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  • Food Procurement and Distribution – PDS & NFSA, Shanta Kumar Committee, FCI restructuring, Buffer stock, etc.

    Applying the lessons learned from GST to One Nation One Ration Card (ON-ORC)

    op-ed snap | Agriculture | Mains Paper 3: PDS, Buffer Stock & Food Security

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: GSTN

    Mains level: Paper 3- Challenges ON-ORC could face and how the GST could offer valuable lesson for ON-ORC

    Never before we felt the necessity of portable benefit schemes as we did in the wake of the pandemic. Portable ration card could have mitigated the suffering of migrant workers to some extent. But it was not to be. This article examines the challenges in implementing the idea of ON-ORC and offers the solution to these challenges by drawing on the lessons learned from GST. At the same time, the shortcoming of GST can also be avoided in the ON-ORC.

    What is One Ration Card (ON-ORC)?

    • In the present system, a ration cardholder can buy foodgrains only from an Fair   Price Shop that has been assigned to her in the locality in which she lives.
    • However, this will change once the ONORC system becomes operational nationally.
    • Under the ONORC system, the beneficiary will be able to buy subsidised foodgrains from any FPS across the country.
    • The new system, based on a technological solution, will identify a beneficiary through biometric authentication on electronic Point of Sale (ePoS) devices installed at the FPSs.
    • This would enable that person to purchase the number of foodgrains to which she is entitled under the NFSA.

    Portable welfare benefit and attempts so far to achieve it

    •  The idea of portable welfare benefits means a citizen should be able to access welfare benefits irrespective of where she is in the country.
    • In the case of food rations, the idea was first mooted under the UPA government by a Nandan Nilekani-led task force in 2011.
    • The current government had committed to a national rollout of One Nation, One Ration Card (ON-ORC) by June 2020, and had initiated pilots in 12 states.

    Progress on intra-state and inter-state portability

    • While intra-state portability of benefits has seen good initial uptake, inter-state portability has lagged.
    • The finance minister has now announced the deadline of March 2021 to roll out ON-ORC.

    So, to ensure a smooth rollout, let’s review the challenges thus far

    1) The fiscal implications:

    • ON-ORC will affect how the financial burden is shared between states.

    2) The larger issues of federalism and inter-state coordination:

    • Many states are not convinced about a “one size fits all” regime because i) they have customised the PDS through higher subsidies, ii) higher entitlement limits, and iii) supply of additional items.

    3) The technology aspect:

    • ON-ORC requires a complex technology backbone that brings over 750 million beneficiaries, 5,33,000 ration shops and 54 million tonnes of food-grain annually on a single platform.

    How the lessons learned from GST can be applied to deal with the above 3 challenges?

    1. Fiscal challenge

    • Just like with ON-ORC, fiscal concerns had troubled GST from the start.
    • States like Tamil Nadu and Gujarat that are “net exporters” were concerned they would lose out on tax revenues to “net consumer” states like UP and Bihar.
    • Finally, the Centre had to step in and provide guaranteed compensation for lost tax revenues for the first five years.
    • The Centre could provide a similar assurance to “net inbound migration” states such as Maharashtra and Kerala that any additional costs on account of migrants will be covered by it for the five years.

    2. We could have a National council for ON-ORC

    • GST also saw similar challenges with broader issues of inter-state coordination.
    • In a noteworthy example of cooperative federalism, the central government created a GST council consisting of the finance ministers of the central and state governments to address these issues.
    • The government could consider a similar national council for ON-ORC.
    • To be effective, this council should meet regularly, have specific decision-making authority, and should operate in a problem-solving mode based on consensus building.

    3. Technological aspect: PDS Network

    • GST is supported by a sophisticated tech backbone, housed by the GST Network (GSTN), an entity jointly owned by the Centre and states.
    • A similar system would be needed for ON-ORC.
    • The Nilekani-led task force recommended setting up of a PDS network (PDSN).
    • PDSN would track the movement of rations, register beneficiaries, issue ration cards, handle grievances and generate analytics.
    • Since food rations are a crucial lifeline for millions, such a platform should incorporate principles such as inclusion, privacy, security, transparency, and accountability.
    • The IM-PDS portal provides a good starting point.

    Also, there are certain shortcomings in GST which we could avoid in ON-ORC

    We should learn from the shortcomings and challenges of the GST rollout. For example:

    1) Delay in GST refunds led to cash-flow issues.

    • Similar delays in receiving food rations could be catastrophic.
    • Therefore, ON-ORC should create, publish and adhere to time-bound processes.
    • The time-bound processes could be in the form of right to public services legislation that have been adopted by 15 states, and rapid grievance redress mechanisms.

    2)  Increase in compliance burden for MSMEs, especially for those who had to digitise overnight.

    • Similar challenges could arise in ON-ORC.
    • PDS dealers will need to be brought on board, and not assumed to be compliant.
    • Citizens will need to be shielded from the inevitable teething issues by keeping the system lenient at first.
    • This can be done by providing different ways of authenticating oneself and publicising a helpline widely.

    Consider the question “One Nation-One Ration Card(ON-ORC) could solve many problems faced by the beneficiaries when they move across the country. Examine the challenges the ON-ORC could face. Suggest ways to deal with these challenges.”

    Conclusion

    If done well, ON-ORC could lay the foundation of a truly national and portable benefits system that includes other welfare programmes like LPG subsidy and social pensions. It is an opportunity to provide a reliable social protection backbone to migrants, who are the backbone of our economy.

