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Civilsdaily

Type: Op-ed

  • Steps needed to achieve Comparative advantage in Manufacturing

    The article suggests the policy approach to achieve industrial growth while avoiding the isolationist approach in pursuit of AtmaNirbharBharat.

    Issue of policy binary

    • The goals of the Make in India initiative and now the AatmaNirbharBharat Abhiyan are driving a major shift in policy.
    • Import duties are being raised.
    • Production-linked incentives are being offered to firms across a wide canvas of 10 priority sectors.
    • At the same time, there is considerable unease at the rolling back of trade liberalisation.
    • This binary is not very useful.

    Steps needed to gain competitive advantage

    1) Infrastructure

    • It would still take India many years to develop its physical infrastructure to the levels required for international competitiveness.
    • Until then, large industrial parks for textiles, electronics, toys or shipbuilding need to be developed by state agencies with soft financing.
    • Competitive logistics are essential.
    • This was critical for the success of the information technology (IT) industry where world-class infrastructure was created within the software parks.
    • High-speed broadband real-time connectivity to the US market was provided through public investment.
    • This was done well before general telecom modernisation began.

    2) Closing the financing gap

    • Long-term financing for world-class infrastructure is still a gap.
    • The central government can either use one of its existing financial institutions or create a new development financial institution to provide long-term low-interest rate debt.
    • The sovereign needs to provide risk-mitigation through an implicit guarantee. It can afford to do so.

    3)  Prevent real exchange rate appreciation

    • Before considering specific increases in import duties, real exchange appreciation should be undone.
    • This would have the effect of raising tariffs across the board.
    • It is high time the government and the Reserve Bank of India (RBI) agreed on this objective.

    4) Change the regime for SEZ

    • Allow SEZ to sell into the domestic area with import duties at the lowest applicable rate with any trading partner and the same value-addition norms.
    • Tax exemption on profits could be dispensed with while continuing to provide a duty-free import regime.
    • This would create a level-playing field for production vis-à-vis competitive locations overseas.
    • Large zones would have to be developed by the state.
    • The private sector can be partners in the process, but achievement of scale is only possible by the state.
    • Production for the domestic as well as the global market would become easier.

    5) Encourage domestic value addition

    • Domestic value-addition can be incentivised by-
    • 1) Reducing duties to zero for all primary raw materials and inputs.
    • 2) then progressively higher rates for intermediates with the highest rate for the finished product.
    • In short, have just the opposite of the inverted duty structure we have had for computers.
    • This would change investment and production decisions if other costs of production in India have been made competitive.

    6) Commitment of procurement of full production

    • In some industries, commitment of procurement of full production for a few years would suffice to get investment.
    • Bids could be invited for solar panels, or for battery storage for the grid, for annual supply for, say, five years with the condition that full value-addition has to be done in India.
    • Such commitment would provide for amortisation of the capital investment and make it a risk-free investment.
    • If the bid size is large enough, the best global firms would come and invest.
    • If the bids are repeated, prices would come down and a competitive industry structure would be created.

    7) Encourage public investment

    • Public investment in firms should not be ruled out altogether.
    • In some cases, it may be the best way to create competitive capacity.
    • Maruti Suzuki is a good example in India.
    • Volkswagen was set up by a state government in Germany, which is still a substantial shareholder.
    • This is a policy instrument that can be used to create competitive advantage.

    8) Creation of fund

    • There should also be willingness to create a fund that looks at modest returns, but aims at creating national and global champions through start-ups.

    Conclusion

    The foundation of China’s incredible success was laid by Deng Xiaoping with the maxim on economic policy that one should not bother about the colour of the cat as long as it caught mice. India’s policies have tended to be doctrinaire. We need a heavy dose of pragmatism to achieve our full potential.

    Source:-

    https://www.financialexpress.com/opinion/industrial-growth-the-right-policy-mix-for-success/2136735/

  • NPCI caps UPI transactions on third-party apps at 30%

    The article deals with the recent NPCI decision to cap the number of transactions by third party application providers (TPAPs).

    Context

    • The National Payments Corp of India (NPCI), in its recent guidelines imposed a 30% volume-based cap on the share of transactions by TPAPs and payment service providers (PSPs), effective from January 2021.

