From UPSC perspective, the following things are important :
Prelims level: G7 countries
Mains level: Paper 2- Challenges the current form of multilateralism faces and opportunity for India to shape the new multilateralism.
The world is going through turmoil. The new world that will emerge will be different from what we have known. This provides India with some unique opportunities. This article explains the changes that are taking place and gives the outline of the changing order. So, how can India set and shape the global response? And what should be the principles on which the new multilateralism should be based? Read to know…
Opportunity for India to set the global response
As chair of the Executive Board of the World Health Assembly – India can set the global response in terms of multilateralism, not just medical issues.
How can India set a global response in terms of multilateralism? Consider the following- a rare alignment of stars for agenda-setting.
1) In September, the United Nations General Assembly will discuss the theme, “The Future We Want”.
2) In 2021, India joins the UN Security Council (non-permanent seat).
3) And chairs the BRICS Summit in 2021.
4) Also hosts the G-20 in 2022.
New principles for international system: At the online summit of the Non-Aligned Movement, in May, Prime Minister Modi called for new principles for the international system.
His new globalisation model based on humanity, fairness and equality has wide support in a more equal world as, for the first time since 1950, everyone is experiencing the same (virus) threat.
Changing global context
China is losing influence and the dynamics in its relations with the United States.
And Asia again is emerging as the centre of global prosperity.
The global governance, economy, scientific research and society are all in need of being re-invented.
India should use this opportunity to recover our global thought leadership.
The US-China powerplay and its consequences for multilateralism
The clash between China and the U.S. at the just concluded World Health Assembly in May marks the end of the multilateralism of the past 70 years.
The donor-recipient relationship between developed and developing countries has ended with China’s pledge of $2-billion.
The agenda-setting role of the G7 over UN institutions and global rules has also been effectively challenged by WHO ignoring the reform diktat of the U.S. leading to its withdrawal, and characterisation of the G7 as “outdated”.
The U.S. has also implicitly rejected the G20 and UN Security Council, for an expanded G7 “to discuss the future of China”.
Important shift in the UN: After World War II, the newly independent states were not consulted when the U.S. imposed global institutions fostering trade, capital and technology dependence.
This was done ignoring the socio-economic development of these countries.
But social and economic rights have emerged to be as important as political and procedural rights.
Against this backdrop, China’s President Xi Jinping deftly endorsed the UN Resolution on equitable access to any new vaccine.
Emergence of Asia and China: Challenges for the US and the West
The U.S. faces an uphill task in seeking to lead a new multidimensional institution in the face of China’s re-emergence.
The re-emergence of China is based on technology, innovation and trade balancing U.S. military superiority.
At the same time, there is a clear trend of declining global trust in free-market liberalism, central to western civilisation.
With the West experiencing a shock comparable to the one experienced by Asia, 200 years ago, the superiority of western civilisation is also under question.
The novel coronavirus pandemic has accelerated the shift of global wealth to Asia suggesting an inclusive global order based on principles drawn from ancient Asian civilisations.
Colonised Asia played no role in shaping the Industrial Revolution.
But, the Digital Revolution will be shaped by different values.
It is really this clash that multilateralism has now to resolve.
World is questioning both U.S. and China’s exceptionalism
China has come out with alternative governance mechanisms to the U.S.-dominated International Monetary Fund, World Bank and World TradeOrganization with its all-encompassing Belt and Road Initiative.
The U.S., European Union and Japan are re-evaluating globalisation as it pertains to China and the U.S. is unabashedly “America First”.
The world is questioning both U.S. and China’s exceptionalism.
For India, the strategic issue is neither adjustment to China’s power nor deference to U.S. leadership.
Opportune moment for India to propose new multilateralism
The global vacuum, shift in relative power and its own potential, provides India the capacity to articulate a benign multilateralism.
It should include in its fold NAM-Plus that resonates with large parts of the world and brings both BRICS and the G7 into the tent.
This new multilateralism should rely on outcomes, not rules, ‘security’ downplayed for ‘comparable levels of wellbeing’ and a new P-5 that is not based on the G7.
India in a important role
China, through an opinion piece by its Ambassador in India, has suggested writing “together a new chapter” with “a shared future for mankind”.
The U.S. wants a security partnership to contain China.
And the Association of Southeast Asian Nations trade bloc — with the U.S. walking out of the negotiations — is keen India joins to balance China.
With a new template. India does not have to choose.
Three principles the new system should be based on-
1. Peaceful coexistence
First, the Asian Century should be defined in terms of peaceful co-existence, freezing post-colonial sovereignty.
Non-interference in the internal affairs of others is a key lesson from the decline of the U.S. and the rise of China.
National security now relies on technological superiority in artificial intelligence (AI), cyber and space, and not expensive capital equipment, as India’s military has acknowledged.
Instead of massive arms imports, we should use the savings to enhance endogenous capacity.
And mould the global digital economy between state-centric (China), firm-centric (the U.S.) and public-centric (India) systems.
2. New principles of trade
A global community at comparable levels of well-being requires new principles for trade, for example, rejecting the 25-year-old trade rule creating intellectual property monopolies.
Global public goods should include public health, crop research, renewable energy and batteries, even AI as its value comes from shared data.
We have the scientific capacity to support these platforms as part of foreign policy.
3. Civilisational values
Ancient civilisational values provide the conceptual underpinning, restructuring both the economic order and societal behaviour for equitable sustainable development.
Which is what a climate change impacted world, especially Africa, is seeking.
Consider the question-“The global order is going through serious churn, and it provides India with an opportunity to shape the new multilateralism based on humanity, fairness and equality. Comment.”
Conclusion
In the new cold war, defined by technology and trade not territory, non-alignment is an uncertain option; India should craft a global triumvirate.
From UPSC perspective, the following things are important :
Prelims level: WHA
Mains level: Paper 2- Policy that India should follow at WHA executive board
India has been tasked with helming the WHO executive board at the turbulent times. The world is facing the health crisis. It is against this backdrop, India has to lead the executive board. This article suggests 5 elements that should form the part of India’s policy approach.
Challenges for India as it heads WHO executive board
Minister of Health and Family Welfare is elected as the Chair of the World Health Organization’s (WHO) executive board.
The 34-member body is tasked with implementing the decisions of the recently concluded World Health Assembly (WHA).
The elevation affords India an important platform to steer the global public health response to COVID-19.
It also comes at a time when the WHO is being rocked politically as never before.
WHO: caught between the US-China crossfire
Recently, U.S. President Donald Trump wrote a letter to the WHO Director-General.
In the letter, he threatened to make permanent his temporary funding freeze as well as reconsider the U.S’s membership in the organisation if the latter did not commit to major substantive reforms within 30 days.
By contrast, at the WHA plenary, Chinese President Xi Jinping pledged $2 billion to fight the virus.
He also promised to pair up 30 African hospitals with domestic counterparts, accelerate the building of the Africa Centers for Disease Control headquarters, and ensure that vaccine development in China, when available, would be made a global public good.
So, as WHO executive body chair, India will have to navigate this treacherous power landscape with candour and tact. Following 5 elements should inform its policy approach.
1. Set epidemic prevention and control as a priority
India must insist that epidemic prevention and control remain the international community’s foremost priority.
As the virus’ chain of transmission is broken, the focus should shift to identifying the animal-to-human transmission origins of SARS-CoV-2.
China shares an important interest in facilitating international access to investigate COVID-19’s zoonotic origins.
Why China shares interest? Because Wuhan and other previously infected zones could yet be susceptible to the risk of viral reintroduction.
2. Review the early response of China and WHO to outbreak
India should lean on the WHO secretariat to fast-track the “impartial, independent, and comprehensive review” of the WHO’s – and China’s – early response to the outbreak.
The review’s findings should illuminate best practice and highlight areas for improvement, both in the WHO’s leadership and capacity as well as member states’ implementation of the International Health Regulations.
For those in New Delhi inclined to relish the prospect of Beijing’s comeuppance, the review’s findings may yet sorely disappoint.
The WHO-China Joint Mission featuring renowned global epidemiologists had termed China’s early COVID-19 response as the “most ambitious, agile and aggressive disease containment effort in history”.
3. Ensure equitable access to COVID-19 vaccines for all
For ensuring equitable access to COVID-19 therapeutics and vaccines for all countries, India must promote the establishment of an appropriate multilateral governance mechanism.
The envisaged voluntary pooling mechanism to collect patent rights and regulatory test data should be suitably tailored to the needs of crisis.
And the World Trade Organization’s intellectual property rights provisions should be overridden as is allowed during a public health emergency to assure affordable vaccine availability.
4. Taiwan issue at WHA: India should stay aloof
India must stay aloof from the West’s campaign to re-seat Taiwan as an observer at the WHA.
When Taipei last attended in 2016, it did so under the explicit aegis of UN General Assembly Resolution 2758, whereby the UN considers Taiwan to be an integral part of the People’s Republic of China.
That the independence-minded Tsai government is unwilling to concede this basis for attendance has more to do with domestic political manoeuvring than Chinese or international ostracism.
5.Global ban on consumption of wild animals
India must lead the call for a permanent global ban on the consumption and trade of wild animals.
This ban should be with limited exceptions built-in for scientific research, species protection and traditional livelihood interests.
With two-thirds of emerging infections and diseases now arising from wildlife, the destruction of natural habitats and biodiversity loss must be taken much more seriously.
Consider the question “The WHO has been facing the credibility crisis for its response to the Covid-19. In such a difficult time for the agency, India has to lead the executive board of WHA. In light of this, suggest the policy approach that India should adopt at WHA.”
Conclusion
India has its work cut out. The government should seize the moment to steer the global response in addressing the shortcomings in various areas exposed by the Covid-19 pandemic.
From UPSC perspective, the following things are important :
Prelims level: Policy rates
Mains level: Paper 3- Why interest differential could be a problem?
Do you remember Operation Twist by the RBI? what was being twisted there? It was the yield curve that was sought to be twisted. It had been aimed at reducing the gap between long term interest rates and short term policy rates. This article explains the impact such gap could have on the economy.
Why long term loans come with a higher interest rate?
Long term loans equate to long repayment periods.
More uncertainty during these long periods can translate to higher risks.
And to compensate for the high risks involved, banks quote higher interest rates when corporates borrow from them to build and operate stuff.
However, when banks borrow from the RBI they are borrowing over short intervals.
And so they get charged lower interest rates.
So, why banks are keeping interest rates high despite borrowing at low rates from the RBI?
Ever so often, the RBI cuts rates in the hopes of making loans more accessible to banks.
They are hoping banks will also extend this benevolence to their customers by cutting long term interest rates.
But right now, banks are scared.
They don’t think the corporates can pay back.
So they are keeping long term rates at elevated levels despite borrowing at consistently low rates from the RBI.
What happens when gap between long-term and short term interest rates widen?
Capital wasn’t cheap to begin with for corporate borrowers, and it’s getting more expensive.
This comes just as migrant rural workers have been driven out of urban production centers because of shuttered factories.
Even if this labor is safely put back on, say, road construction, concessionaires [think private road contractors] might still go bankrupt before completing any projects.
That’s because their annuity payments from the government are linked to falling short-term policy rates, whereas their long-term borrowing costs are both high and sticky
To understand the issue of annuity payment and its relation with interest rates, let’s dig deeper into 3 types of models-
1. Build-Operate-Transfer (BOT) Model
So, NHAI is the National Highways Authority of India and is largely responsible for building and maintaining roads.
Its preferred method to get the job done is to deploy what is called the BOT model.
The Build-Operate-Transfer (BOT) model, as the name suggests is a way for NHAI to offload its responsibilities of road building to private contractors.
Under BOT model, private contractors build the road, operate it, make money off of collecting toll, and after about 10–15 years, they hand over the road back to NHAI.
There aren’t enough private contractors willing to bid for such projects because — hey, maintaining and operating a road is a pain.
