Economics of Poverty

Page 1 Govt to borrow Rs 2.68 lakh crore in H2 as fiscal deficit on track2 States’ gross fiscal deficit stayed within 3%: RBI5 The link between jobs, farming and climate6 Creating jobs for young India9 Govt must not sacrifice rise in farm incomes at altar of short-term consumer interest12 Trust deficit: On Punjab and Maharashtra Co-operative Bank issue15 India has over 6 lakh rogue drones; agencies analysing sky fence, drone gun technology17 If we delay, we will pay, IRCTC promises Tejas passengers20 IRDAI issues new guidelines on standardisation of exclusions in health insurance22 Indian states’ rising debt seen posing challenge in medium term24 The brick and mortar of FDI 2.026 MAT credit not available to companies opting for lower corporate tax rate29 Accommodative stance indicates policy rate could go below 5% handle31 Forex reserves scale record high of $434.6 billion33 The current crisis at PMC Bank serves the country a warning35 Finance Minister to inaugurate national tax e-assessment centre37 A road to economic revival runs through agriculture38 The wrong way out41 The great disruption of 201643 Stirring up the truth about Zero Budget Natural Farming44 Govt needs to simplify, rationalize?labour laws to make them effective47 China has pulled ahead of India on far more than the economy49 The minimum wage solution51 It is still an amber light for road safety54 The efficiency promise of the bankruptcy code57 The policy way out59 A tax policy that could work61 ‘FASTags will work as Aadhaar, track vehicles’64 Gujarat brings out new port policy66 Easing poverty68 An economics for the poor69 Financial stability and the RBI71 Economics of poverty: On Economic Sciences' Nobel74 A gangrenous wound that could block India’s economic recovery76 A fine balance to use science tools in economics78 China’s economic future is not as bright as it was till recently80 A Nobel prize that gives us hope82 Five years of Make in India84 The third Nobel laureate’s India link86 A cost-effective way to power generation88 Page 2 Source : www.economictimes.indiatimes.com Date : 2019-10-01 GOVT TO BORROW RS 2.68 LAKH CRORE IN H2 AS FISCAL DEFICIT ON TRACK Relevant for: Indian Economy | Topic: Issues relating to Mobilization of resources incl. Savings, Borrowings & External Resources

NEW DELHI: The government has stayed with the borrowing plan for the fiscal, as announced in the budget, sending a strong signal that it will try and meet the fiscal deficit target despite a sharp cut in corporate tax rate that is expected to cost Rs 1.45 lakh crore.

It will borrow Rs 2.68 lakh crore in the second half of the fiscal, having borrowed Rs 4.42 crore in the first half, of the total planned Rs 7.1 lakh crore for FY20, the finance ministry said on Monday. “Rs 2.68 lakh crore borrowing indicates that the fiscal glide path as indicated in the budget is being maintained,” said economic affairs secretary Atanu Chakraborty on Monday, at a media briefing.

Separately released data on Monday showed better fiscal deficit for April-August, at 78.7% of the budget estimate for FY20, much better than 94.7% for the same period last year. The decline in growth to a six-year low of 5% and the subsequent measures to lift growth have raised concerns that government may miss the target for FY20. The government did not say if it would go ahead with maiden overseas sovereign borrowing announced in the budget.

The Rs 2.68 lakh crore borrowing in the second half, 37.75% of the total gross borrowing, will be spread over 17 weekly auctions of Rs 16,000 crore each. The last two auctions will be Rs 14,000 crore each. Experts have said that government’s move to maintain budgeted borrowing levels showed commitment to maintaining the fiscal glide path but it faced an uphill task. “The government is determined to keep fiscal deficit in check and for that I think they will have to push divestment… and maybe other sources of revenue like asset monetisation etc.” said DK Joshi, chief economist at Crisil.

“We expect a shortfall relative to the budgeted target for FY2020 for the tax revenues,” said Aditi Nayar, principal economist ICRA, adding that the situation will become clearer by end of the third quarter. Final borrowings will depend on shortfall in revenues and flows into small savings scheme. Yield on 10-year government bond fell by 4 basis points and closed at 6.7% on Monday. A basis point is onehundredth of one per cent. The government had cut basic corporate tax rates in a move that is expected to have an impact of Rs 1.45 lakh crore on the government’s revenue collections.

SOVEREIGN BORROWINGS Finance minister Nirmala Sitharaman had, in her budget speech, said the government would start raising a part of its gross borrowing programme in external markets in external currencies. However,crackIAS.com there was no further clarity on this during Monday’s briefing. “We need very careful calibrations and deliberations before it enters in the market. The work on that is presently going on to work out the structures and various pros and cons and it is a process which is long,” secretary said. “For this year, all borrowing of the government will presently be in rupee- denominated bonds.”

FISCAL DEFICIT India’s fiscal deficit stood at Rs 5.54 lakh crore at the end of August, which is 78.7% of the budgeted estimate of Rs 7.03 lakh crore for the current fiscal year, or 3.3% of the gross domestic product (GDP). Total government spending during the period was Rs 11.75 lakh crore, Page 3 9.75% higher than the year-ago figure of Rs 10.71 lakh crore. Capital expenditure, however, slowed in the current financial year at 40.3 % of the budget estimate against 44.1% in the year- ago period. Total receipts in April-August remained at Rs 6.21 lakh crore, 29.8% of the budget estimate for the full fiscal. NEW DELHI: The government has stayed with the borrowing plan for the fiscal, as announced in the budget, sending a strong signal that it will try and meet the fiscal deficit target despite a sharp cut in corporate tax rate that is expected to cost Rs 1.45 lakh crore.

SOVEREIGN BORROWINGS Finance minister Nirmala Sitharaman had, in her budget speech, said the government would start raising a part of its gross borrowing programme in external markets in external currencies. However, there was no further clarity on this during Monday’s briefing. “We need very careful calibrations and deliberations before it enters in the market. The work on that is presently going on to work out the structures and various pros and cons and it is a process which is long,” secretarycrackIAS.com said. “For this year, all borrowing of the government will presently be in rupee- denominated bonds.”

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 5 Source : www.thehindu.com Date : 2019-10-01 STATES’ GROSS FISCAL DEFICIT STAYED WITHIN 3%: RBI Relevant for: Indian Economy | Topic: Issues relating to Mobilization of resources incl. Savings, Borrowings & External Resources

States’ gross fiscal deficit (GFD) has remained within the Fiscal Responsibility and Budget Management Act (FRBM) threshold of 3% of gross domestic product (GDP) during 2017-18 and 2018-19, a Reserve Bank of India report on State Finances said. For 2019-20, States have budgeted a consolidated GFD of 2.6% of GDP, the report said. However, outstanding debt of States have risen over the last five years to 25% of GDP, posing medium-term challenges to its sustainability.

