Big issues, Uncategorized

15 years Vision Document of Niti Aayog.

Introduction

  • Prime Minister held a review meeting of the planning since independence that India has seen. He also took a review meeting of the last 18 months of performance of Niti Ayog, the institution which took over fromplanning commission.
  • The whole purpose of the review was to identity the good points and the weak points of a particular process. The idea was to learn lessons from those weaknesses and make sure that the 15 year vision documentshould not repeat those weak points.
  • Prime Minister highlighted that planning should not be for 15 or 20 years, but for a century. We have analysed the past and should now lay the foundation for a strong 21st This is an opportunity of lifetime. The government is ready to experiment and take bold decisions and ready to support growth rates.
  • It is not the growth rate which is essential; it is the economic development which is essential. Whatever the government does should percolate down the pyramid. Therefore the planning should be in this direction.

Role of Science and Technology in the economic growth.

  • The way Science and Technology is growing today will impact each and every segment of our economic development. These include E-governance, transparency, connectivity, direct subsidy transfer, providing education at remote places, providing healthcare using E-technology, and proving data for doing better analysis.
  • Today data should be available in real time, so that the decision making process is concurrent. Technology should be used in each and every sphere. Because the technology is growing, the skill level of the people using the technology should be tuned accordingly.
  • The skilled man power will be the advantage of India today in terms of 600 million young people. They will be able to provide support not only to India but to the whole world.
  • There should be sourcing of talented people from outside if they are not available in India. The 15 years vision document acts like a foundation for the next century. We should not hesitate to take ideas from anywhere on the globe. Best ideas should be taken so that we have a robust plan today.
  • Government is ready to experiment on new ideas. Unless we experiment we cannot achieve a leapfrog growth. Traditional approach gives incremental growth. What is required today is an accelerated leapfrog growth. This will come only if we experiment with the planning process, execution process, and synergy among all towards a common cause.
  • The impact of Science and Technology on the growth and economy of our country is not commensurate. While in Science and Technology we have moved up the ladder, but its impact on economic growth is yet to be seen in a significant manner.
  • Whatever is needed to maintain law and order should be provided through technology.

Importance of Planning

  • India can grow when both the pillars that is the centre and the state works together. Working together does not mean they work in silos. They should work together right from the conception of the programme, planning, execution, and evaluating of the programme.
  • So while designing the mission for next 15 years, it is essential that there should be a very strong dialogue with the states, their views should be considered and the planning process should be tuned to that particular state.
  • The planning process should customize for specific reasons. The planning for hinterland states is not valid for north eastern states. Tune the planning process which is geographically, ecologically and socially compatible with that region.
  • The planning should create the job opportunities. It should create opportunities for an individual to become an Entrepreneur. Today the need is for individual jobs and not for institutional jobs. Individual should be a job provider and an Entrepreneur who becomes employed in that.
  • The programmes like Atal Innovation Mission and Self Employment and Talent Utilization should be accelerated so that large number of enterprises comes up. Stand-up India and Start-up India will not only provide Entrepreneurship, but create more job providers than job seekers.

Need of the Hour

  • The vision is for the nation in which the states are an integral part. If one has to create wealth, it can be done by losing the natural resources. If we are exporting our natural resources, then we are not creating any wealth but only distributing wealth. So there is a need for value addition.
  • The satellite technology helps to asses our natural resources, to mine them and to use them. We need to identify our natural resources, identify our strengths and design programmes accordingly.
  • India has abundant uranium reserves, but still we are looking for imports mainly because we are not in a position to identify the real locations in the big way.
  • India has an advantage of being a littoral state with long coast line. All the nations having long coast lines have grown economically in the past because of the trade opportunities and movement of logistics etc.
  • India has 7000 kms of long coast line. There is a need to work towards Blue Economy. Blue Economy means extracting wealth from the sea, using the sea routes for variety of applications like trade so that our economy grows better.

Conclusion

So far our focus was on creation of knowledge. We did not concentrate on converting knowledge into innovation, commercialisation and production. The trajectory of Science and Technology in our country has to be now changed where its relevance will be more societal, and it should be more for creating wealth along with creation of knowledge.

Country is looking towards transformational approach and not incremental approach. Therefore the vision has to be transformational. The clear mandate of the Niti Ayog and the plan for the future will take India to a higher level of growth and status in the global scenario.

Essay, Uncategorized

Debate: Is GDP a true and accurate measurement of growth?

A new book, The Great Invention by Ehsan Masood, unveils the genesis of the Gross Domestic Product (GDP) and how it shaped the modern economic paradigm. It comes at a time when a growing number of people are questioning this flawed metric. Is GDP a true and accurate measurement of growth? Exclusive excerpts from the book, followed by a cross-section of views on the efficacy of GDP

The only hint of caution that morning came, ironically, enough, from Green-span {Alan Greenspan, former chairperson of the US Federal Reserve Boa-rd}. This was still some years before the crash of 2008, and the Federal Reserve Board chairman was at the height of his powers and regarded as the chief architect and steward of America’s see-mingly unending run of prosperity. “I cannot say what the size of the economy will be 1 year from today or 100 years from now,” Daley joked {former US commerce secretary}. “But I can say that when we reach the next milestone—$10 trillion —will depend a lot on… Chairman Greenspan.”

