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Type: Op-ed

  • New Possibilities for Agriculture Sector

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

    1. Amending the Essential Commodities Act 1955

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

    So, how ECA hurts farmers as well as consumers?

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

    How the amendment will help?

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

    2. Central law to allow farmers to sell outside APMC

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

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

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

    3. Legal framework for contract farming

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

    2 Supplementary notes for success of above 3 measures

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

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

    Conclusion

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

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

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

    Essential Commodities Act 1955

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

    How ECA works?

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

    PL-480

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

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

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

    1. Origin of the two crises

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

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

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

    2. No one country hold key to solution

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

    3. Policy interventions involve a dilemma

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

    4. No single large economy to keep the world afloat

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

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

    Conclusion

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

    Back2Basics: Credit Default Swap (CDS)

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

    Collateralised Debt Obligations (CDO), MBS and ABS

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

  • Ensuring the take off of aviation industry

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

    Significance of aviation industry in Indian economy

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

    Impact of Covid-19 crisis

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

    Economics of running airlines profitably

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

    Now, consider this:

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

    Demand for  financial relief package

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

    What relief measures could be provided?

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

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

    Conclusion

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

    Back2Basic: IATA-International Air Transport Association

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

     

     

     

  • Role of ESCAP in the Asia-Pacific

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

    Strain on marine ecosystem and its implications

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

    Lack of data for SDG 14: Life below water

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

    Challenges facing the region

    1. Plastic Pollution

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

    2. Decline in fish stocks

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

    3. Connectivity of island nations

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

    Areas of cooperation

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

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

    Conclusion

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

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

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

    IMO- International Maritime Organisation

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

     

  • Is the suspension of labour laws a silver bullet?

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

    Some labour laws suspended by the UP government

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

    Some repressive labour laws in colonial era

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

    Workers’ struggle in British India

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

    Acts passed in India to protect workers’ rights

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

    Constitutional basis of the labour laws

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

    Is the suspension of labour laws legally sound?

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

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

    Conclusion

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

     

     

  • Changing labour laws not a solution

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

    What changed laws mean?

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

    Why it is not a good move?

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

    Demand is a reason for the slowdown

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

    2 concerns over the rationale of scrapping laws

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

    Time to rationalise the labour laws

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

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

    Conclusion

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

  • A plan to revive the broken economy

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

    Food and cash transfers

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

    Need for changes in MGNREGA

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

    Focus on urban area

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

    The CARE economy: Public health, education, employment

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

    Suggestions to increase public revenue

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

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

    Conclusion

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

  • Cooperative Federalism in the Time of Covid-19

    Federalism is part of Basic Structure (Doctrine) of the Constitution. The article is about the lack of cooperative federalism in some of the Central Government’s actions in its fight against the corona crisis. What are those actions? Read to know…

    Opinion of political thinkers on federalism in India

    • K.C. Wheare notes, federalism traditionally signifies the independence of the Union and State governments of a country, in their own spheres.
    • The members of India’s Constituent Assembly carefully studied the Constitutions of other great federations like the US, Canada, Australia and Switzerland.
    • However, they adopted a ‘pick and choose’ policy to formulate a system suited uniquely to the Republic’s need.
    • As a result, India’s Constituent Assembly became the first-ever constituent body in the world to embrace what H. Birch and others have referred to as ‘cooperative federalism’.
    • ‘Cooperative federalism’ is administrative cooperation between the Centre and the States, and a partial dependence of the States upon payments from the Centre.
    • Accordingly, Indian constitutional law expert Granville Austin remarks that despite a strong Centre, cooperative federalism doesn’t necessarily result in weaker States.
    • He also said that the progress of the Republic rests upon active cooperation between the two.

    Lack of consultation with States under DMA 2005

    • The zone classifications into ‘red’ and ‘orange’ has evoked sharp criticisms from several States.
    • The States have demanded more autonomy in making such classifications.
    • The Disaster Management Act of 2005 under which binding COVID-19 guidelines are being issued by the Centre to the States mandates consultation with the States.
    • The Act envisages the creation of a ‘National Plan’ under Section 11, as well as issuance of binding guidelines by the Centre to States under Section 6(2), in furtherance of the ‘National Plan’.
    • The ‘National Plan’ then is a broader vision document while the binding guidelines are its enforcement mechanism.
    • Now, Section 11(2) of the Act mandates State consultations before formulating a ‘National Plan’.
    • And when such binding guidelines are ultimately issued under it, they are expected to represent the views of the States.
    • However, the Centre has not formulated the ‘National Plan’, and has chosen instead to respond to COVID-19 through ad hoc binding guidelines issued to States.
    • Such guidelines thereby circumvent the legislative mandate of State consultations.
    • This selective application of the Act serves to concentrate all decision-making powers with the Centre.