     5 issues with the volume-based cap

    1) It undermines cashless economy

    • The growth and recognition of UPI would not have been possible had a cap been in place.
    • Typically, customers limit themselves to one or two TPAPs of their choice.
    • A transaction cap that forces users to use multiple apps may result in more transaction failures and dilute UPI’s popularity and impact.
    • Lack of accessibility and user-friendliness would push users away from UPI towards other payment methods, or even cash.

    2) It’s an anti-consumer decision

    • Open markets and user choice have been crucial factors in the exponential increase seen in UPI adoption and its transactions.
    • A volume-based cap would compel TPAPs to either limit the number of transactions on their platforms or stop enrolling new users, which in turn would restrict the customer’s use of UPI.
    • TPAPs will likely be forced to redact customer incentives like cashbacks, coupons and the like.
    • This could go against consumer interests by reducing choice.

    3) It will also make the Indian market less attractive for investors:

    • The cap would raise compliance and regulatory costs for players in the sector, which could deter new investors from entering.
    • It would also adversely affect the growth potential of existing UPI players.

    4) No regulatory impact assessment

    • The idea of a volume-based cap does not appear to have undergone an assessment of its impact on the sector.
    • As a general principle, before any such rule is imposed, an RIA (Regulatory Impact Assessment) needs to be undertaken.
    • Systemic risks are not restricted to UPI and are common in all financial systems; yet, a similar cap has not been suggested for, say, retail bank transactions.

    5) Impact on Atmanirbhar Bharat

    •  In order for Indian businesses to grow and compete at the global level, we need to integrate business processes with the global economy.
    • Indian start-ups, in particular, need tools and infrastructure that lets them gain an international edge.
    • Atmanirbhar Bharat envisions a self-reliant India that thrives on innovation, technology and entrepreneurship.
    • But this vision cannot be fulfilled if our policies restrain the growth of a cashless economy.

    Conclusion

    India’s UPI ecosystem is nascent, but has demonstrated significant growth and has had a positive impact on the economy by providing the backbone needed to move towards cashless commerce. Any policy decision by regulators at this point should aim at catalysing innovation in this space. Stifling it would serve India badly.

  • Allowing corporate houses in banking

    The article argues against the suggestion of allowing the corporate houses in the banking sector in India.

    Context

    • An Internal Working Group of the Reserve Bank of India (RBI) has recommended that corporate houses be given bank licences.

    Background of the idea

    • In February 2013, the RBI had issued guidelines that permitted corporate and industrial houses to apply for a banking licence.
    • No corporate was ultimately given a bank licence.
    • None of the applicants had met ‘fit and proper’ criteria.
    • In 2014, the RBI restored the long-standing prohibition on the entry of corporate houses into banking.
    • The RBI’s position on the subject has remained unchanged since 2014.

    Advantages

    • Corporate houses will bring capital and expertise to banking.
    • Moreover, not many jurisdictions worldwide bar corporate houses from banking.

    Risks involved

    • As the report notes, the main concerns are interconnected lending, concentration of economic power and exposure of the safety net provided to banks
    • Corporate houses can easily turn banks into a source of funds for their own businesses.
    • In addition, they can ensure that funds are directed to their cronies.
    • They can use banks to provide finance to customers and suppliers of their businesses.
    • Adding a bank to a corporate house thus means an increase in concentration of economic power.
    • Not least, banks owned by corporate houses will be exposed to the risks of the non-bank entities of the group.
    • If the non-bank entities get into trouble, sentiment about the bank owned by the corporate house is bound to be impacted.

    Suggestion by IWG and issues with them

    • The Internal Working Group (IWG) believes that before corporate houses are allowed to enter banking, the RBI must be equipped with a legal framework to deal with interconnected lending and a mechanism to effectively supervise conglomerates that venture into banking.
    • But there are following 4 issues with such suggestion-
    • 1) Tracing interconnected lending will be a challenge.
    • 2)The RBI can only react to interconnected lending ex-post, that is, after substantial exposure to the entities of the corporate house has happened.
    • It is unlikely to be able to prevent such exposure.
    • 3) Any action that the RBI may take in response could cause a flight of deposits from the bank concerned and precipitate its failure.
    • 4) Pitting the regulator against powerful corporate houses could end up damaging the regulator.