Amid the celebrations, however, the Federal Reserve Board chairman had a warning for his audience. In the very mildest of terms, he said that it would be wrong to conflate GDP with quality of life, and he cautioned that an increase in one did not necessarily mean an increase in the other. Just because a country such as the United States has high rates of economic growth, it doesn’t automatically mean it will enjoy a high quality of life, Greenspan said. To illustrate what he meant, Greenspan asked his audience to compare how people in the northern states cooled themselves during the summer months compared with folks in the South. While the northern residents were fortunate to enjoy cool sea breezes, those down south had to turn up the air-conditioning. While both, you could say, enjoyed an equally high quality of life, in GDP terms, the air-conditioning group would come out on top. “The wonderful breezes you get up in the northern Vermont during the summer, which eliminates the requirement for air conditioning, doesn’t show up in the GDP,” Greenspan added.

Greenspan was correct. GDP is neither a measure of welfare nor an indicator of well-being. That is because it is not set up to recognize important aspects of our lives that are not captured by the acts of spending and investing. There is no room in GDP for volunteering or housework, for example; nor does it recognize that there is value in community or in time spent with families. More measurable things such as damage to our environment are also left out, as is job satisfaction. GDP doesn’t even measure the state of jobs.

Greenspan’s was by no means a lone voice cautioning against reading too much into GDP beyond what it says about the state of production, or spending, or incomes. From the earliest days, its inventors, including Simon Kuznets and the British economist John Maynard Keynes, understood that it is not really a measure of prosperity, and Kuznets in particular become skeptical of the way in which his invention was being used as a proxy for this. As far back as 1922, the English banker and statistician Josiah Stamp questioned why national income did not include the value of housework or volunteering and remarked that the trend seemed to be to value those things that are important to rich people.

Today, such voices have been joined by many more, including the leaders of the developed and developing nations. Together with government ministers and civil servants, academics, campaigners, and business folk, they recognize that GDP has strengths but also flaws, and they want change. But they cannot agree on what could or should change, and they are even less certain about how change could happen.

AND THE DEBATE…
Never heard about GDP

I have never heard about GDP. Our world is confined to our daily income, which is decreasing by the day.

In the last 45 days, I could get work for only seven days, and earned Rs 6,000.

I live under the Sarai Kale Khan Bridge along with my nine-member family, including three children and three women. Earlier, only men from our village worked as migrant labourers to support the family income. Now women are also working. Men are paid Rs 400 per day and women earn Rs 300 at construction sites in Noida. It is our only source of income.

We own about 0.8 hectares of land in our native village. But due to water scarcity and drought, we migrated to Delhi. We are eagerly awaiting the monsoon, so that we can return to our village.

It is the least ªinaccurateº method

When former president A P J Abdul Kalam was in the Central Board of Directors of the Reserve Bank of India, he posed a question to the then governor, Bimal Jalan, during a meeting: “What is this GDP business? Sometimes it goes up and sometimes it goes down?” Jalan responded in a lighter vein:

“If you hire a maid servant and pay her salary, the GDP will go up. But if you get married to the maid servant and stop giving her salary, then the GDP will go down.”

GDP is not the perfect way to measure growth. But among the alternatives, it is the least “inaccurate” method to compute the growth rate of the country. Goods and services which cannot be valued at market prices are not included. This is the first major lacuna. Take for instance the household services of housewives. They are not paid for the services, but the value of the work they are generating is not accounted.

Let’s take the second lacuna. If the vegetables and fruits a farmer is growing in his/her garden are for domestic consumption, it is not added to the GDP. Does that mean the farmer has not added value? This means all value additions for self consumption, which are not put out in the market, are not accounted in the GDP.

One alternative that has been much discussed is the Gross Domestic Happiness (GDH).

It emerged in Bhutan. However, it is based on an extensive survey and is a subjective indicator. It lacks objectivity.

Important to qualify the GDP

There is a close linkage between the growth of output and the growth of income, but it is not exact. There are situations where the two can differ significantly. For instance, think of a situation where the energy efficiency of the production process improves because of technological progress. This means that the same level of output can be produced with less energy being purchased. As a result, the growth rate of output will be zero, but the growth rate of GDP will be positive.

This distinction is important in assessing the appropriateness of GDP as an indicator of growth. Output in itself does not necessarily contribute to human well-being. What does contribute very significantly is the income generated in the process of production. The GDP is, by far, the most comprehensive measure of income that exists today, and is therefore central to any measurement of growth.

Having said this, it should also be acknowledged that the GDP gives no indication of either the distribution or the sustainability of income growth. As a result, a high rate of GDP growth can easily be associated with higher inequality or with serious degradation of natural resources. There are efforts to address these lacunae through concepts such as “inequality-adjusted GDP” and “green GDP”. The important thing to note, however, is that in all these efforts the objective is to qualify the GDP, and not to replace it.

The only genuine alternative to GDP as an indicator of growth is to measure the change in the asset base of the economy. In this approach, assets should be defined not as financial assets, but in the most comprehensive possible way, including physical, natural, human and intellectual assets. The difference between the change in assets and GDP is that the former measures the potential growth of the economy, whereas the latter measures actual income growth. Conceptually, this is a very attractive alternative, but its data needs are formidable and simply not possible at the current state of play.