Observing that in the recent five-year period, the combined GFD of the States (excluding Ujwal DISCOM Assurance Yojna in 2015-16 and 2016-17) averaged 2.5% of GDP, which was in striking range of the recommendation of the FRBM Review Committee, the report said and added that this has, however, been achieved by a sharp reduction in capital expenditure.

“This has, however, been achieved by sharp retrenchment in expenditure, mainly capital expenditure, with potentially adverse implications for the pace and quality of economic development, given the large welfare effects of a much wider interface with the lives of people at the federal level,” the report said.

Celebrating 141 years of quality journalism. Subscribe for 1 year and get additional 3 months free

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper or Android, iPhone, iPad mobilecrackIAS.com applications and print. Our plans enhance your reading experience on the website.

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com Page 6 Source : www.thehindu.com Date : 2019-10-01 THE LINK BETWEEN JOBS, FARMING AND CLIMATE Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

An Indian agricultural labourer sorting peas in a field near Amritsar, Punjab. | Photo Credit: NARINDER NANU

At a panel discussion hosted recently by the students of Delhi’s Ambedkar University, the topic was, ‘Are we heading for an economic crisis?’ Presumably, they had been prompted by the all- absorbing news of a slowing economy. It is indeed correct that such a slowing is taking place. Growth has slowed for the past few quarters — the past two-and-a-half years, if we go by annual growth rates.

That this has not been comforting to the government is evident from the fact that its Ministers are running from pillar to post in an effort to goose the economy. But should we be worried?

Those who heard the address to the United Nations climate change summit by the teenager Greta Thunberg earlier this month may not be as worried about economic growth as the government is. Globally, industrial growth driven by mindless consumption is the cause of climate change, now unmistakably upon us. But India does need some growth as income levels here are still very low. The problem of low incomes can, however, be tackled even with less growth so long as it is of the appropriate type. So, the slowing of growth in India cannot reasonably be termed a crisis.

There is, however, one feature of the economy that does answer positively to the query of whether it is in crisis today, and that is unemployment. Figures reported in the report of the last Periodic Labour Force Survey point to a dramatic rise in the unemployment rate since 2011-12, when the previous survey on unemployment was undertaken. Apart from the category of ‘Urban Females’, the most recent estimate of unemployment shows that it is the highest in the 45 years since 1972-73. But even for ‘Urban Females’, it is double what it was in 2011-12. For the largest cohort, namely ‘Rural Males’, in 2017-18, it is four times the average for the 40 years up to 2011-12. These figures should convince us of the existence of a grave situation, if not crisis, with respect to employment in the country. In the average country of the OECD, an increase in unemployment of such magnitude would have triggered a nationwide debate, not to mention agitation on the streets.

The government has responded to the slowing of growth by announcing a range of measures, the most prominent of them being the reduction in the corporate tax rate. While this may have a positive effect, the move is not based on the big picture. The tax cut is meant to be a remedy for stagnant corporate investment. But if the level of corporate investment itself reflects some underlyingcrackIAS.com reality, it is only by tackling the latter that we can get to the root of the problem. A large part of corporate sales is driven by rural demand, reflected in the reported lay-offs by biscuit manufacturers. We do not hear their voices or, more importantly, the government does not, as they are less organised than some other sections of the corporate world, the automobile industry being one such.

The rural picture matters not only because the largest numbers are located there but also because of their low incomes. This means that the future growth of demand for much of industrial production is likely to come from there. After all, how many more flat-screen televisions can an urban middle-class household buy once it already possess one? The high unemployment rate for ‘Rural Males’ does suggest that we have zoomed in up to a reasonable degree of Page 7 precision on the site of low demand.

We must now answer the question of why rural incomes are growing so slowly. The recent history of crop agriculture points towards one reason. In the nine years since 2008-2009, this activity has recorded zero or negative growth in five. Put differently, in the majority of years, it has shown no growth. The economy has very likely not seen anything like this since 1947.

When growth fluctuations include production decline, a particular feature emerges. Households incurring consumption debt in bad crop years would be repaying it in the good ones. This implies that consumption does not grow appreciably even in good years. Recognising the record of agricultural production is sufficient to grasp what we see in India today. This does not imply that other factors do not matter, and we could imagine several, ranging from low export growth to the state of the banking sector, but this does suggest that poor agricultural performance is a significant explanation of slack domestic demand. Unstable agricultural production first lowers the demand for agricultural labour and, subsequently, its supply, showing up in greater unemployment. It has been pointed out that the investment rate has declined. This is indeed correct but this may well be a reflection of the poor agricultural performance. Private investment both follows output growth and leads it. When non-agricultural firms observe slow agricultural growth, they are likely to shrink their investment plans and may not revise their decision till this growth improves. Thus, attempting to influence the private investment rate is to only deal with a symptom. It is rural income generation that is the problem.

Any long-term solution to the problem of unemployment to which the slowing growth of the economy is related must start with agricultural production. Observing the performance of crop agriculture for close to a decade since 2008-09, we might say that we are witnessing something wholly new in India. It has long been recognised that there is a crop-yield cycle related to annual variations in rainfall but we are now witnessing a stagnation. Now, unlike in the case of a cycle, recovery cannot simply be assumed. We would need the expertise of agricultural scientists to confirm what exactly is responsible for this state but it would not be out to place to ask if there is not a role for ecological factors in causing agricultural stagnation. These factors encompass land degradation involving loss of soil moisture and nutrients, and the drop in the water table, leading to scarcity which raises the cost of cultivation. Almost all of this is directly man-made, related as it is to over-exploitation or abuse, as in the case of excessive fertilizer use, of the earth’s resources. Then there the increasingly erratic rainfall, seemingly god-given but actually due to climate change entirely induced by human action. A deeper adaptation is required to deal with these factors. Intelligent governance, resource deployment and change in farmer behaviour would all need to combine for this.

It is significant that the reality of an unstable agricultural sector rendering economy-wide growth fragile has not elicited an adequate economic policy response. Policy focus is disproportionately on the tax rate, the ease of doing business in the non-agricultural sector and a fussy adherence to a dubious fiscal-balance target. It is now time to draw in the public agricultural institutes and farmercrackIAS.com bodies for their views on how to resuscitate the sector. We may be experiencing an ecological undertow, and it could defeat our best-laid plans for progress.

Pulapre Balakrishnan is Professor, Ashoka University, Sonipat and Senior Fellow, IIM Kozhikode

You have reached your limit for free articles this month.

Subscribe to The Hindu now and get unlimited access.

Already have an account ? Sign in Page 8 Sign up for a 30-day free trial. Sign Up

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper or Android, iPhone, iPad mobile applications and print. Our plans enhance your reading experience on the website.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com crackIAS.com Page 9 Source : www.thehindu.com Date : 2019-10-01 CREATING JOBS FOR YOUNG INDIA Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

“New employment opportunities in construction created in rural India was 18.9 million between 2005 and 2012, and fell sharply to 1.6 million between 2012 and 2018.“ Workers at a construction site in Kolkata. REUTERS

Amartya Sen had once quipped that India’s unemployment figures were low enough to put many developed countries to shame. Professor Sen was, of course, not commending the country’s record in employment creation, but instead, highlighting the difficulties involved in measuring employment and unemployment in a developing country.

