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It has spoken up in favour of a liberal trade regime, but its exports sector needs a structural transformation to take advantage of one.
- The tariffs and counter-tariffs levied by the US and its allies and rivals alike are mounting
- The World Trade Organization has warned that growth in global trade is contingent on escalating trade tensions not acting as a spoiler
India’s position on liberalization
- It has spoken repeatedly about the benefits of a liberal trade regime at international forums in the recent past
- But rhetoric and reality don’t always match up as can be seen by its Regional Comprehensive Economic Partnership (RCEP) dilemma
What does India want in RCEP?
- India has been making efforts to fold services trade liberalization into the pact
- Why? As of 2016-17, India’s share of world merchandise exports stood at 1.65% while its share of world service exports was twice that at 3.35%
- This essentially means that India is more efficient and in a better position to export services rather than goods
- But the political sensitivity of the factors affecting services trade— the cross-border movement of professionals and the behind-the-border nature of regulation among them—makes it difficult to make headway
India’s goods trade and associated issues
- Indian goods exports are currently dominated by petroleum products, chemical products, textiles and garments, and engineering goods
- But quality matters more than quantity
- Exports with higher productivity and sophistication will contribute more to economic growth
- India’s basket of export continues to be dominated by goods of relatively low sophistication
- It skews substantially more towards low-tech manufacturing than the median of peer emerging economies
What does this lead to?
This hamstrings India on two fronts
- It limits the domestic productivity and income-boosting effects of exports
- It also makes it harder for India to gain the comparative advantage needed to take full advantage of bilateral and regional free trade pacts
Factors affecting exports
- The current poor performance of Indian exports undoubtedly has something to do with the demonetization shock, the goods and services tax (GST) snafu when it comes to refund payments for exporters and the twin balance sheet problem
- Indian exports are more sensitive to demand than the price
- India’s exports are also driven by domestic supply-side constraints
- Power shortages and poor reliability also affect export growth significantly
- There are the multiple factors, ranging from onerous labour laws to regulatory costs, that keep companies small
- Such companies have neither the capital and scale to move to more sophisticated goods, nor the worker skills to be part of such value chains
- Poor innovation capital—due to the lack of quality higher education, low public and private expenditure on research and development and a lacking legislative framework
Findings in Economic Survey 2017-18
- Improved logistics have huge implications on increasing exports, as a 10% decrease in indirect logistics cost can contribute to around 5-8% of extra exports
- India has logistics costs around double of those in developed economies
- Free trade, for all the distributional issues that have rightly come into sharp focus over the past few years, is a net good
- India needs to sort out its goods versus services dilemma & the gap between theory and practice
- This won’t be bridged without a structural transformation in Indian exports
- The draft Higher Education Commission of India (HECI) Bill is now in the public domain
- The HECI will replace the main regulatory authority, the University Grants Commission (UGC)
- This is being done to provide for more autonomy and facilitate the holistic growth of this sector and offer greater opportunities to Indian students at more affordable cost
Expanse of HECI
- The new commission will cover all fields of education except medical and, presumably, agriculture, and institutions set up under the Central and State Acts, excluding those of national importance
Separating grant giving & academic functions
- There will now be a clear separation between academic functions and grant-giving ones
- HECI will deal with academic functions & Ministry of Human Resource Development (MHRD) with grant-giving ones
- The academic functions include
- promoting the quality of instruction and maintenance of academic standards and,
- fostering the autonomy of higher education institutions for a comprehensive and holistic growth of education and research in a competitive global environment in an inclusive manner
Why the need for HECI?