Dragging ourselves towards ecological oblivion

GDP is a deeply flawed measure of economic progress. It has three large problems: It miscounts costs as benefits. Money spent to fix damage, as from strong weather and human accident, adds to its bottom line, though these are costs we seek to avoid, not benefits we want to increase. It ignores many costs, as when it overlooks the healthcare costs and early deaths wrought by air pollution or the decreased productivity, poorer health, lost sleep and lost life pleasure caused by noise pollution. It doesn’t count some economic values at all, such as the benefits we get from volunteer work, do-it-yourself household production and barter.

Simon Kuznets, the economist who led the development of GDP’s precursor statistic, Gross National Product, warned against mistaking it for a measure of general economic wellbeing. It’s an estimate of the nation’s gross monetary transactions, nothing more. As every businessperson knows, an enterprise stands or falls on its net, not its gross. Because climate change and other environmental catastrophes add to GDP when we spend money trying to fix or prevent them, if we blindly take growth in GDP as our goal we can grow ourselves right into ecological oblivion.

In contrast, the Genuine Progress Indicator (GPI) was designed as an estimate of net economic benefit. More than two decades of scholarship, research and development stand behind it. Two US states, Maryland and Vermont, have adopted it as a policy tool and several others actively support its compilation and make varying degrees of use of it.

As you’d expect there’s usually a gap between GDP and GPI. Vermont GPI was about 57 per cent of state GDP in 2011. In Missouri, the GPI was just 27 per cent of GDP in 2014. This means that in 2014, every dollar of GDP growth in Missouri brought only 27 cents worth of actual economic benefit. The rest was cost, mostly environmental cost.

Editorials, GS-3, Indian Economy, Uncategorized

Measuring Mudra’s success

Article Link

Summary:

Prime Minister Modi, in a recent interview, indicated that his focus was to create a third sector—the personal sector—other than farms and factories wherein a person turns into a job provider through entrepreneurship rather than a job-seeker in the other two sectors. This statement assumes significance as it has many policy implications for the next few years.

  • The government has already been active in translating this vision into reality. The Pradhan Mantri Mudra Yojana (PMMY) is one of the cornerstones of this policy.
  • According to estimates, the total amount of loans disbursed under the PMMY programme crossed Rs.1.25 trillion as of March 2016.

About the Pradhan Mantri MUDRA Yojana (PMMY) scheme:

The PMMY Scheme was launched in April, 2015. The scheme’s objective is to refinance collateral-free loans given by the lenders to small borrowers.

  • The scheme, which has a corpus of Rs 20,000 crore, can lend betweenRs 50,000 and Rs 10 lakh to small entrepreneurs.
  • Banks and MFIs can draw refinance under the MUDRA Scheme after becoming member-lending institutions of MUDRA.

Significance of this scheme:

  • It will greatly increase the confidence of young, educated or skilled workers who would now be able to aspire to become first generation entrepreneurs.
  • Existing small businesses, too, will be able to expand their activities.
  • Under the scheme, by floating MUDRA bank, the Centre has ensured credit flow to SMEs sector and has also identified NBFCs as a good fit to reach out to them.
  • People will now be able to get refinance at subsidised rate and it would be passed on to the SMEs. Moreover, it would enable SMEs to expand their activities.

There are three types of loans under PMMY:

  1. Shishu (up to Rs.50,000).
  2. Kishore (from Rs.50,001 to Rs.5 lakh).
  3. Tarun (from Rs.500,001 to Rs.10,00,000).

MUDRA Yojana has to address the following challenges:

  • One of the most persistent problems that Indian economy is facing is the inequitable distribution of funds. The larger portion of the capital is available to the bigger companies whereas too little of the capital is distributed to micro, small and medium business sector.
  • At present the non-profit micro financing institutes (MFI’s) are not able to provide enough support to small businesses. The commercial banks are also hesitant to provide funds to small and medium entrepreneurs. They avoid exposure to this particular segment because they consider it highly risky in nature with no performance history.
  • Even within the organized sector in India, it is the larger units that are deploying the most capital, providing the most jobs, wages and emoluments and generating the most output. Also, only 2% of the factories covered by the ASI generate net value-added (NVA) of over Rs.50 crore. They employ a quarter of the total employed in factories, provide 40% of all emoluments; generate half the total output from factories and 71% of NVA. Small businesses hardly come into picture.
  • Another problem is that as firms age in India they fail to employ more people. Even as firms become more than three decades old, they do not employ more people. If anything, employment size, relative to the size of employment at the birth of the firm, goes down.

Way ahead:

The government should measure the success or failure of its interventions including Mudra Yojana by the extent of reduction in informal employment, the rise in formal employment and the extent of mobility of firms to medium and large sizes. Objective criteria will help in making these decisions in an apolitical fashion. For that, one of the conditions of the loans must be that entrepreneurs start to maintain books of accounts on employment, output, revenues, expenses and taxes. Government should also bring in policy measures to create incentives for firms in India to increase their size. The aim of policy must be to make them grow out of their sizes at birth.

