💥UPSC 2026, 2027, 2028 UAP Mentorship (March Batch) + Access XFactor Notes & Microthemes PDF
Talk to mentor

Civilsdaily

Type: op-ed snap

  • Coronavirus – Economic Issues

    Focus on supply side

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: MSME

    Mains level: Paper 3- Credit problems faced by MSMEs

    Whether to focus on supply side or demand side is the dilemma governments often face while deciding the measures to cure the ailing economy. This article explains using basic economics and evidence from across the world to make the case for a focus on the supply side. In doing so, it explains the problems with demand side measures such as cash transfers and tax rebets.

    Issue of neglect of demand side

    • The Union government is often criticised for its apparent neglect of the demand side and its excessive focus on the supply side.
    • Structural reforms — the COVID-19 package was no exception.
    • Low credit growth, weak inflation, and flat wage growth are the factors focused by demand-side proponents.
    • The deand side proponents suggest measures such as cash transfers, income tax cuts, and cheap credit to consumers.

    So, let’s focus on Demand vs. Supply side debate

    Low growth in credit to MSME

    • A demand shock typically leads to a rise in both volume and the price.
    • A supply shock not only hurts the volume but also leads to price rise.
    • In banking, a good proxy for the price of credit is the spread.
    • Spread is difference between lending rate and the funding rate  repo rate or deposit rates for the banks.
    • The spread reflects the risk premium banks charge to their customers.
    • The spread has consistently risen from just below 4 per cent at the start of 2018 to around 6 per cent in January 2020.
    • That means, the banks charged 4-6 per cent more on loan than it paid to its depositor or to RBI on the funds it got from them.
    • The fact that spreads are rising was highlighted by the 2019 Economic Survey as well.
    • At the same time, the credit growth — especially for public banks and to the MSME sector — has been sluggish for the previous two to three years.
    • The MSME sector witnessed sub-zero credit growth for the whole of 2017 and even now, the credit growth is very tepid at around 2 per cent Y-o-Y.
    • Rising spreads with lower credit volume provide a clear sign that credit supply is broken.

    What a paper by Nobel laureates on MSME says?

    • Paper by Nobel laureates Abhijit Banerjee and Esther Duflo examines the reasons for MSME problems.
    • The paper amply highlights the fact that the MSME sector suffers from lack of credit availability to finance investments rather than the lack of demand for credit.
    • They showed that when the government changed the definition of small firms, the firms newly covered by the priority sector lending programme used the extra credit to increase production and investment.
    • If there was no demand for credit, cheaper credit under the priority sector programme should have been used to repay the older expensive sources of borrowings.

    So, how will the recently announced package help MSEs?

    • Consistent with this view, we think that the government’s approach of guaranteeing SME credit by resolving the risk-sharing problem for banks will expand credit to credit-starved SMEs at lower credit spreads.
    • Similarly, expansion of the universe of small/medium firms will bring fresh investments from the firms, which are newly covered under priority sector programme as they will be able to get cheaper credit.

    2 Measures to increase consumer demand and issues involved

    1. Direct transfers schemes

    • No doubt that cash-transfers are superior to distortive subsidies and the “Garib Kalyan” package was a step in this direction.
    • In fact, the government has already transferred close to Rs 40,000 crore to bank accounts including Rs 10,000 crore to women under PMJDY.

    But is cash-transfers the ultimate solution to recovery?

    • In fact, the PMJDY account balance has increased.
    • The increase is from close to Rs 1,17,000 crore before the advent of COVID-19 to Rs 1,35,911 crore as of May 13 .
    • This is a massive jump of close to Rs 18,000 crore.
    • Recent research by Prasanna Tantri and co-authors shows that PMJDY account holders actively use the accounts — 1.12 transactions per quarter compared to the World Bank standard of one transaction.
    • In fact, PMJDY accounts see withdrawals when account holders are in distress, according to the study.
    • So the rise in balances is not mechanical.

    So, why are they not spending?

    • It’s not that people covered under PMJDY are comfortable financially.
    • A number of papers show that tax rebates boost demand in the short-run, but the quantum is limited.
    • For example, Sumit Agarwal and his co-authors show that the 2001 tax rebate programme in the US led to an average spending of only $60 on $500 rebate over nine months.
    • A recent study at the Kellogg Business School by Christian Borda and co-authors shows that tax rebates after the 2008 crisis in the US led to rise in spending, but by only 3.5 per cent in the first month of the rebates.
    • The crux is that no rational consumer goes on a consumption spree when he is facing job uncertainty!

    2. What about providing cheap credit to customers?

    • Trying to boost demand by providing cheap credit to consumers is not a good idea either as evidenced by the debt-financed housing boom in the US, which led to the 2008 crisis.
    • In fact, Atif Mian and Amir Sufi, using a large panel of 30 countries, uncover a more general pattern — an increase in household debt to GDP ratio leads to a sustained drop in future GDP, investments, and unemployment.
    • On the other hand, the economic cycles are much more muted when the initial growth is caused by structural reforms as pointed in a recent IMF study covering over 80 countries.

    Consider the question “Whenever governments decide on the stimulus package amid financial crises, supply side vs. demand side debate flares up. This has also been the case in India as the government announced the stimulus package recently. In light of this, examine the issues involved in demand side measures.”

    Conclusion

    To put the burden of recovery on risk-averse consumers, incentivising them to spend rather than save when there is employment uncertainty, is against any reasonable risk-sharing principle. Risk should be borne by those who have the appetite — the firms and government.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • MGNREGA Scheme

    Ensuring MGNREGA lives up to its potential

    op-ed snap | Governance | Mains Paper 2: Government Scheme/Policies

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Provisions of MGNREGA

    Mains level: Paper 2- Issues and scope for improvement in MGNREGA

    With migrant workers returning home, work demand under MGNREGA is bound to rise. Sensing that the government increased the allocation to MGNREGA. This article suggests some steps to make the MGNREGA more effective in catering to this surge in the wake of the pandemic. Some issues that plague the scheme are also examined at the end. So, what are the suggestion? and what are the issues? Read to know….

    Acknowledgement of the importance of MGNREGA

    • The government made an allocation of an additional Rs 40,000 crore as part of the stimulus package.
    • This is an acknowledgement of the importance of MGNREGA.
    • The most important part of MGNREGA’s design is its legally-backed guarantee for any rural adult to get work within 15 days of demanding it.
    • This demand-based trigger enables the self-selection of workers and gives them an assurance of at least 100 days of wage employment.

    Let’s put allocation in context of World Bank recommendations

    • Since 2012, an average of 18 per cent of the annual budgetary allocation for MGNREGA has been spent on clearing pending liabilities from the previous years.
    • Even this financial year began with pending wage and material liabilities of Rs 16,045 crore.
    • An allocation of Rs 1 lakh crore for FY 2020-21 would mean that approximately Rs 84,000 crore is available for employment generation this year.
    • This will still be the highest allocation for MGNREGA in any year since the passage of the law.
    • However, the allocation, which amounts to 0.47 per cent of the GDP continues to be much lower than the World Bank recommendations of 1.7 per cent for the optimal functioning of the programme.

    Some immediate steps to ensure the MGNREGA lives up to its potential

    • First, state governments must ensure that public works are opened in every village.
    • Workers turning up at the worksite should be provided work immediately, without imposing on them the requirement of demanding work in advance.
    • Second, local bodies must proactively reach out to returned and quarantined migrant workers and help those in need to get job cards.
    • Third, at the worksite, adequate facilities such as soap, water, and masks for workers must be provided free of cost. For reasons of health safety, MGNREGA tools should not be shared between workers.
    • The government should provide a tool allowance to all workers — some states are already providing such an allowance.
    • Fourth, procedures for implementing MGNREGA must be simplified but not diluted.
    • The pandemic has demonstrated the importance of decentralised governance.
    • Gram panchayats and elected representatives need to be provided with adequate resources, powers, and responsibilities to sanction works, provide work on demand, and authorise wage payments to ensure there are no delays in payments.
    • Fifth, as per a study by the RBI, more than half the districts in the country are under-banked.
    • The density of bank branches in rural India is even more sparse.
    • At this time, payments need to not only reach bank accounts on time, but cash needs to reach the workers easily and efficiently.
    • The limited coverage of bank infrastructure in rural areas must not be made a hurdle.
    • Attempts to distribute wages in cash, sans biometric authentication, must be rolled out.
    • Sixth, there needs to be flexibility in the kinds of work to be undertaken, while ensuring that the community and the workers are the primary beneficiaries.

    Issuse with MGNREGA

    • Over the last few years, MGNREGA had begun to face an existential crisis.
    • Successive governments capped its financial resources, and turning it into a supply-based programme.
    • Workers had begun to lose interest in working under it because of the inordinate delays in wage payments.
    • With very little autonomy, gram panchayats had begun to find implementation cumbersome.
    • Barring a few exceptions, state governments were only interested in running the programme to the extent funds were made available from the Centre.
    • Allocating work on demand, and not having enough funds to pay wages on time was bound to cause great distress amongst the workers and eventually for the state too.
    • As a result, state governments had begun to implement MGNREGA like a supply-driven scheme, instead of running it like a demand-based guarantee backed by law.

    Consider the question “With migrant workers returning to villages in the wake of corona pandemic, demand for work is likely to increase. In light of this, discuss the utility of MGNREGA and challenges it may face.”

    Conclusion

    With nearly eight crore migrant workers returning to their villages, and with an additional allocation for the year, this could be a moment for the true revival of MGNREGA. A revival led by workers themselves.

    Mahatma Gandhi National Rural Employment Guarantee Act, 2005

    • The Act aims at enhancing the livelihood security of people in rural areas by guaranteeing hundred days of wage employment in a financial year to a rural household whose adult members (at least 18 years of age) volunteer to do unskilled work.
    • The central government bears the full cost of unskilled labour, and 75% of the cost of material (the rest is borne by the states).
    • It is a demand-driven, social security and labour law that aims to enforce the ‘right to work’.
    • Ministry of Rural Development (MRD), Government of India in association with state governments, monitors the implementation of the scheme.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Coronavirus – Economic Issues

    Stimulus package aims to turn the crisis into opportunity

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Aggregate demand

    Mains level: Paper 3- Stimulus package to address demand side and supply side problems

    Economic disruption caused by the corona crisis stems from both-demand side and supply side. So, the stimulus package announced was expected to address the issues on both sides. This article breaks downs the various elements of the package in demand-side as well as supply-side measures. We also know aggregate demand is not just consumption demand. So, this fact was also considered while deciding the demand-side measures.