    Lack of funds

    • The Centre has declared that corporations donating to PM-CARES can avail CSR exemptions, but those donating towards any Chief Minister’s Relief Fund cannot.
    • This directly disincentivises donations to any Chief Minister’s Relief Fund.
    • And diverts crores in potential State revenues to PM-CARES; and makes the States largely dependent upon the Centre.
    • Further, the revenue streams of several States have dried up because of the liquor sale ban; negligible sale of petrol/diesel; no land dealings and registration of agreements.
    • States’ GST collections have also been severely affected with their dues still not disbursed by the Centre.
    • All this has made it difficult for States to defray expenses of salaries, pensions and welfare schemes.
    • As it is the States which act as first responders to the pandemic, supplying them with adequate funds becomes a pre-requisite in effectively tackling the crisis.
    • This requires the Centre to view the States as equals, and strengthen their capabilities, instead of increasing their dependence upon itself.

    Consider the question-“Cooperative federalism is the key in the country’s fight against the corona pandemic. Critically examine.”

    Conclusion

    Keeping the spirit of cooperative federalism alive whether in consultation with the States or taking care of their finances is essential as the country is fighting the pandemic. The Centre must realise that we have the best chance of winning the war against pandemic when we are united.

  • Legal aspects of using Disaster Management Act to deal with pandemic

    This article analyses the legal basis of application of the Disaster Management Act to deal with the pandemic by the Central Government. The Disaster Management Act had been enacted using the residuary power of the Union legislature. So, its application to deal with the pandemic gives rise to certain legal issues. Read to know more about such issues.

    Two examples of why centralised approach may be counter-productive?

    • One, the Central government has classified all districts in the country as red, orange or green zones.
    • This classification was done in a bid to lift lockdown restrictions in an area-specific manner.
    • Some States/Union Territories objected to the classification of certain areas/districts as red zones on the ground that these areas are very large.
    • They pointed out that there was no need to keep economic activity on hold in an entire district when cases had been reported only from a small portion of that district.
    • Two, Kerala, probably the best-performing State in terms of its response to COVID-19, was sent a missive by the Central government to refrain from relaxing restrictions in the State.
    • The Central government did not trust the wisdom and judgment of the State government in the matter.

    The federal scheme and residuary power to legislate

    • Under the federal scheme, Parliament can legislate on matters under the Union List (List I).
    • Stage legislatures can legislate on matters under the State List (List II).
    • And both Parliament and State legislatures can legislate on matters under the Concurrent List (List III).
    • The residuary power to legislate on matters that are not mentioned in either List II or List III vests with Parliament under Article 248 of the Constitution read with Entry 97 of List I.
    • Furthermore, the rule of harmonious construction dictates that the entries in the legislative lists must be interpreted harmoniously.
    • And in the event of any overlap between two or more entries, the specific subject matter contained in a particular entry must be deemed to have been excluded from another entry which may deal with a more general subject matter.
    • Finally, as per Articles 73 and 162, the executive power of the Centre and the States is co-extensive with their respective legislative powers.
    • Coextensive legislative and executive power means that the Central and State governments can only take executive actions in matters where Parliament and State legislatures, respectively, have powers to legislate.

    So, which list contains Disaster Management?

    • Disaster management as a field of legislation does not find mention in either List II or List III.
    • Nor does any particular entry in List I specifically deal with this.
    • Thus, the Disaster Management Act could only have been enacted by Parliament in the exercise of its residuary powers of legislation under Article 248 read with Entry 97 of List I.

    Legal problems in using Disaster Management Act for pandemic

    • The Disaster Management Act allows the Centre to issue guidelines, directions or orders to the States for mitigating the effects of any disaster.
    • The definition of ‘disaster’ under the Act is quite broad and, literally speaking, would include a pandemic too.
    • Such a reading of the Act would vest the Central government with powers to issue directions and guidelines to State governments for dealing with the pandemic in their States.
    • However, ‘public health and sanitation’ is a specific field of legislation under Entry 6 of List II.
    • This would imply that States have the exclusive right to legislate and act on matters concerning public health.
    • Thus, the Centre’s guidelines and directions to the States for dealing with the pandemic trench upon a field of legislation and executive action that is exclusively assigned to the States — public health.
    • The Supreme Court has held time and again that federalism is a basic feature of the Constitution and the States are sovereign.
    • The Disaster Management Act cannot be applied to pandemics in view of the fact that the power to legislate on public health is vested specifically and exclusively with the States.
    • Also, under Entry 29 of List III, both Parliament and State legislatures are competent to legislate on matters involving inter-State spread of contagious or infectious diseases.
    • Therefore, theoretically speaking, Parliament would be competent to pass a law that allows the Central government to issue directions to the States to prevent inter-State spread of a disease like COVID-19.
    • That law is not the Disaster Management Act which is concerned with disasters in general, and not pandemics in particular.
    • ‘Prevention of inter-State spread of contagious and infectious diseases’ being a specific legislative head provided in List III, the same must be deemed to have been excluded from Parliament’s residuary legislative powers.
    • Therefore, the Disaster Management Act, which has been enacted under Parliament’s residuary legislative powers, cannot be applied to the prevention of the inter-State spread of contagious and infectious diseases.