    Issues in allowing NBFC owning corporate house in banking

    • Under the present policy, NBFCs with a successful track record of 10 years are allowed to convert themselves into banks.
    • The Internal Working Group believes that NBFCs owned by corporate houses should be eligible for such conversion.
    • This promises to be an easier route for the entry of corporate houses into banking.
    • The Internal Working Group argues that corporate-owned NBFCs have been regulated for a while.
    • However, there is a world of difference between a corporate house owning an NBFC and one owning a bank.
    • Bank ownership provides access to a public safety net whereas NBFC ownership does not.
    • The reach and clout that bank ownership provides are vastly superior to that of an NBFC.
    • The objections that apply to a corporate house with no presence in bank-like activities are equally applicable to corporate houses that own NBFCs.

    Consider the question “What are the concerns and challenges in allowing the corporate houses in the banking sector in India?” 

    Conclusion

    India’s banking sector needs reform but corporate houses owning banks hardly qualifies as one. If the record of over-leveraging in the corporate world in recent years is anything to go by, the entry of corporate houses into banking is the road to perdition.

  • Protecting Article 32

    The article deals with the issue of recourse to Article 32 for violation of Fundamental Rights. But it is subject to fundamental principles of administration of justice.

    Context

    • The Chief Justice of India is reported to have stated during the hearing of journalist Siddique Kappan’s bail matter, that the Court was trying to “discourage” recourse to Article 32.

    Recourse under Article 32 is not absolute

    • The apex judicial process shows clearly that the Court regards Article 32 as a judicial power subject to the fundamental principles of administration of justice.
    • The Supreme Court has already extended rules and doctrines such as laches (delays) or res judicata (a matter already decided by a competent court) or any other principle of administration of justice.
    • Article 32 keep open “the doors of this court” and requires the state not to “put any hindrance” to a person seeking to approach the Court.
    • However, the Court must ignore all laws of procedure, evidence, limitation, res judicata and other provision.
    • The Supreme Court has also said that faith “must be inspired in the hierarchy of Courts [ Recourse under Article 226 should be sought before approaching the SC] and the institution as a whole” and not” only in this Court alone”.
    • So, even if there is a constitutional right to remedies it remains subject to the discipline of judicial power and process.

    New facets of Article 32

    • The Supreme Court has also discovered new facets of Article 32.
    • As early as 1950, it has ruled that powers under Article 32 are not limited to the exercise of prerogative writs.
    • In 1987 the Court ruled that it has powers to rule for compensation of violation of fundamental rights.
    • In 1999 it said that this power extended to the rectification of its own mistakes or errors.

    Comparing Article 226 and Article 32

    • Article 226 is the very dimension; the high court’s vast jurisdiction technically casts no duty on them to enforce fundamental rights.
    • They have the discretion to act or not to; in contrast, the Supreme Court must.
    • Fourth, Article 32 is not absolute, the Supreme Court decides on what “appropriate proceedings” should be for it to be so moved.
    • But the Court may not prescribe any process as it likes but only that process which preserves, protects and promotes the right to constitutional remedies.

    Need for effective bail system

    • The just demand for an expeditious and effective bail system stems from manifest discrimination in bail .
    • In several instances, one case is fast-tracked whereas others are consigned to slow-moving judicial action, even when rights to life and health are endangered.
    • Scandalous judicial delays, measures of decongestion and diversion, and a bold resolution of “who watches the watchman” syndrome now demand urgent apex response.

    Consider the question “Seeking remedy from the Supreme Court for the violation of fundamental rights under Article 32 is also a fundamental right. However, enforcement of it is not absolute. In light of this, examine the challenges in its enforcement by the Supreme Court.”

    Conclusion

    Article 32 makes the apex court into a “people’s court”. And future historians should not be able to conclude that the Court deliberately dealt deathblows to this “soul” of the Constitution, as Babasaheb Ambedkar described Article 32.