    Twin mantra of stimulus package

    • 1) To ensure that human cost of the crisis is minimised, especially for those at the bottom of the pyramid.
    • 2) To convert this crisis into an opportunity by implementing bold structural reforms.
    • Such reforms will go beyond repairing the damage to the production capacities and enhance the overall supply response capabilities of the economy.

    Impact on demand side as well as supply side

    • The present crisis is far worse than both the Asian financial crisis of the late Nineties as well as the global financial crisis of 2008-09.
    • It has seriously impacted both the supply and demand side of the economy.
    • The government’s response has been to effectively address both these aspects.

    Government’s four-fold response to address supply-side problems

    1. Ensuring food security

    • To ensure that the government declared agriculture and all related activities as essential services.
    • This permitted the successful harvesting and efficient procurement of the critical Rabi crop.
    • It also implied pumping in Rs 78,000 crore as new purchasing power in the hands of the farmers.

    2. Preventing cash/liquidity crunch

    • Preventing the pressing cash/liquidity crunch was necessary to avoid insolvencies and bankruptcies.
    • An immediate moratorium was announced on their debt servicing obligations to commercial banks.
    • This measure was reinforced for MSMEs, for whom an additional credit line of Rs 3 trillion without any fresh collateral was extended.
    • MSMEs could also avail of new equity from the Rs 50,000 crore fund of funds and take advantage of the subsidiary debt facility announced by the FM.
    • These measures provided succour to a large number of businesses, especially those in the services sectors like hospitality, entertainment and retail.
    • The Rs 90,000 crore credit package made available to state discoms should also be included in this set of measures.
    • It will prevent bankruptcies of state electricity utilities and the power producers, which would have had disastrous results.

    3. Reforms in agriculture and manufacturing sector

    • The third set of measures were directed to significantly improve the ecosystem for private producers, both in agriculture and manufacturing.
    • Long-pending reforms to give farmers the much-needed freedom to choose their clients and for traders and exporters of agro-products to maintain necessary stocks have now been announced.
    • Defence production and exports will get a new fillip with the liberalisation measures.
    • Greater space will be given to private businesses in sectors in which public sector enterprises hitherto had either a monopoly or a predominant presence.

    4. Credit to street vendors

    • Finally, this is a measure that does not have a large fiscal footprint, but touches the lives and livelihoods of more than 50 lakh families.
    • Under which street vendors all over the country have been given a credit of Rs 10,000 each for re-stocking and use as working capital.

    Understanding the aggregate demand

    •  It is important to point out that aggregate demand is made up of- i) consumption, ii) investment iii) demand for intermediate goods.
    • So,  the cash-in-hand of consumers is not the only means for reversing the declining demand in the economy.
    • Therefore, additional credit lines provided to MSMEs, vendors or farmers will contribute to the strengthening of aggregate demand.

    Government’s response to address demand-side problems

    • A significant number of measures were announced to hike consumption demand directly as well.
    • Among these are:
    • Rs 1.73 lakh crore for improving the incomes and welfare of the most vulnerable, including the 20 crore female Jan Dhan account holders who will receive monies directly into their bank accounts.
    • Rs 50,000 additional incomes in the hands of those whose TDS and TCS were reduced by 25 per cent.
    • Rs 40,000 crore additional allocation for MNREGA, which will provide jobs and succour to those returning to their villages from metros and cities.
    • Rs 30,000 crore for construction workers.
    • Rs 17,800 crore transferred to 12 crore farmers and Rs 13,000 crore transferred to states to finance the costs of running quarantine homes and shelters for migrant workers.
    • These measures, which will directly benefit different categories of individuals, will surely raise the flagging demand — the necessary condition for triggering a fast-paced recovery in economic activity.

    Consider the question “The stimulus package announced by the government in the wake of pandemic sought to address both the demand side as well as supply-side problems. Examine the various components of package and other reforms announced in the economy.”

    Conclusion

    Combined with the significant number of bold structural reform measures, which hold the potential to make Indian firms attain global scales and competitiveness and give the much-needed freedoms, flexibility and financial strength to our beleaguered farmers, “the package” promises to promote India’s economic recovery in the post-COVID-19 period.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Coronavirus – Economic Issues

    India and China after pandemic

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Various components of the economic package

    Mains level: Paper 3- Impact of pandemic on India economy.

    The article broadly discusses the impact of the pandemic on the Indian economy. While the package has been declared to alleviate the economic pain, the government faces the challenge of finding the resources to plug the gaps. Though pandemic erupted from China, it successfully controlled it. This along with the its calibrated approach towards strategic progression is going to stand China in good stead.

    Grappling with the “unknown unknowns”

    • Several weeks before the advent of the COVID-19 pandemic, India’s Minister for External Affairs delivered a lecture.
    • In the lecture, he had observed that “what defines power and determines national standing is also no longer the same. Technology, connectivity and trade are at the heart of the new contestations.”
    • He did mention a point about “known unknowns”.
    • But the pandemic has forced us to face the “unknown unknowns”.
    • Within a few weeks, his prediction would be overtaken by a tectonic shift in the global situation thanks to a virus and a pandemic.

    Impact on India’s economy

    • What distinguishes the present pandemic from earlier ones is its economic impact.
    • The economic impact is perhaps even more threatening than the human costs involved.
    • In the case of India, all forecasts have had to be shredded.
    • Job losses have been massive, specially in urban areas.
    • India’s exports in the month of April, for instance, were the worst in the past 30 years.

    Finding resources for the stimulus package

    • Well before pandemic India had been witnessing a persistent economic downward slide.
    • Prime Minister Narendra Modi’s announcement of a ₹20-lakh crore stimulus package was, hence, timely.
    • Even though economists now believe that in real terms it amounts to around 2% of GDP rather than 10% .
    • Finding resources for even this stimulus package will, however, not be easy.
    • The Centre’s finances are not in the best of health. It has already had to resort to a second tranche of $1 billion loan from the World Bank to support COVID-19 relief measures.
    • The finances of States are, to say the least, in a perilous state.
    • Questions are, thus, bound to be raised as to whether adequate funds would be forthcoming for relief purposes.

    China’s calibrated approach: Strategic progression

    • Since its early recovery, China has followed a calibrated approach — one that stems from a policy of deliberate strategic progression conceived over the years.
    • It may be worthwhile to understand the facts so as to underscore the gap that currently exists between China and India.
    • In 2015, China’s President, Xi Jinping, had floated the idea of “a Community of Common Destiny of Mankind”.
    • In this, he outlined China’s viewpoint on aspects such as economic globalisation and the information technology revolution.
    • The Belt and Road Initiative — which encompasses policy, infrastructure, trade, financial, and people-to-people connectivity, and, implicitly also, security ties — was an adjunct to it.
    • The 19th National Congress of the Communist Party of China (2017), thereafter, gave its assent, considering it essential to enable China to achieve pre-eminence status within the global order.
    • Ever since, China has focused on-
    • i) attaining economic and technological progress.
    • ii) defining how power would be determined in the new globalised era through devising new international norms in many emerging domains such as cyber, space, artificial intelligence, etc.
    • China also set about rewriting international rules, premised not so much on governing where global goods are made, but on setting standards that define production, exchange and consumption.
    • China Standards 2035 plans to set new standards with regard to the Industrial Internet of Things (IoT) and define next-generation information technology and biotechnology infrastructure.
    • China is hoping, to reap the “early bird” advantage, even as other industrial nations struggle to recover from the devastation caused by the COVID-19 pandemic.
    • Internationalisation of Chinese standards would provide China a clear advantage by providing it an opportunity to set the standards in emerging industries such as high-end equipment manufacturing, unmanned vehicles, new materials, cybersecurity and the like.
    • This would enable it gain a dominant position in the global economy.

    India must plan well to cope with the China challenge

    • Mounting an effective challenge to China at this time would require a well-conceived and carefully calibrated plan of action by India.
    • As of now, this is not evident.
    • India and China will certainly emerge from the pandemic more diminished than previously, but to varying extents.
    • Each country will, no doubt, suffer an economic setback.
    • But while both nations would be among the very few that would still have a positive growth rate in the near future.
    • Which is 1% in the case of China and 1.8% in the case of India, according to the International Monetary Fund.
    • Given the size of China’s economy, it does not translate into a massive shift in India’s favour.

    Consider the question “Economies across the world have been bruised by the corona pandemic. There have also been talks of India being the beneficiary of changes in the global supply chains. In light of this, examine the issues and challenges that India may face in this regard.”

    Conclusion

    India would more than welcome some of the entities exiting China, but there are no “green shoots” to suggest that such a shift has, or is, about to take place. Many alternatives are available to these companies and it would be excessively optimistic on our part to hold on to the belief that India is the only alternative choice for most of them.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Coronavirus – Economic Issues

    Exploring the avenues to fill the budgetary gaps

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Investment rate, purchasing power

    Mains level: Paper 3- Option to raise the money for package.

    What are the options available with the government to fill up the budgetary gaps created by the stimulus package? Well, one seems to be exercising its disinvestment or privatisations plans. But like always disinvestment comes with its own set of issues. The next could be raising the taxes and duties on the fuels. But this will defeat the very purpose of the package. Third option is borrowing. But borrowing in the external currency is another problem story. Let’s figure this all out with this article….

    Containing the fiscal deficit through privatisation

    • Government is apparently hopeful that money could come partly from the new privatisation programme.
    • Finance Minister recently said that privatisation — a policy that has already gained momentum in the last budget, would now be the order of the day.
    • According to the new Public Sector Enterprises Policy (PSEP), a list of strategic sectors will be notified where there will be no more than four public sector enterprises.
    • The PSEP is a strategic move intended to rationalise the public sector.
    •  Before the COVID-19 crisis, the government needed the privatisation money partly because its revenue from GST among other things was declining.
    • And this void could only partly be filled by alternative sources of tax revenues such as that on fuel.
    • Today, the government needs this money in order to contain the fiscal deficit.
    • So, the privatisation programme has suddenly been expanded.
    • The Centre has set a budget target of Rs 2.1 lakh crore from disinvestment in the current fiscal year.

    Progress made so far on disinvestment process

    • Towards the end of 2019, the government approved the privatisation of BPCL and the Shipping Corporation of India.
    • In addition to selling stakes in the Container Corporation of India, THDC and NEEPCO.
    • The government had initially planned to complete its “strategic disinvestment” in BPCL and Air India by the end of this fiscal year.
    • It now wants it completed earlier. Some estimate say that the government’s disinvestment in BPCL, SCI and CONCOR could fetch it Rs 78,400 crore.
    • Should India’s flying Maharaja also find a buyer, the government could raise over Rs 1,05,000 crore.

