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Type: Op-ed

  • [op-ed snap] A farm wish list for the budget

    Context

    As finance minister presents the budget the FM need to ensure transparency and to fully account for the food subsidy.

    The excess buffer stock and need to reform

    • A buffer stock norm and actual stock: A buffer stock norm is at 21.4 million tonnes (mt).
      • Actual stock far exceeds the norm: The actual stocks of grains with the central pool stood at 75.5 mt.
      • Which is 3.5 times what the government needs to hold.
    • The economic cost of the excess stock: At its economic cost, the value of the excess stocks with the government stands at Rs 1.6 lakh crore.
      • Potential for revenue: There is no better place to find revenue for the FM than to liquidate these stocks.
      • Need for the reform in grain management system: Unless the grain management system is reformed, the inefficiency of the grain management system will keep on increasing and the nation will suffer.

    Food subsidy reforms

    • Link food prices to procurement price: It is the time to revise the central issue of price and link it to the procurement price-say at half the procurement price.
      • Limit the population coverage: There is a need to limit this highly subsidised food of Rs 3/kg for rice and Rs 2/kg of wheat to say 40 per cent of the population.
      • Move to DBT: The real fundamental reform would be to move towards direct cash transfers for the intended beneficiaries of food subsidy.

    Fertiliser subsidy reforms

    • Imbalance in the subsidisation: The real problem of this sector is the imbalance in the policy of fertiliser subsidisation.
      • While urea (N) is subsidised to the extent of 75 per cent of its cost, phosphatic (P) and potassic (K) fertilisers are subsidised only to the tune of about 25 per cent of their cost.
    • Consequences of this imbalance: The result is the highly imbalanced use of N, P and K on farmers’ fields. Which results in
      • Giving a very low fertiliser-to-grain response ratio.
      • Degrading the soil.
      • Degrading underground water.
      • Degrading the environment with excessive nitrogen use.
      • Discouragement to natural farming: The current fertiliser subsidy discourages those who want to pursue natural farming as they don’t get subsidy anywhere near the amount chemical-based fertilisers do.
    • Reforms: There are two ways in which the fertiliser subsidy regime can be reformed.
      • Bring nitrogenous fertiliser under NBS: The solution to the imbalance in use is to bring nitrogenous fertilisers under the Nutrient Based Subsidy (NBS) scheme.
      • Cash transfer based on per hectare basis: The second option is to move towards direct cash transfers for fertilisers on a per hectare basis, with some adjustment for irrigated tracts.
      • 50,000 Crore saving: The above-mentioned reforms could result in the saving of Rs. 50,000 crores to the public exchequer.

    Way forward

    • Investing the savings where it matters the most: The savings from the reforms could be invested in-
      • Better water management, especially drip irrigation.
      • Infrastructure for agri-markets.
      • Solar trees: The investments could also be made in setting up the solar trees in the farm to harvest solar power on farmer’s fields with buyback agreements for surplus production.

  • [op-ed of the day] Business possibilities in a world of digital payments

    Context

    UPI has brought digital payments to the common man and it has immense scope for growth.

    Zero MDR rate

    • Recently the finance minister made the announcement of the zero merchant discount rate (MDR) policy for payments through RuPay debit cards and Unified Payments Interface (UPI) instruments.
    • What does it mean? This policy dictates that when a consumer pays a merchant using RuPay or UPI, the bank may not charge the merchant a commission on the sale value that it usually charges a merchant.
    • Criticism of the move: Critics of this policy lament that it would begin to reverse the progress India has made in recent years to expand the digital payments network.

    Some facts and figures

    • Setting up of NPCI: In 2008 the National Payments Corporation of India (NPCI) was set up as an umbrella organization for operating retail payments and settlements in India. 
    • UPI:  In 2016, NPCI introduced UPI.
      • UPI has since registered 100 million users.
      • UPI now clocks more than 1 billion transactions every month.
    • Growth prospects for mobile payments: According to the NITI Aayog, mobile payments in India are expected to grow nearly 20-fold to $190 billion in the next three years.
    • Digital payment for the common man: There are 1 billion mobile phone users in India.
    • 420 million users have a feature phone, these users can use the *99# USSD service to dial into 13 different languages.
    • Which would connect them to UPI and brings digital payments to the common man.

