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GDP growth rate for the first quarter (April – June) of fiscal year 2018-19 came at 8.2 per cent. A question being raised about the GDP estimates for the first quarter of this year (April-June) is: How should 8.2% GDP growth be interpreted in, or reconciled with, the overall context of some of the pronounced trends in the economy?
What are the current trends in the Economy:
Rupee depreciation, rising bank bad loans or non-performing assets (NPAs), a trade deficit that has shot up to a five-year high, and retail fuel prices that are increasing every day.
- One of the explanations being offered is that the faster growth has come on a low base which has produced a statistical effect, making growth appear faster. This is partly correct. The low base does explain a part of the growth estimated, but not all of it.
- The full picture emerges from sectoral estimates, which show that while some parts of the economy grew faster, a few others did not.
- Agricultural GDP growth quickened as two successive years of good rains improved farm produce.
- Manufacturing and construction, both industries that were dealt a severe shock by demonetisation, recovered, as the cash shortage moderated.
- Policy support — such as simplification of the messy Goods and Services Tax collection systems — can strengthen this revival. If nurtured, it can be employment-positive.
- Services growth slowed. Industries such as trade, hotels and transport, and the financial, real estate and professional services fall in this segment, as do public administration and defence services. Services growth is relatively more representative of the economic sentiment of the vocal among urban and semi-urban Indians. The performance of services probably explains the sense of disconnect with the growth estimate being expressed in some quarters.
- Despite slowing as compared to a year ago, the services sector grew faster than the agricultural GDP.
- Rural wage growth has remained stagnant for the past four years.
Consumption led growth:
- Surprisingly, the slower services sector growth has not been a drag on consumption. Private consumption expenditure growth has quickened, relative to the preceding quarter, as well as compared to the same quarter last year.
- The strong, sustained growth, despite the high base, suggests that a consumption boom is in the making.
- Government salary and pension hikes including at the State level are feeding this consumption spree that is funded by taxpayer money and has remained unaffected by the sharp surge in retail fuel prices.
- Consumer industries are also reporting robust rural sales growth.
- Pockets of the rural economy — land-owning large farmers, for instance — appear flush with disposable income.
- The cause for caution is that the GDP growth continues to be powered by consumption, not investments.
- Consumption-led growth is sustainable up to a point, especially if it is financed by expanding the government (Centre plus States’ cumulative fiscal) deficit.
- The high growth in the years preceding the global financial crisis was driven by savings and investments. After the global economic downturn disrupted that trend, negative trend in investments followed.
- The economy is still not out of the investments slowdown. The share of investments in GDP dropped from 32.2% in January-March to 31.6% in April-June this year as a direct consequence of the worsening NPA crisis.
- A recapitalisation of banks was undertaken. It has not measured up to the problem. The insolvency mechanism has just about started functioning after dithering and delays.
- The estimates for the subsequent quarters of this year will not enjoy the benefit of the low-base effect. First quarter estimates are early indicators and not necessarily representative of the remaining nine months of a year.
- Ranging from rising international crude prices to the risk of inter-country trade wars, these are likely to keep the current account deficit — and therefore the rupee — under stress.
- A depreciating rupee will inflate retail fuel prices, unless the Central and State governments cut the taxes on them. Tax cuts will increase the fiscal deficit.
- Reforms, by removing bottlenecks, will promote growth even in an environment of rising macroeconomic vulnerability. The government must come up with the reform measures to sustain this growth.
- The government must take steps to reform the public sector banks. It is high time, government shakes out of inaction.
- To sustain the 8%-plus growth through the rest of the year, will require a far more pro-active policy push than appears probable in a year that is fraught with global economic challenges and mounting macroeconomic pressures.
- The Reserve Bank of India can hike interest rates to arrest the rupee’s depreciation. But that will further increase the cost of borrowing, including the government’s debt.
- After failing to get the seven convicts in the Rajiv Gandhi assassination case released by exercising its statutory power to remit life sentences, the government in Tamil Nadu has taken recourse to a possible constitutional remedy.
- It has decided to invoke the Governor’s clemency power under Article 161 of the Constitution.
- January 28, 1998: A designated Terrorist and Disruptive Activities Act (TADA) court sentenced all 26 accused to death.
- May 11, 1999: On appeal, the Supreme Court upheld the death for 4, commuted sentence to life for 3 and freed 19 others.
- October 8, 1999: Supreme Court confirms death for 4, dismissing their appeals to commute their sentences to life.
- October 27, 1999: Tamil Nadu Governor rejected clemency petitions of the same 4 convicts.