    Issues with privatisation

    • The revenue from privatisation is a one-off benefit and generally, only profit-making units are sold at a good price.
    • Privatisation is a two-way street — it requires a buyer and a seller. Who will be the buyers?
    • Excessive political interference with the private sector makes owning an ex-government entity risky.
    • A handful of Indian capitalists who are already at the helm of oligopolies may be in a position — financially and politically — to buy the big PSUs.
    • If they were allowed to grow even more by acquiring public entities, sectors of the economy would be under the influence of quasi-monopolies.
    • This could foster crony capitalism and may even result in the making of oligarchs.

    Where else can the government find the money it needs?

    1. Increasing tax and duties on fuel

    • Government has already increased the excise duty on petrol and diesel by Rs 3 per litre — the steepest hike since 2012.
    • The government imposed additional taxes while global crude oil prices fell.
    • As oil prices can only go up after the last round of negotiations between Russia and Saudi Arabia, the Indian government will not be in a position to use this source of revenue again.
    • Such a move would contradict the very idea of a relief and stimulus package anyway. Why?
    • An increase in the excise duty or tax would affect purchasing power, when the package is supposed to help the poor and to boost demand.
    • Low demand and lowest investment rate:  Even before the present crisis, industrialists complained that 25 per cent of their productive capacity was idle.
    • And that’s why their investment rate had never been this low, in the 21st century at least.

    2. Borrowing money and issues with it

    • Even if some privatisation helps India financially, it seems that the country will need to borrow money.
    • External borrowing, however, is problematic. There are three issues with external borrowing-
    • 1) The only way governments pay back external borrowings is by wisely using borrowed capital to drive high GDP growth and generating revenues.
    • Which is unlikely to happen any time soon as a recession is round the corner.
    • 2) The rupee is at its lowest level compared to the US dollar.
    • Any more devaluation will only make it harder for the government to pay back its debt.
    • Since external borrowings must be paid back in borrowed currency, exports and foreign reserves or gold reserves are generally the only two reliable options.
    • The third one being borrowing more to pay back the previous debts — a slippery slope to pay government debt.
    • However, India should account for the inevitable global slump in international demand and a consequent drop in its exports.
    • Other countries may also move towards “atmanirbharta” and over-regulate imports.
    • 3)  Indian industries are already a bit debt-laden.
    • Following factors compelled industries to resort to overseas borrowing-
    • i)The risk in the banking sector, tight liquidity in debt markets,
    • ii) Comparatively lower international borrowing rates
    • iii) The RBI’s ECB rationalising measures.
    • More overseas borrowing, combined with the industry’s high debt status, could lead to rating agencies downgrading India’s investment prospects — deterring foreign investments in the process.

    3. Foreign reserves and other options

    • On the positive side, India’s foreign reserves stand at an all-time high which could be strategically used to finance its needs.
    • The rest may have to come from privatisation, taxation, loans and more international aid.
    • Already, India is receiving more funds from the World Bank, the ADB and the Japanese ODA.
    • India may help others, but it needs aid too.

    Consider the question- “The government had to declare the relief and stimulus package in the wake of corona crisis. This expenditure leads to budgetary gaps. What are the options with the government to close this gap? Examine the issues associated with these options.”

    Conclusion

    The government must weigh each option with due consideration and explore all the possible avenues. Options like privatisation or borrowing must be exercised with caution. As these decisions could have severe consequences for the economy in the future.

     

     

     

     

     

     

     

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Terrorism and Challenges Related To It

    Terrorism and its ideologies

    op-ed snap | Security Issues | Mains Paper 3: Social Media Networks & Internal Security

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much.

    Mains level: Paper 3- Terrorism and related issues

    Pakistan is a unique country in the sense that it is both a victim and the perpetrator of terrorism. This article explains the situations which made Pakistan home to the terrorism. So, why some terrorist organisations turned against Pakistan? What are the ideologies followed by various terrorist organisation and how it makes a difference in their functioning? Read to know…

    Terrorism paradox of Pakistan: Both Victim and perpetrator

    • This Terrorism paradox can be traced to the deliberate policy of the Pakistani state to create and foster terrorist groups in order to engage in low-intensity warfare with its neighbours.
    • Pakistan first operationalised this strategy in regard to Afghanistan in 1973.
    • And intensified it with the cooperation of the U.S. and Saudi Arabia after the Marxist coup of 1978 after which USSR entered Afghanistan.

    Soviet withdrawal and rise in insurgency in Kashmir

    • The Soviet withdrawal in 1989 left the Pakistani military with a large surplus of Islamist fighters that it had trained and armed.
    • Islamabad decided to use this “asset” to intensify the insurgency in the Kashmir Valley.

    Radicalisation of Pakistani population

    • The decade-long Afghan “jihad” in Afghanistan had also radicalised a substantial segment of the Pakistani population.
    • Radicalisation was intense in the North-West Frontier Province and Punjab.
    • Sectarian divisions were also on the rise not only between Sunnis and Shias but also among various Sunni sects.
    • The division was intense between two Sunni sects-the puritanical Deobandis and the more syncretic and Sufi-oriented Barelvis.
    • In the process, a number of homegrown terrorist groups emerged that the Pakistan Army co-opted for its use in Kashmir and the rest of India.
    • But, it soon became clear that Pakistan had created a set of Frankenstein’s monsters some of whom turned against their creator.
    • The Musharraf government, under American pressure, decided to collaborate with the latter in the overthrow of the Taliban regime in Afghanistan.
    • This resulted in some of the terrorist organisation turning against Pakistan.

    Monsters who don’t spare even its creator

    • The Tehreek-e-Taliban Pakistan (TTP), which has ideological affinity with the Afghan Taliban.
    • The TTP and its affiliates have fought pitched battles with the Pakistan Army in the Federally-Administered Tribal Areas (FATA) and parts of the NWFP.
    • Also, the Jaish-e-Mohammad (JeM) has not hesitated to launch terrorist attacks on targets within Pakistan as well, especially against the Shias and Sufi shrines.

    Did all terrorist organisation turn against Pakistan?

    • No!
    • Consider the case of ‘loyalist’ LeT.
    • Lashkar-e-Taiba (LeT), is a classic example of a “loyalist” terrorist organisation that has played by the rules set by the Pakistani military.
    • It only launches attacks on targets outside Pakistan, primarily in India.
    • As the evidence in the case of the Mumbai carnage of 2008 clearly indicates LeT operations are coordinated with the Inter-Services Intelligence (ISI).
    • ISI provides it with intelligence and logistical support in addition to identifying specific targets.
    • This is why the LeT and its front organisations have continued to receive the military’s patronage and unstinting support.
    • Consequently, its leader, Hafiz Saeed, was until recently provided protection by the Pakistani state.

    Ideological differences

    • Both the LeT and the Jaish-e-Mohammed (JeM) have been engaged in attacks on Indian targets identified by Pakistan’s ISI.
    • The difference between LeT and JeM lies in the fact that while the LeT is more pragmatic and less ideological.
    • The JeM is highly ideological and sectarian.
    • JeM draws its ideological inspiration from a very extreme form of Deobandi puritanism.
    • That extreme form considers all those who do not believe in its philosophy beyond the pale of Islam.
    • For many JeM diehards, these include not only Shias and Barelvis but also the Pakistani state and the Pakistani military.
    • LeT on the other hand does not consider Muslims of different theological orientations as non-believers and therefore legitimate targets of attack.
    • This relatively “liberal” interpretation is related to the fact that LeT draws its ideological inspiration from the sect called the Ahl-e-Hadis, which composes only a small proportion of Pakistan’s Muslim population and cannot afford to engage in sectarian conflict.
    • Moreover, it draws its membership from different Muslim sects including the Sufi-oriented Barelvis and the puritanical Deobandis.
    • Both these factors drive LeT toward greater tolerance in sectarian terms and to eschew intra-Islamic theological battles.
    • Its primary goals are political; above all, driving India out of Kashmir.
    • This jells well with the objectives of the Pakistani military and makes LeT and Hafiz Saeed, favourites of the Pakistani establishment.

    Consider the question asked by UPSC in 2017-“The scourge of terrorism is a grave challenge to national security. What solution do you suggest to curb this growing menace? What are the major sources of terrorist funding?

    Conclusion

    The fact that using terrorist outfits for state objectives is a highly risky business whose blowback cannot be predicted and can have very negative consequences for the stability of the state itself.

     

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Policy Wise: India’s Power Sector

    Proposed amendments could harm DISCOMs

    op-ed snap | Economics | Mains Paper 3: Infrastructure: Energy, Ports, Roads, Airports, Railways Etc.

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Electricity Act 2003.

    Mains level: Paper 3- Problems of DISCOMs.

    Despite several policy measures, DISCOMs continue to suffer from various issues. This article focuses on the comprehensive proposal to amend the Electricity Act 2003. But here’s a catch, we will be discussing some issues with proposed amendment. Let’s dive into our DISCOMs analysis.

    Two-part tariff policy

    • At the core of DISCOM woes is the two-part tariff policy.
    • Two-part tariff policy was mandated by the Ministry of Power in the 1990s at the behest of the World Bank.
    • As more private developers came forward to invest in generation, DISCOMs were required to sign long-term power purchase agreements (PPA).
    • Under PPA, DISCOMs were committed to pay-  1) a fixed cost to the power generator, irrespective of whether the State draws the power or not, 2) a variable charge for fuel when it does.

    How Over-optimistic projection led to losses?

    • The PPAs signed by DISCOMs were based on over-optimistic projection of power demand estimated by the Central Electricity Authority (CEA).
    •  The 18th Electric Power Survey (EPS) overestimated peak electricity demand for 2019-2020 by 70 GW.
    • The 19th EPS published in 2017, by 25 GW, both pre-Covid 19.
    • Thus, DISCOMs were locked into long-term contracts, ended up servicing perpetual fixed costs for power not drawn.
    • Due to the CEA’s overestimates, the all-India plant load factor of coal power plants is at an abysmal 56% even before COVID-19.
    • This means that coal power plants are generating electricity only 56% of what maximum these power plants are able to generate.

    Renewable energy factor

    • Renewable impacted the power sector in the following 3 ways-
    • 1) From 2010, solar and wind power plants were declared as “must-run”.
    • This required DISCOMs to absorb all renewable power as long as there was sun or wind, in excess of mandatory renewable purchase obligations.
    • This means backing down thermal generation to accommodate all available green power.
    • This resulted in further idle fixed costs payable on account of two-part tariff PPAs.
    • 2)  Power demand peaks after sunset.
    • In the absence of viable storage, every megawatt of renewable power requires twice as much spinning reserves to keep lights on after sunset.
    • DISCOMs, especially in the southern region, have had to integrate large volumes of infirm power, mostly from solar and wind energy plants.
    • These renewable energy plants enjoy must-run status irrespective of their high tariffs.
    • The tariff is  ₹5/kwh in Karnataka and ₹6/kwh in Tamil Nadu for solar power.
    • All this even as the demand growth envisaged in the 18th EPS failed to materialise.
    • 3) In 2015 the Centre announced an ambitious target of 175 gigawatts of renewable power by 2022.
    • This followed with a slew of concessions to renewable energy developers, and aggravating the burden of DISCOMs.
    • Incidentally, China benefited by as much as $13 billion in the last five years from India’s solar panel imports.