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  • Primary and Secondary Education – RTE, Education Policy, SEQI, RMSA, Committee Reports, etc.

    Online education must supplement, not replace, physical sites of learning

    op-ed snap | Governance | Mains Paper 2: Health & Education

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: MOOCs

    Mains level: Paper 2- Is online learning a substitute for the traditional educational institutions?

    Left with no choice, many education institutions turned to online mode. But could that be a new normal? This article analyses the indispensable role of online education. However, online education cannot be a substitute for traditional education institutes. WHY? Read the article to know about the vital role of traditional educational institutions…

    Online education (OE): Supplement not the substitute

    • The incredible synergy unleashed by information and communications technology (ICT) is the best thing to have happened to education since the printing press.
    • Indeed, higher education today is unthinkable without some form of the computer and some mode of digitised data transmission.
    • OE can use content and methods that are hard to include in the normal curriculum.
    • OE can put pressure on lazy or incompetent teachers.
    • OE can provide hands-on experience in many technical fields where simulations are possible.
    • And OE can, of course, be a powerful accessory for affluent students able to afford expensive aids.
    • As products of this revolution, online methods of teaching and learning deserve our highest praise — but only when cast in their proper role.
    • This proper role is to supplement, support and amplify the techniques of face-to-face education.
    • The moment they are proposed as a substitute for the physical sites of learning we have long known — brick-and-cement schools, colleges, and universities — online modes must be resolutely resisted.

    So, what are the vested interests involved?

    • Resistance to OE is often dismissed as the self-serving response of vested interests, notably obstructive, technophobic teachers unwilling to upgrade their skills.
    • But these are not the only vested interests involved.
    • Authoritarian administrators are attracted by the centralised control and scaling-at-will that OE offers.
    • Educational entrepreneurs have been trying to harvest the billions promised by massive open online courses (MOOCs) — think of Udacity, Coursera, or EdX.
    • Pundits are now predicting post-pandemic tie-ups between ICT giants like Google and Amazon and premium education brands like Harvard and Oxford that will launch a new era of vertically-integrated hybrid OE platforms.

    Is OE a viable alternative to traditional educational institutions (TEI) for the typical Indian student?

    • No one with access to an elite TEI chooses OE.
    • Instead, we know that OE always loses in best-to-best comparisons.
    • Favourable impressions about OE are created mostly by comparing the best of OE with average or worse TEIs.

    But is it true that the best OE is better than the average college or university?

    • OE claims that neither the campus nor face-to-face interaction are integral to education.
    • Since the comparative evaluation of virtual versus face-to-face pedagogic interaction needs more space, the campus question is considered here.
    • How does the typical student’s home compare with a typical TEI campus?
    • Census 2011 tells us that 71 per cent of households with three or more members have dwellings with two rooms or less.
    • According to National Sample Survey data for 2017-18, only 42 per cent of urban and 15 per cent of rural households had internet access.
    • Only 34 per cent of urban and 11 per cent of rural persons had used the internet in the past 30 days.
    • It is true that many TEIs (both public and private) have substandard infrastructure.
    • But these data suggest that the majority (roughly two-thirds) of students are likely to be worse off at home compared to any campus.
    • The impact of smartphone capabilities and stability of net connectivity on OE pedagogy also needs to be examined.

    Importance of college as a social space

    • It is as a social rather than physical space that the college or university campus plays a critical role.
    • Public educational institutions play a vital role as exemplary sites of social inclusion and relative equality.
    • In Indian conditions, this role is arguably even more important than the scholastic role.
    • The public educational institution is still the only space where people of all genders, classes, castes, and communities can meet without one group being forced to bow to others.
    • Whatever its impact on academics, this is critical learning for life.
    • Women students, in particular, will be much worse off if confined to their homes by OE.

    Consider the question- “Covid-19 pandemic forced many educational institute to explore the online more of education. And this also brought to the fore the potential of the online mode of education. In light of this, examine the issues with substituting the online mode of education for the traditional educational mode.”

    Conclusion

    Though an indispensable supplement for traditional education, there are certain aspects of education and a social life that online learning cannot substitute. So, the government should not divert its attention from the traditional educational institution and look at online education as its substitute.

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  • Foreign Policy Watch: India-China

    Analysing three-pronged strategy of China in Ladakh

    op-ed snap | International Relations | Mains Paper 2: India & Its Neighborhood – Relations

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Various location mentioned in the article.

    Mains level: Paper 2- Implications of dispute for India China relation

    The article gives an in-depth analysis of the current border dispute between India and China in Ladakh. But the present dispute follows the pattern. China has been encroaching and gaining control over the disputed territory since the 1980s. And this dispute also fits into that pattern.

    China acting strategically in Ladakh

    • While India has pursued its core national interests in J&K, China’s response was strategic — a shift that may have a lasting imprint on geopolitics.
    • We have been harping on the “differing perception” theory of the LAC for decades.
    • But in reality China has been gaining control over a massive “disputed territory” in Eastern Ladakh since the 1980s.