    Need for innovation

    • We are far behind: India is far behind china, where 55% of spending is done digitally, compared to only 11% in India.
      • The outlook for future growth is mind-boggling.
      • There is a need for innovation at three levels.
    • First level-Adoption
      • A better understanding of human behaviour, technology, use cases and dis-use cases will facilitate the 10x growth necessary in adoption rates to cover the entire population.
    • Second level-Policy
      • The government has the rare opportunity to develop a data-centric understanding of how the economy conducts itself and uses money, and can set taxes accordingly.
    • Third level-Technology
      • Voice for authentication: At the technology level, there is an opportunity to use voice as a means for authentication and conduct transactions across multiple local languages.
      • Data analysis: Copious amounts of data from payment transactions can be analysed to understand user needs and develop personalized loans and financial solutions at scale.

    Taking UPI to Global Level

    • UPI in Singapore and UAE: The NCPI is gearing up to take UPI to other countries, beginning with Singapore and the United Arab Emirates.
      • NCPI is working with its counterpart in Singapore, the Network for Electronic Transfers for Singapore, to bring UPI live in Singapore.
    • The low hanging fruit is to provide payment solutions to Indians travelling abroad.
    • Competition with global peers: The bigger and tougher game is to increase its usage among local people in countries outside India.
      • This would put UPI in competition with the likes of PayPal and Skrill.

    Conclusion

    We have seen just the tip, albeit a very substantial tip, of the digital payments iceberg. In the coming years, young business leaders of today must learn to uncover the iceberg itself.

     

     

     

     

  • [op-ed snap] When the FRDI Bill Returns

    Context

    The amendments to the FRDI Bill, 2017—now renamed the Financial Sector Development and Regulation (Resolution) Bill, 2019—are being worked out.

    Three crucial issues

    • Specifics are being worked out in the bill on three crucial issues.
      • First issue: The first issue is regarding the increase in the deposit insurance cover of customers.
      • Second issue: To iron out the contentious issues related to the bail-in clause
      • Third issue: To decide whether this resolution framework should apply to the public sector banks.
    • Advantages of the move: At a time when the public sector banks have come under the stress of bad loans, increasing the deposit insurance coverage limit would be a welcome approach.
      • Increasing the depositor’s confidence: The move will reinforce depositors’ confidence in the banking system in general, and the public sector banks in particular.

    The issue of the government “ownership” of the banks and financial stability

    • Ownership of government: The role of the “ownership” of banks towards financial stability is a much-debated issue in the country.
      • RBI is positive about govt. ownership: The Reserve Bank of India (RBI) has attributed a positive role to the government ownership of banks in attaining financial stability.
      • The issue of competitive neutrality: Committee to Draft Code on the Resolution of Financial Firms has blamed govt. ownership for causing a “lack of competitive neutrality” in the financial sector.
      • Need of level playing field: Committee argued for the need of a “level playing field” for both the public and private sector financial firms for the sake of competitive neutrality.
      • The concept of an overarching resolution framework for all financial firms gained traction.

    Would the all-encompassing Resolution Corporation be efficacious?

    • The FRDI Bill, 2017 sought to amend as many as 20 legislations for the diverse financial sector in this country, which is regulated by various institutions, like-
      • RBI for the banks and the non-banking financial corporations.
      • Insurance Regulatory and Development Authority (IRDA) for the insurance markets,
      • Securities and Exchange Board of India (SEBI) for securities markets and mutual funds.
      • The Pension Fund Regulatory and Development Authority for pension funds.
    • The pertinent question
      • The pertinent question is whether an all-encompassing resolution corporation can be really efficacious for the much-discussed financial stability of this country.