    So, what are the proposals in the Electricity Act-2020?

    1. Sub-franchisees and  issues with it

    • The amendment proposes sub-franchisees, presumably private, in an attempt to usher in markets through the back door.
    • Issue:  Private sub-franchisees are likely to cherry-pick the more profitable segments of the DISCOM’s jurisdiction.
    • The Electricity Bill 2020 containing the proposed amendments is silent on whether a private sub-franchisee would be required to buy the expensive power from the DISCOM or procure cheaper power directly from power exchanges.
    • If it is the first, the gains from the move are doubtful since the room for efficiency improvements is rather restricted in the already profitable regions attractive to sub-franchisees.
    • If it is the second, DISCOMs will then be saddled with costly power purchase from locked-in PPAs and fewer profitable areas from which to recover it.

    2. Concession to renewable

    • The amendment proposes even greater concessions to renewable power developers.
    • This would have a cascading impact on idling fixed charges, impacting the viability of DISCOMs even more.

    3. Elimination of cross-subsidies

    • The most controversial amendment proposed, seeks to eliminate in one stroke, the cross-subsidies in retail power tariff.
    • This means each consumer category would be charged what it costs to service that category.
    • Rural consumers requiring long lines and numerous step-down transformers and the attendant higher line losses will pay the steepest tariffs.
    • The proposed amendments envisage that State governments will directly subsidise whichever category they want to, through direct benefit transfers.
    • Cross-subsidy is a fact of life in even private industries, soap, newspapers, or even utilities such as telecom.
    • But eliminating them in one stroke is bound to be ruinous to State finances.
    • There are also myriad problems with Direct Benefit Transfer.
    • This proposal is practically infeasible; if forcibly implemented, it will lead to chaos.

    4. Selection of the State regulator

    • State regulators will henceforth be appointed by a central selection committee.
    • The composition of which inspires little confidence in its objectivity.
    • This could result in jeopardising not only regulatory autonomy and independence but also the concurrent status of the electricity sector.

    5. Electricity Contract Enforcement Authority

    • Its members and chairman will also be selected by the same selection committee referred to above.
    • The power to adjudicate upon disputes relating to contracts will be taken away from State Electricity Regulatory Commissions and vested in this new authority.
    • This is being done ostensibly to protect and foster the sanctity of contracts.
    • This is also to ensure that States saddled with high-priced PPAs and idling fixed costs, yet forced to keep increasing the share of renewables in their basket, have no room for manoeuvre.

    Consider the question “Despite various policy interventions, DISCOMs continue to suffer from financial woes. Analyse the reasons for their woes. Examine the proposals in the Electricity Act (Amendment) Bill 2020.”

    Conclusion

    Beyond a doubt, the Electricity sector requires change but we must try to bring holistic and participatory approach to find solutions.

    Back2Basics: Electricity Act 2003

    • The act covers major issues involving generation, distribution, transmission and trading in power.
    • Before Electricity Act, 2003, the Indian Electricity sector was guided by The Indian Electricity Act, 1910 and The Electricity (Supply) Act, 1948 and the Electricity Regulatory Commission Act, 1998.
    • The Electricity Act 2003 consolidates the position for existing laws and aims to provide for measures conducive to the development of electricity industry in the country.
    • The act attempted to address certain issues that have slowed down the reform process in the country and consequently had generated new hopes for the electricity industry.

     

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Coronavirus – Health and Governance Issues

    Unanimity at WHO

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India,International Institutions

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: WHO

    Mains level: Paper 2- Role of WHO under scanner for handling corona pandemic.

    WHO has been in news recently for all the wrong reasons. This article focuses on wide-ranging support for the resolution calling for the inquiry into the origin of the novel coronavirus. With this resolution, WHO has a chance to redeem its credibility. Until recently China seemed to be in the control of the global narrative on the pandemic. And now we witness near-unanimous support to this resolution.

    Inquiry of the origin of the virus

    • International attention is riveted on the question of an inquiry into the origin of the corona-virus.
    • The call for an international investigation was first voiced formally by the Australian prime minister, Scott Morrison.
    • Beijing reacted with open threats of trade sanctions. But Canberra pushed the investigation ahead.
    • It is working with the European Union to promote a resolution at this week’s World Health Assembly (WHA), which brings ministers from all the member states of the WHO.
    • The resolution also calls for an “impartial, independent and comprehensive” evaluation into the international response to the corona pandemic.
    • The WHA has 194 members.
    • So, the entire international community — has a voice in addressing the key issues raised by the corona crisis by debating the resolution.

    Wide support to the resolution

    • According to media reports, the resolution is close to gaining support from two-thirds of the WHA’s 194 members.
    • Australia and the EU hope to have the resolution approved unanimously.
    • Since the resolution does not mention China by name, Canberra and Brussels hope Beijing will not oppose the resolution.
    • They also hope to persuade Washington, which wanted tougher language including references to China, to endorse the resolution.
    • Whatever the fate of the resolution, the wide-ranging support it has got amidst the vocal Chinese opposition is impressive.

    So, how effective is the resolution?

    • To be sure, the resolution was watered down to get the maximum possible backing at the WHO.
    • But it is said to have enough teeth to dig deep into the issues raised by the corona crisis.

    How China controlled the corona narrative until now?

    • A few weeks ago, it seemed China and the Director-General of WHO, had full control over the corona narrative on the issues involved.
    • The Trump administration’s aggressive questioning of China’s role and WHO DG’s role had not gone down well.
    • Nor did the US threat to cut off funding for the WHO.
    • Within the US itself, opposition Democrats and the foreign policy establishment has attacked Trump for trying to “divert attention”.
    • China’s success in quickly getting things under control at home and its expansive mask diplomacy seemed to give Beijing an upper hand at the WHO.
    • China’s growing clout in the developing world and bilateral economic levers against major developed countries, including in Europe, appeared to insure against any serious international questioning of its handling of the virus.
    • What factors played the role in the passing of the resolution?
    • 1) The public pressure from the US concentrated minds at the WHO.
    • 2) Some quiet diplomacy by middle powers, including India, appears to have created the political basis for learning the right lessons from the pandemic and preventing similar eruptions in the future.

    Is it a setback for China?

    • Some observers see a unanimous approval of the resolution as a diplomatic setback for Beijing.
    • Since limiting the demands for an external inquiry has been a major political priority for Beijing.
    • There are similar demands at home for an investigation into a crisis that led to an enormous loss of life in China and punishing those responsible.
    • The leadership in Beijing is not comfortable with these demands.

    Issues with the WHO that India must pay attention to

    1. International norms for early detection

    • There is the need to develop new international norms that will increase the obligations of states and the powers of the WHO in facilitating early detection and notification of pandemics.
    • This will involve finding ways to bridge the contested notions of state sovereignty and collective security.

    2. Funding of the WHO

    • If you have a club that depends on donations rather than membership fees, donors will inevitably set the agenda.
    • Over the decades, the WHO has become ever more reliant on voluntary contributions from governments and corporations rather than assessed contributions from the member states.
    • This is going to leave the WHO rather vulnerable to pressures.

    3. WHO’s focus should be on fewer objectives

    • India must also ask if the WHO is trying to do too many things.
    • The WHO’s initial successes came when it focused on a few objectives like combatting malaria and the elimination of smallpox.
    • A limited agenda might also make the WHO a more effective organisation.

    Way forward for India

    • India knows it is one thing to pass to a resolution and entirely another to compel a great power like China to comply.
    • Any current effort to understand the origin and spread of the COVID-19 virus and a long-term strategy to deal with future pandemics must necessarily involve more than a measure of Chinese cooperation.
    • Sustained engagement with Beijing, then, is as important for Delhi as deeper cooperation with Washington and the “Quad plus” nations.
    • India should also focus on more intensive engagement with the non-aligned nations in promoting a new global regime on preventing and managing pandemics.

    Consider the question “Corona pandemic and its handling by the WHO resulted in the loss of its credibility. But the collective efforts of the nations which resulted in the passage of the resolution for inquiry of the origin of the virus, could soften the blow the credibility of WHO had suffered. Comment.”

    Conclusion

    For India, the widespread support for the resolution is a vindication of its early call for transparency and accountability in the responses of China and the WHO to the pandemic. India should take initiative to ensure the reforms at WHO and the formation of global order for preventing and managing the global order.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Coronavirus – Economic Issues

    Atmanirbhar Abhiyan Package

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: GDP rankings

    Mains level: Paper 3- Atmanirbhar Bharat Abhiyan

    The article examines the various aspects of the recently announced Atmanirbhar Bharat Abhiyaan (ANBA). But before digging deeper into the ANBA the author ruminates over India’s growth (GDP) story. Reasons for India’s failure to deliver on the economic empowerment are also examined. In the end, the relation between the free economies and the welfare states is examined.

    The good and the bad of India’s GDP story

    • India crossed the UK two years ago, France last year, and will cross Germany and Japan in the next five years. (In terms of nominal GDP)
    • That will leave only America and China ahead of us.
    • But India’s per capita GDP story is on a different track.
    • We once equalled Korea (1960) and China (1997) but today there are 138 countries ahead of us.
    • The COVID-19 lockdown and the stories of pain inflicted on migrant workers exposes how per capita GDP is more important for our citizens than total GDP.

    A take on Economic empowerment

    • Ramchandra Guha, in his book- Gandhi: The Years that Changed India, suggests that while other patriots had used Swaraj to signify national independence, Gandhiji made India aware of its true or original meaning, Swa-Raj, or self rule- both political and economic.
    • Our collective political Swaraj hasn’t always translated into individual economic Swa-Raj because of inadequate formalisation, industrialisation, urbanisation, financialisation, and skilling.