    Major Chinese encroachment events

    • The Chinese first made encroachments into the 45-km long Skakjung pastureland in Demchok-Kuyul sector.
    • This resulted in local Changpas of Chushul, Tsaga, Nidar, Nyoma, Mud, Dungti, Kuyul, Loma villages gradually losing their winter grazing.
    • Ladakh’s earlier border lay at Kegu Naro — a day-long march from Dumchele.
    • Starting from the loss of Nagtsang in 1984, followed by Nakung (1991) and Lungma-Serding (1992), the last bit of Skakjung was lost in 2008.
    • The PLA followed the nomadic Rebo routes for patrolling in contrast to Indian authorities restricting Rebo movements that led to the massive shrinking of pastureland and border defence.
    • By the 2000s, the PLA’s focus shifted to desolate, inhospitable Chip Chap which remains inaccessible until end-March.
    • After mid-May, water streams impede vehicles moving across Shyok, Galwan, and Chang-Chenmo rivers leaving only a month and a half for effective patrolling by the Indian side.
    • No human beings inhabit here, a 1962 war site, an entry point into Ladakh for the Uyghurs and Tibetans.
    • Local Ladakhi personnel manned the posts here, but patrolling in the 972 sq km Trig Height area has been lax.
    • Easier accessibility allowed the PLA to intrude into Chip Chap with impunity during July-August — its regulars usually spent a few hours before crossing back.
    • But, during the 21-day Depsang stand-off in 2013, when Burtse became a flashpoint, the PLA set up remote camps 18-19 km inside Indian territory.
    • Chinese soldiers virtually prevented Indian troops from getting access to Rakinala near Daulat Beg-Olde (DBO) where the IAF reactivated the world’s highest landing strips in 2008.
    2008 Daulat Beg Oldi Stand-off
    • This plus the reopening of Fukche and Nyoma airbases perhaps provoked the PLA’s intrusion in Depsang.

    So, what is the current stand-off about?

    • Despite topographical challenges, the BRO has lately fast-tracked the 260 km long Shayok-DBO road construction.
    • That road construction probably triggered the PLA intrusion in early May sparking the current Galwan stand-off.
    • Towards the south at Pangong Tso, forces had physical scuffles over area-denial for patrolling at Sirijap on May 5-6 and on May 11.
    • The situation remains tense at Sirijap’s cliff spurs and also at the Tso, where troops are chasing each other in high-speed patrol boats.
    • Clearly, intrusions are part of China’s never-ending effort to push Indian troops westward of the Indus and Shyok rivers and reach the 1960 claimed line.

    Details of the disputed border in Ladakh

    • Out of the 857 sq km long border in Ladakh only 368 sq km is the International Border, and the rest of the 489 sq km is the LAC.
    • The two traditional disputed points included Trig Heights and Demchok.
    • At eight points, the two sides have differing perceptions.
    • But lately, China has raised two fresh dispute points at Pangong Tso 83 sq km and at Chumur where it claims 80 sq km.
    • The old dispute sites were at the end point of Pangong Tso and at Chushul — the 1962 battle-site.

    Three-pronged strategy

    • 1) The Sirijap range on the northern bank of the lake remains most contested, from which several cliff spurs jut out — the “finger series” 1 to 8.
    • India’s LAC claim line is at Finger-8, but the actual position is only up to Finger-4.
    • The Chinese are asserting further west to claim 83 sq km here.
    • The PLA has built a 4.5 km long road to prevent patrolling by Indian troops.
    • The PLA’s road network from here extends to Huangyangtan base located near National Highway G219.
    • 2) Further south in Demchok, China claims some 150 sq km.
    • The PLA has built massive infrastructure on its side, moved armoured troops into Charding Nalla since 2009.
    • Tibetan nomads pitch tents on Hemis Monastery’s land throughout 2018-2019.
    • 3)In Chumur, China claims 80 sq km and probably wants a straight border from PT-4925 to PT-5318 to bring Tible Mane (stupa) area under its control.
    • For India, holding of Chumur is critical for the safety of the Manali-Leh route.
    • PLA demanded removal of India’s fortified positions in Burtse (2013) and Demchok and Chumur (2014) for its retreat.

    What could be the implications for India?

    • Overall, the pattern shows the PLA’s desperate design to snatch the lake at Lukung through a three-pronged strategy of attacking from Sirijap in the north, Chuchul in the south and through the lake water from middle.
    • This is the key chokepoint from where the Chinese can cut off Indian access to the entire flank of Chip Chap plains, Aksai Chin in the east and Shayok Valley to the north.
    •  Which means that Indian control is pushed to the west of the Shyok river and south of the Indus river, forcing India to accept both rivers as natural boundaries.
    • And once China gets control of the southern side of the Karakoram it can easily approach Siachen Glacier from the Depsang corridor.
    • And meet at Tashkurgan junction from where the CPEC crosses into Gilgit-Baltistan.
    • That would be disastrous for Indian defence, leaving the strategic Nubra vulnerable, possibly impacting even India’s hold over Siachen.
    • China’s access to Changla-pass through Lukung and Tangtse would threaten the entire Indus Valley.
    • It is quite possible that China is eyeing the waters of the Shyok, Galwan and Chang-Chenmo rivers, to divert them to the arid Aksai Chin and its Ali region.

    Consider the question “What could be the strategic and security implications of China’s claim in Pangong Tso region for India?”

    Conclusion

    India should resist the Chinese design which could have disastrous consequences for India’s defence and strategic interests. This should involve diplomatic channels rather than skirmishes on the borders.

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  • Foreign Policy Watch: India-Afghanistan

    Looking beyond Taliban: Focus on the Pashtun Question

    op-ed snap | International Relations | Mains Paper 2: India & Its Neighborhood – Relations

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Regions of Afghanistan

    Mains level: Paper 2- Implications of the return of Taliban for India.