     

    Fundamental issues

    • Neutrality of ownership
      • Different motives behind operations: While private financial institutions are predominantly governed by profit motives, for the public sector agencies, various social obligations, such as “financial inclusion,” assume primacy.
      • Reason for commoner’s confidence: It is the sense of the government’s involvement (or ownership) that has forged commoners’ confidence to park their financial savings with them.
      • The move may end up destabilising the financial sector: If the sovereign guarantee and resolving power are taken away from the government domain to some resolution corporation, it may destabilise the financial system.
    • The Bail-in clause
      • Deposit over 1 lakh included in bail-in mechanism: The FRDI Bill 2017 suggests that deposit amounts over and above the cover limit (which currently is at one lakh) will be included in the bail-in mechanism.
      • Further, despite the RBI’s caution against financial instability, short-term debts and uncategorised client assets are also currently under this mechanism.
      • The falling growth rate of deposits: These provisions and the bill per se came against the backdrop of the Financial Stability Report, 2017 that revealed a 3.3% drop in the year-on-year growth rate of deposits for all scheduled banks in the country.

    Conclusion

    In the context of decelerating financial stability, the government needs to undertake these resolution reforms with caution that the reforms do not end-up eroding depositors’ faith in the domestic financial institutions.

     

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  • [op-ed snap] Seize the summit

    Context

    India announced that it will invite all heads of government of Shanghai Co-operation Organisation member countries, including Pakistan.

    Significance of the invitation

    • First since 2014: The summit will assume significance should Pakistan Prime Minister accept the invitation.
      • As it will be the first by a head of government or state of that country to India since former Prime Minister Nawaz Sharif attended the swearing-in ceremony of Prime Minister in 2014.
    • Hopes belied: Nothing came from that meeting and hopes created by the invitation were belied.
    • Failed attempts to engage: Attempts to engage after that failed, including at a previous SCO summit at Ufa in 2015.

    Latest events that further reduced the engagement

    • Pulwama attack: First, there was the February 2019 Pulwama attack, India’s Balakot response, and Pakistan’s counter-response.
    • Article 370: After India did away with Jammu & Kashmir’s special status, India and Pakistan have downgraded even their diplomatic presence in each other’s countries.
    • Both the countries withdrew their high commissioners after the Article 370 issue.
    • Trade stopped completely: Bilateral trade, which had managed to survive earlier shocks to relations, has stopped completely.

    Opportunities presented by SCO summit

    • “Inputs of all stakeholders”: In deciding whether to accept the invitation, the Pakistan PM will have to take into consideration “inputs of all stakeholders”.
    • A polite way of saying that the final yes or no will rest with the Pakistan Army.
    • A chance for a high-level meeting: Even if Imran Khan stays away and sends a minister instead, it would still be a chance for a high-level bilateral meeting.
    • The world wants India and Pakistan to engage: The world wants India and Pakistan to engage, and this was evident in the way the UNSC refused to take up the Kashmir issue, saying it was not the forum for it.
    • Opportunity for India to make a start: India has declared several times recently that it wants to peel away from historical foreign policy baggage.
      • India should make a start with Pakistan by making it possible for such a meeting to take place.
    • Making acceptance of invitation easier: India can make it easier for the Pakistan Prime Minister to accept the invitation.
    • Resuming trade: A start could be made by resuming trade, which has ground to a dead halt
    • Sending High Commissioner back: India can start by sending India’s High Commissioner back to his office in Islamabad.

     Conclusion

    The SCO summit presents an opportunity for both the countries to end the long hiatus in the relations which is essential for both the countries to resolve the long-standing issues and progress of both the countries.

     

     

     

  • [op-ed of the day] Preventing mob lynching

    Context

    The spate of incidents of lynching over the past few years has led to a heightened sense of insecurity among the marginalised communities. The Centre should specify penal action against officials and doctors accused of dereliction of duty.