    Atmanirbhar Bharat Abhiyaan(ANBA) – A step towards Swaraj

    • The Atmanirbhar Bharat Abhiyaan (ANBA) policy announcements are important moves in meeting Gandhiji’s vision of individual self-reliance and recognising poverty as the worst form of violence.
    • ANBA targets avoiding unemployment becoming hunger and illiquidity becoming insolvency.
    • The agriculture package of Rs 1.63 lakh crore included farm-gate and aggregation point infrastructure, fisheries, animal husbandries, and others like animal vaccination, micro food enterprises.
    • The non-bank liquidity package of Rs 5.94 lakh crore included MSMEs, NBFCs, MFIs, housing finance companies, power discoms, and others (PF, tax relief).
    • The migrant and farmer package of Rs 3.16 lakh crore included concessional credit via kisan credit card, farmer working capital, affordable housing, and others (food, street vendors, microloans).
    • The welfare and health package of Rs 1.85 lakh crore included women and pensioner benefits, MNREGA, emergency health response, and others like food, financial security.
    • RBI’s liquidity measures of Rs 5.24 lakh crore included two phases of targeted long-term repo operations, CRR cut, marginal standing facility limit increase, refinancing facilities, and mutual fund special liquidity facility.
    • The reform to the Essential Commodities Act, APMCs and contract farming directly impact prosperity as 45 per cent of our agricultural labour force generates only 14 per cent of GDP.

    How ANBA maintained fiscal health?

    • ANBA is also important for what it is not. It’s not fiscal profligacy-i.e. the government is spending with due care for fiscal deficit figures.
    • Total spending may be higher if the loans for which government has stated to stand as a guarantor turns NPAs (for ex. MSMEs loans).
    • But for now, it marginally raises our already difficult fiscal deficit.
    • It’s not an institutional assault — RBI’s role in ANBA keeps it away from the political minefield that the US Federal Reserve has entered.
    • The US Fed is buying the bonds sold by corporations (i.e. Fed is spending itself) while the RBI has only lent the money to banks.
    • There is a recognition that RBI has lending powers, not spending powers.
    • It’s not a mindless public sector expansion: The end of monopolies (public sector monopoly) and new public-private partnership opportunities signal pragmatism and efficiency targeting.
    • It’s not waiting for potential COVID upsides: it makes us worthy if risky global just-in-time supply chains get replaced by resilient just-in-case diversification.
    • It’s not shutting off India from the world i.e. Atmanirbhar is not isolationist policy.
    • It creates new openness to ideas, investment, and trade.

    What is on agenda for ANBA 2.0?

    • The unfinished agenda for ANBA 2.0 includes following-
    • Civil service reform-the steel frame has become a steel cage.
    • Government reform-Delhi doesn’t need 57 ministries and 250 people with Secretary rank.
    • Financial reform-sustainably raising credit to GDP ratio from 50 per cent to 100 per cent.
    • Urban reform-having 100 cities with more than a million people rather than 52.
    • Education reform-our current regulator confuses university buildings with building universities.
    • Skill reform-our apprentice regulations are holding back employers and universities.
    • Labour reform-our capital is handicapped without labour and labour is handicapped without capital.

    Welfare state and free economies

    • A modern state is a welfare state with formal private jobs.
    • The idealisation of Scandinavian social democracies forgets that their dense social security nets are underwritten by remarkably free economies.
    • The World Bank Ease of Doing Business scale ranks Denmark third, Norway seventh, and Sweden 12th of 190 countries.
    • Despite — or thanks to — America’s capitalism, its central government spends 37 per cent of GDP while India’s spends 14 per cent.
    • And its ferocious fiscal pandemic response involves $3 trillion government borrowing in the next three months.
    • People suggest the US can sustain its welfare state because it has the world’s reserve currency.
    • But America can afford its welfare state because of the productivity of its cities, companies and citizens. Consider the following-
    • New York’s GDP equals Russia with 6 per cent of the people and 0.00005 per cent of the land.
    • The $4.5 trillion revenue of its 25 largest companies is more than Germany’s GDP.
    • Its per capita income is $55,000.
    • India’s welfare state does not lack intentions but lacks resources.
    • No amount of CSR, philanthropy, or government borrowing can provide the resources for the care of our weak, vulnerable, and unlucky that will flow from more productive cities, firms, and citizens.
    • This is what ANBA hopes to achieve.

    Consider the question “Far from being an isolationist, Atmanirbhar Bharat Abhiyan seeks to make India a welfare state with more productive cities, firms and citizens. Comment.”

    Conclusion

    India missed the manufacturing export train that China boarded but another may be coming.  Policy reform is not the solving of a sum but the painting of a picture — 90 days after the lockdown ends, we need ANBA 2.0 to finish the job.

    Back2Basics: Just in time inventory

    • The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules.
    • Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs.
    • This method requires producers to forecast demand accurately.

    Just in case inventory

    • Just in case (JIC) is an inventory strategy in which companies keep large inventories on hand.
    • This type of inventory management strategy aims to minimize the probability that a product will sell out of stock.
    • The company that utilizes this strategy likely has a hard time predicting consumer demand or experiences large surges in demand at unpredictable times.
    • A company practicing this strategy essentially incurs higher inventory holding costs in return for a reduction in the number of sales lost due to sold-out inventory.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

    New Possibilities for Agriculture Sector

    op-ed snap | Agriculture | Mains Paper 3: Transport & Marketing Of Agricultural Produce

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: APMC Act, ECA-1955

    Mains level: Paper 3- Reforms in agri-marketing.

    The finance minister proposed package for the farmers. The package has 11 points. But this article discusses only 3 points which the author hopes would be the game-changer for agri-marketing. The three points pertain to the ECA, APMC Acts and contract farming. So, how can these three proposed laws transform agri-marketing and be a boon to farmers and consumers at the same time? Read the article.

    1. Amending the Essential Commodities Act 1955

    • Background of the ECA: The ECA of 1955 has its roots in the Defence of India Rules of 1943.
    • At that time, India was ravaged by famine and was facing the effects of World War II.
    • It was a scarcity-era legislation.
    • By the mid-1960s, hit by back-to-back droughts, India had to fall back on PL480 imports of wheat from the US and the country was labelled as a “ship to mouth” economy.
    • Importer to exporter:  Today, India is the largest exporter of rice in the world and the second-largest producer of both wheat and rice, after China.
    • Our granaries are overflowing.

    So, how ECA hurts farmers as well as consumers?

    • Our legal framework is of the 1950s, which discourages private sector investment in storage.
    • How ECA discourage investment?  The ECA can put stock limits on any trader, processor or exporter at the drop of a hat.
    • Such limits discourage investments in storage facilities. As a result, the country lacks storage facilities.
    • When farmers bring their produce to the market after the harvest, there is often a glut, and prices plummet. All this hurts the farmer.
    • In the lean season, prices start flaring up for the consumers.
    • So, both lose out because of the lack of storage facilities.

    How the amendment will help?

    • The amendment announced last week, if implemented in the right spirit, will remove roadblocks in investment and help both farmers and consumers.
    • It will bring relative price stability.
    • It will also prevent the wastage of agri-produce that happens due to lack of storage facilities.

    2. Central law to allow farmers to sell outside APMC

    • Issues with APMC Acts: Our farmers suffer more in marketing their produce than during the production process.
    • APMC markets have become monopsonistic with high intermediation costs.

    How the proposed Central law to allow farmers to sell to anyone outside the APMC yard will help?

    • 1. It will bring greater competition amongst buyers.
    • 2. It will lower the mandi fee and the commission for arhatiyas (commission agents).
    • 3. It will reduce other cesses that many state governments have been imposing on APMC markets.
    • 4. The proposed law will open more choices for the farmers and help them in getting better prices. So their incomes should improve.
    • 5. By removing barriers in inter-state trade and facilitating the movement of agri-goods, the law could lead to better spatial integration of prices.
    • 6. This will help farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices.
    • 7. India will have one common market for agri-produce, finally.

    3. Legal framework for contract farming

    • The legal environment for contract farming, with the assurance of a price to the farmers at the time of sowing, is a step in the right direction.
    • It will help them take cropping decisions based on forward prices.
    • Normally, our farmers look back at last year’s prices and take sowing decisions accordingly.
    • The new system will minimise their market risks.

    2 Supplementary notes for success of above 3 measures

    •  Big buyers like processors, exporters, and organised retailers going to individual farmers is not a very efficient proposition.
    • They need to create a scale.
    • 1. And for that, building farmer producer organisations (FPOs), based on local commodity interests, is a must.
    • How FPOs will help? This will help ensure uniform quality, lower transaction costs, and also improve the bargaining power of farmers vis-à-vis large buyers.
    • NABARD has to ensure that all FPOs get their working capital at 7 per cent interest rate — a rate that the farmers pay on their crop loans.
    • Currently most of them depend on microfinance institutions and get loans at 18-22 per cent interest rates.
    • This makes the entire business high-cost.
    • 2. Another thing to watch out for is the fine print of the legislation.
    • Certain conditions to reimpose the ECA restrictions if the prices of commodity go up in the proposed legislation could be counterproductive.
    • That would be unreasonable and all the reforms would be undone.
    • One needs to understand how much is the “extra burden” inflicted by the price increase on the food budget of a household.

    The UPSC asked a direct question about the APMC Act in 2014- ” There is also a point of view that Agriculture Produce Market Committees (APMCs) set up under the State Acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine.”

    Conclusion

    The reforms, announced last week could be a harbinger of major change in agri-marketing, a 1991 moment of economic reforms for agriculture. But before one celebrates it, let us wait for the fine print to come.

    Back2Basics: Agriculture Produce Marketing Committee Regulation (APMC) Act.

    • All wholesale markets for agricultural produce in states that have adopted the Agricultural Produce Market Regulation Act (APMRA) are termed as “regulated markets”.
    • With the exception of Kerala, J & K, and Manipur, all other states have enacted the APMC Act.
    • It mandates that the sale/purchase of agricultural commodities notified under it are to be carried out in specified market areas, yards or sub-yards. These markets are required to have the proper infrastructure for the sale of farmers’ produce.
    • Prices in them are to be determined by open auction, conducted in a transparent manner in the presence of an official of the market committee.
    • Market charges for various agencies, such as commissions for commission agents (arhtiyas); statutory charges, such as market fees and taxes; and produce-handling charges, such as for cleaning of produce, and loading and unloading, are clearly defined, and no other deduction can be made from the sale proceeds of farmers.
    • Market charges, costs, and taxes vary across states and commodities.

    Essential Commodities Act 1955

    • The ECA is an act which was established to ensure the delivery of certain commodities or products, the supply of which if obstructed owing to hoarding or black-marketing would affect the normal life of the people.
    • The ECA was enacted in 1955. This includes foodstuff, drugs, fuel (petroleum products) etc.
    • It has since been used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.
    • Additionally, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.
    • The list of items under the Act includes drugs, fertilizers, pulses and edible oils, and petroleum and petroleum products.
    • The Centre can include new commodities as and when the need arises, and takes them off the list once the situation improves.