  • Time for an Asian Century

    Asian centrality

    • China’s response is a ‘dual circulation’ strategy for self-reliance and military-technological prowess to surpass the U.S.
    • The global governance role of the U.S. is already reduced.
    • The U.S. now exercises power with others, not over them.
    • Despite its military ‘pivot’ to Asia, the U.S. needs India in the Quad, to counterbalance the spread of China’s influence through land-based trade links.
    • India, like others in the Quad, has not targeted China and also has deeper security ties with Russia.
    • With the ASEAN ‘code of conduct’ in the South China Sea, both the security and prosperity pillars of the U.S.-led Indo-Pacific construct will be adversely impacted.
    • Leveraging proven digital prowess to complement the infrastructure of China’s Belt and Road Initiative will win friends as countries value multi-polarity.

    Atmanirbhar Bharat and Challenges

    • ‘Atmanirbhar Bharat’ will leverage endogenous technological strength, data and population.
    • With the Rafale aircraft purchase, India has recognised that there will be no technology transfer for capital equipment.
    • Military Theatre Commands should be tasked with border defence giving the offensive role to cyber, missile and special forces based on endogenous capacity, effectively linking economic and military strength.
    • The overriding priority should be infrastructure including electricity and fibre optic connectivity; self-reliance in semiconductors, electric batteries and solar panels; and skill development.

    Conclusion

    There are compelling geopolitical and economic reasons for shaping the building blocks of the Asia-led order, which is not yet China-led, to secure an ‘Atmanirbhar Bharat’, and place in the emerging triumvirate.

  • India &Gulf regions

    The Gulf region offers new possibilities of cooperation to India. The article explains these possibilities.

    Context

    • External Affairs Minister S Jaishankar’s visit to Bahrain and the United Arab Emirates recently is a good moment to reflect on the structural changes taking place in the Gulf and the region’s growing influence in the Indian Ocean.

    Issues in approach towards the region

    • For decades, India’s mercantilism saw the Gulf as a source of oil and a destination for labour exports.
    • India’s bureaucratic approach to the Gulf was incapable of a political engagement with the region’s interests.
    • The Indian elite has long viewed the Gulf as a collection of extractive petro-states run by conservative feudatories.
    • Although the Gulf kingdoms were eager to build strong and independent political ties with India without a reference to Islamabad, India viewed them through the prism of Pakistan.

    Influence in the Indian Ocean

    • Delhi’s traditional focus in the Indian Ocean was riveted on Mauritius and the large Indian diaspora there.
    • P.M.s visit to Mauritius and Seychelles in March 2015 saw the articulation of a long-overdue Indian Ocean policy and an acknowledgement of the strategic significance of the island states.
    • Since then, India has brought Madagascar and Comoros along with Mauritius and Seychelles into the Indian Ocean Division.
    • India also unveiled a maritime strategic partnership with France, a resident and influential power in the Western Indian Ocean.
    • Earlier this year, Delhi became an observer at the Indian Ocean Commission — the regional grouping that brings France’s island territory of Reunion together with Comoros, Madagascar, Mauritius, and Seychelles.
    • India has also become an observer to the Djibouti Code of Conduct — a regional framework for cooperation against piracy between the states of the Gulf, the Horn of Africa and East Africa.

    5 Areas of new possibilities with the Gulf

    1) Protecting India’s interests

    • First is the immediate need to shield India’s interests in the post-pandemic turbulence that is enveloping the region.
    • As the Gulf considers cutting back on foreign labour, Delhi would want to make sure its workers in the region are insulated.
    • Delhi is also eager to improve the working conditions of its large labour force — close to eight million — in the Gulf.

    2) New and long-term economic cooperation

    • As the Gulf looks at a future beyond oil, they have embarked on massive economic diversification and are investing in a variety of new projects including renewable energy, higher education.
    • India must get its businesses to focus on the range of new opportunities in the Gulf.
    • India also needs to tap into the full possibilities of Gulf capital for its own economic development.

    3) Financial power translating into political influence

    • The Gulf’s financial power is increasingly translating into political influence shaping political narrative in the Middle East.
    • The influence has been manifest in their successful transformation of the debate on Arab relations with Israel.

    4) Influence on regional conflicts

    • The Gulf’s ability to influence regional conflicts from Afghanistan to Lebanon and from Libya to Somalia has increased.
    • The Gulf today delivers economic and security assistance to friendly states.
    • The UAE currently chairs the Indian Ocean Rim Association (IORA) and has been eager to work with India in developing joint infrastructure projects.
    • India needs to bring scale and depth to its regional initiatives on connectivity and security in the Indian Ocean.