Conclusion:

Under this scheme, Rs.1.25 trillion disbursements have been done in the space of less than a year. If such rates of growth were maintained, they would constitute a sizeable chunk of total non-farm credit in the economy. Therefore, given its importance to the future evolution of the economy, it is useful to have as precise an idea as possible, ex-ante, of the economic and social outcomes that the government is seeking with such generous credit support.

Editorials, GS-3, Indian Economy, Uncategorized

With connectivity comes growth

Livemint

Issue:

  • The paramount measure of power in the 21st century is connectivity, specifically to global infrastructure networks, trade flows, capital markets and the digital economy.
  • India is now getting connected in each of these arenas and is thus taken much more seriously as a long-term pillar of the global system.

India in its neighbourhood:

  • India and Pakistan should move forward with the Most Favoured Nation trade agreement, Iran-Pakistan-India (IPI) gas pipeline from Iran, and even by revitalizing and upgrading the railway connections between Delhi and Lahore, and Karachi and Mumbai.
  • The ancient Grand Trunk (GT) Road from Kabul to Kolkata should be actively resurrected as a Central to South-East Asian trade artery which will enable Indian commercial leadership across this high-growth region in ways traditional moribund groups such as South Asian Association for Regional Cooperation never could.
  • Indians must remember that India’s neighbours are not waiting for it to take a leadership role in leveraging connectivity for influence.
  • The Chinese-led Asian Infrastructure and Investment Bank will strengthen China’s connectivity with Central and West Asia, while the China-Pakistan Economic Corridor reaching Karachi and the port of Gwadar will effectively make China an Indian Ocean power through its client partner Pakistan.
  • To not connect to Pakistan and beyond is to further cede strategic ground along the 21st century’s new Silk Roads.

In South-East Asia:

  • Despite the long border India shares with Myanmar, trade relations and airline connections are minimal.
  • The country still depends on China for most of its exports and most of its inbound investment.
  • Not only should the future GT Road extend through Bangladesh all the way to Yangon, but the three governments should accelerate efforts to construct a gas pipeline stretching from Sittwe on the Bay of Bengal through India’s northeastern states of Mizoram and Tripura and across central Bangladesh to Kolkata.
  • The BCIM (Bangladesh, China, India, Myanmar) trade corridor along the old Stilwell Road should also be upgraded more rapidly in order to facilitate trade connectivity between India, Bangladesh, Myanmar and China, uplifting the neglected populations along the route.
  • The Association of Southeast Asian Nations region has half the population of India but a larger gross domestic product, and now attracts more foreign direct investment (FDI) year on year than China does. South-East Asia is now the world’s factory floor.
  • India too is expected to surpass China in inward FDI this year, complementing its now higher growth rate as well.
  • The combination of fast growth and rising FDI are mutually reinforcing, with global markets bearish on China and favourable towards India’s long-term demographic fundamentals, opening economy and long overdue focus on infrastructure.

Ties with China:

  • Ties with China is also essential to any grand strategy premised on connectedness.
  • China ranks as the top trade partner of more than 120 countries in the world, double the number for the US (56), and far higher than for India (only one).
  • Even as India seeks to boost trade relations with countries along the Indian Ocean periphery, it must remain focused on improving its trade balance with China through higher value-added exports, while also attracting ever more FDI from China into power, transportation and other sectors.

What government can do?

  • So long as commodities’ prices remain low, Current government can keep inflation in check and continue its major commitments to roads and railways, ports and airports, and modernizing dozens of cities across the nation.
  • All of these are investments in making India more connected both internally and externally so that its population can reach its full potential.

Beyond transportation and energy, the third category of connectivity is, communications:

  • India and China represent the two largest online populations in the world—but as a percentage of the total population, only about half of Indians have functional Internet access.
  • And yet, developing countries gain a 1-2% increase in GDP with every 10% of the population that gets online.
  • The Indian government and major telecom firms may not want Facebook to be the agent of digital connectivity, but then they should step up and fulfil the responsibility themselves.
  • The Digital India initiative, which aims to boost 4G coverage and deliver last-mile Internet connectivity, is a good step in this regard, but India still ranks 44 on Huawei’s most recent 2016 Global Connectivity Index.

Conclusion:

  • The 21st century will be permanently multi-polar, with the US, Europe, China, India, Russia and other powers all playing crucial roles.
  • But it will also feature an intense tug-of-war over global financial flows and industrial supply chains.
  • Make in India is a strong example of how India can become more relevant by becoming more intertwined with global production networks in the manner that the Indian software industry has already achieved.
  • Ultimately, it is this commercial and technological connectivity with the rest of the world that will enable India to earn—and retain—a commanding position on the world stage.
Editorials, GS-3, Indian Economy, Uncategorized

The ease of living in India: 25th Anniversary of 1991 Reform

The Hindu

25th anniversary of the 1991 reforms approaches, it would be legitimate to take stock of what has been achieved.

The crisis of 1991

  • In 1991, the focus of the reforms had been on trade, exchange rate and industrial policies.
  • This had everything to do with the immediacy of the balance-of-payments crisis the economy then faced.
  • When the Rao government took charge, it was estimated that foreign exchange reserves would cover up to two weeks’ imports. A rule of thumb is that a country should aim at a cover of about six months.
  • To contain the external deficit, Finance Minister Manmohan Singh had devalued the rupee and reined in public expenditure.
  • He then went to the International Monetary Fund for balance-of-payments support.
  • This would have required courage. Retrenchment, belt-tightening, and devaluation were unpopular across the political spectrum, even within the Congress party — though on the question of how the foreign exchange needed to finance international payments was to be acquired, the critics of the strategy had little credible to offer.
  • Within three years the crisis was surmounted and the programme with the IMF ended.