Why pain? You have to wait 15 years to recoup all the money you had to pour in to build the damn thing. That’s the pain.
2. Engineering, procurement and Construction (EPC) model
Under the EPC (Engineering, Procurement & Construction) model, NHAI pays private contractors first, so that they can help NHAI build the road.
The contractor does not operate or collect tolls here.
Instead, it can walk away scot-free with money in its coffers once it’s done building the road.
But it’s hard for the government to shore up all the resources required upfront.
3. Hybrid Annuity Model (HAM)- The middle path
It’s a nice little mix of both EPC and BOT.
Under it, NHAI pays some money upfront in fixed installments usually, 40% of the project cost.
And the private contractor does his bit by putting up the rest and finishing the project.
However, once the construction is complete, the contractor does not make money off of collecting toll.
Instead, he transfers the assets over to NHAI.
So its incumbent on the government to pay the rest of the money once the project takes off.
And the payments are dependent on the asset created, the performance of the developer, and a few other things.
However, since the payouts usually last 15–20 years we need to find a way to determine what kind of money the government pays the contractor every 6 months.
And here’s the best way to think about this — So when the government pays the 40% upfront, it’s promising to pay the 60% sometime in the future.
It’s money they owe the contractor.
And, here is the crux of the matter
So when the repayments, are made, they’ll have to pay the principal and the interest.
The interest involves a fixed component (3%) and a variable component.
What is varible component? The variable component is effectively the short term policy rates.
So if the RBI keeps cutting these short term rates, private contractors get less money per instalment even if their roads are all nice and shiny.
And this can’t bode well for them because they probably put up the 60% back in the day by borrowing from another bank.
A bank that’s charging them long term interest rates that refuse to come down.
Conclusion
The widening gap between the short term policy rates and long term interest could easily spell the disaster for the entrepreneurs and in turn for the economy as a whole. The government should consider a special package for such entities given the unprecedented situations we found ourselves in.
From UPSC perspective, the following things are important :
Prelims level: Treaty of Peace and Friendship between India and Nepal
Mains level: Paper 2-India-Nepal border issue
A new map released by Nepal delivered a blow to the India-Nepal relations. But this is hardly the first time this has happened. The article clears some cobwebs about Nepal’s foreign policy. First, it throws light on the past trend set by Nepal. And drawing on the past experience, it suggests the changes India should adopt in new framework to deal with Nepal.
Nepal’s new map: Yet another knock on India-Nepal relations
As the parliament in Nepal gets ready to approve a new map that will include parts of Indian territory in Uttarakhand, Delhi is bracing for yet another knock to a bilateral relationship.
Many in the Indian strategic community believe that the train wreck was avoidable.
But others view the collision between Delhi and Kathmandu as both inevitable and imminent.
Even if the territorial issue had been finessed, something else would have triggered the breakdown.
Bigger fissures in relation
A closer look suggests that the territorial dispute is merely a symptom of the structural changes.
These structural changes are unfolding in the external and internal context of the bilateral relationship.
The question, then, is not what Delhi could have done to prevent the current crisis.
It should be about looking ahead to build more sustainable ties with Kathmandu.
2 factors India must consider and depart from
Any new framework for engaging Kathmandu must involve two important departures from the past in Delhi.
1) First is coming to terms with Nepal’s natural politics of balance.
2) The other is the recognition that Delhi’s much-vaunted “special relationship” with Kathmandu is part of the problem.
Let’s look at the history of Nepal’s geopolitics
The founder of the modern Nepali state, Prithvi Narayan Shah, described Nepal as a “yam between two rocks”.
He was pointing to the essence of Nepal’s geographic condition between the dominant power in the Gangetic plains on the one hand and Tibet and the Qing empire on the other.
Contrary to the conventional wisdom in India, China has long been part of Kathmandu’s international relations.
As the East India Company gained ground at the turn of the 19th century, Nepal’s rulers made continuous offers to Beijing to act as China’s frontline against Calcutta’s expansion into the Himalayas.
Kathmandu also sought to build a coalition of Indian princes to counter the Company.
Even after it lost the first Anglo-Nepal war in 1816, Kathmandu kept up a continuous play between Calcutta and Beijing.
As the scales tilted in the Company’s favour after the First Opium War (1839-42), Nepal’s rulers warmed up to Calcutta.
When the 1857 Mutiny shook the Company, Kathmandu backed it and regained some of the territories it lost when the Raj replaced the Company.
As the fortunes of the Raj rose, Kathmandu rulers enjoyed the benefits of being Calcutta’s protectorate.
India inherited this framework but has found it impossible to sustain.
Why the Treaty of Peace and Friendship (1950) lost its appeal?
The 1950 Treaty of Peace and Friendship gave the illusion of continuity in Nepal’s protectorate relationship with the Raj and its successor, independent India.
That illusion was continuously chipped away amid the rise of mass politics in Nepal, growing Nepali nationalism, and Kathmandu’s acquisition of an international personality.
The 1950 Treaty, which proclaims an “everlasting friendship” between the two nations, has become the symbol of Indian hegemony in Nepal.
In a paradox, its security value for India has long been hollowed out.
It is a political millstone around India’s neck that Delhi is unwilling to shed for the fear of losing the “special relationship”.
Delhi has been trapped into a perennial political play among Kathmandu’s different factions and responding to Nepal’s China card.
Weakening of “special relationship”: Essence of Nepal’s foreign policy
Once the Chinese Communist Party consolidated its power in Tibet and offered assurances to Nepal, Kathmandu’s balancing impulses were back in play.
At the risk of oversimplification, Nepal’s foreign policy since the 1950s has, in essence, been about weakening the “special relationship” with India and building more cooperation with China.
Kathmandu has used different labels to package its desire for greater room for manoeuvre between its two giant neighbours — non-alignment, diversification, “zone of peace”, equidistance, and a Himalayan bridge between India and China.
The stronger China has become, the wider have Kathmandu’s options with India become.
Way forward
It makes no sense for Delhi to hanker after a “special relationship” that a large section of Kathmandu does not want.
If Delhi wants a normal and good neighbourly relationship with Kathmandu, it should put all major bilateral issues on the table for renegotiation.
Such issues should include the 1950 treaty, national treatment to Nepali citizens in India, trade and transit arrangements, the open border and visa-free travel.
Delhi should make it a priority to begin talks with Nepal on revising, replacing, or simply discarding the 1950 treaty.
It should negotiate a new set of mutually satisfactory arrangements.
India had conducted a similar exercise with Bhutan to replace the 1949 treaty during 2006-07.
The issues and political context are certainly more complicated in the case of Nepal.
It is better that Delhi bites the bullet and makes a fresh beginning with Kathmandu rather than let the relationship deteriorate.
No bilateral relationship between nations can be built on sentiment — whether it is based on faith, ideology or inheritance.
Only those rooted in shared interests will endure.
Rather than object to Kathmandu’s China ties, Delhi must focus on how to advance India’s relations with Nepal.
It should bet that the logic of Nepal’s economic geography, its pursuit of enlightened self-interest, and Kathmandu’s natural balancing politics, will continue to provide a strong framework for India’s future engagement with Nepal.
Conclusion
Discarding the appearances of the “special relationship” might, in fact, make it easier for Delhi to construct a more durable and interest-based partnership with Kathmandu that is rooted in realism and has strong popular support on both sides.
From UPSC perspective, the following things are important :
Prelims level: Import of crude oil and its proportion in total consumption.
Mains level: Paper 3- Energy security.
The era we are living in is reigned by the uncertainties. And the oil market is not immune to these uncertainties. Against this background, India’s energy security is discussed in this article. Switching to the “just in case” needs with respect to crude oil is suggested by the author. But, that would require capital. So, how could the problem of capital be solved? Read the article to know…
Switching from just in time to just in case
The post-COVID “world (will be) switching from just in time to just in case” said economist Alan Kirman.
This is more so for the Indian petroleum sector.
The decision-makers of this sector should switch to a “just in case” policy mode.
Oil market: Land full of uncertainties
The oil market is in no man’s land. Few speak with conviction about its future trajectory.
Last month, it dropped into negative territory for a day in the USA.
But today the price of the same crude quality is above $30/barrel.
If one reads the commentary of experts, some predict that prices will soon cross $50/barrel while some predict price-crash to below $20/barrel.
The fine print of these reports is always caveated with the disclaimer, “it all depends” on one or more of the comparably uncertain variables.
These variables include economic growth, geopolitics — US-China relations, the timing of the development of an anti-COVID vaccine or a combination of all these variables.
The fact is no one really knows how the petroleum sector will fare in the “new normal” of the post-COVID world.
The problems policy-makers face: some known, some unknown
Policy-makers know that irrespective of the twists and turns in the petroleum market, India will need fossil fuels (coal, oil and gas) to drive its economic growth for at least the next decade, if not longer.
And that a sizeable percentage of these requirements will have to be imported.
The country does not have the geology to expect gushers especially in an environment of volatile (and relatively low) oil prices.
What must also be discomforting is the “known unknown” of the post-COVID stress.
They know that COVID has knocked the props from under the Indian economy.
They also know that every petroleum company, irrespective of whether it is in the private or public sector, will face an increasingly uncertain and challenging future business environment.
What they do not know is the nature of these challenges, and therefore, the conditions, sine qua non, for managing them.
Let’s look at some facts and figures of India’s crude oil requirements
India consumes around 50,00,000 barrels of crude oil every day.
Of that, it imports approximately 45,00,000 barrels/day making the country the third-largest crude market in the world.
Every month, on average, 70 loaded VLCC (very large crude carriers ) — accounting for 10 per cent of the global tanker market — bring crude oil to India.
Approximately 60 per cent of this oil is discharged in and around the Jamnagar area and then carried by pipelines to refineries in Jamnagar, Mathura, Panipat, Bina and Bhatinda.
And 50 per cent or so is sourced from Saudi Arabia, Kuwait, Abu Dhabi, Iran and Iraq.
It is against this background of post-COVID uncertainties and above facts India should consider switching to “just in case” policy mode.
Why should India consider switching to “just in case” policy mode?
We should analyse this by considering two scenarios
ONGC/OIL are strategically important PSUs.
Few have questioned the support to these two companies and the importance of harnessing our indigenous oil and gas reserves.
Until now, this support has been premised on the view that oil supplies are relatively scarce and that prices will trend upwards.
1) Low oil prices scenario
1) We now need to ask: What if, “just in case” the oil market is structurally oversupplied and prices fall to such low levels that it makes no commercial sense for ONGC/OIL to expend public resources on “ high risk, high cost” exploration?
Oil and gas are, after all, tradables and can be purchased on the high seas.
Should they not, given this possibility, contemplate redefining their core purpose and perhaps pivot away from oil and gas towards clean energy?
2) Choking of supply lines scenario
Looked at through a different lens but with a “just in case” mindset, the preponderance of crude supplies sourced from countries facing deep political, economic and social tensions raises the question:
What if these domestic problems choked our access?
How would we manage the disruption?
Our decision-makers have worried about supply security for decades.
But the circumstances created by COVID are new.
The issue of strategic reserves could, for instance, acquire a different hue.
We have currently 11 days of reserve cover (5.33 million tonnes) with plans to increase it to 24 days (11.83 million tonnes).
Were we to decide to build up these reserves to levels comparable to other countries of between 70 to 100 days of import cover, the issue would be capital.
Given the slowdown of the economy and the pressures on the exchequer, the government would not have the financial resources to invest in the creation of additional facilities.
The only way this financial hurdle could be overcome is if the government and the private sector invest jointly.
This collaborative option would have to be considered to counter the “just in case” contingency of prolonged and major disruption.
And if indeed such an option were acceptable, it could be extended to cover trading, crude purchases, co-freighting, subject of course to anti-trust and competition rules.
Consider the example to understand the importance of “just in case” thinking
An example to embed the importance of “just in case” thinking can be drawn from the geopolitics of our neighbourhood.