    The US-Taliban peace deal signals growing heft of the Taliban in Afghanistan. Pashtuns constitute nearly 42 per cent population of Afghanistan and the Taliban is essentially a Pashtun formation. Also,  remember Pakistan: just like the kid who is always up to something. The ethnic fragmentation and Pakistan’s meddling is a recipe for perpetual conflict zone in the region.

    The question of India’s engagement with Taliban

    • Taliban’s effective control of territory in Afghanistan expanded in recent years.
    • This led to the question of India’s direct dialogue with the Taliban gain some relevance.
    • It has acquired some immediacy after the US announced plans for a significant draw down of its forces from Afghanistan and signed a peace deal with the Taliban earlier this year.
    • Also, recently the US Special Envoy for Afghanistan, Zalmay Khalilzad, called on India to open a political conversation with the Taliban.
    • The interest was further amplified by a signal from the Taliban that it is eager for a productive relationship with India.

    So, what should India do?

    • Those calling for direct engagement with the Taliban say that Delhi can’t ignore such an important force in Afghan politics.
    • Opponents say there is no reason for Delhi to join the international stampede to embrace the Taliban.
    • If and when the Taliban becomes a peaceful entity and joins the quest for a political settlement with Kabul, they argue, Delhi should have no objection to direct talks.
    • So, opening a dialogue with the Taliban is a tactical issue focused on when, how and on what terms.

    Pashtun question and India’s enduring interest in Afghanistan

    • The Taliban remains an important sub-set of the larger and more strategic Pashtun question.
    • The Pashtun question holds the key to India’s enduring interest in Afghanistan: Promoting a peaceful, independent and a sovereign Afghanistan that is not a subaltern to the Pakistan army.

    2 Basic issues that will define the Pashtun question

    1. Forming unity among multiple ethnic groups

    • First is the problem of reconciling the interests of multiple ethnic groups in Afghanistan.
    • The Pashtuns constitute nearly 42 per cent of the population.
    • The sizeable Afghan minorities include 27 per cent Tajiks, 9 per cent each of Hazaras and Uzbeks.
    • Irrespective of the nature of the regimes in Kabul over the last four decades— constructing a stable internal balance has been hard.
    • That problem will acquire a new intensity as the Taliban stakes claim for a dominant role in Kabul.

    But has the Taliban learnt to live in peace with the minorities?

    • The Taliban, an essentially Pashtun formation, had brutally crushed the minorities during its brief rule in the late 1990s.
    • There are some indications that the Taliban is now reaching out to the minorities but it is some distance away from winning their trust.

    2. Pakistan’s meddling in Afghanistan

    • The problem of constructing internal balance in Afghanistan has been complicated by Pakistan’s meddling.
    • Pakistan would like to have the kind of hegemony that the British Raj exercised over Afghanistan.
    • Neither can Pakistan replicate that dominance nor are the Afghans willing concede it to the Pakistan army.

    What about the Pashtun minority in Pakistan?

    • There are more than twice as many Pashtuns living in Pakistan than in Afghanistan.
    • The Pashtun population is estimated to be around 15 million in Afghanistan and 35 million in Pakistan.
    • And as mentioned above, the Taliban is essentially Pashtun formation.
    • Although Pashtun separatism has long ceased to be a force in Pakistan, Islamabad finds the Pashtun question re-emerge in a different form.
    • Pakistan can’t really bet that the Taliban will not put Pashtun nationalism above the interests of the Pakistani state.
    • The Taliban, for example, has never endorsed the Durand Line as the legitimate border with Pakistan.
    • It is by no means clear if Pakistan’s construction of the Taliban as a conservative religious force has obliterated the group’s ethnic character.
    • Sufferings of Pakistani Pashtun People: Islamabad’s quest for control over Afghanistan over the last four decades has heaped extraordinary suffering on the Pashtun people on Pakistan’s side of the Durand Line.
    • As the Pashtun Tahafuz Movement seeks a peaceful redressal of its demands for basic human rights, Pakistan has unleashed massive repression.

    India’s importance in Afghanistan

    • That the Taliban wants to talk to India and Pakistan brands Pashtun leaders as Indian agents only underlines Delhi’s enduring salience in Afghanistan.

    Consider the question “After the US-Taliban peace deal, India is forced with a difficult prospect of opening the dialogue with the Taliban. Examine the implications of the return of Taliban in Afghanistan for India. What is your opinion on India starting the dialogue with Afghanistan?”

    Conclusion

    Pakistan’s expansive military and political investments in Afghanistan have not really resolved Islamabad’s security challenges on its western frontier. If an Afghan triumph eludes Pakistan, Delhi can’t escape the complex geopolitics of the Pashtun lands.

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  • Minimum Support Prices for Agricultural Produce

    Time to evaluate and merge income support schemes

    op-ed snap | Agriculture | Mains Paper 3: Issues Related To Farm Subsidies & Msp

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: MSP and income support schemes of various state governments

    Mains level: Paper 3-Issues with the income support schemes for farmers.

    Both States and Center have income support schemes for the farmers. Coincidentally, they both suffer from common problems such as the exclusion of tiller from the benefit and identifying the landless labourers. This article floats the idea of merging all the support schemes in favour of an umbrella scheme. So, what are the solutions and how will an umbrella scheme be more beneficial? Read to know…

    Not much ‘new cash’ in the relief package

    • On May 12, the PM announced that his government’s relief-cum-stimulus package would be Rs 20 lakh crore, almost 10 per cent of India’s GDP.
    • But when Finance Minister unveiled the package, sector by sector, many wondered where the “new cash” was?
    • So, it became clear that additional relief and stimulus in the system is just about 1 per cent of the GDP — not 10 per cent.
    • Much of the rest is directed towards increasing liquidity and deferring some loan payments, but not much additional cash.