Forex today:

  • There can be no doubt that the reforms have eased India’s balance-of-payments constraint.
  • India’s reserves today exceed $350 billion, compared to less than $6 billion in March 1991.
  • Moreover, the period since is the longest recorded when the country has gone without a foreign exchange shortage.
  • Earlier one had arisen in every decade, starting with the 1950s.
  • It is also significant that this new-found resilience has been achieved while the economy has got increasingly integrated with the rest of the world.
  • This outcome has gone against the pessimistic prognosis of the time that eliminating controls would suck in imports and jeopardise the balance of payments.
  • This did not happen as exports also rose, though mainly in a sector unimagined in 1991, that is, software services.
  • Of course, the rupee has depreciated very substantially after it was floated.

Great power ambitions

  • However, the reforms were not envisaged as merely staving off a balance-of-payments crisis. In Dr. Singh’s words, spoken in Parliament, they were meant to be the harbinger of “the emergence of India as a major economic power in the world”.
  • This is a worthy aspiration and the crude nationalism at times on display today should not discourage us from nursing it.
  • The question is whether we are on the right path to the goal.
  • If per capita income is taken as the measure then we are still some distance away from ‘great power’ status.
  • The most recent World Bank data show that over 2011-15 GDP per capita — measured in PPP dollars — was 5,700 in India, 11,108 in Albania, 13,206 in China and, yes, 25,638 in Malaysia.
  • Though India’s economy may not at present compare well with that of other countries, it could yet be that its rate of growth has increased after the reforms.
  • While the rate of growth of the economy accelerated after 1991, it had done so twice earlier, first in the 1950s and then in the late 1970s.
  • So the reforms have only maintained an existing history with respect to economic growth.

What of poverty?

  • Here the record is the same as that of economic growth. Absolute poverty has declined since 1991, but this has been the trend since the early 1970s.
  • Essentially, the decline in poverty has kept pace with growth.
  • Thus, mirroring growth of the economy, while the rate of decline in poverty accelerated since 2004, it had already accelerated on the cusp of the 1970s and the 1980s.
  • However, even after a quarter century of economic reforms, approximately a quarter of the country remains poor according to a poverty line that is low by international standards.

It is important to note that poverty measures are dependent upon the definition of poverty.

  • The official index in India, on which the above cited trends are based, measures access to food a little more accurately than it does access to other conditions of life which are at least as vital.
  • Even beyond health and education, the conditions of life are affected by physical infrastructure, which determines livelihood chances and well-being.
  • Major components of this infrastructure would include transportation, water supply and sanitation.
  • It is not as if successive governments have not recognised their significance, but they fail to convince that “more reforms” — incidentally called for by both the Finance Minister and the Governor of the Reserve Bank — will be able to provide them.
  • Structural reforms as liberalisation aim to provide access to and raise the profitability of the private sector. This may be essential at times, but there is a wide swathe of an economy where the market fails to deliver.
  • This it does in the presence of what are referred to as externalities and public goods.
  • Public goods are important as they mitigate the impact of income poverty and inequality.
  • We can think of health, education, public infrastructure and recreational facilities as constituting the space in which we actually lead our lives.
  • A significant transformation of it in India would require both a strengthening of the public finances and a generation of political will.

Natural capital

  • Then there is natural capital.
  • In many spheres of the economy controls had proliferated over the decades to the detriment of both growth and welfare, and their dismantling has resulted in an increase in both.
  • But markets are not always the best way to deal with nature.
  • Deep and smart regulation is necessary if we are to deal with depleting natural capital, of which this is only one instance.

Conclusion:

  • Widespread liberalisation of the economic policy regime was long overdue in 1991, and has played a positive role since, but its impact has run its course and the policy has recognisable limits.
  • Liberalisation cannot address all aspects of the man-made environment and now climate change threatens to change everything forever.
  • We do not have another quarter century to deal with these imperatives.
  • Government must be prevailed upon to match their concern for the ease of doing business with a commitment to the ease of living in India.
  • The official poverty index in India measures access to food a little more accurately than it does access to other conditions of life which are just as vital
  • A quarter century of economic reform has transformed the economy. But governments have been less mindful of addressing social and natural capital.
GS-3, Indian Economy, Uncategorized

Jobs & Economic Growth

Asia-Pacific Human Development Report just released by UNDP says that by 2050 more than 280 million people will enter the jobs market in India, a 33 per cent increase from current levels—but let us have a look at the numbers:

  • 5 million New non-agricultural jobs were created annually between 1999-2000 and 2004-2005
  • An additional 7.5 million new industrial and service sector jobs were created annually between 2004-2005 and 2011-2012.
  • But only about 7 million have been added to the labour force annually since 2005—
    • Declining population growth rate
    • Rising educational levels

 

CARE Report: Points out that despite the economy growing at a good pace, employment seems to have grown meagrely, at 4.1 per cent and 0.3 per cent respectively in FY14 and FY15