What if the relations between India/Pakistan/China took an ugly turn?
What security measures should we contemplate to protect the petroleum assets located in Mumbai and Jamnagar?
Consider the question “Over the decades, India has been grappling with the issue of energy security. With the rising uncertainties around the world, the issue has gained more prominence. In light of this, suggest the ways to tide over the disruption in oil supplies.”
Conclusion
In the backdrop of COVID, when all hands on decks are needed to tackle the “urgent” task of reviving the economy, the government must not, in the process, lose sight of the “importance” of creating, if nothing else, the mindset of preparedness to respond to “just in case outcomes”.
From UPSC perspective, the following things are important :
Prelims level: Provision for various sectors in stimulus package
Mains level: Paper 3-Comparison of of stimulus package of India with other economies.
Following the announcement of relief and stimulus package, the debate began over its various aspects. This article assesses the various aspects of the package and draws comparison with the package announced by the other countries. So, how does India fare compared with other countries?
Fiscal component of stimulus package
According to the IMF-PT (policy tracker), the fiscal component of the Indian package is estimated to be at least 3.5 per cent of GDP as expenditure for poor households, migrant workers and agriculture.
There is an additional 0.5 per cent of GDP for states to spend unconditionally, bringing the fiscal package excluding loans to businesses to at least 4 per cent of GDP.
The support for businesses (MSMEs) is estimated to be 2.7 per cent of GDP.
Of this, at least 2 per cent of GDP is in the form of 100 per cent credit guarantees and equity infusion.
Comparison with major emerging economies
Among major developing economies, only Brazil -8 per cent of GDP– and Peru -7 per cent of GDP– have a fiscal stimulus higher than the 5 per cent level for India.
The Brazil estimate includes about 3 per cent of GDP as working capital loans to businesses and households.
The fiscal support level for some important emerging economies is — China 2.5 per cent of GDP and Indonesia 3.5 per cent.
Why it is difficult to segregate the stimulus package?
While comparing the fiscal stimulus packages across countries, it is important to understand that such packages are in the nature of additional spending and tax reliefs.
Which can work directly through aggregate demand or indirectly by mitigating risk and enhancing access to fund.
Access to fund is ensured in the nature of credit guarantees to financial institutions and non-financial enterprises
A large number of fiscal stimulus packages announced by different countries contain credit guarantees to financial institutions, SMEs, and agriculture.
Hence, it is difficult to segregate fiscal stimulus into its pure and impure components.
Most economists, and international organisations, recognise that fiscal stimulus consists of both the pure and impure.
And includes three broad items — a direct “above-the-line” component, a “below-the-line” component and guarantees of various forms primarily credit.
The choice of using only one component of the fiscal stimulus is selective and highly inappropriate.
India as a positive fiscal stimulus outlier
To put the packages into perspective, the average of all fiscal measures in the G24 developing economies is equal to 3.6 per cent.
No matter how the calculation is done, India is a positive fiscal stimulus outlier; by IMF-PT calculations.
The stimulus is close to the largest among major emerging market economies.
So, how much rich countries are spending?
The rich nations are spending more — they can afford to. Japan announced what may be the upper limit to the expansion — 21.1 per cent of GDP.
However, this does include large elements of loans and credit guarantees.
Through a combination of several fiscal measures (tax deferrals, credit guarantees, etc.) the US has pledged close to 13 per cent of GDP.
The European Union, on average, has pledged 4 per cent of GDP.
The average for advanced countries is around 6 per cent of GDP.
Significance of monetary policy change made by RBI
The monetary policy change in India is quite significant.
The change paves the way for internationally competitive monetary policy.
That is, real interest rates comparable to those prevalent in competitor economies.
The repo rate now stands at 4 per cent, with inflation well contained.
This is substantially a much different, and much-improved RBI response than that what occurred in 2008-09.
At that time, as a monetary counter to the financial crisis, the RBI reduced the repo rate by 425 basis points to 4.75 per cent.
This was done over seven months and the prevailing CPI inflation rate was 10 per cent.
Economic reforms as a part of stimulus package
India has announced several economic reforms as a part of the stimulus package.
These are long-awaited — freeing up of the labour market, allowing farmers to sell their produce and land to who they choose, removal of archaic laws like the Essential Commodities Act, with the promise of more to come.
This is not an empty promise — the Centre will advance another 1.5 per cent of GDP to states to expand spending.
This advance will be conditional on them for undertaking long-pending reforms.
The Indian fiscal package is reformist, well-disciplined and provides focused support; and if needed, there is still room for additional measures.
Conclusion
The Indian fiscal package is reformist, well-disciplined and provides focused support; and if needed, there is still room for additional measures. We should use the crisis to re-orient India towards its long-awaited destiny.
From UPSC perspective, the following things are important :
Prelims level: G-7 countries, TPP
Mains level: Paper 2- US-China relations and implications for India
While the world is busy battling pandemic, China has embarked upon completing its pet project: stripping Hong Kong off its special status. This article explains the significance of China’s actions. And the options the U.S. could explore as a response to China’s move.
Tipping points in History
In 1911 Germany sparked an international crisis when it sent a gunboat into the Moroccan port of Agadir.
Winston Churchill wrote in his history of the First World War, “all the alarm bells throughout Europe began immediately to quiver.”
In 1936 Germany provoked another crisis when it marched troops into the Rhineland, in flagrant breach of its treaty obligations.
In 1946, the Soviet Union made it obvious it had no intention of honoring democratic principles in Central Europe, and Churchill was left to warn that “an iron curtain has descended across the Continent.”
Analogies: Not perfect, but not inapt, either.
Analogies between these past episodes and China’s decision this week to draft a new national security law on Hong Kong aren’t perfect.
First, Hong Kong is a Chinese port, not a faraway foreign one.
Second, Hong Kong’s people have ferociously resisted Beijing’s efforts to impose control, unlike the Rhineland Germans who welcomed Berlin’s.
And lastly, the curtailment of freedom that awaits Hong Kong is nothing like the totalitarian tyranny that Joseph Stalin imposed on Warsaw, Budapest and other cities.
But the analogies aren’t inapt, either.
Beijing has spent the better part of 20 years subverting its promises to preserve Hong Kong’s democratic institutions.
Now it is moving to quash what remains of the city’s civic freedoms through a forthcoming law that allows the government to punish speech as subversion and protest as sedition.
The concept of “one country, two systems,” was supposed to last at least until 2047 under the terms of the 1984 Sino-British Joint Declaration.
Now China’s rulers have been openly violating that treaty, much as Germany openly violated the treaties of Locarno and Versailles.
Rethink of the U.S. strategic approach to China
US administration has undertaken a sober rethink of it’s strategic approach to China.
The outlines of which are described in a new inter-agency document quietly released by the White House last week.
Gone from this new vision are the platitudes about encouraging China’s “peaceful rise” as a “responsible stakeholder” in a “rules-based order.”
Instead, Beijing is described, accurately, as a habitual and aggressive violator of that order.
It also describes China as a domestic tyrant, international bully and economic bandit that systematically robs companies of their intellectual property, countries of their sovereign authorities, and its own people of their natural rights.
A critic might note that this description of China’s behavior sounds a lot like Trump’s.
Sort of, except that the comparison trivializes the scale of China’s abuses and neglects the breadth and longevity of its challenge.
Why Now and what is the US response?
Beijing almost certainly chose this moment to strike because it calculated that a world straining under the weight of a pandemic and a depression lacked the will and attention to react.
On Friday, Trump said he would strip Hong Kong of its privileged commercial and legal ties to the U.S.
Issue with the move: That punishes the people of Hong Kong at least as much as it does their rulers in Beijing.
What’s a better course for the U.S.? A few ideas:
Sanction Chinese officials engaged in human-rights abuses in Hong Kong under the Global Magnitsky Act.
Upgrade relations with Taiwan and increase arms sales, including top-shelf weapons’ systems such as the F-35 and the Navy’s future frigate.
Re-enter the Trans-Pacific Partnership (TPP)agreement as a counter to China’s economic influence.
Publicly press all G-7 countries to stop doing business with telecom-giant Huawei as a meaningful response to the Hong Kong law.
Give every Hong Kong person an opportunity to easily obtain a U.S. residency card, even a passport.
Conclusion
If all this and more were announced now, it might persuade Beijing to pull back from the brink. In the meantime, think of this as Rhineland moment with China — and remember what happened the last time the free world looked aggression in the eye, and blinked
From UPSC perspective, the following things are important :
Prelims level: Industrial Disputes Act 1947
Mains level: Paper 2- Threshold limits in IDA and issues with it.
Sometimes the measures we come up with end up doing exactly the opposite of what they were supposed to do. This might be the case with some provisions in the Industrial Dispute Act. This article deals with 3 such provisions in the IDA. So, what are these provisions? How the issues caused by these provisions could be resolved? Read to know more…
How provisions of IDA could be detrimental?
What made so many migrants suddenly long for their village after lockdown?
The answer lies in our Industrial Disputes Act (IDA), the motherboard of our labour laws.
IDA has encouraged short-term employment, low skills and zero security.
It did this by setting up thresholds which disincentivised long-term commitment of workers to entrepreneurs and vice versa.
It also kept firms informal and unwilling to invest in human capital.
This is why when the lockdown happened, it turned into a migrant crisis.
Let’s look at 3 thresholds in IDA that are causing harm
1) Hire more than 99 workers, and you will have to notify the government before you can fire any one of them.
2) Hire more than 20 and you open yourself up to provident fund commitments and bonus payments.
3) If you want to deny workers severance pay, never keep them continuously employed for more than 240 days.
So, how IDA ends up discouraging formalisation?
Given these provisions in the IDA, entrepreneurs are reluctant to hire more than 99 workers for over 240 days.
The employers are naturally tempted to observe these thresholds and duck under the radar.
This is made easier by the fact that these thresholds mesh well with the fear that the middle-class — and upwards — have of a working-class takeover.
As a result, these thresholds have only encouraged the informal sector, where both unregistered labour and unregistered entrepreneurs dominate.
It has led to the proliferation of informal enterprises and low-skill workers.
In the first 15 years of this century itself, over half the increase in total employment has been that of contract workers.
This has also led to a phenomenal rise in MSMEs as the IDA has discouraged entrepreneurs from harbouring any ambitions to grow big and formal.
The MSMEs have, consequently, increased in number from 3.6 crore units in 2012 to about 6 crore today.
Since there are constraints on both the workforce size and duration of employment, upskilling and R&D naturally become early casualties.
India spends only 0.7 per cent of its GDP in R&D, one of the lowest in the world, while South Korea spends 4.2 per cent.
Contribution of MSME in GDP is not increasing
Over 94 per cent of MSMEs are in the Micro sector and their contribution to GDP is just not measuring up.
In 2012, MSMEs produced 37.54 per cent of our GDP.
But this number fell to 30.7 per cent in 2015, and in 2019 it decreased further to 29.7 per cent, though they are still working full throttle.
Yet, the lure to stay on the good side of the IDA thresholds is so compelling that even formal units are today outsourcing from the informal ones.
Over time, the IDA has succeeded in converting a large number of organised sector companies into strange, hybrid economic creatures, both fishy and foul.
But, how removal of the 3 thresholds will change the situation?
If the 3 mentioned thresholds are removed, every worker — regardless of factory size — is entitled to the same rights.
Likewise, every employer, regardless of factory size, can hire and fire workers.
There is greater freedom on both sides, but this freedom comes with a price that does not discourage either size or skills in an enterprise.
The worker can now be fired without notifying the government, but must be compensated with severance wages, regardless of the size of the firm.
Also, unlike the IDA, all the firms must have a formal dispute resolution board.
Now that the enterprises have been freed of the size threshold, entrepreneurs get no advantage in dwarfing their firms.
Other reforms can soon follow, such as allowing for workers’ representation in a firm’s supervisory board, as it happens in Germany.