    How ECA works?

    • If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
    • The States act on this notification to specify limits and take steps to ensure that these are adhered to.
    • Anybody trading or dealing in the commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.
    • A State can, however, choose not to impose any restrictions. But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity.
    • This improves supplies and brings down prices. As not all shopkeepers and traders comply, State agencies conduct raids to get everyone to toe the line and the errant are punished.
    • The excess stocks are auctioned or sold through fair price shops.

    PL-480

    • The US President Dwight D. Eisenhower signed into law the Agricultural Trade Development and Assistance Act of 1954, commonly known as PL–480 or Food for Peace.
    • Prior to that, the United States had extended food aid to countries experiencing natural disasters and provided aid in times of war, but no permanent program existed within the United States Government for the coordination and distribution of commodities.
    • Public Law 480, administered at that time by the Departments of State and Agriculture and the International Cooperation Administration, permitted the president to authorize the shipment of surplus commodities to “friendly” nations, either on concessional or grant terms.
    • It also allowed the federal government to donate stocks to religious and voluntary organizations for use in their overseas humanitarian programs.
    • Public Law 480 established a broad basis for U.S. distribution of foreign food aid, although reduction of agricultural surpluses remained the key objective for the duration of the Eisenhower administration.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Coronavirus – Economic Issues

    Tale of two crises: Global Financial Crisis (GFC) and Corona Financial Crisis (CFC)

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: CDS, CDO, ABS, MBS

    Mains level: Paper 3- Difference between 2008 financial crisis and financial crisis caused due to Covid-19.

    Not all financial crises are the same. And this is more so about the two crises that we have been witness to – the 2008 Global Financial Crisis (GFC) and the current Corona Financial Crisis (CFC). The author points out the four key difference in the two crises. These four difference also mean that the solution for 2008 GFC may not be the solution for the present CFC. But why is it so? Read to know more…

    1. Origin of the two crises

    • The GFC originated in the financial sector.
    • In GFC, banks and financial intermediaries got carried away by irrational exuberance and recklessly piled on risk.
    •  CDS, CDO, MBS, ABS and various other became the villains in the GFC drama as it unfolded in the rich countries.
    • As people lost their wealth and savings in the financial meltdown, demand collapsed and growth slumped.
    • The contagion, which originated in the financial sector, spread to the real economy.
    • In contrast, the CFC came from outside the economic system.
    • The first impact came by way of a supply shock as China-centred supply chains broke down.
    • And then as countries ordered lockdowns and economies shut down, demand slumped.
    • The ensuing distress in the real economy led to distress in the financial system.

    So, how origin of the crisis matter for its resolution?

    • Restoring the faith in the financial system was key to the resolution of GFC.
    • Which meant rescue and rehabilitation of banks and other financial institutions.
    • Once that task in the financial sector was accomplished, repair of the real economy fell in place.
    • The demand came back, supply resumed and growth picked up.
    • In contrast, the central challenge in the resolution of the CFC is to beat the pandemic, and that solution has to come from science.
    • Only when there is public confidence that the incidence of the pandemic has been brought down to a low-level equilibrium, will there be a resolution in both the real and financial economies.
    • We are seeing that even during this crisis, just like in 2008, governments are coming out with fiscal stimulus packages and central banks with monetary stimulus packages.
    • But these are not solutions to the pandemic; they are just holding operations till the central problem is resolved.

    2. No one country hold key to solution

    • The second difference between the two crises arises from the asymmetry of the solutions.
    • The GFC originated in the subprime mortgage sector of the US and then, rapidly engulfed the world.
    • The CFC originated in the Hubei province of China and rapidly engulfed the world.
    • But the similarity ends there.
    • For the resolution of the GFC, restoring financial stability in the US was necessary, and a sufficient condition for restoration of financial stability everywhere.
    • But the situation with the CFC is different.
    • Every country needs to control the pandemic within its borders.
    • But that is not sufficient because the virus can hit back from across the border.
    • No country is safe until every country is safe.

    3. Policy interventions involve a dilemma

    • How the policy interventions interact with one another makes for the third difference between the two crises.
    • During the resolution of the GFC, solutions in the financial sector and in the real economy reinforced each other.
    • For example, to mitigate the crisis, the RBI cut rates and intervened in the forex market, the government extended special concessions for housing and real estate sectors to provide stimulus in the real economy.
    • There was synergy in these actions.
    • In contrast, in managing the challenge of the CFC, what we are seeing is tension between the various sets of policy actions.
    • The effort to contain the pandemic is exacerbating the challenges in both the real economy and the financial sector.
    • The more stringent the lockdown to save lives, the more extensive the loss of livelihoods.
    • Managing this tension is by far the biggest dilemma for governments battling the crisis.

    4. No single large economy to keep the world afloat

    • The global financial crisis, although it was called “global” did not affect all countries equally.
    • China was less affected even as all rich countries were in a financial meltdown.
    • In fact, one of the less acknowledged facts of the 2008 crisis is that it was the stimulus provided by China that kept the global economy afloat.
    • In contrast, now all rich and big economies are weighed down by the virus, and there is not a single large economy to keep the rest of the world afloat.

    Consider the question “Analyse the key differences in the Global Financial Crisis of 2008 and the financial crisis caused by the Covid-19.”

    Conclusion

    If pandemics are going to be more frequent, as is now suspected, it is all the more important that there is a more enforceable global protocol on early warning and information sharing. For all their differences, the GFC and CFC are similar in one respect — they both teach us life-enhancing lessons. The GFC forcefully reminded us that greed and avarice will only bring tears in the end. The CFC is teaching us that the force of nature is bigger than the combined force of our science and technology.

    Back2Basics: Credit Default Swap (CDS)

    • A credit default swap (CDS) is a type of credit derivative that provides the buyer with protection against default and other risks.
    • The buyer of a CDS makes periodic payments to the seller until the credit maturity date.
    • In the agreement, the seller commits that, if the debt issuer defaults, the seller will pay the buyer all premiums and interest that would’ve been paid up to the date of maturity.

    Collateralised Debt Obligations (CDO), MBS and ABS

    • To create a CDO, investment banks gather cash flow-generating assets—such as mortgages, bonds, and other types of debt.
    • These assets are then repackaged into discrete classes or tranches based on the level of credit risk assumed by the investor.
    • These tranches of securities become the final investment products: bonds, whose names can reflect their specific underlying assets.
    • For example, mortgage-backed securities (MBS) are comprised of mortgage loans.
    • And asset-backed securities (ABS) contain corporate debt, auto loans, or credit card debt.
    • CDOs are called “collateralized” because the promised repayments of the underlying assets are the collateral that gives the CDOs their value.
    • Mortgage-backed securities played a central role in the financial crisis that began in 2007 and went on to wipe out trillions of dollars in wealth, bring down Lehman Brothers, and roil the world financial markets.
    • In retrospect, it seems inevitable that the rapid increase in home prices and the growing demand for MBS would encourage banks to lower their lending standards and drive consumers to jump into the market at any cost.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Civil Aviation Sector – CA Policy 2016, UDAN, Open Skies, etc.

    Ensuring the take off of aviation industry

    op-ed snap | Economics | Mains Paper 3: Infrastructure: Energy, Ports, Roads, Airports, Railways Etc.

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: IATA

    Mains level: Paper 3- Impact of corona pandemic on aviation industry.

    Primarily the major driver of connectivity, the aviation industry is one of the worst affected industries in the corona crisis. It is in the need of relief package from the government. The article discusses the contribution of the industry in the economy. Finer details of the operation of the industry are also explained. In the end, details of the measures expected from the government relief package are discussed.

    Significance of aviation industry in Indian economy

    • The air transport industry, including airlines and its supply chain, is estimated to contribute directly or indirectly $72 billion of GDP to India.
    • India being the fastest-growing domestic market in the world at 18.6 per cent per annum, followed by China at 11.6 per cent. (IATA report)

    Impact of Covid-19 crisis

    • The same IATA report says that in India, 29.32 lakh jobs in the aviation sector are at risk.
    • Airlines in the Asia Pacific region may see the largest revenue drop.
    • The air transport business along with its supply chain may see a near wipeout of approximately 40 per cent of business volume in the current financial year.
    •  The two-month-long shutdown has eroded the capital of most airlines.
    • The cost of maintaining Aircraft on Ground (AoG) is extremely high, and with nil revenues, this is a sure-shot recipe for disaster.

    Economics of running airlines profitably

    • You should be flying your entire fleet, with no Aircraft on Ground. (Airbus A-320 or similar)
    • Every plane must fly for 11 hours a day.
    • Which will be possible only if you have a turnaround time of 30-45 minutes.
    • And you have an average Passenger Load Factor (PLF) of around 65 to 67 per cent.

    Now, consider this:

    • Forty per cent of your fleet is grounded.
    • Due to social distancing and other hygiene protocols, an aircraft can fly only eight hours because of the elongated turnaround time.
    • One-third seats are to be kept vacant.
    • And finally, you are flying with a reduced 50 per cent PLF.
    • The break-even ticket price in such a scenario would be astronomical.

    Demand for  financial relief package

    • The Asia Pacific division of the IATA has corresponded with the Indian government, citing the case of some of the other nations which have announced financial relief packages for the sector.
    • As per reports, countries like Australia, New Zealand and Singapore, have announced relief packages for airlines.
    • FICCI has urged the government to immediately provide direct cash support to Indian carriers whereby the airlines can meet their fixed costs.

    What relief measures could be provided?

    • First, a moratorium for the next 12 months on all interest on the principal amount of loans without limitations of size or turnover through a direction to all financial institutions.
    • Second, VAT on ATF by state governments, which ranges from 0-30 per cent, should be rationalised with immediate effect to a maximum of 4 per cent across all states for the next six months.
    • Third, aviation turbine fuel needs to be brought under the ambit of 12 per cent GST, with full input tax credit on all goods and services.
    • Fourth, a waiver for private airport operators space rentals and AAI, royalty, landing, parking, route navigation and route terminal changes for the next one year.
    • This should be done not only for the airlines but all aviation-related businesses.
    • Fifth, all airlines and aviation-related business must be treated as priority sector lending.
    • Sixth, no loans to airlines and other aviation-related business should be classified as NPAs and no collateral enforced or enhanced during this moratorium.
    • Finally, support the airlines and other-aviation related companies by paying or taking care of salaries of the employees for a period of six months.
    • This will allow employee retention and is being done in a lot of countries.

    A question was asked by the UPSC in 2017 related to the development of Airports in India under PPP model. This shows the importance of the aviation sector from UPSC point of view. Consider the question asked by the UPSC “Examine the development of Airports in India through joint ventures under PPP model. What are the challenges faced by the authorities in this regard?”