Underemployment— Only 60.5 per cent of persons aged 15 and above who were available for work for all the 12 months were able to get work during that year (that is, earning below acceptable or sustainable levels)

Open Unemployment Rate: Looms larger over the 7 million young people who are joining the labour force (10 times higher than that for those 30 years and above)

Unemployment for (in 2013)

  • 15- to 17-year-olds is 10.2 per cent
  • For 18- to 29-year-olds is 9.4 per cent
  • Over- 30-year-olds is 0.8 per cent

Core physical sectors such as manufacturing, mining, construction and non-financial services had negative employment growth ranging from minus 3.8 per cent to minus 17.4 per cent in FY15

 

Creation of Jobs:

  • Growth in industrial and service sector jobs is of utmost importance for the demographic dividend to exist positively & profitably
  • Inter-related:
    • As jobs grow, incomes rise and so do savings.
    • Based on higher savings, the investment rate to GDP grows, resulting in faster GDP growth
  • Creation of new non-agricultural jobs: Job growth leads to an increase in consumer demand which has the effect of sustaining GDP growth and reducing volatility in the output growth rate.

 

Increase in infrastructure investment

  • Became the most important sources of increased consumer demand
  • 11th Five Year Plan: Infrastructure investment in the public and private sector together grew by $475 billion—
    • Employment in construction jumped from 26 to 51 million in 2011-12
    • Real wages increased
    • A consumer demand booming in both rural and urban areas
    • The combined demand and supply effects of investment plus job growth resulted in sustained economic growth at a rate unprecedented in India’s economic history

Present: 1.35 lakh jobs were created in 2015 (lowest figure since 2008)

Slow pace of job growth

  1. While the share of organised sector jobs is increasing, most of the job increases are still taking place in the unorganised segment of industry and services, and in informal jobs
  1. While construction had been booming from 2000 to 2012, its growth dipped since 2012, and has begun to revive only since late 2015 as infrastructure investment revived. Since 2004-2005, for the first time in Indian history, 5 million agricultural workers have been leaving agriculture per annum, being mostly absorbed in low-skilled construction employment. With infrastructure investment tapering off during the fiscal years 2012-2013, 2013-2014 and 2014-2015, construction employment growth is likely to have fallen sharply, compounding the already greater rural distress caused by drought in 2014 and 2015.
  1. Education enrolment levels of youth joining the labour force have been increasing every year since 2010 or so. As a result, secondary gross enrolment ratio has increased from 62 to 79 per cent between 2010 and 2014. The educated youth are unlikely to join agriculture and will look for non-agricultural jobs in urban areas. The revolution in rising expectations is already causing social movements (the Patel and Jat agitations in Gujarat and Haryana, for instance).

Refer: http://iasbaba.com/2016/02/iasbabas-daily-current-affairs-23rd-february-2016/

http://iasbaba.com/wp-content/uploads/2016/02/Jat-Reservation-IASbaba.jpg

 

Schemes—

Ministry of Labour is finalising the scheme to offer to pay 8.33 per cent of the salary as contribution for a pension scheme for new employees getting formal sector jobs. The scheme will be applicable to those with salary up to Rs.15,000 per month

Ministry of Commerce is customising incentives for labour-intensive export sectors

  • Has already initiated an Interest Equalisation Scheme and the Merchandise Exports from India Scheme to support declining exports, given that exports have been declining for 15 months
  • In the Budget, the government also announced that 100 per cent FDI in food retail will be permitted on the condition that the goods have to be manufactured in India

Stand-Up India scheme

  • Scheduled Castes, Scheduled Tribes and women entrepreneurs will get support such as free pre-loan training and facilitating loan and marketing.
  • There will be a Rs.10,000 crore refinance window to the Small Industries Development Bank of India (SIDBI)
  • The National Credit Guarantee Trustee Company will create a corpus of Rs.5,000 crore.
  • SIDBI will engage with the Dalit Indian Chamber of Commerce and Industry and other institutions to take the scheme forward.

Way Forward:

  • Single-minded focus: Make livelihood creation central to development strategies— the leadership must bring rozgaar and employment to centre-stage in all their plans, achievements and articulations
  • Organised manufacturing is no longer the answer to generate large-scale employment:
    • Limited opportunities due to increased mechanisation and productivity
    • Specialised skills needed for select process areas
  • Encouraging people’s entrepreneurial instincts— Once the concept of ‘Start-up’ is more comprehensive, delivery of results under the Startup India or Stand-up India missions — will generate sustainable outcomes
  • Data consciousness needs to arise as close to 90 per cent of youngsters completing engineering or management studies are actually unemployable.
    • Lack of a comprehensive and practical education leading to a gap in ‘right-skilling’ vis-à-vis the true needs of the economy
    • Requirement of a separate ‘Ministry of manpower’- where training and end-user needs for human resources are truly convergent
  • Agro Subsidy-nama Need to appreciate and encourage double incomes based on output and intellect, and not through subsidies
    • Government may be able to leverage returns through its own spending on creating agri-related infrastructure
    • Distribution and logistics-based infrastructure initiatives—be given a financial boost
    • Aggregation of land parcels through pragmatic policy
  • Profitable Staple crops: Requires improved quality of seeds and better irrigation (will boost up outputs & farm incomes)
  • Massive expansion in fruit and vegetable output & a vibrant food processing industry will help in balancing out seasonal spikes and improve the longevity of produce while reducing its national waste
  • Industrial policy- Ease of doing business improvement and infrastructure investment increases should improve the economic environment— International evidence is that when consumer demand grows consistently, whether from domestic or international markets, that is when jobs grow

Connecting the Dots:

  • Does there exist potential for the government schemes to create the required number of jobs? Critically examine.
  • Discuss the idea of providing incentives to employers for creating jobs.