Unemployment has been at the centre of public debates in India recently. The government’s Periodic Labour Force Survey carried out in 2017-18 revealed that unemployment in the country reached an all-time high rate of 6.1%. What explains this sudden jump in unemployment in India, which had remained at a rather low rate of around 2% for several decades?

Our estimates based on official employment surveys and the Census show that in 2018, there were 471.5 million persons employed and 30.9 million unemployed in India. At the heart of the unemployment problem in India were young, unemployed men aged 15 to 29 years who comprised 21.1 million or 68.3% of all the unemployed in the country. To understand how their numbers rose recently, we need to examine the behaviour of not just labour demand but also labour supply over time.

First, the size of labour supply in India is getting a boost from the rapid expansion of the working-age population in the country — the population of 15-59-year-olds increased at the rate of 14 million a year in the 2000s.

Second, the nature of labour supply is changing too, with increasing enrolment of young adults for education and their rising job aspirations. Of all 15-29-year-old females in India, 31% had been attending schools or colleges in 2018, up from 16.3% in 2005 (although, it needs to be mentioned here that there have been questions on the quality of education received and skills acquired by these young people).

Third, the size of the workforce engaged in agriculture (and allied activities) has been declining in India: from 258.8 million in 2005 to 197.3 million in 2018 (which still accounted for 41.9% of the total workforce in the country). This decline has been partly due to the ‘push’ from low- productivity agriculture, which has suffered due to stagnant public investment from the 1990s onwards. The decline has also been driven by the ‘pull’ of new opportunities that emerge in the townscrackIAS.com and cities. A significant number of people who are ‘employed’ according to official statistics could actually have been in ‘disguised unemployment’ in agriculture (consider a person who does no job but occasionally assists his family in cultivation). Young persons in rural areas will be increasingly keen to exit disguised unemployment in agriculture.

As a result of the above-referred factors, there has been a significant increase in India in the supply of potential workers for the non-agricultural sectors. These are 15-59-year-olds who are not students nor engaged in agriculture. If provided the relevant skills, they could possibly work in industry, construction and services. Our estimates show that the potential non-agricultural workforce in India grew at the rate of 14.2 million a year between 2005 and 2012, which rose further to 17.5 million a year between 2012 and 2018. Page 10 How has the growth of labour demand matched up to the job challenge in India? Between 2005 and 2012, construction had been the major source of employment in India, absorbing men who exited agriculture in rural areas, especially in Uttar Pradesh, Rajasthan, Bihar and Madhya Pradesh. The growth of construction jobs was associated with a revival in agricultural incomes and rural wages during this period.

However, the growth of agricultural incomes and the rural economy in India slowed down markedly after 2012. New employment opportunities in construction created in rural India amounted to 18.9 million between 2005 and 2012, which fell sharply to 1.6 million between 2012 and 2018. The size of the manufacturing workforce in India declined by one million between 2012 and 2018, with micro and small firms in the informal sector suffering severe setbacks. At the same time, some segments of the services sector, especially education and professional, business and allied services recorded acceleration in employment growth after 2012. The crisis in the rural economy appears to have been moderated to some extent by an increase in governmental spending in 2016-18.

Even from 2005 to 2012, job creation in industry, construction and services in India (at the rate of 6.3 million a year) was inadequate to absorb the increase in potential job seekers into these sectors (at the rate of 14.2 million a year). Between 2012 and 2018, while the supply of potential workers into the non-agricultural sectors accelerated (to 17.5 million a year), actual labour absorption into these sectors decelerated (to 4.5 million a year). Thus, the mismatch between potential supply of and demand for labour deepened after 2012. While only the women suffered due to the mismatch during 2005-2012, young men were also affected after 2012. In fact, 30-59- year-old men managed to secure 90.4% of all new non-agricultural employment opportunities that emerged in India between 2012 and 2018, leaving too few new jobs for women and younger men.

Faced with the inadequate number of new jobs generated in the economy, women withdrew altogether from the labour market. Of all 15-59-year-old women in India, only 23% were employed in 2018, down from 42.8% in 2005. Correspondingly, there had been a sharp rise in the proportion of women who reported their status as attending to domestic duties in their own households. At the same time, the response of young men to the slow job growth in the economy was to continue in the labour market as job seekers. Among 15-29-year-old men, there was an unprecedented increase in the number of the unemployed, from 6.7 million in 2012 to 21.1 million in 2018. This was indeed the main contributor to the sudden increase in overall unemployment in India.

India faces a tough challenge in creating decent jobs for its growing young population. To tackle this, action will be needed on multiple fronts including investments in human capital, revival of the productive sectors, and programmes to stimulate small entrepreneurship. If the country is unable to make effective use of the strengths of its young women and men now, it can perhaps never do so. Within the next two decades or so, India’s population will gradually start getting older,crackIAS.com and it will be tragic for millions of poor Indians to grow old before getting even moderately rich.

Jayan Jose Thomas is Associate Professor, IIT Delhi. Views expressed are personal

You have reached your limit for free articles this month.

Subscribe to The Hindu now and get unlimited access.

Already have an account ? Sign in Page 11 Sign up for a 30-day free trial. Sign Up

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper or Android, iPhone, iPad mobile applications and print. Our plans enhance your reading experience on the website.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

How an idea for a ‘perfect Mumbai feature story’ failed to materialise

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com crackIAS.com Page 12 Source : www.indianexpress.com Date : 2019-10-01 GOVT MUST NOT SACRIFICE RISE IN FARM INCOMES AT ALTAR OF SHORT-TERM CONSUMER INTEREST Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Inflation & Monetary Policy

“When money is bad, people want it to be better. When it is good, they think of other things”.

One needs to simply replace “money” with “onions” to appreciate how the above observation on inflation by John Kenneth Galbraith still rings true. When onion is today retailing at Rs 55-60 per kg, Twitter handles and WhatsApp forwards are littered with clichés about the bulb bringing tears, making people cry, and so on. But when growers were realising Rs 3/kg a year ago, the same concerned folks had “other things” to think of.

The public cannot be blamed, though. Contrary to the 1974 Kishore Kumar song, it does not know everything. The problem comes when governments, too, take the same shortsighted approach. The average modal price of onion from January 2016 to May 2019 at Maharashtra’s Lasalgaon market was Rs 9.92/kg, which just about covered the basic cultivation cost of Rs 8 or so. That rate rose to Rs 12.22/kg in June, Rs 12.52 in July, Rs 18.80 in August and Rs 33.15 in September (till Friday).

But in June itself, the Narendra Modi government withdrew a 10 per cent export incentive given on the free-on-board (FOB) value of shipments. And on September 13, it virtually banned exports by imposing a minimum FOB price of $850 per tonne (Rs 60/kg), below which onions cannot leave the country. In addition, the state-owned MMTC was asked to import, if necessary from Pakistan.