Measures such as these create trust between employees and employers, and also remove the threatening spectre of a working-class strike.
Consider the question “Various provision of the Industrial Disputes Act which were enacted but with a different purpose now seems to place both the workers and employers in a disadvantageous position. In light of this statement, examine the issues with the threshold limits of the number of employees and number of employment days in the Industrial Disputes Act.”
Conclusion
In the ultimate analysis, the IDA does not produce winners, only losers. The workers remain skill-stunted and insecure, and the entrepreneurs, too, pull back from releasing their much-vaunted “animal spirits”. So, the IDA thresholds must go and not be merely fiddled with, as some states have done.
Back2Basics: Industrial Disputes Act 1947
The main purpose of the Industrial Disputes Act, 1947 is to ensure fair terms between employers and employees, workmen and workmen as well as workmen and employers.T
The objective of the Industrial Disputes Act is to secure industrial peace and harmony by providing machinery and procedure for the investigation and settlement of industrial disputes by negotiations.
From UPSC perspective, the following things are important :
Prelims level: India-Africa Forum summit
Mains level: Paper 3- Scope to increase the ties between India and Africa amid covid pandemic.
Long thought to be the backwater of the world, Africa has been successful in shading its past image and emerge on the global stage as region hard to ignore. And countries across the world are vying to increase their engagement with the region. This article examines the scope for increasing the ties with the region amid the pandemic.
India’s association with African Union
Africa Day is observed every year on May 25 to commemorate the founding of the Organisation of African Unity, now known as the African Union.
India has been closely associated with it on account of its shared colonial past and rich contemporary ties.
The Manohar Parrikar Institute for Defence Studies and Analyses has hosted an Africa Day Round Table annually for the last four years in order to commemorate this epochal event.
Economy and pandemic
The World Bank in its April report, assessed that the COVID-19 outbreak has sparked off the Sub-Saharan Africa (SSA) region’s first recession in 25 years.
Growth is expected to plummet to between -2.1 and -5.1 per cent in 2020, from a modest 2.4 per cent in 2019.
With high rates of HIV, malaria, diabetes, hypertension and malnourishment prevalent, a large number of Africans were already faced with a health and economic crisis.
The steep decline in commodity prices has spelt disaster for the economies of Nigeria, Zambia and Angola.
Need for financial support
Precarious fiscal positions have ruled out any major governmental stimulus.
Public debt has mounted.
According to the World Bank, the SSA region paid $35.8 billion in total debt service in 2018.
Which is 2.1 per cent of regional gross domestic product (GDP).
Together, African countries have sought a $100 billion rescue package.
This rescue package includes a $44 billion waiver of interest payment by the world’s 20 largest economies.
The IMF’s debt service relief of $500 million is meant for 25 countries of which 19 are in Africa, but that is a drop in the bucket.
It is clear that without outside support, Africa will find it very difficult to meet the challenge.
Why the increased interest in engagement with Africa?
Africa’s rich natural resources, long-term economic potential, youthful demography and influence as a bloc of 54 countries in multi-lateral organisations is apparent.
Many have an eye for economic opportunities, including in energy, mining, infrastructure and connectivity.
Japan hosted the 7th Tokyo International Conference for African Development (TICAD) in August 2019.
Russia hosted the first-ever Russia-Africa Summit last year.
Brazil, home to the largest population of people of African descent outside of Africa, has also sought to develop closer ties.
Cuba has sent medical teams to help Africa.
Chinese Bonhomie with the region
China’s engagement of Africa, as elsewhere, is huge but increasingly regarded as predatory and exploitative.
Its annual trade with Africa in 2019 stood at $208 billion, in addition to investments and loans worth $200 billion.
Traditionally, China’s participation in infrastructure projects has been astonishing.
Having famously built the 1,860 km Tanzania-Zambia railway line in 1975, and the Addis Ababa-Djibouti and Mombasa-Nairobi lines more recently, China is now eyeing to develop the vast East Africa Master Railway Plan.
It is also developing the Trans-Maghreb Highway, the Mambilla Hydropower Plant in Nigeria, the Walvis Bay Container Terminal in Windhoek and the Caculo Cabaca Hydropower project in Angola.
At the Forum for China-Africa Cooperation (COCAC) in 2018, China set aside $60 billion in developmental assistance.
And it was followed by a whopping $1 billion Belt and Road (BRI) Infrastructure Fund for Africa.
China has followed up with robust health sector diplomacy in the wake of the pandemic.
But its image has been tarnished by defective supplies of PPE gear and discriminatory behaviour against Africans in Guangzhou.
This also led to an embarrassing diplomatic row.
India’s relations with Africa
In the last few years, India’s relations with Africa saw a revival.
India-Africa trade reached $62 billion in 2018 compared to $39 billion during 2009-10.
After South Asia, Africa is the second-largest recipient of Indian overseas assistance with Lines of Credit (LOC) worth nearly $10 billion (42 per cent of the total) spread over 100 projects in 41 countries.
Ties were boosted at the India Africa Forum Summit (IAFS) in 2015.
40 per cent of all training and capacity building slots under the ITEC programme have traditionally been reserved for Africa.
Approximately 6,000 Indian soldiers are deployed in UN peace-keeping missions in five conflict zones in Africa.
Bilateral cooperation includes solar energy development, information technology, cyber security, maritime security, disaster relief, counter-terrorism and military training.
India has also launched several initiatives to develop closer relations, including the first-ever India Africa Defence Ministers conclave in February this year on the margins of the Defence Expo 2020.
India provides about 50,000 scholarships to African students each year.
The huge Indian diaspora is a major asset.
India had planned to host the Fourth India Africa Forum Summit in September this year.
However, the COVID-19 pandemic may cause it to be delayed.
India’s support amid covid pandemic
India has already despatched medical assistance to 25 African countries.
PM Modi has had a telephonic talk with President Cyril Ramaphosa of South Africa who is the current chairperson of the African Union, and separately others such as the presidents of Uganda and Ethiopia.
India could consider structuring a series of virtual summits in zonal groups with African leaders across the continent over the next few months.
That could both provide a platform for a cooperative response to the pandemic and also serve as a precursor to the actual summit in the future.
The Ministry of External Affairs has already extended the e-ITEC course on “COVID-19 Pandemic: Prevention and Management Guidelines for Healthcare Professionals” to healthcare workers in Africa.
The Aarogya Setu App and the E-Gram Swaraj App for rural areas for mapping COVID-19 are technological achievements that could be shared with Africa.
Since the movement of African students to India for higher education has been disrupted, India may expand the e-VidyaBharti (tele education) project to establish an India-Africa Virtual University. Agriculture and food security can also be a fulcrum for deepening ties.
With the locust scourge devastating the Horn of Africa and the pandemic worsening the food crisis, India could ramp up its collaboration in this sector.
India could also create a new fund for Africa and adapt its grant-in-aid assistance to reflect the current priorities.
This could include support for new investment projects by Indian entrepreneurs especially in the pharmaceutical and healthcare sectors in Africa.
Time for Quad Plus to propose cooperation with African countries
Both India and Japan share a common interest in forging a partnership for Africa’s development.
It is time for the Quad Plus, in which the US, India, Japan and Australia have recently engaged other countries such as the ROK, Vietnam, New Zealand, Israel and Brazil, to exchange views and propose cooperation with select African countries abutting the Indian Ocean.
After all, the Indo-Pacific straddles the entire maritime space of the Indian Ocean.
Consider the 2015 question asked by the UPSC “Increasing interest of India in Africa has its pros and cons. Critically examine”
Conclusion
The pandemic is a colossal challenge but it may create fresh opportunities to bring India and Africa closer together.
From UPSC perspective, the following things are important :
Prelims level: Hong Kong, Taiwan location in the map
Mains level: Paper 2- India-China relation and tension over border dispute
The recent India-China standoff in Ladakh points to a larger picture of the Chinese agenda of regional dominance. The US-China tension has proved to be the backdrop against which the Ladakh standoff is playing out. This article suggests that this standoff is not a standalone event. It could well be a trigger for domino effect.
What the intensification of tension between India-China suggests?
1) China is feeling threatened
An authoritarian regime whose legitimacy rests primarily on its economic performance is faced with a situation where growth is expected to plummet.
It is a sign that Beijing is increasingly feeling beleaguered.
In response, it has embarked on a strategy of brinkmanship with several goals in mind.
External adventurism, when cloaked in the garb of ultra-nationalism, can shore up a regime’s legitimacy at home.
2) It could be a move to divert the attention of the world
Simultaneously, it can act as a diversionary measure to escape international criticism for Beijing’s attempt to cover up the spread of the coronavirus.
Many countries hold China responsible for the huge cost in human lives and suffering as well as the unprecedented economic distress.
In the face of such criticism, the Chinese regime is increasingly using jingoistic jargon to build up domestic support.
President Xi Jinping’s recent speech to the PLA is an outstanding example of this strategy.
He exhorted the Chinese armed forces to “prepare for war” in order to “resolutely safeguard national sovereignty” and “the overall strategic stability of the country”.
This is a sign that the Communist Party of China (CPC) feels increasingly threatened both domestically and externally.
Let’s look at the deterioration of the US-China relations
China’s relations with the U.S. have been going downhill almost since the beginning of the Donald Trump presidency.
Washington has periodically imposed economic sanctions on China and Beijing has retaliated in kind.
Trade talks have faltered because of growing protectionist sentiments in the U.S. and Chinese inability to adequately respond to them.
The chipping away at Hong Kong’s autonomous status by Beijing and the suppression of the pro-democracy movement in Hong Kong has led to severe criticism by the U.S. administration and in the Congress.
Differences over the issue of Taiwan have added to tensions, with China viewing the U.S. as the primary impediment preventing Taiwan’s integration.
The Trump administration has significantly increased support to Taiwan with arms sales that have added to China’s concern.
U.S.-China rivalry in South-China Sea
Above all, the U.S.-China rivalry in the South China Sea acts as the potential flashpoint that may well lead to a shooting war.
So far, it has been careful that these moves do not trigger a serious confrontation with the U.S.
Washington has a strong interest in preventing China from asserting control over the South China Sea as maintaining free access to this waterway is important to it for economic reasons.
It also has defence treaty obligations to the Philippines, which has vigorously contested Chinese territorial claims.
Further, China’s control of the South China Sea would be a major step toward replacing the U.S. as the foremost power in the Indo-Pacific region.
India-China relation questions have been the leitmotif in the UPSC papers. Just the theme of the question changes. Consider 2017 question “China is using its economic relations and positive trade surplus as a tool to develop potential military power status in Asia. In light of this statement, discuss its impact on India as her neighbour.”
Conclusion
Increased Chinese adventurism could result in an escalation of U.S.-China confrontation in the South China Sea. If that happens, the India-China face-off in Ladakh could become part of a much larger “great game”, with the U.S. trying to preserve the status quo and China attempting to change it to further its objective of regional dominance at the U.S.’s expense. The current India-China crisis should, therefore, be seen in its proper context and not as an isolated event.
From UPSC perspective, the following things are important :
Prelims level: APMC Act, ECA
Mains level: Paper 3- Reforms in agri-marketing and amendment in ECA and APMC Acts.
The article discusses the recently announced reforms in the agri-marketing. The legal changes promised are expected to deal with problems farmer face in selling their products and a law dealing with contract farming. These legal reforms are expected to increase farmers’ income.
Some of the issues faced by the farmers
If any class of economic agents of our country has been denied the constitutional right of freedom of trade, it is farmers.
They don’t have the freedom of selling their produce even in their neighbourhood.
Remunerative price is still a mirage for them.
Their farm incomes are at the mercy of markets, middlemen and money lenders.
For every rupee that a farmer makes, others in the supply chain get much more.
Both farmers and consumers are the sufferers of the exploitative procurement and marketing of farm produce.
The public investments in irrigation and other infrastructure has increased.
The institutional credit and minimum support price given over the years has been increasing.