 

Refer: http://iasbaba.com/wp-content/uploads/2016/04/Unemployment-Stagnant-Economy-IASBaba.jpg

GS-3, Indian Economy, Uncategorized

Facilitating trade in Indian ports

Importance of Indian Port

  • The Indian port sector plays a vital role in sustaining growth in the country’s trade and commerce.
  • It also has an important role in fulfilling India’s dream of achieving greater global engagement and integration with its trading partners.
  • Much of India’s port-led development initiative is expected to revolve around growth in maritime trade, given its share in terms of both volume and value in the country’s overall trade statistics.

Initiatives taken by Government to strengthen this sector

  • Development of new ports
  • Modernisation and mechanisation of the existing ports,
  • Reduction of logistics costs through the implementation of increased waterways transport.
  • These are also in line with the vision of initiatives such as ‘Make in India’.

Issues faced by various ports

  • Seaports displayed specific patterns of issues based on differences in geography, infrastructural capacity, operational aspects, contractual arrangements, and so on.
  • Haldia Port, West Bengal, being a riverine port, faces the natural challenge of heavy siltation and inadequate dredging capacities.
  • In Paradip Port, Odisha, there is issue of semi-mechanisation and manual handling of critical processes having a cascading effect on overall operational efficiency. It highlights the importance of complete mechanisation of processes to ensure seamless operations and thereby lower down vessel turnaround time.
  • Congestion at the approach roads is a common problem observed at the Jawaharlal Nehru Port in Maharashtra.
  • Underutilisation of physical infrastructure in particular though is extremely prevalent at another private terminal — the Vallarpadam International Container Transhipment Terminal — at the Cochin Port.

Bolstering prospective ventures

As India eyes a resurgence in port-led activities in the country, these issues, though specific to certain ports, indicate the need for the Central government to undertake measures to facilitate trade through Indian ports, either in terms of building and maintaining infrastructure for handling desired capacities or undertaking relevant policy and regulatory reforms.

For Infrastructure

  • It is important to maintain draft to serve bigger vessels
  • Ensure mechanisation of ports through introduction of new equipment and procedures
  • Build new facilities
  • Upgrade existing facilities
  • Automate systems/procedures.

For policy and regulatory reforms

  • It is important to streamline tariff determination by TAMP along with a provision for periodic revisions
  • Ensure transparent and effective contractual arrangements in PPPs
  • Implement strengthened communication platforms for seamless information flow among stakeholders
  • Strengthen system integration
  • Ensure paperless clearance of procedures and transactions
  • Develop user information portals

Conclusion

  • Apart from reviving the ports currently operational, these measures, if duly incorporated, promise to sufficiently bolster prospective ventures as the country moves towards an optimistic maritime trade regime.
Editorials, GS-3, Indian Economy, Uncategorized

A taxing agenda

Summary:

India’s income tax department recently released time series data for the period 2000-01 to 2014-15. This was an attempt to enhance transparency and encourage analysis which could provide insights for policymakers. This is also being seen as an attempt by the government to sensitize many on the need for the affluent to contribute more at a time of growing disparities.

Worrying trends shown in the data:

  • There are just 18,359 individuals who have reported earnings in excess of Rs 1 crore in 2011-12 and paid tax on it.
  • Just 1% of individuals, who declared their income in assessment year 2012-13, accounted for almost 20% of the taxable income.
  • Among corporates, a little more than 5% of the companies accounted for a whopping 94% of the taxable income.
  • Direct tax collections have fallen drastically in the last five years, growing at an average annual rate of 8.5% between assessment years 2011-12 and 2015-16, compared to the 14.1% over the previous five years.
  • The drop in the growth rate of direct tax collections was accompanied by an equally dire slowdown in the growth of corporate tax. Corporate tax grew at an average annual rate of 7.1% between assessment years 2011-12 and 2015-16, down from the heady 15.6% seen in the previous five years.

Hence, it can be concluded that Indian income-tax base is very narrow. The problem of large-scale evasion or avoidance continues.

Limitations of Indian tax structure which result in tax evasion:

  • High rate of taxation.
  • Failure to curb bribery.
  • Lack of simplified procedures.
  • Existence of large number of taxes.
  • Complex tax laws and loopholes in the existing taxation policy.
  • Lack of unorganized and systematic administrative structure.
  • Deficiencies in implementing penalty provisions.

What can be done to improve the tax base?