    5) Reforms taking place in the region

    • The Gulf seek to reduce the heavy hand of religion on social life, expand the rights of women, widen religious freedoms, promote tolerance, and develop a national identity that is not tied exclusively to religion.
    • The UAE has been the leader in this regard.

    Consider the question “India’s engagement with the Gulf countries has been limited in several aspects. However, the region offers new possibilities of strategic and cooperation to India. Evaluate these possibilities.” 

    Conclusion

    As India seeks to recalibrate it’s ties with the Gulf, the real challenge for South Block is to get the rest of the Indian establishment to discard outdated perceptions of the Gulf and seize the new strategic possibilities with the region.

  • Chinese dam projects on Brahmaputra and impact on downstream countries

    Scarcity of water in India and China

    • As India and China continue to grow demographically as well as economically amid increased consumption among its citizenry, both nations face water constraints.
    • China, which is home to close to 20 per cent of the world’s population, has only 7 per cent of its water resources.
    • Severe pollution of its surface and groundwater caused by rapid industrialisation is a source of concern for Chinese planners.
    • China’s southern regions are water-rich in comparison to the water-stressed northern part.
    • The southern region is a major food producer and has significant industrial capacity as a consequence of more people living there.
    • India is severely water-stressed as well.
    • Similar to China, India has 17 per cent of the world’s population and 4 per cent of water.
    • As in China, an equally ambitious north-south river-linking project has been proposed in India.

    Impact on downstream states

    • The construction of several dams along the Yarlung (Brahmaputra) river on the Chinese side has been a repeated cause for concern for Indian officials and the local people.
    • China has an ambitious plan to link its south and north through canals, aqueducts and linking of major rivers to ensure water security.
    • In pursuit of these goals, China, being an upper riparian state in Asia, has been blocking rivers like the Mekong and its tributaries, affecting Southeast Asian countries like Thailand, Vietnam, Laos and Cambodia.
    • It has caused immense damage to the environment and altered river flows in the region.
    • China sees these projects as a continuation of their historic tributary system as the smaller states have no means of effectively resisting or even significant leverage in negotiations.

    Challenges for India

    • There are now multiple operational dams in the Yarlung Tsangpo basin with more dams commissioned and under construction. These constructions present a unique challenge for Indian planners.
    • 1) Dams will eventually lead to degradation of the entire basin:
    • Silt carried by the river would get blocked by dams leading to a fall in the quality of soil and eventual reduction in agricultural productivity.
    • 2) The Brahmaputra basin is one of the world’s most ecologically sensitive zones.
    • It is identified as one of the world’s 34 biological hotspots.
    • This region sees several species of flora and fauna that are endemic to only this part of the world.
    • The river itself is home to the Gangetic river dolphin, which is listed as critically endangered.
    • 3) The location of the dams in the Himalayas pose a risk.
    • Seismologists consider the Himalayas as most vulnerable to earthquakes and seismic activity.
    • The sheer size of the infrastructure projects undertaken by China, and increasingly by India, poses a significant threat to the populations living downstream.
    • Close to a million people live in the Brahmaputra basin in India and tens of millions further downstream in Bangladesh.
    • 4) Damming Brahmaputra would result in water security in an era of unprecedented shifting climate patterns.
    • This security extends beyond water, as there is the potential to significantly change the flow rate during times of standoffs and high tensions.

    Way forward

    • Both sides must cease new constructions on the river and commit to potentially less destructive solutions.
    • Building a decentralised network of check dams, rain-capturing lakes and using traditional means of water capture have shown effective results in restoring the ecological balance while supporting the populations of the regions in a sustainable manner.

    Conclusion

    There are alternate solutions to solving the water crisis.  It is in the interest of all stakeholders to neutralise this ticking water bomb.

  • Understanding the interplay between subsidies and agri-pollution

    Agriculture’s contribution to air pollution

    • Agriculture’s contribution to air pollution runs deeper than what happens between crop seasons.
    • The Indo-Gangetic plain is also one of the world’s largest and rapidly-growing ammonia hotspots.
    • Atmospheric ammonia, which comes from fertiliser use, animal husbandry, and other agricultural practices, combines with emissions from power plants, transportation and other fossil-fuel burning to form fine particles.

