAY and progress made
- The UDAY scheme, which involved state governments taking over the debt of discoms, had three critical components
- First-Reduction in AT&C losses: While progress has been made on some of these fronts, it hasn’t been in line with the targets laid out under UDAY.
- AT&C (Aggregate Technical and Commercial) losses have declined in some states, but not to the extent envisaged.
- Under UDAY, discoms were to bring down AT&C losses to 15 per cent by FY19.
- Second- Timely revision of tariffs: While some states have raised power tariffs, the hikes have not been sufficient.
- In tariff revision decisions political considerations prevailed over commercial decisions.
- Third- elimination of the gap between per unit of cost and revenue realised: The gap between the average cost per unit of power and the revenue realised has not declined in the manner envisaged.
- Because of this discoms were forced to reduce their power purchases and delay payments to power producers.
Way forward:
- The new plan, being formulated by the government reportedly, aims to address these issues by-
- Reducing electricity losses.
- Eliminating the tariff gap.
- Smart metering.
- Privatising discoms.
- Having distribution franchisees.
- Altering incentive structure: Along with the above, the Centre should also look at altering the incentive structures of states in order to ensure compliance.
- Provision of penalties: Stiff penalties need to be imposed for not meeting the targets laid out in the new scheme.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Socio-economic upheaval in Indian economy and its consequences for the Indian economy.
Context
With the Indian economy caught in the middle of a socio-economic upheaval, the government needs to make its focus on the economy clear and pronounced.
India in the middle of a socio-economic upheaval
- Weakening economy: The economy has been weakening for a couple of years now.
- Social upheaval: The social upheaval is new but its seeds have been fermenting for a while.
- Consequences of the two: The social and economic sides of an economy are not divorced from each other.
- Each influences the other and the current quagmire threatens to unleash the worst type of feedback between the two.
Consequences for the employment
- Most severe consequence due to the interaction between the social and economic sides is unemployment.
- Rising unemployment disproportionately affects the young.
- India’s job market: India whose median citizen is in the 30s and which is inducting 10 million new young people to the job market every year.
- Demographic dividend turning into a curse: This dynamic, popularly hailed as India’s demographic dividend, can rapidly turn into a demographic curse if the employment situation doesn’t improve.
Falling investment rate, increased risk perception
- Where will the jobs come from? The job creators are entrepreneurs, conglomerates, and multinationals.
- It is in their nature to take investment risks as long as the returns are high enough.
- Investment rates below 30: In India, investment rate fell well below 30 per cent a while back.
- Falling returns: The returns on investment were not compensating entrepreneurs for the risk.
- The recent social upheaval is only adding to the perceived risk.
- Wait and see approach: The more investors adopt a “wait-and-see” approach, the worse the job situation will become.
Way forward
- Structural reforms: The government needs to announce a clear plan and timeline for structural reforms.
- Prioritising domain competence in staff: The government has to start staffing technical positions by prioritising domain competence and empowering these hires with policy relevance.
- Maintaining the integrity of institutions: The government need to maintain the integrity of institutions tasked with the regulation of corporations and banks, monetary policy management, data collection/dissemination and law enforcement.
- Accommodate dissent: The government also needs to desist from trying to drown out protesting voices with state muscle power.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- GST-below expected collection, and problems associated with it.
Context
In theory, the shift to GST made eminent sense, yet in practice, some of these expectations have been belied.
Why have GST collections not measured up to expectations?
- This could be due to a combination of three factors:
- First: The tax rates under GST are lower than in the earlier regime-GST was not revenue neutral, to begin with.
- Second: There has been massive tax evasion due to under-reporting, input credit scams and fake invoices
- Third: A slowing economy has impacted firm revenues, and thus tax collections.
GST should have been revenue-neutral but it is not
- Fitment exercises not carried out: The fitment exercise should have been undertaken in a manner so as to ensure that collections pre and post GST are the same.
- But, this fundamental principle was not adhered to, and other considerations dominated.
- Revenue neutrality Vs. Multiple objectives: The GST council began its deliberations not with the single objective of revenue neutrality, but with multiple objectives in mind.
- Closeness to existing tax: Council wanted to ensure that rates were close to the existing tax incidence (accounting for cascading); to ensure minimal impact on inflation.
- Not regressive: The council also wanted the proposed rate structure was not regressive in nature.
- The council wanted that items of mass consumption were not taxed at a higher rate.
- Achieving all these objectives simultaneously proved a difficult task.
The issue of tax evasion
- It is difficult to arrive at firm estimates of the scale of the problem but there are some indications of its size.