    Role of Centre under Epidemic Diseases Act 1897

    • The Epidemic Diseases Act, 1897, has the objective of preventing “…the spread of dangerous epidemic diseases.”
    • However, under this Act, it is the State governments which have the prerogative to take appropriate measures for arresting the outbreak or spread of a contagious or infectious disease in their respective States.
    • The Central government’s powers are limited to taking measures for inspecting and detaining persons travelling out of or into the country.
    • Even if that Act were to be amended, it would not empower the Central government to issue directions to the States to contain the pandemic within the State.
    • It can only deal with the inter-State spread of the disease.

    Consider the question, “Use of the Disaster Management Act to deal with the Covid-19 pandemic gave rise to certain legal issues. Examine them.”

    Conclusion

    Instead of resorting to the Epidemic Diseases Act which gives powers to the States, the Centre has applied the Disaster Management Act. The States are not legally bound to observe the directions/guidelines being issued by the Central government and would be well within their rights to challenge them before the apex court.

     

  • Changes in labour laws: legal but not appropriate

    The article examines the changes made in the labour laws by several states. The legal route to make these changes are different. While some states used the Emergency provision, others used the Ordinance route. One major issue with these changes is that these were brought in without consultation.

    What legal route was used by the States?

    • Changes were made by the several state government in the labour laws dealing with the maximum working hours and other provisions.
    • These changes have been made through notifications issued by the State governments and will be applicable for the next three months.
    • M.P. has also suspended most provisions of the Industrial Disputes Act, 1946 (except those related to retrenchment and layoffs) for 1,000 days for State undertakings.
    • In addition, M.P. issued an ordinance to amend two laws.
    • The M.P. Industrial Employment Standing Orders Act will apply to establishments with more than 100 workmen (up from the existing threshold of 50), in line with the Central Act.
    • The ordinance also enables the government to exempt establishments from the provision of another Act that provided for a labour welfare fund.
    • The Uttar Pradesh government has approved an ordinance that exempts establishments from all labour laws for three years with some exceptions.
    • As this will override provisions of some Central laws, it will require the assent of the President or, in effect, the assent of the Central government.
    • The question is, was there sufficient consultation before all these changes were made?

    Constitutional provisions for the legal route taken: Emergency and ordinance

    • As per the Constitution, the legislature has the authority to make laws.
    • Such laws could delegate powers to the government which are in the nature of detailing some requirements.
    • For example, the Factories Act allows State governments to exempt factories from the provisions of the Act during public emergencies for a maximum period of three months.
    • A public emergency is defined as a grave emergency whereby the security of India or any part is threatened by war, external aggression or internal disturbance.
    • Most States have used this provision, presumably interpreting the current situation as an ‘internal disturbance’.
    • Haryana has used a provision that allows relaxation of work hours “to deal with an exceptional press of work”.
    • The Constitution also permits Central and State governments to make laws through the issuance of an ordinance when the legislature is not in session.
    • Such a law needs to be ratified by the legislature within six weeks of the beginning of the next session. M.P. and U.P. are using this procedure.

    Issues with the changes made

    • Usually, any change in an Act follows a rigorous process of public consultation, scrutiny by committees of Parliament, and debates in the House before being approved.
    • The changes described here have not gone through such a process.
    • However, most of these have a three-month time limit, and any extension would need to be approved by the legislature.

    The four labour codes

    • The Parliament is consolidating 29 existing laws into four codes dealing with- 1) wages, 2) occupational safety and health, 3) industrial relations,4) social security.
    • The first of these has been enacted, the Standing Committee on Labour has submitted the report on the next two, and is examining the last.
    • The Code on Occupational Safety and Health does not specify the maximum hours of work but empowers the government to do so.
    • The Standing Committee report states that the government agreed to incorporate a provision of maximum eight hours per day with overtime permitted for certain types of industry.

    Consider the question “Several States made changes in the labour laws to deal with the problems caused by the corona pandemic. Examine the legal provisions used for making such changes by various States. What are the issues with such changes?”

    Conclusion

    Given the emergency, the government has to take quick action and change the response as the situation evolves. However, that should not be a reason to exclude the processes of consultation with and scrutiny by elected representatives. The legitimacy of state action in a parliamentary democracy comes from the fact that there is constant oversight and check by elected representatives.