On September 29, the de facto export ban became de jure, along with stockholding limits being imposed on the trade. This policy — of doing little when producer prices are low for extended periods, but jumping into action at the slightest hint of consumer despair (“tears”) that is often temporary — translates into a one-sided bet against the farmer. Last year, the three-acre Nashik grower who harvested 300 quintals of rabi onions in April, and stocked it in his low-cost kanda chawl storage structure for offloading through the summer and monsoon months, would have lost his shirt: Lasalgaon prices averaged just Rs 7.67/kg in September, hardly an increase over the Rs 6.70 in April. This time, there was a chance to make some money that comes, maybe, once in three years. That possibility has been scuppered by the government’s actions and admonishments. Since September 19, Lasalgaon rates have already fallen from Rs 45 to Rs 36/kg.

The costscrackIAS.com of government shortsightedness aren’t small. India, in 2018-19, exported 21.83 lakh tonnes (lt) of onions, which was a tenth of its production and valued at Rs 3,467.36 crore. Bureaucrats and ministers have no idea what it takes to build export markets and the damage that a single Directorate General of Foreign Trade notification can do. Nor do they know what low retail food inflation — this has averaged 1.38 per cent year-on-year from September 2016 to August 2019, as compared to 3.50 per cent for overall consumer price inflation — means for producer incomes and incentives.

Unfortunately, it isn’t onions alone. Even more dangerous is the proposed signing of a free trade agreement with the 16-country Regional Comprehensive Economic Partnership or RCEP bloc, Page 13 which could open India’s market to cheap milk powder and butter fat imports from New Zealand and Australia. Currently, India allows only up to 10,000 tonnes of powder imports annually at 15 per cent duty, with quantities beyond this limit attracting 60 per cent rate. There is talk of the Modi government not being averse to significantly raising the quota for imports at the concessional duty, while bringing down the rate itself from the existing 15 per cent. India apparently does not want to be seen as stalling the RCEP deal that is to be concluded by November.

One indication of the official mood is a presentation made at a stakeholder consultation meeting called by the commerce ministry on September 18, in which it was claimed that India’s likely milk production of 170.93 million tonnes (mt) in 2020-21 would fall short of consumption at 204 mt. This, when the animal husbandry and dairying department’s own output estimate for 2017-18 was 176.35 mt! Further, the gap between production (238.48 mt) and consumption (341 mt) was expected to widen by 2033-34, thereby strengthening the case for imports. These predictions were supposedly made using data from the National Dairy Development Board, which the latter has not only denied, but also gone on to cite a Niti Aayog report that had projected India’s milk output of 330 mt in 2033 to exceed demand at 292 mt!

Again, the context matters. Last year at this time, dairies were selling skimmed milk powder (SMP) at around Rs 140/kg and ghee at Rs 320/kg. The gross revenue from processing 100 litres (103 kg) of cow milk containing 3.5 per cent fat (ghee) and 8.5 per cent solids-not-fat (SMP) would, then, have been roughly Rs 2,380. After deducting chilling, transport and processing costs of Rs 500-600, the maximum that farmers could be paid was Rs 1,800-1,900 or Rs 18-19 per litre. But today, SMP and ghee rates have recovered to Rs 280 and Rs 390/kg, respectively. As a result, farmers are getting Rs 29-30 per litre.

What will the inclusion of dairy products under RCEP’s purview do? India’s yearly SMP production is 5-5.5 lt, of which 2-2.5 lt is used by dairies themselves for reconstitution into milk during the “lean” summer months. If, say, 1 lt of powder from New Zealand were to come in, it would depress the market. Indeed, the very prospect of a deal is enough to create a negative sentiment, when we are entering the “flush” winter season. Milk producers, like onion growers, have suffered low prices for much of the last 3-4 years, forcing them to reduce herd sizes or underfeed their animals. It would be a tragedy if, just when prices are improving from lows, their interests have to be sacrificed at the altar of short-term consumer interest or saving a trade deal.

The Modi government should actually take heart from the price recovery now being seen in onion, milk or even maize, jowar, pulses and soyabean. With the surplus monsoon rains delivering a bumper harvest — if not in kharif, definitely in rabi — it is farm incomes that offer the best hope for an economic turnaround. The consumer’s real friend is the producer. And we shall also keep our jobs if he starts earning and spending again. [email protected] — This article first appeared in the September 30, 2019 print edition under the title ‘Let the farmer earn’

Download the Indian Express apps for iPhone, iPad or Android

END Downloaded from crackIAS.com Page 14

crackIAS.com Page 15 Source : www.thehindu.com Date : 2019-10-01 TRUST DEFICIT: ON PUNJAB AND MAHARASHTRA CO- OPERATIVE BANK ISSUE Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

It has been a nightmare of a week for thousands of customers of the Punjab and Maharashtra Co-operative Bank (PMC), who were told last Tuesday by the Reserve Bank of India that no more than 1,000 could be withdrawn from their accounts for a period of six months. The 35-year- old lender may not be the first but is certainly one of the largest urban co-operative banks facing this clampdown. The resultant distress is also more widespread as the bank, with a large footprint in Maharashtra, is also present in Delhi, Goa, Gujarat, and Karnataka. Strikingly there was no ostensible sign of distress to trigger the bank’s virtual collapse, following the regulator’s intervention. Things were going swimmingly as per its latest annual report, with deposits growing nearly 17% year-on-year to 11,617 crore by March 2019, with long-tenure savings accounting for the largest chunk. Profits, in a tough year for banks, were flat, and while bad loans more than doubled, their proportion was far lower at PMC than at most public sector banks. Given this backdrop, the bank’s depositors, who ironically include the RBI’s own employees’ co-operative, are understandably perturbed about the fate of their savings. The RBI has said it is acting in depositors’ interests after ‘financial irregularities, failure of internal control and systems of the bank and under-reporting of exposures’ came to its notice and on Thursday, raised the withdrawal limit to 10,000 per account, stressing this should allow 60% of its depositors to recover their entire savings. The RBI must still explain what made it increase the withdrawal limit ten-fold within 48 hours, lest it be seen as a politically weighted move ahead of the Maharashtra election.

Questions have been raised on the bank’s large exposure to Housing Development and Infrastructure Limited (HDIL) which is itself undergoing insolvency proceedings. The bank’s chairman had served on the board of the HDIL for ten years between two long stints at the bank, and any irregularities in loans to the firm would be an indictment of the quality of oversight on banks. That the RBI shares regulatory responsibilities over such banks with States’ Registrar of Co-operative Societies further mires the problem. With over 1,500 urban co-operative banks operating in the country, and a few of them already under RBI-imposed restrictions, a new road map is essential for their future course. Perhaps the only major gain from demonetisation was the deployment of public savings into the formal financial sector. But failures like PMC Bank can quickly erode that. Time-bound, transparent action to fix the PMC mess and a systemic overhaul is necessary to prevent cash from moving back below household mattresses.