- The need for a single regulatory body arose largely in the context of multiple bodies set up over the years trying to cope with the ever-increasing complexity of the sector
- The regime of multiple regulators started in the mid-1980s and various professional bodies also started asserting themselves as regulators from around the early 1990s when the country embraced the new challenges of liberalization, privatization, and globalization
- The heavy hands of multiple regulators (like the UGC and All India Council for Technical Education), together with the empowerment of professional bodies (like the Bar Council of India and Council of Architecture) have not yielded the desired dividends
- Mushrooming of institutions and a steady decline of standards in most of them have not done much good to the image of the government and the architecture of regulation
Ambiguity in functions
- On the one hand, the HECI is being conceived as an overarching regulator and on the other, it is sought to develop mechanisms so that more institutions are encouraged to move out of its regulatory ambit
- The proposed Bill has to be situated in the context of certain new initiatives like granting near complete autonomy to the Indian Institutes of Management, providing graded autonomy to other institutions to free them from the clutches of regulations to enable them to develop into institutions of excellence
Recent initiatives for sustainability across the higher education system
- There have been recent initiatives to encourage public institutions to raise user charges so that they become self-sustaining
- This will also allow such institutions to take a loan from the Higher Education Funding Agency to meet developmental costs
- These initiatives might lead to:
- institutions to abandon courses that have hardly any job prospects and starting ones that are market-friendly which is against the very idea of higher education
- the high fees to be paid by students for such courses might compel them to take concessional student loans which may result in the student loan crisis reaching alarming proportions on account of delay in payment and default
Structure of HECI and associated loopholes
- There will be a chairperson, vice-chairperson and 12 members
- The chairperson will be of the rank of Secretary to the Government of India
- The secretary of the HECI will be an officer of the rank of joint secretary and above or a reputed academic and will serve as its member-secretary
- The secretary, higher education is envisaged to don many hats, serving as a member of the search-cum-selection committee of the chairperson and vice-chairperson, then processing their appointment as a key functionary of the government, and finally acting as a member of the HECI
- Such multiplicity of roles may create difficulties and conflict of interest
- Despite some apparent infirmities, the proposed Bill shows the resolve of the government to move forward in reforming the sector
- Major issues like making the universities the hub of scientific and technological research, restoring the value of education in social sciences and the humanities, ensuring that poor and meritorious students can afford to be educated in subjects of their choice, improving the quality of instruction to enhance the employability of the students, addressing the concerns of faculty shortage, etc. need to be addressed
- Chief Justice of India recently flagged rising pendency in appeals lying with High Courts based on the findings of the Supreme Court’s Arrears Committee
- He has since directed High Courts to prepare action plans for disposal of five and 10-year-old cases
- He has also asked for High Court Arrears Committees to periodically review the situation
Need to revisit judicial performance & accountability
- For decades, the primary measure of court efficiency has been case disposal rates
- Public perception of court performance and individual judges now hinges on the number of cases pending before them
- This also puts pressure on judges to dispose of as many cases as possible
- It leads to a problematic situation as it does not consider the quality of adjudication itself
- It also does not shed light on the exact nature of cases that have remained pending the longest, or the stage at which pendency recurs the most
Why such problem arises?
1 Listing patterns of cases in courts are generally erratic
- The number of matters listed for the same courtroom range from 1 to 126 a month
2 A large number of cases listed in a day means that inevitably, matters listed towards the end of the day remained left over
3 Old pending matters barely make it to court
- These cases were listed for the second half of the day but would eventually never come up for the hearing because of a large number of other urgent and routine matters listed
- Advocates also tend to become disinterested in older cases in which clients have given up or stopped paying
What can judiciary do?
- Courts themselves must start analyzing historical case data and introduce focused interventions to counter specific case types or stages at which the case pipeline is clogged
- Case listing needs to be made more systematic
- Cause list preparation can be made more scientific if supported by a consistent study of the variance in the number of cases listed across courts, identifying the exact stages at which cases are clogging the pipeline for the longest duration, and the nature of cases left over
- The cause list should have cases methodically distributed by type and stage
- Disposing of old and pending matters must be prioritized
- A solution would be to implement a policy where no adjournments are granted for frivolous reasons
Benefits of scientific listing
- It will introduce standardisation across courts and help disincentivise judges from using discretionary practices in the number and nature of cases listed before them
- It will promote fairness — a reasonable number of cases would be listed every day, and distributed across the day based on stage and case type
- There will be better quality of adjudication
- The quality and efficiency of court functioning can be improved with simple tweaks
- It is time that the judiciary as an institution opens itself to the services of competent external agencies that can help them record, manage and analyse their data better, to build and sustain a healthy institution
- The Sunil Mehta Committee, set up to look into the faster resolution of stressed assets, has recommended the creation of an asset management company for the resolution of stressed loans worth more than Rs.500 crore.