    Conclusion

    Recovery from this crisis is going to be a long and uphill task. It will take effort, planning and, most importantly, coordination between the aviation industry and the government.

    Back2Basic: IATA-International Air Transport Association

    • IATA was founded in Havana, Cuba, on 19 April 1945.
    • It is the prime vehicle for inter-airline cooperation in promoting safe, reliable, secure and economical air services – for the benefit of the world’s consumers.
    • The international scheduled air transport industry is more than 100 times larger than it was in 1945.
    • Few industries can match the dynamism of that growth, which would have been much less spectacular without the standards, practices and procedures developed within IATA.

     

     

     

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Foreign Policy Watch: India-Pacific Island Nations

    Role of ESCAP in the Asia-Pacific

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: ESCAP

    Mains level: Paper 2-Challenges facing Asia-Pacific region and scope for cooperation

    The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) is one of the five regional commissions under the jurisdiction of the United Nations Economic and Social Council. This article examines the common challenges that ESCAP region faces- such as danger of pollution to the marine ecosystem, lack of data about ocean, connectivity issue faces by small island nations etc. Scope for the collaboration between ESCAP nations is explored.

    Strain on marine ecosystem and its implications

    • The Asia-Pacific seas provide food, livelihoods and a sense of identity, especially for coastal communities in the Pacific island states.
    • Escalating strains on the marine environment is threatening our growth and way of life.
    • In less than a century, climate change and unsustainable resource management have degraded ecosystems and diminished biodiversity.
    • Over-fishing has exponentially increased, leaving fish stocks and food systems vulnerable.
    • Marine plastic pollution originating from region’s rivers has contributed to most of the debris flooding the ocean.

    Lack of data for SDG 14: Life below water

    • Insights from ‘Changing Sails: Accelerating Regional Actions for Sustainable Oceans in Asia and the Pacific’, the theme study of this year’s Economic and Social Commission for Asia and the Pacific (ESCAP), focuses a lot on the need of data collection in the region.
    • At present, data are available for only two out of ten targets for the Sustainable Development Goal 14, ‘Life Below Water’.
    • Due to limitations in methodology and national statistical systems, information gaps have persisted at uneven levels across countries.

    Challenges facing the region

    1. Plastic Pollution

    • Asia and the Pacific produces nearly half of global plastic by volume, of which it consumes 38%.
    • Plastics represent a double burden for the ocean:  1) their production generates CO2 absorbed by the ocean, 2) as a final product enters the ocean as pollution.
    • Need of the hour is effective national policies and re-thinking production cycles i.e. promoting a circular economy approach.
    • Economic incentives and disincentives are necessary for the adoption of these policies as well as for minimizing resource use.

    2. Decline in fish stocks

    • Region’s position as the world’s largest producer of fish has come at the cost of over-exploitation.
    • The percentage of stocks fished at unsustainable levels has increased threefold from 10% in 1974 to 33% in 2015.
    • Generating complete data on fish stocks, fighting illicit fishing activity and conserving marine areas must remain a priority.

    3. Connectivity of island nations

    • While the most connected shipping economies are in Asia, the small island developing States of the Pacific experience much lower levels of connectivity.
    • This leaves them relatively isolated from the global economy.
    • Closing the maritime connectivity gap must be placed at the centre of regional transport cooperation efforts.
    • We must also work with the shipping community to navigate toward green shipping. Enforcing sustainable shipping policies is essential.

    Areas of cooperation

    • Trans-boundary ocean management and linking ocean data in the region can be the starting step.
    • Harnessing ocean statistics through strong national statistical systems will serve as a compass guiding countries to monitor trends, devise timely responses and clear blind spots.
    • ESCAP by using Ocean Accounts Partnership can help to harmonise ocean data and provide a space for regular dialogue among nations.
    • Translating international agreements and standards into national action is the key here. Also ensuring capacity building among nations to do so.
    • ESCAP is working with member states to implement International Maritime Organization (IMO) requirements.

    Consider the question-“What are the challenges facing the nations of Asia-Pacific amid growing levels of pollution and climate change. How cooperation among the countries of the region mitigate the risks? “

    Conclusion

    Our oceans keep our economy and our lives above the waves. We must use the years ahead to steer our collective fleets toward sustainable oceans.

    Back2Basics: ESCAP- United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)

    • India has been the founding member of ESCAP.
    • UNESCAP is the regional development arm of the United Nations in Asia and the Pacific, with a membership of 62 Governments, including 58 from the region.
    • Established in 1947 with its headquarters in Bangkok, Thailand.
    • UNESCAP serves as the highest intergovernmental regional platform to promote cooperation among member States for creating a more interconnected region working to achieve inclusive and sustainable economic and social development.
    • It carries out work in the areas of macroeconomic policy, poverty reduction and financing for development; trade and investment; transport; environment and sustainable development; information and communications technology and disaster risk reduction; social development; statistics, sub-regional activities for development; and energy.
    • UNESCAP also focuses on sub-regional activities to provide in-depth technical assistance to address specific key priorities, including poverty reduction and sustainable development, in the respective sub-regions.

    IMO- International Maritime Organisation

    • The IMO was established following agreement at a UN conference held in Geneva in 1948.
    • And the IMO came into existence ten years later, meeting for the first time in 1959.
    • As a specialized agency of the United Nations, IMO is the global standard-setting authority for the safety, security and environmental performance of international shipping.
    • Its main role is to create a regulatory framework for the shipping industry that is fair and effective, universally adopted and universally implemented.
    • IMO measures cover all aspects of international shipping – including ship design, construction, equipment, manning, operation and disposal – to ensure that this vital sector for remains safe, environmentally sound, energy-efficient and secure.

     

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

    Is the suspension of labour laws a silver bullet?

    op-ed snap | Polity | Mains Paper 2: Government Scheme/Policies

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Various labour laws.

    Mains level: Paper 2- Legal issues in the suspension of labour laws by the States.

    In keeping with the exigencies caused by the pandemic, some State governments have suspended several provision of labour laws. This article analyses the implications of such suspensions. And also emphasises the lack of legal basis in the State governments actions. Evolution of the labour laws in India is also discussed here. So, what are these legal issues? Read to know more…

    Some labour laws suspended by the UP government

    • The Uttar Pradesh government has issued an ordinance keeping in abeyance almost all labour statutes.
    • Which includes laws on maternity benefits and gratuity.
    • The Factories Act, 1948.
    • The Minimum Wages Act, 1948.
    • The Industrial Establishments (Standing Orders) Act, 1946.
    • The Trade Unions Act, 1926.
    • This will take away the protection conferred on organised labour by Parliament.

    Some repressive labour laws in colonial era

    • Bengal Regulations VII, 1819 was enacted for the British planters in Assam tea estates.
    • Workers had to work under a five-year contract and desertion was made punishable.
    • Later, the Transport of Native Labourers’ Act, 1863 was passed in Bengal.
    • The Act strengthened control of the employers and even enabled them to detain labourers in the district of employment and imprison them for six months.
    • Bengal Act VI of 1865 was later passed to deploy Special Emigration Police to prevent labourers from leaving and return them to the plantation after detention.

    Workers’ struggle in British India

    • The labour laws in India have emerged out of workers’ struggles, which were very much part of the freedom movement against oppressive colonial industrialists.
    • Since the 1920s there were a series of strikes and agitations for better working conditions.
    • Several trade unionists were arrested under the Defence of India Rules.
    • The workers’ demands were supported by our political leaders.
    • Britain was forced to appoint the Royal Commission on Labour, which gave a report in 1935.
    • The Government of India Act, 1935 enabled greater representation of Indians in law-making.
    • This resulted in reforms, which are forerunners to the present labour enactments.
    • The indentured plantation labour saw relief in the form of the Plantations Labour Act, 1951.

    Acts passed in India to protect workers’ rights

    • The Factories Act lays down eight-hour work shifts, with overtime wages, weekly offs, leave with wages and measures for health, hygiene and safety.
    • The Industrial Disputes Act provides for workers participation to resolve wage and other disputes through negotiations so that strikes/lockouts, unjust retrenchments and dismissals are avoided.
    • The Minimum Wages Act ensures wages below which it is not possible to subsist.

    Constitutional basis of the labour laws

    • These enactments further the Directive Principles of State Policy.
    • These laws also protect the right to life and the right against exploitation under Articles 21 and 23.
    • Trade unions have played critical roles in transforming the life of a worker from that of servitude to one of dignity.
    • In the scheme of socio-economic justice the labour unions cannot be dispensed with.

    Is the suspension of labour laws legally sound?

    • The Supreme Court, in Glaxo Laboratories v. The Presiding Officer, Labour (1983) said about contract between employer and employee “the contract being not left to be negotiated by two unequal persons but statutorily imposed.”
    • The ‘two unequal’ here refers to the inequality between employee and employer.
    • In Life Insurance Corporation v. D. J. Bahadur & Ors (1980), the Supreme Court highlighted that any changes in the conditions of service can be only through a democratic process of negotiations or legislation.
    • Moreover, Parliament did not delegate to the executive any blanket powers of exemption. 
    • Section 5 of the Factories Act empowers the State governments to exempt only in case of a “public emergency”.
    • Which is explained as a “grave emergency whereby the security of India or any part of the territory thereof is threatened, whether by war or external aggression or internal disturbance”.
    • There is no such threat to the security of India now.
    •  Labour is a concurrent subject in the Constitution and most pieces of labour legislation are Central enactments.
    • The U.P. government by Ordinance has said that labour laws will not apply for the next three years.
    •  How can a State government, in one fell swoop, nullify Central enactments?
    • The Constitution does not envisage approval by the President of a State Ordinance which makes a whole slew of laws enacted by Parliament inoperable in the absence of corresponding legislations on the same subject.
    • The orders of the State governments therefore lack statutory support. 

    Consider the question, “Several State governments have resorted to the suspension of labour laws in the aftermath of corona crisis. Examine the implications of the suspension of the laws for the rights of the labours.”

    Conclusion

    Governments have a constitutional duty to ensure just, humane conditions of work and maternity benefits. The health and strength of the workers cannot be abused by force of economic necessity. Labour laws are thus civilisational goals and cannot be trumped on the excuse of a pandemic.

     

     

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

    Changing labour laws not a solution

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much.

    Mains level: Paper 3- Changes in labour laws and growth in the economy.

    Recently several State governments made changes in their labour laws and removed or expanded limits on working hours and changed several other provisions. The article argues that the move may not be as beneficial as it is thought to be. So, how come the changes turned out to be detrimental to the interests of the workers? and what are the other issues involved? Read to know more…

    What changed laws mean?

