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Type: Op-ed

  • Terrorism and its ideologies

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

    Terrorism paradox of Pakistan: Both Victim and perpetrator

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

    Soviet withdrawal and rise in insurgency in Kashmir

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

    Radicalisation of Pakistani population

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

    Monsters who don’t spare even its creator

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

    Did all terrorist organisation turn against Pakistan?

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

    Ideological differences

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

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

    Conclusion

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

     

  • Proposed amendments could harm DISCOMs

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

    Two-part tariff policy

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

    How Over-optimistic projection led to losses?

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

    Renewable energy factor

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

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

    1. Sub-franchisees and  issues with it

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

    2. Concession to renewable

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

    3. Elimination of cross-subsidies

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

    4. Selection of the State regulator

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

    5. Electricity Contract Enforcement Authority

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

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

    Conclusion

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

    Back2Basics: Electricity Act 2003

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

     

  • Unanimity at WHO

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

    Inquiry of the origin of the virus

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

    Wide support to the resolution

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

    So, how effective is the resolution?

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

    How China controlled the corona narrative until now?

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

    Is it a setback for China?

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

    Issues with the WHO that India must pay attention to

    1. International norms for early detection

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

    2. Funding of the WHO

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

    3. WHO’s focus should be on fewer objectives

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

    Way forward for India

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

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

    Conclusion

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

  • Atmanirbhar Abhiyan Package

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

    The good and the bad of India’s GDP story

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

    A take on Economic empowerment

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

    Atmanirbhar Bharat Abhiyaan(ANBA) – A step towards Swaraj

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

    How ANBA maintained fiscal health?

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

    What is on agenda for ANBA 2.0?

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

    Welfare state and free economies

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

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

    Conclusion

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

    Back2Basics: Just in time inventory

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

    Just in case inventory

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

  • 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.