Yet, farmers are shackled when it comes to selling their produce.
Restriction on the farmers: Echoes from the past
This exploitation of farmers has its roots in the Bengal famine of 1943, World War II, and the droughts and food shortages of the 1960s.
The Essential Commodities Act, 1955, and the Agricultural Produce Market Committee (APMC) Acts of the States are the principle sources of violation of the rights of farmers to sell their produce at a price of their choice.
These two laws severely restrict the options of farmers to sell their produce.
Farmers continue to be the victims of a buyers’ market.
This is the principal cause of their exploitation.
Renowned farm scientist M.S. Swaminathan has for long argued for the right of farmers to sell their produce as they deem fit.
Balancing the interest of consumers and the farmers
Given the economic disparities in the country, the interests of consumers need to be protected.
But that should not happen at the cost of the producers of the very commodities that the consumers need.
For various reasons, a balance in this regard could not be struck.
The restrictive trade and marketing policies being practised with respect to agricultural prices have substantially eroded the incomes of farmers.
Let’s have a look at a study on agricultural policies in India
A study on agricultural policies in India by the Indian Council for Research on International Economic Relations-Organisation for Economic Co-operation and Development (2018), co-authored by the renowned farm economist Ashok Gulati, was published with startling revelations.
It concluded that the restrictions on agricultural marketing amounted to ‘implicit taxation’ on farmers to the tune of ₹45 lakh crore from 2000-01 to 2016-17.
This comes to ₹2.56 lakh crore per year.
No other country does this.
Reforms to remove the hurdles in farmer getting remunerative price
Recently announced package has approximately ₹4 lakh crore support for farming and allied sectors, aimed at improving infrastructure and enhancing credit support.
But the most welcome feature of this package is the firm commitment to rewriting the Essential Commodities Act and the APMC laws.
The revision of these restrictive laws is long overdue and will remove the hurdles that farmers face in getting a remunerative price for their produce by giving them more options to sell.
This long-awaited revision needs to be undertaken with care and responsibility so that no space or scope is left for farmers to be exploited yet again.
While allowing several buyers to directly access the produce from the farmers, a strong and effective network of Farm Producers’ Organisations should be created to enhance the bargaining power of farmers.
This will ensure that individual farmers are not exploited.
An effective law on contract farming is also the need of the hour.
Law on contract farming will secure incomes of farmers besides enabling private investments.
Yet another unique feature of this package has been its comprehensiveness towards improving the incomes of farmers through a range of activities.
A study by the National Institute of Agricultural Extension Management has revealed that of the 3,500 farmers’ suicides examined, there was no farmer who had supplementary incomes from dairy or poultry.
The huge support to animal husbandry and fisheries in the stimulus package underlines the need for diversifying the income sources of farmers.
Consider the question “The APMC Acts of the has been blamed for poor price realisation by the farmers. Recently announced reforms promise to do away with such issues in the APMC Act. In light of this, examine the issues with APMC Acts and how the promised reforms are expected to resolve such issues.”
Conclusion
It is time to allow our farmers to sell their produce anywhere for their benefit. All stakeholders should be taken on board while revising restrictive agri-marketing laws.
From UPSC perspective, the following things are important :
Prelims level: Upstream and downstream sectors
Mains level: Paper 3-Disruption in supply chains and ways to ensure their recovery.
Disruption of the supply chains lies at the heart of the decline in the output amid lockdown. And the government has announced the fiscal stimulus to revive the economy. How effective will be the fiscal stimulus to streamline the supply chains? The focus of this article is on tackling this question.
Disruption in supply chains and decline in output
Much of the decline in output is due to supply chain disruptions generated by the lockdown.
Government spending can do little to alleviate this.
Putting money in the hands of people can increase the demand for goods but cannot increase the supply of goods and services.
In modern economies, the production of goods happens through complex supply chains that traverse geographical boundaries.
Let’s understand how supply chains work
Upstream sectors like ‘mining’ produce metals that are in turn used to produce machines.
These machines are used to sow seeds, harvest crops, and transport fuel.
Finally, the harvested crops are used by downstream sectors to produce flour and bread.
At each step, machines and labour combine to produce goods which are the inputs for sectors further downstream.
So, how lockdown affected the supply chains?
Under the lockdown, numerous inputs have not moved from their producers to their users.
These disruptions may not at first generate a reduction in consumer goods like bread.
However, the availability of consumer goods will begin to decline as bakers run out of flour, and mills exhaust their stocks of wheat.
And there is no way to guarantee the flow of essential goods while suspending the production of non-essential goods.
Automotive spare parts may be non-essential in the short run, but become essential as food-carrying trucks begin to break down.(i.e. in the long run)
How far is the long run? This is difficult to say; there may be some variation across goods.
Impact of labour shortage on supply chains
The supply chain disruptions are going to be amplified by labour shortage as workers remain at home.
Countries like India are likely to experience a greater reduction in output on this count than, say, Europe or the U.S.
This is because of the higher labour intensity of production in India.
To understand this, think of the difference in unloading of goods in the port at Rotterdam and the port at Kochi.
Is it viable to substitute labour with capital? Poorer countries are less likely to be able to substitute locked down labour with capital because of the dearth of capital in these nations.
Adapting and Adjusting to the new reality
As economies emerge out of the lockdown, entrepreneurs, workers, and consumers must adjust to the new reality.
The world supply chain must adapt.
Firms may choose to source inputs from suppliers in their geographical proximity to minimise the risk of future disruptions.
But this involves building productive capacity at new locations, all of which requires investments fuelled by savings.
Furthermore, the investments must be guided by price signals.
Within a market economy, the movement of prices provides the incentive and information needed to adapt and grow.
As economist Ronald Coase put it, prices are bundles of information wrapped in an incentive.
As the prices of some inputs rise, the buyers of these inputs look for alternate suppliers, and firms which did not hitherto produce the good have an incentive to do so.
The key to economic recovery lies in millions of such adjustments.
Through such adjustments, firms locate new providers of inputs, new buyers of their output, and build factories at new locations.
How fiscal stimulus would disrupt the recovery of supply chains?
Market adjustment processes are likely to be disrupted by government stimulus packages.
Governments spend by printing money, raising debt, or increasing taxes.
Irrespective of the way in which the expenditure in funded, resources are transferred from private entrepreneurs to government bureaucrats.
When governments print money, they draw resources through inflation.
Bureaucrats tend to be less efficient than profit-motivated firms in allocating scarce resources.
Bureaucrats have little incentive or information to bring about the granular supply chain adjustments necessary to revive growth.
As the stimulus package kicks in, economic efficiency is likely to decline and so are the chances of a timely recovery of output.
A lesson from West Germany after WW II
The experience of West Germany after World War II has a useful lesson for India.
Beginning mid-1944, Allied bombing disrupted the German supply chain by targeting bottleneck sectors like electric power generation.
This destruction of the supply chain devastated the German economy.
Per person food production fell to about half of its pre-war level.
Two years later, this changed after Chancellor Ludwig Erhard lifted price controls and cut taxes.
West German entrepreneurs re-established a thriving supply chain through which goods went from upstream sectors to final consumers.
By 1950, per capita income in West Germany had reached its pre-war level.
Consider the question “Supply chain disruption has been at the core of economic consequences of the corona pandemic. New adjustment in the supply chains would be the norm in the aftermath of the pandemic. What these readjustments would entail? Suggest the measures to help the supply chains recover.”
Conclusion
The recent supply chain disruptions are likely to last long. The path to recovery lies in cutting government expenditure, removing price controls, and opening up trade.
From UPSC perspective, the following things are important :
Prelims level: GSTN
Mains level: Paper 3- Challenges ON-ORC could face and how the GST could offer valuable lesson for ON-ORC
Never before we felt the necessity of portable benefit schemes as we did in the wake of the pandemic. Portable ration card could have mitigated the suffering of migrant workers to some extent. But it was not to be. This article examines the challenges in implementing the idea of ON-ORC and offers the solution to these challenges by drawing on the lessons learned from GST. At the same time, the shortcoming of GST can also be avoided in the ON-ORC.
What is One Ration Card (ON-ORC)?
In the present system, a ration cardholder can buy foodgrains only from an Fair Price Shop that has been assigned to her in the locality in which she lives.
However, this will change once the ONORC system becomes operational nationally.
Under the ONORC system, the beneficiary will be able to buy subsidised foodgrains from any FPS across the country.
The new system, based on a technological solution, will identify a beneficiary through biometric authentication on electronic Point of Sale (ePoS) devices installed at the FPSs.
This would enable that person to purchase the number of foodgrains to which she is entitled under the NFSA.
Portable welfare benefit and attempts so far to achieve it
The idea of portable welfare benefits means a citizen should be able to access welfare benefits irrespective of where she is in the country.
In the case of food rations, the idea was first mooted under the UPA government by a Nandan Nilekani-led task force in 2011.
The current government had committed to a national rollout of One Nation, One Ration Card (ON-ORC) by June 2020, and had initiated pilots in 12 states.
Progress on intra-state and inter-state portability
While intra-state portability of benefits has seen good initial uptake, inter-state portability has lagged.
The finance minister has now announced the deadline of March 2021 to roll out ON-ORC.
So, to ensure a smooth rollout, let’s review the challenges thus far
1) The fiscal implications:
ON-ORC will affect how the financial burden is shared between states.
2) The larger issues of federalism and inter-state coordination:
Many states are not convinced about a “one size fits all” regime because i) they have customised the PDS through higher subsidies, ii) higher entitlement limits, and iii) supply of additional items.
3) The technology aspect:
ON-ORC requires a complex technology backbone that brings over 750 million beneficiaries, 5,33,000 ration shops and 54 million tonnes of food-grain annually on a single platform.
How the lessons learned from GST can be applied to deal with the above 3 challenges?
1. Fiscal challenge
Just like with ON-ORC, fiscal concerns had troubled GST from the start.
States like Tamil Nadu and Gujarat that are “net exporters” were concerned they would lose out on tax revenues to “net consumer” states like UP and Bihar.
Finally, the Centre had to step in and provide guaranteed compensation for lost tax revenues for the first five years.
The Centre could provide a similar assurance to “net inbound migration” states such as Maharashtra and Kerala that any additional costs on account of migrants will be covered by it for the five years.
2. We could have a National council for ON-ORC
GST also saw similar challenges with broader issues of inter-state coordination.
In a noteworthy example of cooperative federalism, the central government created a GST council consisting of the finance ministers of the central and state governments to address these issues.
The government could consider a similar national council for ON-ORC.
To be effective, this council should meet regularly, have specific decision-making authority, and should operate in a problem-solving mode based on consensus building.
3. Technological aspect: PDS Network
GST is supported by a sophisticated tech backbone, housed by the GST Network (GSTN), an entity jointly owned by the Centre and states.
A similar system would be needed for ON-ORC.
The Nilekani-led task force recommended setting up of a PDS network (PDSN).
PDSN would track the movement of rations, register beneficiaries, issue ration cards, handle grievances and generate analytics.
Since food rations are a crucial lifeline for millions, such a platform should incorporate principles such as inclusion, privacy, security, transparency, and accountability.
The IM-PDS portal provides a good starting point.
Also, there are certain shortcomings in GST which we could avoid in ON-ORC
We should learn from the shortcomings and challenges of the GST rollout. For example:
1)Delay in GST refunds led to cash-flow issues.
Similar delays in receiving food rations could be catastrophic.
Therefore, ON-ORC should create, publish and adhere to time-bound processes.
The time-bound processes could be in the form of right to public services legislation that have been adopted by 15 states, and rapid grievance redress mechanisms.
2)Increase in compliance burdenfor MSMEs, especially for those who had to digitise overnight.
Similar challenges could arise in ON-ORC.
PDS dealers will need to be brought on board, and not assumed to be compliant.
Citizens will need to be shielded from the inevitable teething issues by keeping the system lenient at first.
