‘Atma-nirbhar’ has become a buzzword after PM Modi mentioned it in his speech. This article analyses the policy statement announced by the PM that focuses on self-reliance of the country in the future.  So, what exactly the term self-reliance could include? what are the areas in which India is dependent on other economies? Read the article to know more about these issues.

Policy statement of 1991

• In 1991, only four policy statements were made —the end of licence-permit Raj, steep cuts in fiscal deficit and tariffs,  and devaluation of the Rupee.
• With four policy measures, the economy was pulled out of a crisis and placed on a new growth path.
• The key to 1991 was the political articulation of a vision that went beyond platitudes.

What is there in the PM’s vision statement?

• The PM’s vision statement had four elements.
• First, a step up in public spending and investment, aimed at promoting the welfare and raising the investment rate.
• Second, policy reforms aimed at making the domestic economy more globally competitive.
• Third, a long-term structural shift making the economy more “self-reliant” and less dependent on the world economy.
• The fourth wheel of this new growth engine will be Lockdown Model 4 that is to be announced in a few days.

 Commitment of political leadership: key to spending and investment

• Increased public spending will certainly boost demand and generate employment in the short term and add to infrastructure capacity in the medium term.
• Policy reform, including changes in land, labour and other policies, could yield results in the medium term.
• But for now, investors will wait and watch to test the sincerity and efficiency of governments at the Centre and in the states.
• They will wait to see how the various policy steps being announced by the FM get implemented — how quickly and how efficiently.
• The government can meet with success if investors, consumers and other economic agents believe in the commitment of the political leadership and the capability of the administration to deliver.

Focus on the self-reliance

• PM has said that his version of self-reliance does not imply isolationism and inward-orientation.
• His version of self-reliance will inject greater self-confidence in the people by reducing the country’s dependence on other nations.
• Theotonio Dos Santos, defined dependence as a situation in which a country’s economy is “conditioned by the development and expansion of another economy”. 
• He said that to be self-reliant the growth process of an economy “should not become dominated or dependent on another economy”.

So, on which economies is India excessively dependent?

• 1. The oil-exporting economies.
• Oil and gas account for a bulk of India’s imports.
• Whatever new sources of energy India may tap in the foreseeable future, it will remain import-dependent for energy.
• Fortunately, for India, the global crude oil and gas markets are likely to remain buyers’ markets for some time to come.
• 2. Dependence on foreign exchange.
• Second is the dependence on foreign exchange inflows both in the form of remittances, mainly from the Gulf and the US, and financial flows into capital markets.
• It is not clear how the new Modi strategy of self-reliance proposes to deal with this dependence.
• If anything, India is seeking more FDI and external debt.
• 3. Defence equipment.
• The third dependence is on imported defence equipment, mainly from Russia, the US, Israel and France.
• 4. Electronic and pharmaceuticals.
• Fourth, import dependence in electronic goods and pharmaceuticals, mainly from China.
• Thus far, government policy does not address these dependencies.
• The immediate focus of PM’s self-reliance seems to be China.

How to turn import dependence into import power?

• Post-Deng Xiaoping China established long ago that for a large economy, it is possible to be both self-reliant and globalised at the same time.
• Trade in itself does not create dependence if a country is able to grow both exports and imports.
• China has demonstrated the geo-economic power of both exports and imports by making trade partners dependent on it on both counts.
• When China refuses to buy wine and beef from Australia, it is using its import power, not demonstrating its import dependence.
• If an economy is willing to live without those imports or can substitute them with domestic production, then it is not badly hurt.

So, what are the lessons for India?

• It is export dependence that can make even a large economy vulnerable.
• It is China’s dependence on US markets that President Donald Trump has aimed to reduce by waging a trade war.
• India has never had such export dependence on any one country.
• Indian government’s hope that multinational companies exiting China will relocate to India can only make India more export-dependent since these MNCs aim to sell globally.
• Making India less dependent on China cannot be the only measure of self-reliance.

Consider the question “For India, it is not trading dependence that makes India vulnerable but the inadequacy of its human capital. Comment”

Conclusion

For India to be truly self-reliant and self-confident, public investment in education, human capability and research and development has to increase.

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JAM Trinity is one of the flagship policy of the government. In times of COVID crisis, this article highlights some limits of JAM trinity. Issues of inclusion error, exclusion error and even problem of transparency with JAM accounts are discussed. The NREGA cards instead of Jan Dhan account is suggested as the better option. Why is it so? Read to know more…

High hopes from JAM

• The original formulation, in 2015, mentioned two possible forms of the JAM trinity: mobile banking and post office payments.
• The second option never made much progress.
• So, Aadhaar-enabled mobile banking became the supreme goal.
• In January 2017, NITI Aayog CEO Amitabh Kant predicted the imminent demise of all cash-transfer paraphernalia other than mobiles.
• These hopes reached new heights as the JAM project latched on to another flourishing narrative, universal basic income (UBI).
• If you want to make cash transfers to everyone, what better platform can you have than Aadhaar, India’s unique biometric ID, doubling up as a permanent financial address?