- The committee had also laid out a plan to resolve SME loans within 90 days.
- The report comprises a bank-led resolution process and a five-pronged strategy to resolve stressed assets called Project Sashakt.
- The idea behind Project Sashakt is to ensure the operational turnaround of the banks and stressed companies so that the asset value is retained.
- The five-pronged resolution route — outlining an SME resolution approach, bank-led resolution approach, AMC/AIF led resolution approach, NCLT/IBC approach, and asset-trading platform — envisaged by the committee will be applicable to smaller assets with exposure up to Rs.50 crore, mid-size assets between Rs.50 crore and Rs.500 crore, and large assets with exposure of Rs.500 crore and more which have a potential for turnaround.
- The resolution route is also applicable to larger assets already before the National Company Law Tribunal (NCLT) and any other asset whose resolution is still pending.
- The process will cover both performing and non-performing assets.
- For the resolution of SMEs, the committee suggested the setting up of a steering committee by banks for formulating and validating the schemes, with a provision for additional funds.
- The resolution should be complete within 90 days. The committee suggested that the resolution of these assets be under a single bank’s control, with the bank having the liberty to customise it.
- For loans between Rs.50 crore and Rs.500 crore, the committee called for a bank-led resolution approach, with the resolution being achieved in 180 days.
- The resolution plan has to be approved by lenders holding at least 66 per cent of the debt.
- The independent steering committee appointed by the Indian Banks Association (IBA) has to validate the process within 30 days.
- In this category, the key challenge would be to arrive at a consensus, as the exposure is held by multiple banks/lenders.
- In light of this, the committee recommended that such lenders enter into an inter-creditor agreement to authorise the lead bank to implement a resolution plan in 180 days.
- The lead bank would then prepare a resolution plan including empanelling turnaround specialists and other industry experts for operational turnaround of the asset.
- In addition, the committee had recommended the setting up of a robust monitoring and review mechanism to track resolution with clear escalation metrics for breached timelines.
- For loans above Rs.500 crore, an independent asset management company (AMC) will be set up.
- The committee also said an alternative investment fund (AIF) would raise funds from institutional investors.
- Banks would be given an option to invest in this fund if they wish. AIFs can also bid for assets in NCLT.
- The lead bank can discover price discovery through the open auction route. Security receipts have to be redeemed within 60 days.
- The recommendations are fully compliant with RBI regulations and there is no proposal to create a bad bank.
- The resolution process suggested by the committee will help bring in credible long-term external capital to limit the burden on the domestic banking sector while ensuring robust governance and credit architecture to prevent a similar build-up of non-performing loans in the future.
- India has agreed to provide tariff concessions on 3,142 products to Asia Pacific Trade Agreement (APTA) members, including Bangladesh and Sri Lanka, from July 1
- These duty concessions will be more for least developed countries (LDCs) and less for developing nations
Difference between FTA & PTA
- Under a free trade agreement, countries cut or eliminate duties on the most number of goods traded between them besides liberalizing norms to promote services trade and investments
- But under a Preferential Trade Agreement, duties are eliminated on a certain number of identified items
Asia Pacific Trade Agreement (APTA)
- APTA is an initiative under the United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) for trade expansion through exchange of tariff concessions among developing country members of the Asia Pacific Region
- It is a preferential trade agreement (PTA), under which the basket of items, as well as extent of tariff concessions, are enlarged during the trade negotiating rounds which are launched from time to time
- The six member countries are Bangladesh, China, India, Laos, Korea and Sri Lanka
- It is in place since 1975
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