This can be done by providing different ways of authenticating oneself and publicising a helpline widely.
Consider the question “One Nation-One Ration Card(ON-ORC) could solve many problems faced by the beneficiaries when they move across the country. Examine the challenges the ON-ORC could face. Suggest ways to deal with these challenges.”
Conclusion
If done well, ON-ORC could lay the foundation of a truly national and portable benefits system that includes other welfare programmes like LPG subsidy and social pensions. It is an opportunity to provide a reliable social protection backbone to migrants, who are the backbone of our economy.
From UPSC perspective, the following things are important :
Prelims level: MOOCs
Mains level: Paper 2- Is online learning a substitute for the traditional educational institutions?
Left with no choice, many education institutions turned to online mode. But could that be a new normal? This article analyses the indispensable role of online education. However, online education cannot be a substitute for traditional education institutes. WHY? Read the article to know about the vital role of traditional educational institutions…
Online education (OE): Supplement not the substitute
The incredible synergy unleashed by information and communications technology (ICT) is the best thing to have happened to education since the printing press.
Indeed, higher education today is unthinkable without some form of the computer and some mode of digitised data transmission.
OE can use content and methods that are hard to include in the normal curriculum.
OE can put pressure on lazy or incompetent teachers.
OE can provide hands-on experience in many technical fields where simulations are possible.
And OE can, of course, be a powerful accessory for affluent students able to afford expensive aids.
As products of this revolution, online methods of teaching and learning deserve our highest praise — but only when cast in their proper role.
This proper role is to supplement, support and amplify the techniques of face-to-face education.
The moment they are proposed as a substitute for the physical sites of learning we have long known — brick-and-cement schools, colleges, and universities — online modes must be resolutely resisted.
So, what are the vested interests involved?
Resistance to OE is often dismissed as the self-serving response of vested interests, notably obstructive, technophobic teachers unwilling to upgrade their skills.
But these are not the only vested interests involved.
Authoritarian administrators are attracted by the centralised control and scaling-at-will that OE offers.
Educational entrepreneurs have been trying to harvest the billions promised by massive open online courses (MOOCs) — think of Udacity, Coursera, or EdX.
Pundits are now predicting post-pandemic tie-ups between ICT giants like Google and Amazon and premium education brands like Harvard and Oxford that will launch a new era of vertically-integrated hybrid OE platforms.
Is OE a viable alternative to traditional educational institutions (TEI) for the typical Indian student?
No one with access to an elite TEI chooses OE.
Instead, we know that OE always loses in best-to-best comparisons.
Favourable impressions about OE are created mostly by comparing the best of OE with average or worse TEIs.
But is it true that the best OE is better than the average college or university?
OE claims that neither the campus nor face-to-face interaction are integral to education.
Since the comparative evaluation of virtual versus face-to-face pedagogic interaction needs more space, the campus question is considered here.
How does the typical student’s home compare with a typical TEI campus?
Census 2011 tells us that 71 per cent of households with three or more members have dwellings with two rooms or less.
According to National Sample Survey data for 2017-18, only 42 per cent of urban and 15 per cent of rural households had internet access.
Only 34 per cent of urban and 11 per cent of rural persons had used the internet in the past 30 days.
It is true that many TEIs (both public and private) have substandard infrastructure.
But these data suggest that the majority (roughly two-thirds) of students are likely to be worse off at home compared to any campus.
The impact of smartphone capabilities and stability of net connectivity on OE pedagogy also needs to be examined.
Importance of college as a social space
It is as a social rather than physical space that the college or university campus plays a critical role.
Public educational institutions play a vital role as exemplary sites of social inclusion and relative equality.
In Indian conditions, this role is arguably even more important than the scholastic role.
The public educational institution is still the only space where people of all genders, classes, castes, and communities can meet without one group being forced to bow to others.
Whatever its impact on academics, this is critical learning for life.
Women students, in particular, will be much worse off if confined to their homes by OE.
Consider the question- “Covid-19 pandemic forced many educational institute to explore the online more of education. And this also brought to the fore the potential of the online mode of education. In light of this, examine the issues with substituting the online mode of education for the traditional educational mode.”
Conclusion
Though an indispensable supplement for traditional education, there are certain aspects of education and a social life that online learning cannot substitute. So, the government should not divert its attention from the traditional educational institution and look at online education as its substitute.
From UPSC perspective, the following things are important :
Prelims level: Various location mentioned in the article.
Mains level: Paper 2- Implications of dispute for India China relation
The article gives an in-depth analysis of the current border dispute between India and China in Ladakh. But the present dispute follows the pattern. China has been encroaching and gaining control over the disputed territory since the 1980s. And this dispute also fits into that pattern.
China acting strategically in Ladakh
While India has pursued its core national interests in J&K, China’s response was strategic — a shift that may have a lasting imprint on geopolitics.
We have been harping on the “differing perception” theory of the LAC for decades.
But in reality China has been gaining control over a massive “disputed territory” in Eastern Ladakh since the 1980s.
Major Chinese encroachment events
The Chinese first made encroachments into the 45-km long Skakjung pastureland in Demchok-Kuyul sector.
This resulted in local Changpas of Chushul, Tsaga, Nidar, Nyoma, Mud, Dungti, Kuyul, Loma villages gradually losing their winter grazing.
Ladakh’s earlier border lay at Kegu Naro — a day-long march from Dumchele.
Starting from the loss of Nagtsang in 1984, followed by Nakung (1991) and Lungma-Serding (1992), the last bit of Skakjung was lost in 2008.
The PLA followed the nomadic Rebo routes for patrolling in contrast to Indian authorities restricting Rebo movements that led to the massive shrinking of pastureland and border defence.
By the 2000s, the PLA’s focus shifted to desolate, inhospitable Chip Chap which remains inaccessible until end-March.
After mid-May, water streams impede vehicles moving across Shyok, Galwan, and Chang-Chenmo rivers leaving only a month and a half for effective patrolling by the Indian side.
No human beings inhabit here, a 1962 war site, an entry point into Ladakh for the Uyghurs and Tibetans.
Local Ladakhi personnel manned the posts here, but patrolling in the 972 sq km Trig Height area has been lax.
Easier accessibility allowed the PLA to intrude into Chip Chap with impunity during July-August — its regulars usually spent a few hours before crossing back.
But, during the 21-day Depsang stand-off in 2013, when Burtse became a flashpoint, the PLA set up remote camps 18-19 km inside Indian territory.
Chinese soldiers virtually prevented Indian troops from getting access to Rakinala near Daulat Beg-Olde (DBO) where the IAF reactivated the world’s highest landing strips in 2008.
2008 Daulat Beg Oldi Stand-off
This plus the reopening of Fukche and Nyoma airbases perhaps provoked the PLA’s intrusion in Depsang.
So, what is the current stand-off about?
Despite topographical challenges, the BRO has lately fast-tracked the 260 km long Shayok-DBO road construction.
That road construction probably triggered the PLA intrusion in early May sparking the current Galwan stand-off.
Towards the south at Pangong Tso, forces had physical scuffles over area-denial for patrolling at Sirijap on May 5-6 and on May 11.
The situation remains tense at Sirijap’s cliff spurs and also at the Tso, where troops are chasing each other in high-speed patrol boats.
Clearly, intrusions are part of China’s never-ending effort to push Indian troops westward of the Indus and Shyok rivers and reach the 1960 claimed line.
Details of the disputed border in Ladakh
Out of the 857 sq km long border in Ladakh only 368 sq km is the International Border, and the rest of the 489 sq km is the LAC.
The two traditional disputed points included Trig Heights and Demchok.
At eight points, the two sides have differing perceptions.
But lately, China has raised two fresh dispute points at Pangong Tso 83 sq km and at Chumur where it claims 80 sq km.
The old dispute sites were at the end point of Pangong Tso and at Chushul — the 1962 battle-site.
Three-pronged strategy
1) The Sirijap range on the northern bank of the lake remains most contested, from which several cliff spurs jut out — the “finger series” 1 to 8.
India’s LAC claim line is at Finger-8, but the actual position is only up to Finger-4.
The Chinese are asserting further west to claim 83 sq km here.
The PLA has built a 4.5 km long road to prevent patrolling by Indian troops.
The PLA’s road network from here extends to Huangyangtan base located near National Highway G219.
2) Further south in Demchok, China claims some 150 sq km.
The PLA has built massive infrastructure on its side, moved armoured troops into Charding Nalla since 2009.
Tibetan nomads pitch tents on Hemis Monastery’s land throughout 2018-2019.
3)In Chumur, China claims 80 sq km and probably wants a straight border from PT-4925 to PT-5318 to bring Tible Mane (stupa) area under its control.
For India, holding of Chumur is critical for the safety of the Manali-Leh route.
PLA demanded removal of India’s fortified positions in Burtse (2013) and Demchok and Chumur (2014) for its retreat.
What could be the implications for India?
Overall, the pattern shows the PLA’s desperate design to snatch the lake at Lukung through a three-pronged strategy of attacking from Sirijap in the north, Chuchul in the south and through the lake water from middle.
This is the key chokepoint from where the Chinese can cut off Indian access to the entire flank of Chip Chap plains, Aksai Chin in the east and Shayok Valley to the north.
Which means that Indian control is pushed to the west of the Shyok river and south of the Indus river, forcing India to accept both rivers as natural boundaries.
And once China gets control of the southern side of the Karakoram it can easily approach Siachen Glacier from the Depsang corridor.
And meet at Tashkurgan junction from where the CPEC crosses into Gilgit-Baltistan.
That would be disastrous for Indian defence, leaving the strategic Nubra vulnerable, possibly impacting even India’s hold over Siachen.
China’s access to Changla-pass through Lukung and Tangtse would threaten the entire Indus Valley.
It is quite possible that China is eyeing the waters of the Shyok, Galwan and Chang-Chenmo rivers, to divert them to the arid Aksai Chin and its Ali region.
Consider the question “What could be the strategic and security implications of China’s claim in Pangong Tso region for India?”
Conclusion
India should resist the Chinese design which could have disastrous consequences for India’s defence and strategic interests. This should involve diplomatic channels rather than skirmishes on the borders.
From UPSC perspective, the following things are important :
Prelims level: Regions of Afghanistan
Mains level: Paper 2- Implications of the return of Taliban for India.
The US-Taliban peace deal signals growing heft of the Taliban in Afghanistan. Pashtuns constitute nearly 42 per cent population of Afghanistan and the Taliban is essentially a Pashtun formation. Also, remember Pakistan: just like the kid who is always up to something. The ethnic fragmentation and Pakistan’s meddling is a recipe for perpetual conflict zone in the region.
The question of India’s engagement with Taliban
Taliban’s effective control of territory in Afghanistan expanded in recent years.
This led to the question of India’s direct dialogue with the Taliban gain some relevance.
It has acquired some immediacy after the US announced plans for a significant draw down of its forces from Afghanistan and signed a peace deal with the Taliban earlier this year.
Also, recently the US Special Envoy for Afghanistan, Zalmay Khalilzad, called on India to open a political conversation with the Taliban.
The interest was further amplified by a signal from the Taliban that it is eager for a productive relationship with India.
So, what should India do?
Those calling for direct engagement with the Taliban say that Delhi can’t ignore such an important force in Afghan politics.
Opponents say there is no reason for Delhi to join the international stampede to embrace the Taliban.
If and when the Taliban becomes a peaceful entity and joins the quest for a political settlement with Kabul, they argue, Delhi should have no objection to direct talks.
So, opening a dialogue with the Taliban is a tactical issue focused on when, how and on what terms.
Pashtun question and India’s enduring interest in Afghanistan
The Taliban remains an important sub-set of the larger and more strategic Pashtun question.
The Pashtun question holds the key to India’s enduring interest in Afghanistan: Promoting a peaceful, independent and a sovereign Afghanistan that is not a subaltern to the Pakistan army.