    2018 Supreme Court Judgement

    • In 2018, the Supreme Court described lynching as a “horrendous act of mobocracy”.
    • The Court exhorted the Centre and State governments to frame laws specifically to deal with the crime of lynching.
    • The SC laid down certain guidelines to be incorporated in these laws including
      • Fast-track trials.
      • Compensation to victims, and
      • Disciplinary action against lax law-enforcers.

    The State laws

    • Manipur bill for the law against lynching:  The Manipur government came up first with its Bill against lynching in 2018, incorporating some logical and relevant clauses.
      • Provision of nodal officer: The Bill specified that there would be nodal officers in each district to control such crimes.
      • Compensation to the victim: The law provides for adequate monetary compensation to the victims or their immediate kin.
      • Punishment for failure to enforce the law: Police officers who fail to prevent the crime of lynching in their jurisdiction are liable to be imprisoned for a term that may extend from one to three years with a fine limit of ₹50,000.
      • No concurrence of state for the prosecution of the police: No concurrence of the State government is required to prosecute them for dereliction of duty.
    • Rajasthan bill: The government has accepted only a few guidelines issued by the apex court.
      • No action against police officers: The bill is also silent on any action to be initiated against police officers who may be accused of dereliction of duty.
    • West Bengal bill: Most other guidelines of the Supreme Court have been adopted by the State.
      • Stringent punishment: Punishment for lynching to death is punishable with the death penalty or life imprisonment and a fine of up to ₹5 lakh.

    What the Centre can do

    • Adoption of the SC guidelines: The Centre should adopt the guidelines provided by the SC to deal with the crime.
    • Action against doctors: Centre would do well to incorporate sections in the law for penal action against doctors who stand accused of-
      • Dereliction of duty.
      • For delay in attending to victims of lynching.
      • For submitting false reports without carrying out a proper and thorough medical examination of the victims.
    • The compensation scheme for victims: Under the compensation scheme for the victims, the amount to be paid to the victims should be recovered from the perpetrators of the crime.
      • Collective fines: Collective fines should be imposed on the villagers where the lynching takes place.
    • Punishment for a political leader for inciting the mob: Centre could even provide for punitive action against political leaders found guilty of inciting mobs.
    • Punitive action against police: Punitive action to be taken against police officers accused of dereliction of duty, as incorporated in the law enacted by Manipur government, could be replicated in the Central law too.
      • Punitive action as a deterrent: It would deter police officials acting in a partisan manner in favour of the lynch mob.

    Conclusion

    Until a zero-tolerance attitude is adopted in dealing with mob lynching, this crime will continue to show a rising trend.

     

  • [op-ed snap] Maoist rebellion: policy fade-out, policy fade-in

     Context

    When much is made of peace talks with rebels in Northeast India, avoidance of peace talks with Maoist rebels is strange.

    States left to deal with the Maoists

    • Scale and extent of the problem: Officially in 2019, there are 11 states and 90 affected districts.
    • State subject: This is because policing and maintaining law and order are matters devolved to states.
    • The approach adopted to deal with the problem: According to MHA-
      • Capacity building: Primarily by capacity building of the state governments.
      • Areas of capacity building: Capacity building is to be carried out in areas of security and development. This will continue with the-
      • Better police training.
      • Better intelligence gathering.
      • Reinforcing police stations in conflict zones.
      • And recruiting locals into auxiliary forces.
    • Support by MHA: MHA will continue to provide the Central Reserve Police Force (CRPF) and other paramilitaries under its command.
      • Support of NTRO: Intelligence gathering outfits such as the National Technical Research Organisation (NTRO).
      • NTRO has in the past year increased drone surveillance over the densely forested Abujhmad area in southwest Chhattisgarh, which remains the main rebel hub.

    The success achieved so far

    • Influence reduced to 90 districts: The policies so far has certainly contained the rebels across 90 affected districts.
    • Surrender and rehabilitation policy: Most Maoist-affected states in India have a surrender and rehabilitation policy.
    • Surrender policy along with search and destroy : Surrender policy rides in tandem with search-and-destroy missions that police and paramilitaries provide.
    • This pincer has massively depleted rebel leadership and ranks with regular killings, arrests, and surrender of its leaders and cadres.