You have reached your limit for free articles this month.

Subscribe to The Hindu now and get unlimited access.

AlreadycrackIAS.com have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes. Page 16 Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper or Android, iPhone, iPad mobile applications and print. Our plans enhance your reading experience on the website.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Boris Johnson seems bent on delivering a no-deal Brexit

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 17 Source : www.thehindu.com Date : 2019-10-01 INDIA HAS OVER 6 LAKH ROGUE DRONES; AGENCIES ANALYSING SKY FENCE, DRONE GUN TECHNOLOGY Relevant for: Indian Economy | Topic: Infrastructure: Airports

Photo for representation. | Photo Credit: VIVEK BENDRE

India has an estimated over 6 lakh rogue or unregulated unmanned aerial vehicles (UAVs) and security agencies are analysing modern anti-drone weapons like ‘sky fence’ and ‘drone gun’ to counter terror or similar sabotage bids by these aerial platforms, official sources said on Sunday.

An official blueprint prepared by central agencies has been accessed by PTI that states unregulated drones, UAVs and remotely-piloted aircraft system are a “potential threat” to vital installations, sensitive locations and specific events and a “compatible solution” is required to counter them.

A data estimation study conducted by these agencies states that over 6 lakh unregulated drones, of various sizes and capacities, are present in the country and anyone of them can be used for launching a nefarious act by disruptive elements.

Recent incidents like the lethal drone attack on Saudi Arabia’s largest petroleum company and arms dropping by UAVs in Punjab from across the India-Pakistan border has alerted Indian security and intelligence agencies.

These agencies are now looking at some specific anti-drone techniques like sky fence, drone gun, ATHENA, drone catcher and Skywall 100 to intercept and immobilise suspicious and lethal remote-controlled aerial platforms.

A recent paper titled ‘Drones: A new frontier for Police’ published in the Indian Police Journal (IPJ) by IPS officer and Additional Director General in Rajasthan Police, Pankaj Kumar Singh, has talked about these new techniques.

A drone gun is capable of jamming the radio, global positioning system (GPS) and mobile signal between the drone and the pilot and forces the drone to ground in good time before it could wreak any damage. This Australia designed weapon has an effective range of 2 kms, the paper said.

Another solution to block a lethal drone is the sky fence system that uses a range of signal disruptors to jam the flight path and prevent them from entering their target, a sensitive installationcrackIAS.com or event venue, it said. Officials said prototypes of these counter-drone weapons were displayed for the first time at an open field in a BSF camp in Bhondsi, Haryana last week as part of a national conference organised by the Bureau of Police Research and Development (BPRD) on anti-drone technology.

A Bengaluru-based private company, BEML and Electronics Corporation of India Ltd (ECIL) among others showcased the latest technology available in this domain to the participants of the national conference which included officials from the Indian Air Force (IAF), airports guarding force CISF, Directorate General of Civil Aviation and Airports Authority of India among others, they said. Page 18 A drone gun and sky fence looks feasible solution and are being recommended to the government for consideration, a senior official in the security establishment said.

ATHENA, acronym for Advanced Test High Energy Asset, is another weapon under analysis as it works by firing a high energy laser beam on a rogue drone resulting in its complete destruction in the air.

However, this is a very costly technology and is being currently tested by the U.S. army, officials said.

A counter-UAV technology called drone catcher— that swiftly approaches an enemy drone and grabs it by throwing a net around it— is also being considered.

Such a tool is required when a rogue drone is needed to be captured safely to extract incriminating evidence from it, the paper presented by IPS officer P.K. Singh said.

A ‘skywall 100’, the paper said, is the ground version of the ‘drone catcher’ and it works by bringing down an UAV using a parachute that is hurled through a net from 100 meters distance.

Two separate BPRD and Ministry of Civil Aviation (MCA) appointed task forces are now mulling on “priority areas that need to be armed with counter-drone weapons and the cost estimation to procure suitable gadgets,” the senior official said.

You have reached your limit for free articles this month.

Subscribe to The Hindu now and get unlimited access.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences. We briefcrackIAS.com you on the latest and most important developments, three times a day. *Our Digital Subscription plans do not currently include the e-paper or Android, iPhone, iPad mobile applications and print. Our plans enhance your reading experience on the website.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Making the most of historical and real-time datasets, these platforms are empowering the potential for hypotheses made by machines, but should we be wary? Page 19 The latest and greatest Borderlands game brings more shooting and looting in the same package

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 20 Source : www.thehindu.com Date : 2019-10-02 IF WE DELAY, WE WILL PAY, IRCTC PROMISES TEJAS PASSENGERS Relevant for: Indian Economy | Topic: Infrastructure: Railways

New offer:In case of delay, a passenger can fill up aclaim form online or file a claim on a toll-free number.

In a first, passengers travelling on the Delhi-Lucknow Tejas Express, which will not be operated directly by Indian Railways, will get compensation for delays.

While Rs. 100 will be paid if the delay is for over an hour, travellers will be given Rs. 250 in case of delays of over two hours, the Indian Railway Catering and Tourism Corporation (IRCTC), which will operate the train, said on Tuesday.

Claim form

IRCTC has announced a slew of offers, including free travel insurance worth Rs. 25 lakh and onboard infotainment services, doorstep baggage collection, local food and no tatkal quota, to make the travel via its first train attractive ahead of its first commercial run on October 5.

In case of delay, a passenger will need to fill up a claim form with the insurance company in the link provided online or lodge a claim for train delay on its toll-free number.

The claim can be lodged through registered post also at the insurance company address.

On the submission of the required documents, the insurance company will settle the claim within two to three days, the IRCTC said, adding that online forms would also be made available soon.

Global practice

Many countries and cities across the globe compensate passengers for delays — some do so as monetary compensation and some in kind.

In Japan and Paris, a delay certificate is issued to passengers by railway companies as proof that a train arrived at a station later than stated in the timetable. The document can be shown in schools or offices for late admission at university exams. The certificate is issued when delays as little as five minutes occur. In the U.K., rail passengers are entitled to get automatic compensation for delayed journeys. The newcrackIAS.com Tejas Express will run on New Delhi-Lucknow route for six days a week. The fare for Lucknow to New Delhi will be Rs. 1,125 for AC chair car and Rs. 2,310 for executive chair car. The New Delhi to Lucknow ticket will be priced at Rs. 1,280 for AC chair car and Rs. 2,450 for executive chair car. The train will operate on dynamic fare scheme. Free tea and coffee will be offered through vending machines and water will be provided through RO machines for passengers on demand. Just like in flights, meals will be served by on-board service staff.

(With PTI inputs)

Celebrating 141 years of quality journalism. Subscribe for 1 year and get additional 3 months free Page 21 Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper or Android, iPhone, iPad mobile applications and print. Our plans enhance your reading experience on the website.