2 Basic issues that will define the Pashtun question
1. Forming unity among multiple ethnic groups
First is the problem of reconciling the interests of multiple ethnic groups in Afghanistan.
The Pashtuns constitute nearly 42 per cent of the population.
The sizeable Afghan minorities include 27 per cent Tajiks, 9 per cent each of Hazaras and Uzbeks.
Irrespective of the nature of the regimes in Kabul over the last four decades— constructing a stable internal balance has been hard.
That problem will acquire a new intensity as the Taliban stakes claim for a dominant role in Kabul.
But has the Taliban learnt to live in peace with the minorities?
The Taliban, an essentially Pashtun formation, had brutally crushed the minorities during its brief rule in the late 1990s.
There are some indications that the Taliban is now reaching out to the minorities but it is some distance away from winning their trust.
2. Pakistan’s meddling in Afghanistan
The problem of constructing internal balance in Afghanistan has been complicated by Pakistan’s meddling.
Pakistan would like to have the kind of hegemony that the British Raj exercised over Afghanistan.
Neither can Pakistan replicate that dominance nor are the Afghans willing concede it to the Pakistan army.
What about the Pashtun minority in Pakistan?
There are more than twice as many Pashtuns living in Pakistan than in Afghanistan.
The Pashtun population is estimated to be around 15 million in Afghanistan and 35 million in Pakistan.
And as mentioned above, the Taliban is essentially Pashtun formation.
Although Pashtun separatism has long ceased to be a force in Pakistan, Islamabad finds the Pashtun question re-emerge in a different form.
Pakistan can’t really bet that the Taliban will not put Pashtun nationalism above the interests of the Pakistani state.
The Taliban, for example, has never endorsed the Durand Line as the legitimate border with Pakistan.
It is by no means clear if Pakistan’s construction of the Taliban as a conservative religious force has obliterated the group’s ethnic character.
Sufferings of Pakistani Pashtun People: Islamabad’s quest for control over Afghanistan over the last four decades has heaped extraordinary suffering on the Pashtun people on Pakistan’s side of the Durand Line.
As the Pashtun Tahafuz Movement seeks a peaceful redressal of its demands for basic human rights, Pakistan has unleashed massive repression.
India’s importance in Afghanistan
That the Taliban wants to talk to India and Pakistan brands Pashtun leaders as Indian agents only underlines Delhi’s enduring salience in Afghanistan.
Consider the question “After the US-Taliban peace deal, India is forced with a difficult prospect of opening the dialogue with the Taliban. Examine the implications of the return of Taliban in Afghanistan for India. What is your opinion on India starting the dialogue with Afghanistan?”
Conclusion
Pakistan’s expansive military and political investments in Afghanistan have not really resolved Islamabad’s security challenges on its western frontier. If an Afghan triumph eludes Pakistan, Delhi can’t escape the complex geopolitics of the Pashtun lands.
From UPSC perspective, the following things are important :
Prelims level: MSP and income support schemes of various state governments
Mains level: Paper 3-Issues with the income support schemes for farmers.
Both States and Center have income support schemes for the farmers. Coincidentally, they both suffer from common problems such as the exclusion of tiller from the benefit and identifying the landless labourers. This article floats the idea of merging all the support schemes in favour of an umbrella scheme. So, what are the solutions and how will an umbrella scheme be more beneficial? Read to know…
Not much ‘new cash’ in the relief package
On May 12, the PM announced that his government’s relief-cum-stimulus package would be Rs 20 lakh crore, almost 10 per cent of India’s GDP.
But when Finance Minister unveiled the package, sector by sector, many wondered where the “new cash” was?
So, it became clear that additional relief and stimulus in the system is just about 1 per cent of the GDP — not 10 per cent.
Much of the rest is directed towards increasing liquidity and deferring some loan payments, but not much additional cash.
Cash-transfer schemes by the state governments: Chhatisgarh and other states
In this context, the Chhattisgarh government deserves compliments for launching the Rajiv Gandhi Kisan Nyay Yojana (RGKNY).
RGKNY is an income transfer scheme at Rs 10,000/acre for paddy farmers and Rs 13,000/acre for sugarcane farmers.
The state’s chief minister has said that the scheme will be extended to farmers of other crops — in fact, to landless labourers as well.
On the face of it, RGKNY will help put money directly into the hands of farmers and poor agricultural labourers.
In kharif 2018-19, Telangana announced a cash transfer scheme of Rs 4,000/acre, per season — this was raised to Rs 5,000/acre per season in kharif 2019-20.
There is a live portal that gives the details of the scheme and its progress.
In the rabi season of 2018-19, the Odisha government launched the KALIA scheme-Krushak Assistance for Livelihood and Income Augmentation- on a somewhat similar pattern.
West Bengal’s Krishak Bandhu and Jharkhand’s Mukhya Mantri Krishi Aashirwad Yojana are the other income support schemes worth mentioning.
2 Issues with income support policies and solutions
1. The beneficiary is not always tiller of the land
Ideally, the money of the policies should go to the real tiller.
But in large parts of the country, there is no record of tenancy.
The government data shows only 10 per cent tenancy in the country.
While several micro-level studies indicate that it could be anywhere between 25-30 per cent.
In fact, in many regions like the Godavari belt, it could be even more than 50 per cent.
It does not make much sense to put money into the accounts of absentee landlords.
So, what is the solution to this problem?
1) The best way would be to change the tenancy laws.
Open up land lease markets, ensuring that the owner of the land has full rights to take his land back after the expiry of the lease period.
The current law, favouring “land to the tiller”, is loaded against the owner.
As a result, much of tenancy in the country remains oral.
2) In the absence of such legal changes in land lease laws, the only way forward is to fully inform the tiller that the owner has got income support.
And then appeal to the owner to pass on this benefit to the tiller — or adjust the land rent accordingly.
Information and persuasion campaigns in radio and newspapers would increase the chances of the benefits being passed on to the real tillers.
2. Identifying the landless labourers working on the farms
The other issue is identifying the landless labourers working on farms.
Majority of them are temporary and seasonal workers.
And leaving the task of identification to panchayats and patwaris can open doors for large leakages and corruption.
What is the solution to this problem?
There have been talks in the past for synchronising MGNREGA with farm operations.
The synchronising will have two benefits-
1)It will contain the cost of farming.
2) It will ensure that those engaged in this employment guarantee scheme do useful and productive work.
The legal framework of the MGNREGA scheme does allow this on farms owned by people of SC/ST communities, and on the lands of marginal farmers.
Merging Income Support Schemes: The way forward
The time has come to think seriously about merging income support schemes.
The merger will include the PM KISAN and state-level schemes, with the MGNREGA and price-subsidy schemes — food and fertiliser subsidies given by Centre and power subsidies given by state government.
These schemes amount to Rs 5 lakh crore — that’s a good sum of money to start a basic income cover for poor households.
Markets could then be left to operate freely.
This approach can cover landless labourers, farmers, and poor consumers — these categories overlap.
Let there be an expert group to look closely into the functioning of each one of these schemes and create an umbrella scheme to take care of the poor and the needy.
Consider the question-“Examine the issues with the income support schemes for farmers by the States as well as the Central government. Do you think that an umbrella scheme after merging all the support schemes will be helpful in overcoming such issues?”
Conclusion
Though income support schemes by the state government and the Centre are a welcome move, however, when one looks at the issues with these schemes an umbrella scheme after merging all the present schemes will go a long way in solving the problems which almost all these schemes face today.
Back2Basics: PM- KISAN
Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)is a Central Sector Scheme with 100% funding from the Government of India.
It is being implemented by the Ministry of Agriculture and Farmer’s Welfare.
Under the scheme, the Centre transfers an amount of Rs 6,000 per year, in three equal instalments, directly into the bank accounts of the all landholdingfarmers irrespective of the size of their land holdings.
It intends to supplement the financial needs of the Small and Marginal Farmers (SMFs) in procuring various inputs to ensure proper crop health and appropriate yields, commensurate with the anticipated farm income at the end of each crop cycle.
The entire responsibility of identification of beneficiary farmer families rests with the State / UT Governments.
From UPSC perspective, the following things are important :
Prelims level: APMC Act
Mains level: Paper 3- The issues with APMC reforms
Reforms in agri-marketing has been long overdue. So, the government recently announced three reforms in this regard. This article examines the problems of agri-marketing. And it concludes that the said reforms are far from being the silver bullet for these problems. So, why these reforms are not going to be effective? Does demand play any role in the problems agriculture is facing currently? Read to know about these issues.
Announcement of reforms regarding agricultural marketing
The announcement of reforms in agricultural marketing by Finance Minister in May, has been hailed by some as the “1991” moment for agriculture.
The three reforms regarding agricultural marketing were the reforms in the 1) Agricultural Produce Marketing Committee (APMC) Act, 2) the Essential Commodities Act, 3) Contract farming.
All of these have been in discussion for almost two decades, with the APMC Act having already seen substantial reforms in many States.
The first comprehensive model act on APMC was proposed during 2003, and since then, similar efforts to push for more reforms have been proposed in 2007, 2013, and as late as 2017 by the present government.
So, let’s a look at provisions of APMC Act and issues with it
What is the main argument against APMC Act?
Two main arguments against the APMC Act are-
1) It creates barriers to the entry and exit of traders.
2) Makes the sale and purchase of agricultural produce compulsory for farmers as well as traders.
Different steps taken by the state governments to address the issues
So, as many as 17 State governments have amended the APMC Act to make it more liberal.
In fact, the regulations and the functioning of mandis vary a great deal across States.
Kerala does not have an APMC Act.
Bihar repealed it in 2006.
But several others such as Maharashtra, West Bengal, Odisha, Gujarat, and Andhra Pradesh deregulated fruits and vegetables trade, allowed private markets, introduced a unified trading licence and have introduced a single-point levy of market fee.
Tamil Nadu has already reformed its APMC with no market fee.
Several others such as Jharkhand, Himachal Pradesh, Uttarakhand, Haryana and Rajasthan have undertaken one or more of these reforms.
Many States have introduced direct marketing of farm produce, examples being the Uzhavar Sandhai (Tamil Nadu), the Rythu Bazaar (Andhra Pradesh and Telangana), the Raitha Santhe (Karnataka), the Apni Mandi (Punjab) and the Krushak Bazaar – (Odisha).
So, why the mandis are still blamed for farmers’ problems?
Despite the above-stated reforms, APMC mandis continue to be vilified for-1) all the ills plaguing marketing infrastructure 2) the low prices received by the farmers for their produce.
What is the problem? The problem with mandis is not the regulation per se and the structure of mandis but the political interference in the functioning of the markets.
These are more obvious in case of large mandis specialising in commercial crops and fruits and vegetables, where production is regionally concentrated.
But even with these deficiencies, APMC mandis continue to play an important role in providing access to the market for farmers.
What the Bihar example teaches us?
Bihar repealed the APMC Act in 2006.
The general argument in favour of reforms is that 1) it will allow private investment in marketing infrastructure and 2) provide more choices to farmers, leading to better prices received by farmers.
But in the case of Bihar, no investment came in building market infrastructure.
The loss of revenue due to the repeal of the APMC also led to deterioration of existing infrastructure in the State.
The revenue collected from the APMC earlier was used not only for the modernisation of these market yards but also for the laying of roads and construction of other infrastructure to provide farmers better access to markets.
But after the repeal, there have been no takers for these market yards, with no investment in creating private mandis.
On the other hand, it has led to proliferation of private unregulated markets which charge a market fee from traders as well as farmers, and without any infrastructure for weighing, sorting, grading and storage.
Even in other States where there is deregulation to allow private traders, there is hardly any investment to create market spaces let alone provide other facilities.
There is also no evidence that farmers have received better prices in private mandis outside the APMC.
While there have been instances of collusion and corruption in the running of the APMC, they continue to provide essential services to farmers.