    •  Uttar Pradesh introduced an ordinance that has scrapped most labour law for three years.
    • This was done ostensibly for two reasons- 1) creating jobs and 2)for attracting factories exiting China.
    • These laws deal with -the occupational safety, health and working conditions of workers, regulation of hours of work, wages and settlement of industrial disputes.
    • They apply mostly to the economy’s organised (formal) sector, that is, registered factories and companies, and large establishments in general.
    • Madhya Pradesh and Gujarat have quickly followed suit.
    • Reportedly, Punjab has already allowed 12-hour shifts per day.

    Why it is not a good move?

    •  Significantly, migrant labour will be critical to restoring production once the lockdown is lifted.
    • In fact, factories and shops are already staring at worker shortages.
    • Instead of encouraging workers to stay back or return to cities by ensuring livelihood support and safety nets, State governments have sought to strip workers of their fundamental rights.
    • The abrogation of labour laws raises many constitutional and political questions.
    • Scrapping labour laws to save on labour costs will not help start the economy but will do exactly the opposite.
    • It will reduce wages, lower earnings (particularly of low wage workers) and reduce consumer demand.
    • Further, it will lead to an increase of low paid work that offers no security of tenure or income stability.
    • It will increase informal employment in the formal sector instead of encouraging the growth of formal work.

    Demand is a reason for the slowdown

    •  There are no inherent shortages at the moment as the inflation rate remains moderate.
    • Before the lockdown, the annual GDP growth rate had plummeted to 4.7% during October-December quarter of 2019-20, from 8.3% in the full year of 2016-17.
    • The slowdown is due to lack of demand, not of supply, as widely suggested.
    • With massive job and income losses after the lockdown, aggregate demand has totally slumped, with practically no growth.
    • Therefore, the way to restart the economy is to provide income support and restore jobs.
    • This will not only address the humanitarian crisis but also help revive consumer demand by augmenting incomes.

    2 concerns over the rationale of scrapping laws

    • The rationale for scrapping labour laws to attract investment and boost manufacturing growth poses two additional questions.
    • One, if the laws were in fact so strongly pro-worker, they would have raised wages and reduced business profitability.
    • But the real wage growth (net of inflation) of directly employed workers in the factory sector has been flat (2000-01 to 2015-16).
    • This is because firms have increasingly resorted to casualisation and informalisation of the workforce to suppress workers’ bargaining power.
    • Two, it is not right to blame the disappointing industrial performance mainly on labour market regulations.
    • Industrial performance is not just a function of the labour laws.
    • The industrial performance also depend on the size of the market, fixed investment growth, credit availability, infrastructure, and government policies.
    • In fact, there is little evidence to suggest that amendment of key labour laws by Rajasthan and Madhya Pradesh in 2014 took them any closer to their goal of creating more jobs or industrial growth.
    • The role of labour market regulations may be more modest than the strong views expressed against them in the popular debates.

    Time to rationalise the labour laws

    • India’s complex web of labour laws, with around 47 central laws and 200 State laws, need rationalisation.
    • However, now more than ever before, reforms need to maintain a delicate balance between the need for firms to adapt to ever-changing market conditions and workers’ employment security.
    • Depriving workers of fundamental rights such as freedom of association and the right to collective bargaining, and a set of primary working conditions such as adequate living wages, limits on hours of work and safe and healthy workplaces, will create a fertile ground for the exploitation of the working class.
    • Presently, over 90% of India’s workforce is in informal jobs.
    • These informal jobs have no regulations for decent conditions of work, no provision for social security and no protection against any contingencies and arbitrary actions of employers.

    Consider the question “There is a rising demand for reforms in the labours laws in India. Examine the issues with the current labour laws in India. Suggest the areas which require improvements “

    Conclusion

    The changes made by the State governments should not end up doing more harm than good. To ensure that there must be a careful calibration of the move and its consequences.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Coronavirus – Economic Issues

    A plan to revive the broken economy

    op-ed snap | Economics | Mains Paper 3: Inclusive Growth & Issues,Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: MGNREGA

    Mains level: Paper 3- Employment issues caused due to economic disruption of the pandemic.

    The article suggests ways to revive the economy while keeping in mind the livelihood issues of the vulnerable section of society. Urgent concern should be addressed by the food and cash transfer, after that for livelihood in the rural area MGNREGA can be of great help. In the urban area, a  scheme based on the lines of MGNREGA is suggested. In the end, some ways to increase revenue are suggested.

    Food and cash transfers

    • Providing every household with ₹7,000 per month for a period of three months and every individual with 10 kg of free foodgrains per month for a period of six months is likely to cost around 3% of our GDP (assuming 20% voluntary dropout).
    • This could be financed immediately through larger borrowing by the Centre from the Reserve Bank of India.
    • The Centre should also clear outstanding Goods and Services Tax compensation.
    • Food and cash transfer are doable for the following reasons.
    • First, foodgrains are plentiful, as the Food Corporation of India had 77 million tonnes, and rabi procurement could add 40 million tonnes.
    • Second, because of the lockdown restrictions multiplier effect would be less. (so, fewer concerns about inflation)
    • Third, cash transfers in many spheres will only enable current demand to continue (such as payment of house rent to continue occupancy) and not create any fresh demand.
    • Fourth, when greater normalcy finally allows demand held back during lockdown to the surface, output could also expand because of resumed economic activity.
    • Finally, putting money in the hands of the poor is the best stimulus to an economic revival, as it creates effective demand and in local markets.
    • Hence, an immediate programme of food and cash transfers must command the highest priority.

    Need for changes in MGNREGA

    • Millions of migrant workers have gone back home, and are unlikely to return to towns in the foreseeable future.
    • Employment has to be provided to them where they are, for which the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) must be expanded greatly and revamped with wage arrears paid immediately.
    • The 100-day limit per household has to go.
    • Work has to be provided on demand without any limit to all adults.
    • And permissible work must include not just agricultural and construction work, but work in rural enterprises and in care activities too.
    • The revamped MGNREGS could cover wage bills of rural enterprises started by panchayats, along with those of existing rural enterprises, until they can stand on their own feet.
    • This can be an alternative strategy of development, recalling the successful experience of China’s Township and Village Enterprises (TVEs).
    • Public banks could provide credit to such panchayat-owned enterprises and also assume a nurturing role vis-à-vis them.
    • Pandemic highlighted unsustainability of the earlier globalisation.
    • Which means that growth in India in the coming days will have to be sustained by the home market.
    • Since the most important determinant of growth of the home market is agricultural growth, this must be urgently boosted.
    • The MGNREGS can be used for this, paying wages for land development and farm work for small and medium farmers.
    • Also the government support through remunerative procurement prices, subsidised institutional credit, other input subsidies, and redistribution of unused land with plantations is possible.
    • Agricultural growth in turn can promote rural enterprises, both by creating a demand for their products and by providing inputs for them to process.
    • Both these activities would generate substantial rural employment.

    Focus on urban area

    • In urban areas, it is absolutely essential to revive the Micro, Small and Medium Enterprises (MSMEs).
    • Simultaneously, the vast numbers of workers who have stayed on in towns have to be provided with employment and income after our proposed cash transfers run out.
    • The best way to overcome both problems would be to introduce an Urban Employment Guarantee Programme, to serve diverse groups of the urban unemployed, including the educated unemployed.
    • Urban local bodies must take charge of this programme and would need to be revamped for this purpose.
    • “Permissible” work under this programme should include, for the present, work in the MSMEs.
    • This would ensure labour supply for the MSMEs and also cover their wage bills at the central government’s expense until they re-acquire robustness.
    • It should imaginatively also include care work, including of old, disabled and ailing persons, educational activities, and ensuring public services in slums.

    The CARE economy: Public health, education, employment

    • The pandemic has underscored the extreme importance of a public health-care system, and the folly of privatisation of essential services.
    • The post-pandemic period must see significant increases in public expenditure on education and health, especially primary and secondary health including for the urban and rural poor.
    • The “care economy” provides immense scope for increasing employment.
    • Vacancies in public employment, especially in such activities, must be immediately filled.
    • Anganwadi and Accredited Social Health Activists/workers who provide essential services to the population, including during this pandemic, are paid a pittance and treated with extreme unfairness.
    • We must improve their status, treat them as regular government employees and give them proper remuneration and associated benefits, and greatly expand their coverage in settlements of the urban poor.
    • These could easily come within the total package announced by the Prime Minister, which could be financed by printing money.
    • But in the medium term, public revenues must be increased.
    • This is not because there is a shortage of real resources which, therefore, has to be taken from other existing uses through taxation.
    • Rather, since much-unutilised capacity exists in the economy, the shortage is not of real resources; the government has to just get command over them.

    Suggestions to increase public revenue

    • A combination of wealth and inheritance taxation and getting multinational companies to pay the same effective rate as local companies through a system of unitary taxation will garner substantial public revenue.
    • They will also reduce wealth and income inequalities which have become horrendous.
    • A 2% wealth tax on the top 1% of the population, together with a 33% inheritance tax on the wealth they bequeath every year to their progeny, could finance an increase in government expenditure to the tune of 10% of GDP.
    • It would be argued that this might cause large financial outflows, which the country can ill-afford.
    • Contrarily, even foreign capital is more likely to be attracted to a growing economy than one in sharp decline because of a lack of stimulus.
    • Also, a fresh issue of special drawing rights by the International Monetary Fund which India has surprisingly opposed along with the United States would provide additional external resources.
    • These additional resources, would suffice to finance the institution of five universal, justiciable, fundamental economic rights:1) the right to food, 2)the right to employment, 3)the right to free public health care, 4)the right to free public education and 5)the right to a living old-age pension and disability benefits.

    Consider the question, “The economic disruption caused by the pandemic threatens the progress made on the front of inclusive growth. Suggest the measures to ensure the livelihood of the economically vulnerable section of the society in the aftermath of the pandemic in rural and urban areas.”

    Conclusion

    The broken economy must be rebuilt in ways to ensure a life of dignity to the most disadvantaged citizen. The ways suggested here shows how to achieve that.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Coronavirus – Health and Governance Issues

    Cooperative Federalism in the Time of Covid-19

    op-ed snap | Polity | Mains Paper 2: Federalism

    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.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Coronavirus – Health and Governance Issues

    Legal aspects of using Disaster Management Act to deal with pandemic

    op-ed snap | Polity | Mains Paper 2: Federalism,Parliament & State Legislatures

    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.

     

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

    Changes in labour laws: legal but not appropriate

    op-ed snap | Polity | Mains Paper 2: Parliament & State Legislatures

    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.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now

  • WTO and India

    Shift in the US trade politics and opportunities for India

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    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.

    Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

    Attend Now