  • The focus has to remain on widening the income-tax base, and recent efforts to phase out exemptions must be speeded up. Meanwhile, the narrowness of the tax base should lead to some introspection on the part of the tax authorities.
  • The tax department has to work out more up-to-date methods of identifying potential taxpayers.
  • The streamlining of various data sources already accessible to the government must be carried out through cross-checking of information from various sources.
  • Using big data techniques, multiple streams of data can be mined for individuals who have consistent spending patterns in excess of their declared income. This will allow for more focused audits.
  • I-T form for those with several sources of income should be made even simpler. Online and paperless filing of returns and payment of tax should be made possible.
  • The government’s approach to tax amnesty must be re-examined in light of this data. The government needs to push through meaningful reform like taxing large farm incomes and rationalising bounties enjoyed by the well-off, to widen the base.

Conclusion:

For a country like India, which needs to spend on health, education and social security and also build social and physical infrastructure, it is critical to address the challenges on the tax policy front swiftly. These include both the widening and deepening of the tax base, whittling down of exemptions and improving compliance, especially by leveraging technology. The release of data offers an opportunity to policymakers to engage in a wider public debate on the current tax policy, including on the capital gains tax — on which the government has kicked off a corrective step in this year’s budget.

GS-3, Indian Economy, Uncategorized

Centre’s nod for NIMZ in Medak

Centre’s nod for NIMZ in Medak

The government has granted the final approval to the National Investment and Manufacturing Zone (NIMZ) at Zaheerabad in Medak district, Telangana.

  • The estimated total investment by the manufacturing industry by the end of the ultimate phase of the NIMZ’s development is Rs.17,300 crore and the employment generation is about 2.77 lakh.

What are National Investment and Manufacturing Zones (NIMZs)?

The National Investment & Manufacturing Zones (NIMZs) are an important instrumentality of the National manufacturing policy. The NIMZs are envisaged as integrated industrial townships with:

  • State of the art infrastructure.
  • Land use on the basis of zoning.
  • Clean and energy efficient technology.
  • Necessary social infrastructure.
  • Skill development facilities etc.

Aim: NIMZs aim to provide a productive environment for persons transitioning from the primary to the secondary and tertiary sectors.

What the National Manufacturing Policy (NMP) says?

The National Manufacturing Policy (NMP) has the objective of enhancing the share of manufacturing in GDP to 25% and creating 100 million jobs over a decade. The NMP provides for promotion of clusters and aggregation, especially through the creation of national investment and manufacturing zones (NIMZ).

The National Manufacturing Policy (NMP) provides for:

  • Relief from Capital Gains Tax on sale of plant and machinery of a unit located in a National Investment and Manufacturing Zone (NIMZ) in case of re-investment of sale consideration within a period of three years for purchase of new plant & machinery in any other unit located in the same NIMZ or another NIMZ.
  • Rollover relief from long term Capital Gains tax to individuals on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector for the purchase of a new plant and machinery.
  • Simple and expeditious exit mechanism for closure of sick units while protecting labour interests.
  • In respect of environmental laws/regulations, inspection by specially trained/designated/notified agencies for third party inspection to supplement the inspection by the Government agencies for compliance monitoring.

Some notable points:

  • NIMZ can be proposed with land area of at least 5000 hectares.
  • Land will be selected by state governments and preference would be given to uncultivable land.
  • NIMZ will be managed by Special Purpose Vehicle, headed by. Govt. officials and experts, including those of environment.
  • To enable NIMZs to function as self governing autonomous bodies, they will be declared by the state government as industrial townships under Article 243 Q (c) of the constitution.
  • NIMZs will be notified by the central government.
Editorials, GS-3, Indian Economy, Uncategorized

The truth about India’s growth

Livemint

Issue

Skepticism over the role of micro, small and medium enterprises (MSMEs) in the growth.

What happened?

Recently,  the official figures  have highlighted the enlarged size and faster growth of the private corporate sector in its new series.

Critics’ take on this
Critics claim this is the result of using the ministry of corporate affairs’ (MCA) newer database and an improvised methodology.

Arguments in favour of MSMEs as growth engines Arguments against MSMEs as growth engines
  • It’s small corporate enterprises, often overlooked, that are driving growth invisibly.
  • This narrative is based on the Reserve Bank of India’s (RBI) release of the combined balance sheet of 237,000 non-government non-financial (NGNF) private limited companies.
  • RBI’s analysis of the combined balance sheet shows an overall improvement in the output and financial performance of these firms over three years ending 2014-15.
  • According to this perspective, the revised GDP estimates have better captured the contribution of (MSMEs) in the corporate sector that were inadequately counted in the earlier National Account series, as the older series concentrated on large-sized public limited companies’ output.
  • It is a well-known fact that a vast majority of private limited companies do not produce goods and services at all.
  • The combined balance sheet of 237,000 NGNF companies for 2013-14 forms little over a quarter (27.7%) of “active companies”—which are defined as those registered with the MCA, net of closed companies, dormant companies, inactive companies, etc.
  • Large swathes of such companies are spurious, bogus, fictitious and shell companies that hardly contribute to domestic output, and rarely, if ever, file their audited balance sheet with the MCA.
  • This poses a problem in estimating private corporate sector output, as there are no even remotely reliable estimates of the number of regularly functioning companies.

Conclusion

Based on above arguments, it is difficult to believe that  that the long tail of MSMEs with a minuscule output share can wag the economy.Therefore, the recent endorsements of the official growth narrative are perhaps premature.