Inadequacies of the regulated market
As against the recommendation that a regulated market should be available to farmers within a radius of 5 km currently regulated markets is in the radius of 12 km.
There are more than 7,000 regulated markets and 20,000 rural markets when the need is at least twice these figures.
Most of the existing ones require investment in upgradation of infrastructure.
Price received is more a function of demand than access to market
The argument that the only bottleneck for farmers not receiving remunerative prices is due to the APMC Act is flawed.
More than 80% of farmers, most of whom are small and marginal farmers, do not sell their produce in the APMC mandis.
For a majority of farmers, prices received are more a function of the demand for agricultural commodities than access to markets.
So, let’s come to decline in demand for agriculture produce
For much of the period during the last two years, terms of trade have moved against agriculture.
Agricultural commodity price inflation had been negative for a large part of the last two years.
With underlying weakness in demand and obsession with inflation targeting through fiscal and monetary policies, most agricultural commodities have seen a sharp decline in demand and, consequently, prices received by farmers.
The argument for choice of markets is only valid as long as there are buyers with purchasing power in the market.
No amount of marketing reforms will lead to higher price realisation for farmers if the underlying macroeconomic conditions are unfavourable to agriculture and farmers.
What is solution to decline in demand?
The primary task of the government should have been to increase fiscal spending to revive demand in the economy.
This has become even more necessary after the sharp decline in incomes, job losses and decline in demand following the lockdown and expected contraction in economic activity for the year ahead.
With international prices also showing declining trend, the urgency is to protect the farmers from the decline in commodity prices.
Consider the question “Though the APMC Act has often been blamed for the woes of the farmers in price realisation, the act is not the sole reason for price realisation problems faced by the farmers. Critically examine.
Conclusion
The announced reforms are less likely to be effective if carried out without consulting the states. And on the demand side, government needs to increase fiscal spending to create demand in the economy. These two steps will go a long way in ensuring higher incomes to farmers.
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.
From UPSC perspective, the following things are important :
Prelims level: BIS, cryptocurrency.
Mains level: Paper 3- Challenges and opportunity in cryptocurrencies.
Central banks all over the world have had mixed feelings towards cryptocurrencies. Some of them have resorted to banning them altogether. And yet, cryptocurrencies exist and have been flourishing. But China seems to be bent on taking the “road less travelled”. This article explains the various aspects underlying the China’s move. These somehow apply to all the central banks, including the RBI. Read more to know more about such aspects.
Digital currency by China’s central bank
In December 2019, a pilot programme was launched in Beijing to intensively advance the trial work of fintech innovation regulation.
This pilot has now been expanded to include several other cities.
This expansion of the pilot marks the initiation of China’s central bank digital currency (CBDC).
Christened Digital Currency Electronic Payment (DCEP), available via a mobile wallet app.
It is pegged 1:1 with fiat currency, and designed to replace M0 which comprises currency issued by the PBoC less the amount held by banking institutions.
This is the first such serious initiative in the whole world.
Why central banks are sceptical of cryptocurrencies?
Historically, monetary authorities everywhere have been sceptical of cryptocurrencies.
The reasons for scepticism includes following problems-
1) Wild fluctuations in the value of cryptocurrencies.
2) The implied challenge to the monopoly of central banks in issuing fiat currencies.
3) The looming possibility of software bugs.
4) The tainted shadow of the dark web.
But some central banks have been planning to issue fiat digital currency
Authorities were far more intrigued by CBDCs.
In fact, the Basel-based Bank for International Settlement (BIS) has been conducting surveys on this issue for some time.
The recent survey of 2019 “Proceeding with Caution – a Survey on Central Bank Digital Currency” revealed that while in general, central banks have been proceeding cautiously towards introducing central banks digital currencies.
Some have been planning to issue a fiat digital currency in the short to medium term.
In particular, the survey revealed that nearly 25% of central banks have the required authority to issue a CBDC, while a third do not, and 40% remain unsure.
If you cannot beat them, join them
So, what factors led China to release the cryptocurrency?
Chinese investors were always attracted to cryptocurrencies.
With the bearish turn in the Chinese stock market in 2015-16, bitcoins became increasingly popular as an alternative asset class in China.
As in media reports, in the recent past, China has emerged as the capital of the crypto ecosystem, accounting for nearly 90% of trading volumes and hosting two-thirds of bitcoin mining operations.
The PBoC tried hard to curtail this exuberance but achieved limited success.
The recent move to introduce the CBDC in China is a logical outcome of the efforts to curb and tackle its runaway cryptomarket practices.
Or, the philosophy of the PBoC could simply have been, if you cannot beat them, join them.
Advantages and concerns
At a practical level, the benefits of CBDC are manifold.
First, paper money comes with high handling charges and eats up 1% to 2% of GDP.
Second, by acting as a powerful antidote for tax evasion, money laundering and terror financing, CBDCs can materially boost tax revenues while also improving financial compliance and national security.
Third, as a tool of financial inclusion, particularly in emergencies, direct benefit transfers can be instantly delivered by state authorities deep into rural areas, directly into the mobile wallets of citizens who need them.
Fourth, CBDCs can provide central banks with an uncluttered view and powerful insights into purchasing patterns at the citizen scale.
In the long run, it is believed that CBDCs will make cross-border payments fast and frictionless.
Concerns
All these salutary benefits come packaged with a deep and abiding concern about the relentless rise of a surveillance state and the concomitant erosion in citizen privacy and anonymity.
If face-recognition technology enables states to spy on the physical movement of citizens, will CBDCs be used to spy on every movement of their money?
But how Central bank’s digital currency is different from private cryptocurrencies such as Bitcoin?
An earlier research paper by PBoC Deputy Governor favoured a two-tier CBDC model.
In this model instead of directly interacting with the public, the central bank would involve financial intermediaries such as commercial banks.
In tier 1, the central bank would interface with financial intermediaries.
In tier 2, the financial intermediaries would interface with the general public.
Advantage? Such a model is accretive in that it preserves the power of existing financial systems and extends their influence further.
It is believed that the DCEP uses a DLT architecture (with central controls) which preserves the primacy of the monetary authority, unlike private cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) that are truly decentralised.
Silver bullet to slay three dragons
What may China be signalling with the launch of DCEP?
First, on the world economic stage, it may want DCEP to challenge the hegemony of the U.S. dollar as the default global reserve currency.
Second, in its war with American BigTech, it may want to showcase DCEP as its weapon of choice to counter FB or Facebook’s Libra, which is planning to offer a common cryptocurrency to 2 billion-plus FB users across the world.
Third, and still in the realm of speculation, it may wish to use the DCEP to clip the wings of AliPay and WeChatPay, gigantic fintech duopolies that control 90% of the China’s domestic digital payments, and whose ambitions may one day pose a threat to the aura and authority of the central bank.
Consider the question “Most of the central banks have been sceptical in their attitude toward the cryptocurrencies. Yet, they persisted. Next came the Supreme Court decision lifting ban on them. In light of this, examine the advantages and concerns that come with the cryptocurrencies.”
Conclusion
From gold to silver to paper to digital, the march of currencies goes on. China has rolled the dice on central bank digital currencies, challenging other nations to follow. Welcome to the future of money.
From UPSC perspective, the following things are important :
Prelims level: Demand side and supply side in the economics
Mains level: Paper 3- Why is it necessary to focus on the demand side in stimulus package?
What should the government focus on first: increasing demand or streamlining the supply side. This question is at the heart of the debate that has been going on after the government announced the stimulus package. This article argues on two lines- Inadequate size of the package and the neglect of the demand side in the package.
Why stakeholders are not happy with the package?
Agriculture sector: There is relief for agriculture in the form of a concessional credit line of Rs 2 trillion, but loans are neither automatic or assured.
Marketing reforms and infrastructure creation are distant promises.
MSME sector: The backbone of the economy that provides 25 per cent of employment, 32 per cent of the GDP and 45 per cent of exports, is unhappy despite the Rs 3 trillion line of credit for loans without collateral.
In their experience, lenders are not always supportive in extending loans.
While buyers-central and state governments, public sector firms and the private sector- owe them as much as Rs 5 trillion.
What is more, most MSMEs just do not have the resources to pay wages or meet fixed costs on electricity, rent or interest during the lockdown period.
Corporate sector: There is nothing for the corporate sector in manufacturing or services.
The distressed sectors such as airlines, automobiles, hotels, restaurants, and tourism have been ignored.
Ironically, there is little for public health, already in a dilapidated state.
Even stock markets, characterised by irrational exuberance in the past month, have dropped.
Government expenditure in the fiscal stimulus
The fiscal stimulus, which can be defined as government expenditure that could stimulate demand, is difficult to separate.
This is because the package is neither clear nor transparent about the cost to be borne by the government in each component.
Even so, there are 12 estimates by analysts in financial sector institutions, suggesting that the fiscal stimulus is in the range of 0.7 per cent to 1.3 per cent of the GDP.
The effective fiscal stimulus, in terms of extra resources provided by the government, is Rs 1.76 trillion, or 0.8 per cent of the GDP.
Its contribution to domestic demand will be minuscule, given that private final consumer expenditure in India is about 60 per cent of the GDP.
Focus of the package: supply side
It is clear that the design of this relief package seeks to focus on the supply side.
Package emphasises on providing liquidity through lines of credit, where the RBI is providing as much as Rs 8 trillion.
Focus is not on the demand side by stepping up government expenditure.
This is done with the aim of minimising the cost to the government.
The arithmetic is obviously imaginative — as much as Rs 10 trillion of the relief package will have to be financed by sources other than the Centre and the RBI.
So, let’s understand why focus on supply side is flawed strategy
This stress on the supply-side, while neglecting the demand-side, reveals a flawed understanding of economies in crisis.
Speed of adjustment: Even in normal circumstances, the speed of adjustment of the supply-side is slow because supply responses take time.
Whereas the speed of adjustment on the demand-side is fast as incomes spent raise consumption demand without any time-lag.
At present, if there is little or no increase in demand, supply responses will be slower than usual because producers would not wish to pile up inventories of unsold goods.
In terms of the chicken-and-egg parable, demand must be revived first to kickstart the economy.
For this reason, the fiscal stimulus should have been much larger.
Excessive concerns over fiscal deficit
The decision-makers have been timid, intimidated by the prospect that, because of revenue shortfalls (2 per cent of the GDP or more), the fiscal deficit would be 5.5 per cent of the GDP.
Which would have exceeded the budget estimate at 3.5 per cent of the GDP.
The conclusion drawn, wrongly, is that there is no fiscal space.
The obsessive concern about the fiscal deficit is deeply embedded in government thinking.
In this situation, the extra fiscal stimulus should have been Rs 7-9 trillion i.e. 3-4 per cent of the GDP and that would have been modest compared to what other countries have done.
Monetising the deficit and issues involved in doing so
This enlarged fiscal deficit (3-4 % of GDP) cannot be financed by market borrowing.
Such market borrowing would simply drive up interest rates and nip recovery in the bud.
It would have to be financed by monetising the deficit — RBI buying government T-bills — printing money, now termed “helicopter money”.
Inflation concerns: The idea that monetised deficits will unleash inflation is blind to the reality that, at this juncture, if there is no further intervention by the government, the GDP could contract by 5 per cent in 2020-21, with lingering consequences.
In fact, a monetised deficit might be the only way of increasing aggregate demand to revive economic growth.
Rating downgrade issue: The worry about a downgrade from credit rating agencies is bizarre.
For one, their ethics and integrity have seen steady erosion.
Moreover, how many sovereign governments will they downgrade?
In fact, we might be better off without the footloose and volatile portfolio investment inflows.
Consider the question- “Do you agree with the view that the focus of the supply side should be at the heart of any stimulus package announced in the financial crisis? Give reasons in the support of your agreement.”
Conclusion
If the government does not accept the necessity or wisdom of expansionary macroeconomic policies, it must set out its alternative plan for recovery. The relief package will not suffice.