    Return of conflict displaced people

    • It is crucial for the conflict-displaced to return to their homes.
    • Issues related to return of displaced: Agencies discourage those returning from going back to their old home and instead are offered state-mandated enclaves.
      • No or little economic imperatives: Those returning are offered little economic imperative besides daily wage labour and scrambling for government handouts.
      • Some government jobs: For some, jobs are offered in
      • That is, in any case, the present for much of the 50,000 or so who did not manage to escape to Telangana and elsewhere.

    Conclusion

    • The central government would do well to focus here and in beginning negotiations for peace.
    • The Left-wing rebellion, a reality for over 50 years, is difficult to end until poor governance is improved.

     

  • [op-ed snap] The perils of RBI’s fixation on inflation

    Context

    The RBI’s responsibility to regulate the financial sector may have taken a back seat after the adoption of inflation targeting as the main objective. Has a fixation with inflation rate made the RBI take its eyes off the loan books of the banks?

    Evolution of the role of the Central Banks

    • Maintaining financial stability: The establishment of some of the world’s oldest central banks was inspired by the goal of maintaining financial stability.
      • Harm to the depositors: It was recognised that when private commercial banks fail, whether due to malfeasance or misjudgement, they harm their trusting depositors.
      • Harm to the entire system: But when banks fail they not only harm the depositors they can also take down with them the rest of the financial system.
    • Banks lending to one another: The entire financial system also gets harmed when banks have lent to one another, which is not uncommon.
      • The collapse of credit: In the crisis that ensues, there is a collapse of credit which, in turn, leads to a downturn in economic activity.
    • Lender of last resort: To avoid this, the central bank was conceived of as the lender of last resort.
      • Prevention of run on the banks: Lender of last resort is the one that could pre-empt a run on banks and give them time to put their books back in order.
      • Regulation of banks: However, this was to be accompanied by the adoption of a tough regulatory stance.
      • Whereby the central bank would stay hawk-eyed towards the activities of banks, particularly risky lending.
    • Rise of neo-liberalism and change in a role: With the rise of neoliberalism, the central tenet of which is that markets should be given free play, the regulatory role of central banks took a back seat.
      • Inflation control as primary role: The Central banks came to be primarily mandated with inflation control.

    Inflation targeting and regulation of the financial market by RBI

    • Multiple indicator approach: In India, the RBI had earlier pursued a ‘multiple indicators approach’.
      • What was the multiple indicator approach: The approach involves concern for outcomes other than inflation, including even the balance of payments.
      • Discouraging the approach: Developments in economic theory discouraged ‘multiple indicators approach’.
      • It was argued that having economic activity as an objective of monetary policy leads to higher inflation.
    • Favouring low inflation over lower unemployment: Discouraging the ‘multiple indicator approach’ encouraged low inflation over low unemployment.
    • Inflation targeting as the sole objective of monetary policy: The Indian government also instituted inflation targeting as the sole objective of monetary policy.
      • The fixed target for the RBI: The RBI was permitted to exceed or fall short of a targeted inflation rate of 4% by a margin of 2 percentage points.
    • But have the RBI’s original mandate as a central bank been met?
      • IL&FS crisis: In 2018, within three years of the adoption of inflation targeting goal, a crisis engulfed IL&FS, a non-banking financial company in the infrastructure space.
      • Not a small player: It operated over 100 subsidiaries and was sitting on a debt of ₹94,000 crores.
      • Effects of default: Given this, IL&FS default had a chilling effect on the investors, banks and mutual funds associated with it both directly or indirectly.
      • PMC bank crisis: In 2019, a run on the Punjab and Maharashtra Co-operative Bank had to be averted by imposing withdrawal limits.
      • Outright fraud in PMC case: While in the case of IL&FS, some part of the problem may have been caused by a slowing economy, outright fraud underlay the crisis at PMC Bank.
      • Raghavendra Sahakara Bank case: In early 2020, curbs have had to be placed on withdrawals from the Bengaluru-based Sri Guru Raghavendra Sahakara Bank.
    • Pertinent question
      • Regulatory sector at the backseat? It is not too early to ask if the RBI’s responsibility to regulate the financial sector may have taken a back seat after the adoption of inflation targeting as the main objective.
      • Has a fixation with inflation rate made the RBI take its eyes off the loan books of the banks?