    Cash-transfer schemes by the state governments: Chhatisgarh and other states

    • In this context, the Chhattisgarh government deserves compliments for launching the Rajiv Gandhi Kisan Nyay Yojana (RGKNY).
    • RGKNY is an income transfer scheme at Rs 10,000/acre for paddy farmers and Rs 13,000/acre for sugarcane farmers.
    • The state’s chief minister has said that the scheme will be extended to farmers of other crops — in fact, to landless labourers as well.
    • On the face of it, RGKNY will help put money directly into the hands of farmers and poor agricultural labourers.
    • In kharif 2018-19, Telangana announced a cash transfer scheme of Rs 4,000/acre, per season — this was raised to Rs 5,000/acre per season in kharif 2019-20.
    • There is a live portal that gives the details of the scheme and its progress.
    • In the rabi season of 2018-19, the Odisha government launched the KALIA scheme-Krushak Assistance for Livelihood and Income Augmentation- on a somewhat similar pattern.
    • West Bengal’s Krishak Bandhu and Jharkhand’s Mukhya Mantri Krishi Aashirwad Yojana are the other income support schemes worth mentioning.

    2 Issues with income support policies and solutions

    1. The beneficiary is not always tiller of the land

    • Ideally, the money of the policies should go to the real tiller.
    • But in large parts of the country, there is no record of tenancy.
    • The government data shows only 10 per cent tenancy in the country.
    • While several micro-level studies indicate that it could be anywhere between 25-30 per cent.
    • In fact, in many regions like the Godavari belt, it could be even more than 50 per cent.
    • It does not make much sense to put money into the accounts of absentee landlords.

    So, what is the solution to this problem?

    • 1) The best way would be to change the tenancy laws.
    • Open up land lease markets, ensuring that the owner of the land has full rights to take his land back after the expiry of the lease period.
    • The current law, favouring “land to the tiller”, is loaded against the owner.
    • As a result, much of tenancy in the country remains oral.
    • 2) In the absence of such legal changes in land lease laws, the only way forward is to fully inform the tiller that the owner has got income support.
    • And then appeal to the owner to pass on this benefit to the tiller — or adjust the land rent accordingly.
    • Information and persuasion campaigns in radio and newspapers would increase the chances of the benefits being passed on to the real tillers.

    2. Identifying the landless labourers working on the farms

    • The other issue is identifying the landless labourers working on farms.
    • Majority of them are temporary and seasonal workers.
    • And leaving the task of identification to panchayats and patwaris can open doors for large leakages and corruption.

    What is the solution to this problem?

    • There have been talks in the past for synchronising MGNREGA with farm operations.
    • The synchronising will have two benefits-
    • 1)It will contain the cost of farming.
    • 2) It will ensure that those engaged in this employment guarantee scheme do useful and productive work.
    • The legal framework of the MGNREGA scheme does allow this on farms owned by people of SC/ST communities, and on the lands of marginal farmers.

     Merging Income Support Schemes: The way forward

    • The time has come to think seriously about merging income support schemes.
    • The merger will include the PM KISAN and state-level schemes, with the MGNREGA and price-subsidy schemes — food and fertiliser subsidies given by Centre and power subsidies given by state government.
    • These schemes amount to Rs 5 lakh crore — that’s a good sum of money to start a basic income cover for poor households.
    • Markets could then be left to operate freely.
    • This approach can cover landless labourers, farmers, and poor consumers — these categories overlap.
    • Let there be an expert group to look closely into the functioning of each one of these schemes and create an umbrella scheme to take care of the poor and the needy.

    Consider the question-“Examine the issues with the income support schemes for farmers by the States as well as the Central government. Do you think that an umbrella scheme after merging all the support schemes will be helpful in overcoming such issues?”

    Conclusion

    Though income support schemes by the state government and the Centre are a welcome move, however, when one looks at the issues with these schemes an umbrella scheme after merging all the present schemes will go a long way in solving the problems which almost all these schemes face today.

    Back2Basics: PM- KISAN

    • Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)is a Central Sector Scheme with 100% funding from the Government of India.
    • It is being implemented by the Ministry of Agriculture and Farmer’s Welfare.
    • Under the scheme, the Centre transfers an amount of Rs 6,000 per year, in three equal instalments, directly into the bank accounts of the all landholding farmers irrespective of the size of their land holdings.
    • It intends to supplement the financial needs of the Small and Marginal Farmers (SMFs) in procuring various inputs to ensure proper crop health and appropriate yields, commensurate with the anticipated farm income at the end of each crop cycle.
    • The entire responsibility of identification of beneficiary farmer families rests with the State / UT Governments.

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

    Hardly the 1991 moment for agriculture

    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

    Mains level: Paper 3- The issues with APMC reforms

    Reforms in agri-marketing has been long overdue. So, the government recently announced three reforms in this regard. This article examines the problems of agri-marketing. And it concludes that the said reforms are far from being the silver bullet for these problems. So, why these reforms are not going to be effective? Does demand play any role in the problems agriculture is facing currently? Read to know about these issues.