- November 25, 1999: Madras High Court quashed Tamil Nadu Governor’s rejection of clemency petitions; directed the Governor to pass a fresh order after obtaining the State Cabinet’s views.
- April 19, 2000: Tamil Nadu Cabinet chaired by then Chief Minister M. Karunanidhi decided to recommend commuting death sentence of one among the four, Nalini alone.
- April 21, 2000: Tamil Nadu Governor accepted Cabinet decision to commute death sentence of Nalini.
- April 28, 2000: Tamil Nadu government forwarded the clemency pleas of the other 3 to the President.
- August 12, 2011: President rejected clemency petitions.
- February 18, 2014: Supreme Court commuted the death sentence on grounds of delay in disposing their mercy pleas.
- February 19, 2014: Tamil Nadu Cabinet decides to immediately release all 7 convicts and sends decision to Centre under Section 435 of the Code of Criminal Procedure.
- April 1, 2014: Dismissing the Centre’s petition, the Supreme Court refuses to review its verdict commuting death sentence of Santhan, Murugan, and Perarivalan in the case.
- April 25, 2014: Supreme Court refers matter on remission of sentence to Constitution bench and frames seven questions to be decided by it.
- July 29, 2015: Supreme Court dismisses Centre’s curative plea against commutation of death penalty into life term of three convicts.
- December 2, 2015: Supreme Court says Centre will decide whether the convicts will be released or not holding that States cannot exercise suo motu the power to grant remission without any specific plea from convicts.
- March 2, 2016: In yet another bid to release the seven convicts, Tamil Nadu government writes to Centre seeking its views on its decision to free them
- April 19, 2016: Centre rejects Tamil Nadu proposal to free the three.
- January 23, 2018: A three-judge Bench of the Supreme Court gives the Centre three months to decide the Tamil Nadu government’s proposal made in 2014 to remit the sentences of the seven life-term convicts.
- June 15, 2018: President Ram Nath Kovind rejects the Tamil Nadu government’s request to release the seven prisoners convicted in the case.
- August 20, 2018: The Supreme Court gives Perarivalan a fortnight’s time to place on record a copy of his application made to the Tamil Nadu Governor two years ago seeking grant of pardon.
- September 6, 2018: The Supreme Court asks the Tamil Nadu Governor to consider the mercy petition of Perarivalan.
- September 9, 2018: The government in Tamil Nadu decides to recommend to Governor Banwarilal Purohit the release of all seven life convicts in the Rajiv Gandhi assassination case.
What options does the Tamil Nadu Governor have?
Article 161 of the Constitution speaks about the Power of Governor to grant pardons, etc, and to suspend, remit or commute sentences in certain cases. The Governor of a State shall have the power to grant pardons, reprieves, respites or remissions of punishment or to suspend, remit or commute the sentence of any person convicted of any offence against any law relating to a matter to which the executive power of the State extends
In this case, the Governor can:
- Either take a call on the advice of the State’s Council of Ministers and decide whether he is bound by it. (Or)
- Reject the proposal or seek its reconsideration. (Or)
- Pause to consider the Centre’s opinion against releasing those involved in the assassination case.
In either case, his decision will be subject to judicial review.
Arguments FOR the release of the convicts:
- The convicts have completed close to three decades of imprisonment.
- The idea of locking away a person for life, without so much as a sliver of hope of freedom, is not in keeping with the ideals of a truly modern society.
- The real purpose of sending criminals to prison is to transform them into honest and law abiding citizens by inculcating in them a distaste for crime and criminality.
Arguments AGAINST the release of the convicts:
- When lifelong imprisonment is regarded as a humane alternative to capital punishment, releasing life convicts may only strengthen the demand for the imposition of the death penalty — which would be retrograde.
- The release of all 7 convicts would set a very dangerous precedent and lead to international ramifications.
- There is no clarity as to what happens to the four Sri Lankan nationals among the convicts? Will they remain in India or be repatriated?
- There has to be a case-by-case evaluation for releasing those sentenced for life. An omnibus order of release clearly will not address the particularities in each case, or evaluate the gravity of their role in the crime and the effect on society of releasing them.
- In principle, the idea that convicts who have suffered prolonged Imprisonment require compassion cannot be ignored.
- Although there are many political considerations behind the move to release the convicts, this case must be decided on the basis of legal principles alone.