    The recent rise in inflation and shortfall of currency notes

    • Inflation at 7%: At over 7%, the inflation rate in December is the highest in five years.
      • Not cause of concern: This may not be the reason to panic, for the price rise could be seasonal and may well abate.
      • Question on inflation targeting: But it does raise a question on the efficacy of inflation targeting as a means of inflation control.
      • Reason for moderate inflation so far: If the inflation rate was within the intended range so far, that may have been due to both declining food prices and, for a phase, oil prices.
    • The shortfall of notes: The central bank has a monopoly on the issue of notes.
      • There is an absolute shortage of small denomination notes in the bazaars of India.
      • Small-denomination notes are mostly unavailable.

    Conclusion

    While focusing on the inflation, the Central bank also needs to keep the other mandates especially the regulation of the finance sector in check.

     

     

  • [op-ed of the day] Let’s not muddle along on how we share natural endowments

    Context

    Governments regulations and restrictions in the markets, believing that policies could artificially restrict either supply or demand, or both, often results in unrealistic or unworkable prices.

    Adoption of the auctioning process to allocate resources

    • Design of process makes the difference: While auctions may be the cleanest way to allot scarce natural resources to private parties, their design makes all the difference.
    • Three things needed to get the desired results from auctions:
      • Clear policy goal: Define clear policy goals for the allotment of the resource whether coal blocks, spectrum or land.
      • The proper process of periodic review: Define a proper process for periodic review of the design itself, since it may not be possible to get everything right in the first instance.
      • Make the process non-partisan: Make the political oversight process as non-partisan as possible, so that regime changes do not keep upending policies.

    What went wrong in spectrum allocation case?

    • Arbitrary tweaks in policy: Arbitrary tweaks were made in the telecom licence and spectrum allocation policy.
      • Which is what forced the apex court to intervene and cancel those licences.
    • The claim of revenue loss: Cancellation followed a  claim by the CAG that the “presumptive” revenue losses may have been as high as ₹1.76.
    • Result of the two events-policy of revenue maximisation: The net result was that all subsequent auctions were designed to maximize spectrum bids.
      • Winner’s curse: The policy finally ended up becoming a winner’s curse, evident in the pile of debt incurred by the telecom sector.
    • Why did this happen? This happened because of the absence of a clear policy goal.

    Real estate sector

    • High land prices: The same goes for real estate, which is struggling right now due to high land prices because the bureaucracy prevents price reduction in land.
      • Unaffordable to middle-income buyers: That make most properties unaffordable for middle and lower-middle-income buyers.
    • Low FSI issue: Urban land prices are high due to artificial constriction of supplies through the fixing of low floor space indices (FSIs) even in land-scarce localities.

    Technology and periodic review of policy

    • Technology can lower costs: Spectrum or land or coal mines are not always in short supply, for new technology lowers costs.
      • Efficient spectrum use: The same spectrum can, with the use of newer technology, be used more efficiently.
      • 3D printing in construction: Better infrastructure and improved building technologies (even 3D printing techniques for mass housing projects in non-urban areas) can lower housing costs enormously.
      • Automated coal mining: Automated coal mining can lower coal production costs, enabling higher profitability even with relatively high auction bids.
    • Need for periodic policy review: Technology can reduce the prices of the resources and hence the periodic review of the prices at which the resources are allocated need to be taken to for balanced pricing.

    Conclusion

    • Policies on the allocation of scarce resources need to evolve based on actual experience and changing technologies and processes.
    • The success or failure of a specific policy cannot be judged purely from a revenue or transparency point of view.