    Announcement of reforms regarding agricultural marketing

    • The announcement of reforms in agricultural marketing by Finance Minister in May, has been hailed by some as the “1991” moment for agriculture.
    • The three reforms regarding agricultural marketing were the reforms in the 1) Agricultural Produce Marketing Committee (APMC) Act, 2) the Essential Commodities Act, 3) Contract farming.
    • All of these have been in discussion for almost two decades, with the APMC Act having already seen substantial reforms in many States.
    • The first comprehensive model act on APMC was proposed during 2003, and since then, similar efforts to push for more reforms have been proposed in 2007, 2013, and as late as 2017 by the present government.

    So, let’s a look at provisions of APMC Act and issues with it

    What is the main argument against APMC Act?

    • Two main arguments against the APMC Act are-
    • 1) It creates barriers to the entry and exit of traders.
    • 2) Makes the sale and purchase of agricultural produce compulsory for farmers as well as traders.

    Different steps taken by the state governments to address the issues

    • So, as many as 17 State governments have amended the APMC Act to make it more liberal.
    • In fact, the regulations and the functioning of mandis vary a great deal across States.
    • Kerala does not have an APMC Act.
    • Bihar repealed it in 2006.
    • But several others such as Maharashtra, West Bengal, Odisha, Gujarat, and Andhra Pradesh deregulated fruits and vegetables trade, allowed private markets, introduced a unified trading licence and have introduced a single-point levy of market fee.
    • Tamil Nadu has already reformed its APMC with no market fee.
    • Several others such as Jharkhand, Himachal Pradesh, Uttarakhand, Haryana and Rajasthan have undertaken one or more of these reforms.
    • Many States have introduced direct marketing of farm produce, examples being the Uzhavar Sandhai (Tamil Nadu), the Rythu Bazaar (Andhra Pradesh and Telangana), the Raitha Santhe (Karnataka), the Apni Mandi (Punjab) and the Krushak Bazaar – (Odisha).

    So, why the mandis are still blamed for farmers’ problems?

    • Despite the above-stated reforms, APMC mandis continue to be vilified for-1)  all the ills plaguing marketing infrastructure 2) the low prices received by the farmers for their produce.
    • What is the problem? The problem with mandis is not the regulation per se and the structure of mandis but the political interference in the functioning of the markets.
    • These are more obvious in case of large mandis specialising in commercial crops and fruits and vegetables, where production is regionally concentrated.
    • But even with these deficiencies, APMC mandis continue to play an important role in providing access to the market for farmers.

    What the Bihar example teaches us?

    • Bihar repealed the APMC Act in 2006.
    • The general argument in favour of reforms is that 1) it will allow private investment in marketing infrastructure and 2) provide more choices to farmers, leading to better prices received by farmers.
    • But in the case of Bihar,  no investment came in building market infrastructure.
    • The loss of revenue due to the repeal of the APMC also led to deterioration of existing infrastructure in the State.
    • The revenue collected from the APMC earlier was used not only for the modernisation of these market yards but also for the laying of roads and construction of other infrastructure to provide farmers better access to markets.
    • But after the repeal, there have been no takers for these market yards, with no investment in creating private mandis.
    • On the other hand, it has led to proliferation of private unregulated markets which charge a market fee from traders as well as farmers, and without any infrastructure for weighing, sorting, grading and storage.
    • Even in other States where there is deregulation to allow private traders, there is hardly any investment to create market spaces let alone provide other facilities.
    • There is also no evidence that farmers have received better prices in private mandis outside the APMC.
    • While there have been instances of collusion and corruption in the running of the APMC, they continue to provide essential services to farmers.

    Inadequacies of the regulated market

    • As against the recommendation that a regulated market should be available to farmers within a radius of 5 km currently regulated markets is in the radius of 12 km.
    • There are more than 7,000 regulated markets and 20,000 rural markets when the need is at least twice these figures.
    • Most of the existing ones require investment in upgradation of infrastructure.

    Price received is more a function of demand than access to market

    • The argument that the only bottleneck for farmers not receiving remunerative prices is due to the APMC Act is flawed.
    • More than 80% of farmers, most of whom are small and marginal farmers, do not sell their produce in the APMC mandis.
    • For a majority of farmers, prices received are more a function of the demand for agricultural commodities than access to markets.

    So, let’s come to decline in demand for agriculture produce

    • For much of the period during the last two years, terms of trade have moved against agriculture.
    • Agricultural commodity price inflation had been negative for a large part of the last two years.
    • With underlying weakness in demand and obsession with inflation targeting through fiscal and monetary policies, most agricultural commodities have seen a sharp decline in demand and, consequently, prices received by farmers.
    • The argument for choice of markets is only valid as long as there are buyers with purchasing power in the market.
    • No amount of marketing reforms will lead to higher price realisation for farmers if the underlying macroeconomic conditions are unfavourable to agriculture and farmers.

    What is solution to decline in demand?

    • The primary task of the government should have been to increase fiscal spending to revive demand in the economy.
    • This has become even more necessary after the sharp decline in incomes, job losses and decline in demand following the lockdown and expected contraction in economic activity for the year ahead.
    • With international prices also showing declining trend, the urgency is to protect the farmers from the decline in commodity prices.

    Consider the question “Though the APMC Act has often been blamed for the woes of the farmers in price realisation, the act is not the sole reason for price realisation problems faced by the farmers. Critically examine.

    Conclusion

    The announced reforms are less likely to be effective if carried out without consulting the states. And on the demand side, government needs to increase fiscal spending to create demand in the economy. These two steps will go a long way in ensuring higher incomes to farmers.