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 22 Source : www.indianexpress.com Date : 2019-10-02 IRDAI ISSUES NEW GUIDELINES ON STANDARDISATION OF EXCLUSIONS IN HEALTH INSURANCE Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Capital Market & SEBI

By Amit Chhabra

Just like every year, this year as well several new insurance regulations have been notified and proposed in the health insurance industry. These new laws and guidelines consist of many much-required changes which when put together become a meaningful step forward for the betterment of policyholders. The regulations cover various important aspects of health insurance and an important framework for product innovation.

As per industry experts, to date, there was no standardization or pre-defined format of the exclusions in a standard health insurance policy. With new guidelines in place, all the exclusions in a health insurance cover will be completely standardized in accordance with the policy terms and conditions. Earlier, the exclusions in the health insurance coverage were not fixed across the insurer and widely varied from one insurer to another. This led to great confusion among the policyholders. However, the Insurance Regulatory and Development Authority of India has now defined a list of exclusions and moving forward only the listed ailments will be excluded from the health insurance policy. This means that now health insurance policy will be an all-inclusive product covering you for all possible health risks.

As per the IRDAI issued modification guidelines, age-related ailments like Knee-cap replacements, Cataract Surgery, Alzheimer’s and Parkinson’s, etc. which were earlier excluded from the health insurance policy will now be covered by the insurance company. Apart from this, permanent exclusions like any ailment occurring due to working in a hazardous place, artificial life maintenance, treatment of mental illness and internal congenital diseases will be all covered under a regular health insurance policy. Some other barred exclusions that will now be covered by your health insurance policy include adult behaviour and neurodevelopment disorders, puberty and menopause-related disorders and genetic diseases.

Talking about Pre-existing Diseases (PED), IRDAI has set new guidelines to define pre-existing diseases. As per the guidelines, any disease/s or ailment/s that is/are diagnosed by a physician 48 months prior to the issuance of the health cover will now be classified under PED. Moreover, any disease/s or ailment/s for which any type of medical advice or treatment was recommended by a qualifiedcrackIAS.com doctor 48 months prior to the issuance of the policy will also qualify under PED. Any other condition whose symptoms or signs have resulted in a serious disease within three months of the issuance of the policy will also be classified under Pre-existing Diseases.

These guidelines are believed to greatly benefit policyholders who have disclosed pre-existing conditions while buying the policy as now all health insurance policies will cover all pre-existing diseases after the waiting period of 48 months is over. Apart from PED, standardization of the health insurance policies will also increase the number of people opting for portability of health insurance. While porting a policy, the policyholder just needs to serve 48 months of the waiting period in total. If the waiting period is served with one insurer, the new insurer cannot impose a fresh voting period. Page 23 As per the guidelines, insurers are free to put permanent exclusions on specified conditions provided due consent of the customer is taken. Also, treatments that require the use of some listed modern technology methods will also be covered. The regulator has advised all

The Health Insurance companies are directed to implement the changes from 1 st , October 2019 and update the suggested changes in existing products by 1 st Oct 2020.

(The writer is Head- Health Insurance, Policybazaar.com)

Download the Indian Express apps for iPhone, iPad or Android

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 24 Source : www.economictimes.indiatimes.com Date : 2019-10-02 INDIAN STATES’ RISING DEBT SEEN POSING CHALLENGE IN MEDIUM TERM Relevant for: Indian Economy | Topic: Issues relating to Mobilization of resources incl. Savings, Borrowings & External Resources

By Anirban Nag

Indian states racked up more debt to fund widening budget deficits after some of them announced waivers for farmers grappling with an agrarian crisis.

The increase in debt levels is in turn boosting redemption pressure on states, which normally issue plain vanilla bonds, according to a Reserve Bank of India report published Monday. It implies borrowings by provinces might soar in the coming years and may lead to crowding out of the private sector in a market already cramped by issuances by the federal government and state-run enterprises.

“Outstanding debt of states have risen over the last five years to 25% of gross domestic product, posing medium term challenges to its sustainability,” the central bank said in the report, Study of State Finances. Their debt profiles are prone to risks, especially if power distribution companies owned by them pile up losses.

States finished the fiscal year to March 2019 with a combined fiscal deficit of 2.9%. While that was a touch lower than the 3% gap allowed by law, it was 34 basis points worse than what they had budgeted. The states’ combined budget deficit for the financial year to March 2020 is forecast at 2.6%.

That estimate might already be under threat after Prime Minister Narendra Modi’s government announced a $20 billion tax break for companies last month as part of stimulus measures to revive economic growth. Since Indian states tend to get about a third of these taxes, their finances are likely to come under pressure.

A note from HSBC Securities and Capital Markets India on Monday forecast states’ fiscal deficit to be 10 basis points higher this year. Fitch Ratings separately said the general government budget gap, which includes deficits of states, is seen at 7.5% of GDP in the year to March -- the highest in eight years.

“States have budgeted prudently for 2019-20, but macroeconomic risks to their combined budget estimates appear to be slanted to the downside,” the RBI said. “The loss of momentum in economiccrackIAS.com activity needs to be reversed soon, otherwise it can have revenue implications for state budgets, if not complemented by extra efforts toward revenue mobilization.”

The states’ inflated debt sale schedule reflects that warning. They are scheduled to borrow up to 1.71 trillion rupees ($24 billion) from the market in the October-December quarter, higher than the 1.23-1.29 trillion indicated in the year ago period. By Anirban Nag

Indian states racked up more debt to fund widening budget deficits after some of them announced waivers for farmers grappling with an agrarian crisis. Page 25

“States have budgeted prudently for 2019-20, but macroeconomic risks to their combined budget estimates appear to be slanted to the downside,” the RBI said. “The loss of momentum in economic activity needs to be reversed soon, otherwise it can have revenue implications for state budgets, if not complemented by extra efforts toward revenue mobilization.”

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 26 Source : www.thehindu.com Date : 2019-10-04 THE BRICK AND MORTAR OF FDI 2.0 Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Foreign Capital, Foreign Trade & BOP

Foreign Direct Investment (FDI 1.0) has been welcome in India irrespective of whether or not its equity structure includes Indian public shareholding. However, the world has undergone a structural change with the emergence of Internet Multinational Companies (MNCs) such as Microsoft, Google, Facebook and Twitter that are based on ‘winner-takes-all’ platform business models. These firms are characterised essentially by inequitable dynamics, since they distribute most gains to themselves vis-à-vis their host countries. This situation demands a policy response.

Perhaps this is one of the reasons why China banned Internet MNCs. This led to China creating nine out of the 20 global Internet leaders. China strategically deploys a quid pro quo policy. MNC firms are mandated to transfer technology, share patents and enter into 50:50 joint ventures with Chinese partners in return for market access. Given our political system, India will obviously need to follow a new FDI 2.0 policy to achieve more desirable outcomes.