- In West Bengal, it was estimated that the value of goods (July 2017 to March 2018) entering a state appeared to be under-reported by around Rs 50,000 crore.
- Rs 60,000 crore in Madhya Pradesh, and Rs 1,50,000 crore in Maharashtra.
- Numerous cases of tax fraud and fake invoice scams have also been detected since then
Problems involve and possible solutions
- Invoice matching: It is argued that invoice matching will help if implemented it from the beginning.
- It could have helped plug the loopholes.
- Issue of under-reporting: It is debatable whether invoice matching can end under-reporting (collusion) and fake invoices.
- Limit of state capacity in handling cases: The Central and state administrations can intervene in only about 3 lakh cases in a year.
- Their capacity to track lakhs of transactions on a daily basis is questionable.
- Slowing economy: Already existing structural issues have been compounded by the slowing economy.
Way forward
- There are certain options available to the government.
- First: Either recalibrate the expectation or carry on the efforts to plug the loopholes and the shortcoming in the system.
- Second: Lower the cut-off for composition scheme. A higher level simply encourages business “splitting”.
- Third: Reduce exemptions.
- Fourth: The council must deliberate on the rate structure, bringing it in line with pre-GST levels.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Rising inflation-slowing growth rates and its consequences for Indian economy.
Context
High inflation has reduced the fiscal space available for a rate cut.
RBI target of 6% breached.
- CPI at 7.35 %: Retail inflation, as measured by the consumer price index (CPI), has surged to 7.35 per cent in December 2019.
- Latest inflation data seems to corroborate fears articulated by the Monetary Policy Committee (MPC) in its December meeting.
- In the meeting, MPC refrained from cutting the benchmark repo rate.
Consequences for the economy
- Reduced scope for fiscal slippage: High inflation reduced the space for further easing of policy rates.
- Even after clarity over the extent of the Centre’s fiscal slippage emerged.
- Rise in yield for 10-year securities: The 10-year G-sec yields have reacted sharply to these developments, rising to 6.67 on Tuesday.
- Offsetting operation twist: Rise in yield resulted in offsetting the impact of the RBI’s recent open market operations.
- Inflation targeting under stress: The combination of weak economic activity and higher than expected supply-side inflationary pressures has put the inflation-targeting regime under test.
Reasons for the inflation rise and chances of easing
- Food prices rise: Much of the rise in the headline inflation number can be traced to higher food prices.
- Food inflation has risen to a near six-year high of 14.12 per cent in December 2019, up from 10.01 per cent in the previous month.
- Vegetable prices have surged to 60.5 per cent in December, contributing nearly 3.7 percentage points to the headline numbers.
- Chances of ease in coming months: While vegetable crop cycles tend to be short, and supply-side pressures may ease in the coming months.
- The stickiness in prices of protein items is likely to provide a floor for food inflation.
Bleak outlook for inflation easing
- No short-term return to normal level: Food inflation is unlikely to revert to previous levels in the short term.
- Household inflation expectations, a key metric in the MPC’s assessment, are more responsive to food inflation, this will further exert upward pressure on MPC.
- A factor of hostilities in the Middle East: The uncertainty over oil prices on account of hostilities in the Middle East, adds to the bleak outlook for inflation.
Conclusion
With limited fiscal space for a meaningful stimulus, the government intends to support the economy during this rough patch, and return growth to a higher trajectory.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2-National Education Policy and ASER 2019 report , emphasis on the preschool education and issues associated with it.
Context
The draft NEP (National Education Policy) document points out that close to five crore children currently in elementary school do not have foundational literacy and numeracy skills.
Severe learning crisis: The document cites several possible reasons for this crisis.
- First reason: Many children enter school before age six.
- Lack of options: This is partly due to the lack of affordable and accessible options for pre-schooling.
- Therefore, too many children go to Std. I with limited exposure to early childhood education.
- Consequences for the poor: Children from poor families have a double disadvantage -lack of healthcare and nutrition and the absence of a supportive learning environment on the other.
- Second reason: Lack of developmentally appropriate activities by age and phase.
- The misplaced focus of ICDS: School readiness or early childhood development and education activities have not had a high priority in the ICDS system.
- Acting as an extension of pre-school education: Private preschools that have increased access to preschool but are often designed to be a downward extension of schooling.
- Thus, they bring in school-like features into the pre-school classroom, rather than developmentally appropriate activities by age and phase.
Three clear trends in ASER-2019 data
- First trend: Scope for expansion of Anganwadi network.
- Expansion network: There is considerable scope for expanding Anganwadi outreach for three and four-year-old children.