     

     

     

  • [op-ed snap] Power replay

    Context

    Five years after the launch of UDAY, power-sector once again seems to be going deep into the troubles.

    Where the Discoms stand now?

    • Losses increased: The losses of state-owned distribution companies (discoms) risen.
    • Dues increased: Discom’s dues for power purchases have also surged.
      • Dues owed by discoms to power producers, both independent and state-run entities, stood at Rs 80,930 crore.
      • Of these, Rs 71,673 crore extends beyond the allowed grace period of 60 days.
      • Rajasthan leads the states with the most dues, followed by Tamil Nadu and Uttar Pradesh.

    Components of UDAY and progress made

    • The UDAY scheme, which involved state governments taking over the debt of discoms, had three critical components
    • First-Reduction in AT&C losses: While progress has been made on some of these fronts, it hasn’t been in line with the targets laid out under UDAY.
      • AT&C (Aggregate Technical and Commercial) losses have declined in some states, but not to the extent envisaged.
      • Under UDAY, discoms were to bring down AT&C losses to 15 per cent by FY19.
    • Second- Timely revision of tariffs: While some states have raised power tariffs, the hikes have not been sufficient.
      • In tariff revision decisions political considerations prevailed over commercial decisions.
    • Third- elimination of the gap between per unit of cost and revenue realised: The gap between the average cost per unit of power and the revenue realised has not declined in the manner envisaged.
      • Because of this discoms were forced to reduce their power purchases and delay payments to power producers.

    Way forward:

    • The new plan, being formulated by the government reportedly, aims to address these issues by-
      • Reducing electricity losses.
      • Eliminating the tariff gap.
      • Smart metering.
      • Privatising discoms.
      • Having distribution franchisees.
    • Altering incentive structure: Along with the above, the Centre should also look at altering the incentive structures of states in order to ensure compliance.
    • Provision of penalties: Stiff penalties need to be imposed for not meeting the targets laid out in the new scheme.

     

     

     

  • [op-ed snap] Reset and reform

    Context

    With the Indian economy caught in the middle of a socio-economic upheaval, the government needs to make its focus on the economy clear and pronounced.

    India in the middle of a socio-economic upheaval

    • Weakening economy: The economy has been weakening for a couple of years now.
    • Social upheaval: The social upheaval is new but its seeds have been fermenting for a while.
    • Consequences of the two: The social and economic sides of an economy are not divorced from each other.
      • Each influences the other and the current quagmire threatens to unleash the worst type of feedback between the two.

    Consequences for the employment

    • Most severe consequence due to the interaction between the social and economic sides is unemployment.
    • Rising unemployment disproportionately affects the young.
    • India’s job market: India whose median citizen is in the 30s and which is inducting 10 million new young people to the job market every year.
    • Demographic dividend turning into a curse: This dynamic, popularly hailed as India’s demographic dividend, can rapidly turn into a demographic curse if the employment situation doesn’t improve.

    Falling investment rate, increased risk perception

    • Where will the jobs come from? The job creators are entrepreneurs, conglomerates, and multinationals.
      • It is in their nature to take investment risks as long as the returns are high enough.
    • Investment rates below 30: In India, investment rate fell well below 30 per cent a while back.
      • Falling returns: The returns on investment were not compensating entrepreneurs for the risk.
      • The recent social upheaval is only adding to the perceived risk.
    • Wait and see approach: The more investors adopt a “wait-and-see” approach, the worse the job situation will become.

    Way forward

    • Structural reforms: The government needs to announce a clear plan and timeline for structural reforms.
    • Prioritising domain competence in staff: The government has to start staffing technical positions by prioritising domain competence and empowering these hires with policy relevance.
    • Maintaining the integrity of institutions: The government need to maintain the integrity of institutions tasked with the regulation of corporations and banks, monetary policy management, data collection/dissemination and law enforcement.
    • Accommodate dissent: The government also needs to desist from trying to drown out protesting voices with state muscle power.