Rather than accepting the ‘winner MNC takes it all’ as fait accompli, FDI 2.0 should harmonise interests of all stakeholders including Indian consumers, the government and investors. FDI 2.0 could deploy ‘List or Trade in India’ as a strategic policy tool to enable Indian citizens become shareholders in MNCs such as Google, Facebook, Samsung, Huawei and others, thus capturing the ‘upside’ they create for their platforms and companies. This is equitable to all, since Indian consumers contribute to the market value of MNCs.

In 1978, the Indian government adopted a policy that required equity dilution by 100% foreign- owned companies. This led to the ‘Listing of MNCs’, and many of which then provided handsome returns to both MNCs and Indian shareholders. It is estimated now that listing Indian subsidiaries of MNCs alone could add as much as 50 lakh crore to equity market capitalisation. This could make capital markets deeper and valuations more reasonable. ‘List or Trade MNCs in India’ could become a potent extension to ‘Make in India’ to disseminate prosperity. In contrast to 1978, the proposals we present here are based on incentives, more capital market-friendly and in line with the practices followed by Mexico, China, Bangladesh and other countries.

India could implement the following set of proposals: Proposal 1 (List in India): Majority (more than 51%) foreign-owned Indian-listed MNCs could be eligible to domestic company tax rate whereas unlisted MNC subsidiaries could be subjected to a higher tax rate. Many countries such as Bangladesh, Vietnam and Thailand have used tax incentives to attract listing by MNCs.

Mexico is most successful in attracting cross listings. For example, AB InBev, Coca-Cola, WalmartcrackIAS.com and Citigroup are listed in Mexico. To ensure the success of this proposal, the government will need to reconsider the present policy of allowing 100% MNC-owned subsidiaries to compete with their listed Indian counterparts that erodes the value accruing to Indian shareholders.

Proposal 1, by itself, will not achieve the objective of increasing Indian participation in the fair value of Internet MNCs. This is because of complex issues in revenue booking that result in low profits in Indian subsidiaries. Hence, there is a need for additional initiative by way of proposal 2 to enable Indian investor participation in the ownership of parent MNCs’ shares.

Proposal 2 (‘Trade in India’ i.e. U.S. dollar-denominated parent MNC Shares to be ‘Admitted for Page 27 Trading’ on Indian bourses]: In this proposal, Indian investors could buy shares of parent MNCs (where global profits and value get consolidated). This can be permitted within the $250,000 Liberalised Remittance Scheme (LRS) limit. Indian bourses could admit only S&P 500 stocks. The Mexican Stock Exchange allows trading of international shares listed in other stock exchanges. India could replicate such models.

For successful implementation of Proposal 2, the Indian government may need to facilitate following measures:

Permit Indian bourses to implement international trading system on the lines of Mexico.

Parent MNCs in S&P 500 with business interests in India could be mandated to facilitate trading of their shares in India. MNCs would readily agree as it does not envisage listing in India.

For taxation purposes, no distinction should be made between transactions in comparable domestic and foreign securities.

LRS implementation for buying foreign stocks in GIFT City/NSE/BSE could be simplified and work as single click functionality.

Educate Indian investors about the value of diversification of their portfolio in international stocks for achieving better risk adjusted returns.

The government could facilitate access to ultra-low cost (<=0.04%) S&P 500 Index Funds such as Admiral Shares (VFIAX) and ETFs using Indian e-KYC. Indian MFs charge fees from 0.54% to 2%. They are at least 13 times more expensive.

For Proposal 2, one important issue that needs to be addressed pertains to U.S. Estate taxes. For Indian citizens, U.S. estate taxes @40% apply above portfolio value of $60,000.

To mitigate this burden, the National Securities Depository Limited (NSDL) could design a sovereign trust for holding parent MNC stocks. The NSDL could then issue BharatShares to retail investors. Nominees of the government of India would get voting rights in parent MNCs. In addition, the government could make available a ‘Fully Disclosed Model’ for holding foreign stocks in line with our NSDL/Central Depository Services Ltd (CDSL) system. The prevalent ‘Omnibus model’ carries the risk of U.S broker default because investors’ shares are held in the U.S. broker’s name. For this reason, it could also lead to higher tax liabilities in India.

Summing up, increasing Indian equity ownership of MNCs would offer diversification benefits and make Indians more prosperous. Wealth distribution through mutual funds would create a virtuous cycle of innovative ideas, entrepreneurship, employment, consumption, higher taxes, social and physical infrastructure for the benefit of Indian society. MNCs would earn the goodwill of IndiancrackIAS.com consumers while expanding their investor base. In other words, this is a win-win for all stakeholders.

Narendra Jadhav is a Member of the Rajya Sabha and a Trustee of the Pune International Centre. Vijay Kelkar and Umesh Kudalkar are the Vice-President and Visiting Fellow, respectively, of the Pune International Centre

You have reached your limit for free articles this month.

Subscribe to The Hindu now and get unlimited access. Page 28 Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper or Android, iPhone, iPad mobile applications and print. Our plans enhance your reading experience on the website.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com crackIAS.com Page 29 Source : www.economictimes.indiatimes.com Date : 2019-10-04 MAT CREDIT NOT AVAILABLE TO COMPANIES OPTING FOR LOWER CORPORATE TAX RATE Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation & Black Money incl. Government Budgeting

New Delhi: Companies looking to switch to the just-lowered 22% corporate tax rate without exemptions, will not be able use accumulated credit of minimum alternate tax. The Central Board of Direct Taxes ( CBDT) has issued a detailed circular that MAT credit will not be available to a company that opts for lower corporate tax rate of 22%. However, companies will have the option to go for the new regime after completely utilising MAT credit.

ET on Monday reported about CBDT clarifying that MAT credit will not be allowed. “...Tax credit of MAT paid by the domestic company exercising the option under Section 115BAA of the Act shall not be available consequent to exercising of such option,” said Wednesday’s circular.

Brought forward loss on account of additional depreciation shall also not be available to companies. Finance minister Nirmala Sitharaman had on September 20 slashed the corporate tax rate to 22% without exemptions or incentives from current 30% offering a 1.45 lakh crore boost to the economy, which grew by its slowest pace in six years in April-June, 2019-20 at 5%.

She also cut MAT rate to 15% from 18.5%. Tax experts say companies sitting on large MAT credits will continue in the old rate regime. “This option (switchover to lower rate) can be exercised any time so taxpayers can exhaust these carry forwards and then shift to the beneficial tax regime,” said Vikas Vasal, national leader, tax, Grant Thornton in India. Companies availing various tax exemptions, such as under special economic zones schemes, have large MAT credits.

“This could be a huge cost to some companies that will perhaps consider continuing under the old regime for the time being,” said Rohinton Sidhwa, partner, Deloitte India. He said new tax regime is heavily weighed in favour of new companies and investors. “The one-time transition costs, requirement for fresh investments and other hurdles posed for existing taxpayers are significant enough to dent benefits intended in the original announcement.”