- All-India data from 2018 shows that slightly less than 30 per cent children at age three and 15.6 per cent of children at age four are not enrolled anywhere.
- Second trend: Under 6 students in class I.
- ASER 2018 data show that 27.6 per cent of all children in Std I are under six.
- It is commonly assumed that children enter Standard I at age six and that they proceed year by year from Std I to Std VIII.
- The Right to Education Act also refers to free and compulsory education for the age group six to 14.
- However, the practice on the ground is quite different.
- Third trend: There are important age implications for children’s learning.
- Association with learning output: ASER-2019 indicate the higher learning output associated with age in the same class.
- In Std. I, the ability to do cognitive activities among seven-eight-year olds can be 20 percentage points higher than their friends who are five years old but in the same class.
- In terms of reading levels in Std. I, 37.1 per cent children who are under six can recognise letters whereas 76 per cent of those who are seven or eight can do the same.
- Age distribution in Std. I vary considerably between government and private schools.
- Private schools in many states have a relatively older age distribution.
Way forward
- Understanding the children: Understanding the challenges that children face when they are young is critical if we want to solve these problems early in children’s life.
- Providing for developmentally appropriate skill: Instead of focusing on the pre-school years as the downward extension of school years there is a need for providing developmentally appropriate skill in these years.
- Pedagogy: On the pedagogy side reworking of curriculum and activity is urgently needed for entire age band of four to eight.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Economic reform-sudden or persistent and incremental, sustainable.
Context
Rather than big bang measures or a stealthy agenda, India can count on small but significant improvements.
Reforms only in crisis or by stealth
- The accepted conventional wisdom is that economic reforms in India happen only in a crisis or by stealth.
- Reforms in the crisis
- Reforms of 1991 : The big example of the former are the 1991 reforms.
- In 1991 the country faced a huge foreign exchange crisis, resulting partly from the fiscal profligacy of the previous decade.
- 1999 telecom sector reforms: Another example is from 1999 when the telecom sector was in near bankruptcy, and that crisis led to the shift away from fixed fee for spectrum to revenue sharing.
- The situation of no other choice: In both cases, there was considerable opposition to those reforms, but they were pushed through because the crisis left no other choice.
- Reform by stealth: Other than a crisis, more often than not, it has been economic reform by stealth.
- In the form of executive orders: These reforms are often in the form of an executive decision rather than legislation. Following are the examples of it-
- Expansion of the list under licence: The expansion of the list of items under the Open General Licence for imports, which is a reform of protectionism, or the reduction in the set of industries reserved for small-scale businesses.
- Electoral bond introduction: A more recent example of stealth reform was the insertion of an electoral bond scheme in the Finance Bill of 2018.
- Advantages of going stealth: Reform by stealth offers the advantage of going in either direction.
- In 2013, faced with a potential currency crisis, the Reserve Bank of India (RBI) quietly retracted the limits on the liberalized remittance scheme (LRS).
- Problem with stealth reforms: Stealth reforms are introduced stealthily but when they do not yield the desired result they are rolled back unpredictably, increasing uncertainty in policies of the government.
Persistent, encompassing, creative incrementalism in reforms
- The Economic Survey of 2015 pretty much ruled out Big Bang reforms in India, calling instead for “persistent, encompassing, creative incrementalism” on them.
- This is the right mantra.
- What incrementalism means: It implies continuity, not slowness, a sustainable speed that gives reforms predictability and stability. Following are its examples of it-
- Reform in food subsidy: Example of incrementalism could be reforms that are being carried out in food subsidies.
- First: Reduce the leakages of the subsidy to non-farmers.
- Thus, when procurement is done, payments go directly to their Aadhaar-linked accounts.
- This will lead to non-farmers getting eliminated,
- Second-Pay subsidy only to the poor: It will lead to subsidy savings, allowing us to limit the subsidy only to poor farmers.
- Sovereign gold bond scheme: The use of paper gold greatly reduces imports of the physical metal and outgoes of foreign exchange.
- The sale of these bonds is being expanded, and they would eventually be everywhere, even at post offices.
- Aggregate licence by RBI: The next example is from a new category called account aggregators licensed by RBI.
- It allows users’ control over the digital data trail that their transactions generate, and they can monetize it or use it to enhance their creditworthiness.
- This is an incremental reform with huge ramifications.
Conclusion
- The reforms cited above are incremental, not a big bang, persistent but not slow, open and not by stealth, and finally, imaginative too, since they respond to real needs.
- Effective reforms are those that are done brick by brick, the boring measures that chip away at everything that constrains high, inclusive and sustainable growth.
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