Corona crisis belied the hopes from JAM

• In the early days of the crisis, JAM was often invoked sometimes along with UBI as a possible tool of emergency relief.
• But when the time actually came to make cash transfers to the poor, JAM turned out to be of little use.
• The JAM had not gone beyond some fancy digital-payment systems for the privileged.
• Poor people were still running from pillar to post to collect their meagre benefits from old-fashioned bank accounts.
• Some also use the services of “business correspondents”, but those have little to do with JAM.
• Sure enough, long bank queues and related hardships started to emerge, especially in rural areas where the density of banks is relatively low.
• In a Dalberg survey conducted last month in 10 states, only 25% of poor households reported that it was “easy” to access cash benefits.

NREGA job Cards: A better option than Jan Dhan Account

• The lead cash-relief measure in the national relief package consists of monthly transfers of ₹500 to women’s JDY accounts.
• But is that a good idea?
• Let’s compare women’s JDY accounts with another possible basis for cash transfers, at least in rural areas: the list of households that have a National Rural Employment Guarantee Act (NREGA) job card.
• The numbers of accounts are roughly comparable: about 14 crore for NREGA job cards, and 12 crore or so for women’s JDY accounts in rural and semi-urban.

JDY approach fares poorly on the following 3 counts

1. Lack of transparency and clarity

• JDY accounts are a mighty mess – the NREGA job-cards list is far more transparent and well-organised. 
• During the frantic initial JDY wave, in 2014-15, banks opened JDY accounts en masse to meet the targets. Banking norms were not followed always.
• Later on, a large proportion of JDY accounts – 40% in March 2017, down to 19% in January 2020– went “dormant” as customers were unable or unwilling to use them.

2. Large exclusion error

• The cash transfers to women’s JDY accounts are likely to involve large exclusion errors.
• According to a recent Yale study, less than half of poor adult women have a JDY account, an even lower proportion, 21%, know that they have a JDY account.
• The NREGA job-card list is likely to have much better coverage of poor households.
• The natural complementarity between NREGA and social security pensions covering more than four crore persons under the National Social Assistance Programme alone would further help to reduce exclusion errors.

3. Large inclusion error

• Inclusion errors are also likely to be larger in the JDY approach.
• Job cards are meant for rural workers, JDY accounts are for everyone.
• National Election Studies 2019 data show that JDY beneficiaries tend to be better-off than NREGA beneficiaries. ( and still, they would get benefits i.e. inclusion error)
• Earlier survey data suggest that the probability of having a JDY account is more or less the same for poor and non-poor households.

Comparison on reliability basis

• There have been significant issues e.g. delayed, rejected, blocked or diverted payments with NREGA payments, often related to Aadhaar.
• But then, numerous “direct benefit transfer” schemes –social security pensions, scholarships, maternity benefits, among others have faced similar problems, also reflected in official transaction data.

• Both the Aadhaar Payment Bridge System(APBS) and the Aadhaar-enabled Payment System (AePS) are shot through with technical glitches.
• Transfers to women’s JDY accounts are unlikely to be more reliable than transfers to job-card holders.

Cash in hand option

• As far as effective payment is concerned, there is a further argument in favour of the NREGA job-cards list.
• Unlike JDY accounts, it lends itself to the “cash-in-hand” method on-the-spot payment in cash, instead of bank payments as a possible fallback.
• The reason is that the job-cards list is a transparent, recursive household list with village and gram panchayat identifiers, while the list of JDY accounts is an opaque list of individual bank accounts.
• Cash-in-hand may seem like the antithesis of JAM, but this option may become important in the near future if the banking system comes under further stress.
• There are precedents of effective use of the cash-in-hand method, notably in Odisha for pension payments, and in various states for NREGA wage payments.
• Several states including Andhra Pradesh, Odisha and Tamil Nadu have already resorted to cash-in-hand for relief payments during the lockdown.

Consider the question, ” The need for financial inclusion is far more in times of corona crisis. Discuss opportunities and challenges with respect to policies like JAM trinity during corona pandemic. Suggest other alternatives for such transfers.”

Conclusion

There is nothing compelling about the use of women’s JDY accounts for cash relief. In fact, it is a bit of a shot in the dark. The government do well to consider other options for further relief majors, including a switch to the NREGA job-cards list in rural areas.

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