    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.

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  • Cashless Society – Digital Payments, Demonetization, etc.

    Digital currency plan made in China

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

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: BIS, cryptocurrency.

    Mains level: Paper 3- Challenges and opportunity in cryptocurrencies.

    Central banks all over the world have had mixed feelings towards cryptocurrencies. Some of them have resorted to banning them altogether. And yet, cryptocurrencies exist and have been flourishing. But China seems to be bent on taking the “road less travelled”. This article explains the various aspects underlying the China’s move. These somehow apply to all the central banks, including the RBI. Read more to know more about such aspects.

    Digital currency by China’s central bank

    • In December 2019, a pilot programme was launched in Beijing to intensively advance the trial work of fintech innovation regulation.
    • This pilot has now been expanded to include several other cities.
    • This expansion of the pilot marks the initiation of China’s central bank digital currency (CBDC).
    • Christened Digital Currency Electronic Payment (DCEP), available via a mobile wallet app.
    • It is pegged 1:1 with fiat currency, and designed to replace M0 which comprises currency issued by the PBoC less the amount held by banking institutions.
    • This is the first such serious initiative in the whole world.

    Why central banks are sceptical of cryptocurrencies?

    • Historically, monetary authorities everywhere have been sceptical of cryptocurrencies.
    • The reasons for scepticism includes following problems-
    • 1) Wild fluctuations in the value of cryptocurrencies.
    • 2) The implied challenge to the monopoly of central banks in issuing fiat currencies.
    • 3) The looming possibility of software bugs.
    • 4) The tainted shadow of the dark web.

    But some central banks have been planning to issue fiat digital currency

    • Authorities were far more intrigued by CBDCs.
    • In fact, the Basel-based Bank for International Settlement (BIS) has been conducting surveys on this issue for some time.
    • The recent survey of 2019 “Proceeding with Caution – a Survey on Central Bank Digital Currency” revealed that while in general, central banks have been proceeding cautiously towards introducing central banks digital currencies.
    • Some have been planning to issue a fiat digital currency in the short to medium term.
    • In particular, the survey revealed that nearly 25% of central banks have the required authority to issue a CBDC, while a third do not, and 40% remain unsure.

    If you cannot beat them, join them

    • So, what factors led China to release the cryptocurrency?
    • Chinese investors were always attracted to cryptocurrencies.
    • With the bearish turn in the Chinese stock market in 2015-16, bitcoins became increasingly popular as an alternative asset class in China.
    • As in media reports, in the recent past, China has emerged as the capital of the crypto ecosystem, accounting for nearly 90% of trading volumes and hosting two-thirds of bitcoin mining operations.
    • The PBoC tried hard to curtail this exuberance but achieved limited success.
    • The recent move to introduce the CBDC in China is a logical outcome of the efforts to curb and tackle its runaway cryptomarket practices.
    • Or, the philosophy of the PBoC could simply have been, if you cannot beat them, join them.

    Advantages and concerns

    • At a practical level, the benefits of CBDC are manifold.
    • First, paper money comes with high handling charges and eats up 1% to 2% of GDP.
    • Second, by acting as a powerful antidote for tax evasion, money laundering and terror financing, CBDCs can materially boost tax revenues while also improving financial compliance and national security.
    • Third, as a tool of financial inclusion, particularly in emergencies, direct benefit transfers can be instantly delivered by state authorities deep into rural areas, directly into the mobile wallets of citizens who need them.
    •  Fourth, CBDCs can provide central banks with an uncluttered view and powerful insights into purchasing patterns at the citizen scale.
    • In the long run, it is believed that CBDCs will make cross-border payments fast and frictionless.

    Concerns

    • All these salutary benefits come packaged with a deep and abiding concern about the relentless rise of a surveillance state and the concomitant erosion in citizen privacy and anonymity.
    • If face-recognition technology enables states to spy on the physical movement of citizens, will CBDCs be used to spy on every movement of their money?

    But how Central bank’s digital currency is different from private cryptocurrencies such as Bitcoin?

    • An earlier research paper by PBoC Deputy Governor favoured a two-tier CBDC model.
    • In this model instead of directly interacting with the public, the central bank would involve financial intermediaries such as commercial banks.
    • In tier 1, the central bank would interface with financial intermediaries.
    • In tier 2, the financial intermediaries would interface with the general public.
    • Advantage? Such a model is accretive in that it preserves the power of existing financial systems and extends their influence further.
    • It is believed that the DCEP uses a DLT architecture (with central controls) which preserves the primacy of the monetary authority, unlike private cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) that are truly decentralised.

    Silver bullet to slay three dragons

    • What may China be signalling with the launch of DCEP?
    • First, on the world economic stage, it may want DCEP to challenge the hegemony of the U.S. dollar as the default global reserve currency.
    • Second, in its war with American BigTech, it may want to showcase DCEP as its weapon of choice to counter FB or Facebook’s Libra, which is planning to offer a common cryptocurrency to 2 billion-plus FB users across the world.
    • Third, and still in the realm of speculation, it may wish to use the DCEP to clip the wings of AliPay and WeChatPay, gigantic fintech duopolies that control 90% of the China’s domestic digital payments, and whose ambitions may one day pose a threat to the aura and authority of the central bank.

    Consider the question “Most of the central banks have been sceptical in their attitude toward the cryptocurrencies. Yet, they persisted. Next came the Supreme Court decision lifting ban on them. In light of this, examine the advantages and concerns that come with the cryptocurrencies.”