    Impact of pollution on agriculture

    • It is important to note that agriculture is a victim of pollution as well as its perpetrator.
    • Particulate matter and ground-level ozone formed from industrial, power plant, and transportation emissions among other ingredients cause double-digit losses in crop yields.
    • Ozone damages plant cells, handicapping photosynthesis, while particulate matter dims the sunlight that reaches crops.
    • Agriculture scientist Tony Fischer’s 2019 estimates of the two pollutants’ combined effect suggest that as much as 30 per cent of India’s wheat yield is missing (Sage Journals, Outlook on Agriculture).
    • Earlier, B Sinha et al (2015), in Atmospheric Chemistry and Physics Discussions, found that high ozone levels in parts of Haryana and Punjab could diminish rice yields by a quarter and cotton by half.

    Role played by subsidies

    • The current system of subsidies is a big reason that there is stubble on these fields in the first place.
    • Free power — and consequently, “free” water, pumped from the ground — is a big part of what makes growing rice in these areas attractive.
    • Open-ended procurement of paddy, despite the bulging stocks of grains with the Food Corporation of India, adds to the incentives.
    • Subsidies account for almost 15 per cent of the value of rice being produced in Punjab-Haryana belt.
    • Fertiliser, particularly urea in granular form, is highly subsidised.
    • It is one of the cheapest forms of nitrogen-based fertiliser, easy to store and easy to transport, but it is also one of the first to “volatilise,” or release ammonia into the air.
    • This loss of nitrogen then leads to a cycle of more and more fertiliser being applied to get the intended benefits for crops.

    Way forward

    • We need to shift the nature of support to farmers from input subsidies to investment subsidies.
    • This could involve the conversion of paddy areas in this belt to orchards with drip irrigation, vegetables, corn, cotton, pulses and oilseeds.
    • All of the above consume much less water, much less power and fertilisers and don’t create stubble to burn.
    • A diversification package of, say, Rs 10,000 crore spread over the next five years, equally contributed by the Centre and states, may be the best way to move forward in reducing agriculture-related pollution.
    • The approach to diversification has to be demand-led, with a holistic framework of the value chain, from farm to fork and not just focused on production.
    • On the fertiliser front, it would be better to give farmers input subsidy in cash on per hectare basis, and free up the prices of fertilisers completely.

    Conclusion

    Taken together, these measures could double farmers’ incomes, promote efficiency in resource use, and reduce pollution — a win-win solution for all.

  • Analysing India’s economic growth

    The article analyses India’s economic trajectory after independence and divides it into five phases. India’s progress is also compared with Pakistan’s as both countries have had much in common.

    What drives economic growth

    • Examining the experiences of different countries to analysing the growth may seem a promising approach.
    • However, generalising from specific experiences can be misleading since ground conditions vary hugely across countries.
    • There are two ways to avoid the pitfalls of generalising from specific cases.
    • 1) The first is to examine the same country over time to look for changes in outcomes at specific points in time.
    • 2) A second approach is to compare countries with shared history, culture and geography.
    • If there are stark differences in outcomes between them, then there may be some policy lessons to be drawn.

    The Indian subcontinent provides lessons from both approaches. The 73 years of post-Independence India has generated a lot of evidence across different political-economic regimes. This period has also provided us with the contrasting experiences of India and Pakistan, two countries that share history, geography and socio-cultural mores.