- A new research commissioned by Tata Trusts and Copenhagen Consensus for the India Consensus project shows that loan waivers are extremely expensive while having a limited impact
- Other policies could help many more farmers for every rupee spent
Status of loan availability to farmers
- Only 15% of the marginal farmers (with less than 2 hectares of landholding) have access to formal credit
- Loan waiver schemes typically cater to farmers who have availed of formal loans
- Previous waivers have led to banks reducing credit outlay for small farmers during their next loan cycle, thereby diminishing their chances of getting formal loans
- With the small farmers receiving less money from banks, this incremental loan is actually made available for the big farmers who use it to buy farm equipment such as tractors and combine harvesters
- Loan waivers actually do harm to the small farmers, as with less credit outlay from the formal sector, the small farmers increasingly have to depend upon the informal sector
Usage of loan waiver amount
- Studies also point out small farmers use money saved from loan waiver for consumption activities and not to augment investment to increase agricultural productivity
- This results in lower agricultural produce for small farmers during next loan cycles
Alternate interventions to reduce loan waivers
The government can spend money on
- Building more canals and warehouses
- It makes economic sense to build more warehouses and storage facilities
- This will reduce waste of perishable fruits, vegetables and milk that command a higher market price than staple crops
- Nearly 20% of India’s fresh produce is wasted because of storage problems
- Most small farmers do not risk growing perishable crops and because of the lack of adequate storage facilities, often sell their output forward to the village-level aggregators (arthiya) from whom they typically take loans for growing crops at a higher rate
- On rural electrification
- This will help farmers with more equipment and irrigation facilities
- To operate more e-markets
- Regulated markets have problems associated with lower market size, lack of price discovery because of buyer cartelization, and lack of information related to product standards
- The research suggests that e-markets could result in better prices
- Farmers would realize better prices with reduced information asymmetry and direct market access
- Last year’s farmer protests highlighted the extent of India’s nationwide agrarian distress
- Farmer distress requires a serious response
- The government should spend each additional rupee to alleviate farm distress in a way where the impact is more, with a higher benefit-to-cost ratio
- India is one of the fastest growing economies in the world, but its growth potential has been compromised by resource misallocation, especially when it comes to land
- India is one of the most land-scarce countries in the world
- The demand for land has accelerated with the increase in the pace of industrialization and urbanization
Effect of land distortion
- Firms use three factors of production—labour, land and capital—to produce output
- Conventional wisdom has focused on the labour market as being the most distorted in India
- Distortions in land markets are much bigger than those in labour markets
- An increase in the misallocation of all factors is associated with a huge decrease in output per worker in the manufacturing sector
- Most of this decline originates from the misallocation of land and buildings
- Distorted land markets are a breeding ground for crony capitalism and political subsidies
Inteconnection between land and capital allocation
- Land misallocation does have repercussions on capital allocation through financial markets
- How? Most bank loans require some form of collateral to guarantee the loan
- The land is simply the best form of collateral due to its immobility (i.e. the debtor can’t run off with land)
Increasing land revenue
- In most municipal corporations in India, property tax contributes less than 20% of municipal revenue
- In most major cities, nearly 50% of the properties do not pay any tax
- There are bigger growth benefits that can be derived from shifting the policy focus from reducing land “regulatory tax” to increasing land revenue tax
- It is estimated that non-linear and progressive property and land taxes could almost quadruple revenue to 1% of gross domestic product (GDP) from currently 0.15–0.2%
- This will enable more efficient firms to grow faster and increase the budgetary revenue to maximize finance for development, and additional revenues needed for investments in infrastructure, urbanization, housing, and social programmes
- India is one of the most unequal countries in the world. The richest 1% in India own 53% of wealth compared to the richest 1% in the US who own 37.3% of the wealth
- Reducing land market distortions is a key step towards making growth more inclusive and achieving double-digit growth
- The Delhi government launched its ambitious project to deliver public services at the doorstep of residents.
- Delhiites can now apply for 40 government documents to be delivered at their homes for a fee of ₹50 per service.
- The applicant would have to call 1076 and fix an appointment with a mobile sahayak, who will go to their home and help with filling forms, payment of fees and collection of documents.
- They will be informed of the documents they need, and can give a time when a “Mobile Sahayak” can come and collect them.
- They will be equipped with necessary machines such as biometric devices and a camera.
- The mobile sahayak would then submit the documents at the government office concerned, which would post the certificate or licence once issued.
- The government has enlisted a private company, VFS Global, to facilitate the services.
Why was it done?
- Availing public services is a time and energy consuming process.
- Long queues, poor infrastructure, inadequate officials in public departments and multiple visits to government office add to the public’s woes.
- The Delhi Chief Minister also appealed to the media to highlight problems in the implementation of the scheme to enable his government to resolve them in the next 10-15 days.
- People can also file their complaints and feedback on the same number if facing any issue in the delivery of service.
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