    Conclusion

    From gold to silver to paper to digital, the march of currencies goes on. China has rolled the dice on central bank digital currencies, challenging other nations to follow. Welcome to the future of money.

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  • Coronavirus – Economic Issues

    Neglect of demand side

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

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Demand side and supply side in the economics

    Mains level: Paper 3- Why is it necessary to focus on the demand side in stimulus package?

    What should the government focus on first: increasing demand or streamlining the supply side. This question is at the heart of the debate that has been going on after the government announced the stimulus package. This article argues on two lines- Inadequate size of the package and the neglect of the demand side in the package.

    Why stakeholders are not happy with the package?

    • Agriculture sector: There is relief for agriculture in the form of a concessional credit line of Rs 2 trillion, but loans are neither automatic or assured.
    •  Marketing reforms and infrastructure creation are distant promises.
    • MSME sector:  The backbone of the economy that provides 25 per cent of employment, 32 per cent of the GDP and 45 per cent of exports, is unhappy despite the Rs 3 trillion line of credit for loans without collateral.
    • In their experience, lenders are not always supportive in extending loans.
    • While buyers-central and state governments, public sector firms and the private sector- owe them as much as Rs 5 trillion.
    • What is more, most MSMEs just do not have the resources to pay wages or meet fixed costs on electricity, rent or interest during the lockdown period.
    • Corporate sector: There is nothing for the corporate sector in manufacturing or services.
    • The distressed sectors such as airlines, automobiles, hotels, restaurants, and tourism have been ignored.
    • Ironically, there is little for public health, already in a dilapidated state.
    • Even stock markets, characterised by irrational exuberance in the past month, have dropped.

    Government expenditure in the fiscal stimulus

    • The fiscal stimulus, which can be defined as government expenditure that could stimulate demand, is difficult to separate.
    • This is because the package is neither clear nor transparent about the cost to be borne by the government in each component.
    • Even so, there are 12 estimates by analysts in financial sector institutions, suggesting that the fiscal stimulus is in the range of 0.7 per cent to 1.3 per cent of the GDP.
    • The effective fiscal stimulus, in terms of extra resources provided by the government, is Rs 1.76 trillion, or 0.8 per cent of the GDP.
    • Its contribution to domestic demand will be minuscule, given that private final consumer expenditure in India is about 60 per cent of the GDP.

    Focus of the package: supply side

    • It is clear that the design of this relief package seeks to focus on the supply side.
    • Package emphasises on providing liquidity through lines of credit, where the RBI is providing as much as Rs 8 trillion.
    • Focus is not on the demand side by stepping up government expenditure.
    • This is done with the aim of minimising the cost to the government.
    • The arithmetic is obviously imaginative — as much as Rs 10 trillion of the relief package will have to be financed by sources other than the Centre and the RBI.

    So, let’s understand why focus on supply side is flawed strategy

    • This stress on the supply-side, while neglecting the demand-side, reveals a flawed understanding of economies in crisis.
    • Speed of adjustment: Even in normal circumstances, the speed of adjustment of the supply-side is slow because supply responses take time.
    • Whereas the speed of adjustment on the demand-side is fast as incomes spent raise consumption demand without any time-lag.
    • At present, if there is little or no increase in demand, supply responses will be slower than usual because producers would not wish to pile up inventories of unsold goods.
    • In terms of the chicken-and-egg parable, demand must be revived first to kickstart the economy.
    • For this reason, the fiscal stimulus should have been much larger.

    Excessive concerns over fiscal deficit

    • The decision-makers have been timid, intimidated by the prospect that, because of revenue shortfalls (2 per cent of the GDP or more), the fiscal deficit would be 5.5 per cent of the GDP.
    • Which would have exceeded the budget estimate at 3.5 per cent of the GDP.
    • The conclusion drawn, wrongly, is that there is no fiscal space.
    • The obsessive concern about the fiscal deficit is deeply embedded in government thinking.
    • In this situation, the extra fiscal stimulus should have been Rs 7-9 trillion i.e. 3-4 per cent of the GDP and that would have been modest compared to what other countries have done.

    Monetising the deficit  and issues involved in doing so

    • This enlarged fiscal deficit (3-4 % of GDP) cannot be financed by market borrowing.
    • Such market borrowing would simply drive up interest rates and nip recovery in the bud.
    • It would have to be financed by monetising the deficit — RBI buying government T-bills — printing money, now termed “helicopter money”.
    • Inflation concerns: The idea that monetised deficits will unleash inflation is blind to the reality that, at this juncture, if there is no further intervention by the government, the GDP could contract by 5 per cent in 2020-21, with lingering consequences.
    • In fact, a monetised deficit might be the only way of increasing aggregate demand to revive economic growth.
    • Rating downgrade issue: The worry about a downgrade from credit rating agencies is bizarre.
    • For one, their ethics and integrity have seen steady erosion.
    • Moreover, how many sovereign governments will they downgrade?
    • In fact, we might be better off without the footloose and volatile portfolio investment inflows.

    Consider the question- “Do you agree with the view that the focus of the supply side should be at the heart of any stimulus package announced in the financial crisis? Give reasons in the support of your agreement.”

    Conclusion

    If the government does not accept the necessity or wisdom of expansionary macroeconomic policies, it must set out its alternative plan for recovery. The relief package will not suffice.

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  • 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.

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  • 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.

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