    5 phases of India’s economic progress in 73 years: first approach

    • 1) The first phase was the period 1950-65. This was the Nehruvian period of state-led industrialisation.
    • Starting in 1950 annual per person GDP growth averaged 2 per cent during this period.
    • This translated to aggregate annual GDP growth of around 4 per cent since the population was growing at close to 2 per cent.
    • 2) The second phase of post-Independence India was during 1965-84.
    • This period was an unmitigated economic disaster with negative per capita growth.
    • The phase was marked with increasing state control of the economy, nationalisation of industry, closing of the economy to trade and a systematic weakening of institutions.
    • 3) The third phase is 1984-91 when the government ushered in the first round of economic reforms by liberalising capital goods imports as well as starting industrial de-licensing.
    • These reforms were rewarded by a growth take-off. India’s annual per capita GDP growth averaged 3.1 per cent while aggregate GDP grew at 5.2 per cent during 1984-91.
    • 4) The period 1991-2004 is typically classified as the liberalisation phase.
    • The reform effort was reflected in the 4.9 per cent annual per capita GDP growth during 1991-2004.
    • 5) India embarked on a distinctive phase of faster growth post-2004 on the back of large investments in infrastructure.
    • Per person GDP growth in the period 2004-2015 averaged 7.7 per cent.
    • The corresponding aggregate GDP growth averaged 9 per cent.
    • This came at a cost, as a number of these infrastructure projects later caused problems in the banking sector on account of burgeoning NPAs, a problem that continues till today.

    Comparison with Pakistan

    • In 1950, Pakistan’s per person GDP was almost 50 per cent greater than India that year.
    • Due to political uncertainty, Pakistan stagnated throughout the 1950s while a politically stable India grew.
    • As a result, by 1960, India had almost caught up with Pakistan in per capita GDP terms.
    • Unfortunately, from 1964, India went into two decades of economic stagnation while Pakistan opened up to foreign capital.
    • By 1984, Pakistan’s per capita income was more than double that of India’s.
    • Pakistan’s slowdown began in the 1980s.
    • This period coincided with the reforms in India.
    • Nevertheless, it wasn’t till as recently as 2010 that India’s per capita GDP finally overtook Pakistan.

    4 takeaways

    •  First, openness to trade and private enterprise usually has positive effects on growth.
    • Second, rapacious and exploitative democratic systems do not necessarily promote growth. Pakistan in the 1950s, 1990 and post-2010 is a good example.
    • Third, the socio-economic environment surrounding religious fundamentalism may be inimical to growth.
    • Fourth, degradation of institutions that regulate, arbitrate and enforce laws can be costly.

    Conclusion

    India’s growth when analysed from both the perspective offers valuable lessons for India and these lessons must guide India’s future economic trajectory.

  • India’s no to RCEP could still be a no

    The article examines the significance of the RCEP and India’s concerns over its provision. 

    Significance of RCEP

    • Last week, 15 East Asian countries signed the Regional Comprehensive Economic Partnership (RCEP), the largest free trade agreement (FTA) ever.
    • In 2019, RCEP members accounted for about 30% of world output.
    • More importantly, about 44% of their total trade was intra-RCEP, which is a major incentive for the members of this agreement.
    • The deal could contribute to the strengthening of the regional value chains.

    Comparing RCEP with Trans-Pacific Partnership (TPP)

    • The TPP included several regulatory issues including labour and environmental standards and “anti-corruption”.
    • All of these issues could raise regulatory barriers and severely impede trade flows.
    • In contrast, RCEP includes traditional market access issues, following the template provided by the World Trade Organization (WTO).
    • RCEP also includes issues like electronic commerce, investment facilitation that are currently being discussed by WTO members to “reform the multilateral trading system”.

    Would RCEP be able to realise trade and investment liberalisation?

    • In case of trade in goods, RCEP members have taken big strides towards lowering their tariffs.
    • However, commitments made by RCEP members for services trade liberalisation do look shallow in terms of the coverage of the sectors.
    • Movement of natural persons, an area in which India had had considerable interest, is considerably restricted.
    • The areas of investment and electronic commerce, in both of which India had expressed its reservations on the template adopted during RCEP negotiations, the outcomes are varied.
    • The text on investment rules shows that it is a work-in-progress.
    • The rules on dispute settlement procedures are yet to be written in.

    Will India’s concerns get addressed in near future?

    • The answer seems to be unambiguously in the negative on two counts.
    • 1) Two of the concerns India had raised, namely,  the deep cuts in tariffs on imports from China, and provisions relating to the investment chapter, have become even more significant over the past several months.
    • 2) India’s Atmanirbhar Bharat Abhiyan is primarily focused on strengthening domestic value chains, while RCEP, like any other FTA is solely focused on promoting regional value chains.

    Consider the question “What were India’s concerns about RCEP that resulted in India not signing it? ” 

    Conclusion

    This suggests that the prospects of India joining the RCEP in the near future appears bleak.