Dilip Lakhani, senior chartered accountant, said, “Corporates with units in SEZs will not opt for reduced rate as without MAT credit, they do not stand to gain in any way. The same will apply for infrastructure and real estate companies.” Experts had a word of caution. MAT credit not available to companies opting for lower corporate tax rate

“DenialcrackIAS.com of carried forward MAT will be subject to litigation. If at all carried forward MAT credit was not intended to have been allowed to be set off under the new lower tax rate regime, it would have been best to have had this matter addressed by an explicit amendment in the ordinance itself,” said Hitesh D Gajaria, co-head of tax, KPMG India.

“Denial of carried forward MAT will be subject to litigation. If at all carried forward MAT credit was not intended to have been allowed to be set off under the new lower tax rate regime, it would have been best to have had this matter addressed by an explicit amendment in the ordinance itself,” said Hitesh D Gajaria, co-head of tax, KPMG India.

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 31 Source : www.livemint.com Date : 2019-10-05 ACCOMMODATIVE STANCE INDICATES POLICY RATE COULD GO BELOW 5% HANDLE Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Inflation & Monetary Policy

Current growth slowdown is a combination of cyclical, durable and structural factors

With the markets and the analyst community almost unanimously expecting a rate cut, the focus of the monetary policy was on the quantum of the cut, as well as the governor’s speech. Though a reasonable section did expect a 40 basis points (bps) cut, the overall outcome did not disappoint. The sharp downward revision in gross domestic product (GDP) from 6.9% to 6.1% and the explicit accommodative guidance were the key highlights of the policy. Given the extent of the downward revision in GDP, one would have possibly found a 50 bps rate cut more consistent, but the large fiscal stimulus from the government, the narrowing real rates to recent lows and the necessity to get better transmission of past rates probably led them to be a little conservative.

The significant change in this policy was of course the provision of an explicit forward guidance on the back of worsening output gap and comfortable inflation. The statement specifically says that “there is policy space to address these growth concerns", and the RBI governor in his post- policy communication further reinforced this by saying that it should be viewed as a form of forward guidance. Additionally, comfort was also given that the accommodative stance would continue as long as “necessary to revive growth" indicating more room. Since we too hold a similar prognosis about growth, we believe the policy rate could move below the 5% handle.

On the growth front, the accompanying monetary policy report presents analysis, which shows that the output gap has turned more negative over the past quarter, and concerns were raised about private consumption, which is slowing down due to a host of reasons. The weak performance of employment-generating sectors, such as automobiles and real estate, were also highlighted. We believe the current growth slowdown is a combination of cyclical, durable and some structural factors. Fiscal and monetary policy are acting in concert to alleviate the slowdown, but substantial pickup in growth could still be a little time away. The RBI’s CPI projection of 3.5-4% for FY21 also lends a lot of comfort to the sustainability of this rate cut cycle, barring any adverse shocks that may emanate from the global economy or markets.

On the liquidity situation, our forecasts suggest that for H2, systemic liquidity will remain ample though festival season currency leakage would dent this surplus. Our confidence in the liquidity surplus forecast arises on account of moderation in economic activity leading to a lower run rate of currency leakage and a higher balance of payments surplus. Expectations of open market operations will be scaled down even though the governor did provide comfort to the market that all tools,crackIAS.com including OMOs and buy-sell swaps, remain. We expect the sovereign curve to continue to steepen with the ‘up to 4 year’ segment remaining well supported on account of lower funding cost and ample liquidity, while the long end fluctuates to the borrowing programme. Corporate spreads for better rated entities in the short end could compress with liquidity staying ample. The recent cuts in corporate taxes will also lead to healthier balance sheets and, in time, improve the outlook on credit papers for good entities. Given that both monetary and fiscal easing are underway, we expect the rupee to stay under some mild depreciation pressure, although a better-than-expected BoP surplus will provide some buffer. Page 32 On the regulatory front, acceptance of two of the recommendations laid out by the task force on offshore rupee markets is a welcome step. For these objectives to be realized, it is imperative that the other recommendations of the committee, such as market time extension, be also looked into at the earliest, along with the issuance of the foreign exchange hedging guidelines, which liberalizes the onshore market in terms of documentation, product suite for offshore participants and, thereby, incentivise them to participate in onshore markets.

B. Prasanna is group head, global markets, sales, trading and research, ICICI Bank.

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 33 Source : www.economictimes.indiatimes.com Date : 2019-10-05 FOREX RESERVES SCALE RECORD HIGH OF $434.6 BILLION Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Foreign Capital, Foreign Trade & BOP

MUMBAI: The foreign exchange reserves touched a record high of USD 434.6 billion as on October 1.

According to the latest weekly data, the reserves surged by massive USD 5.022 billion to USD 433.594 billion for the week to September 27.

In the previous week, the reserves had declined by USD 388 million to USD 428.572 billion.

The increase in reserves in the reporting week on account of foreign currency assets (FCA), a major component of the overall reserves.

FCA increased by USD 4.944 billion to USD 401.615 billion in the week ended September 27, the RBI said.

Expressed in US dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and the yen held in the foreign exchange reserves.

During the week, gold reserves increased by USD 102 million to USD 26.945 billion.

The special drawing rights with the International Monetary Fund dipped by USD 7 million to USD 1.428 billion during the week.

The country's reserve position with the Fund also declined by USD 17 million to USD 3.606 billion, the data showed. MUMBAI: The foreign exchange reserves touched a record high of USD 434.6 billion as on October 1.

While announcing fourth bi-monthly monetary policy, the RBI Governor Shaktikanta Das said as of October 1 the forex kitty peaked to the record high. Between April and October 1, the country's forex reserves had increased by USD 21.7 billion. crackIAS.com According to the latest weekly data, the reserves surged by massive USD 5.022 billion to USD 433.594 billion for the week to September 27.

In the previous week, the reserves had declined by USD 388 million to USD 428.572 billion.

The increase in reserves in the reporting week on account of foreign currency assets (FCA), a major component of the overall reserves.

FCA increased by USD 4.944 billion to USD 401.615 billion in the week ended September 27, Page 34 the RBI said.

Expressed in US dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and the yen held in the foreign exchange reserves.

During the week, gold reserves increased by USD 102 million to USD 26.945 billion.

The special drawing rights with the International Monetary Fund dipped by USD 7 million to USD 1.428 billion during the week.

The country's reserve position with the Fund also declined by USD 17 million to USD 3.606 billion, the data showed.

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 35 Source : www.livemint.com Date : 2019-10-05 THE CURRENT CRISIS AT PMC BANK SERVES THE COUNTRY A WARNING Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

It is symptomatic of a broader malaise in our banking sector that requires fundamental reforms of governance to address

The crisis unfolding at PMC Bank is but the tip of the iceberg of larger, unresolved problems in India’s banking sector. The roots of the crisis in the banking sector, writ large, go back to the unresolved problem of non-performing assets (NPAs), which were magnified in the case of cooperative banks due to lax governance and a dicey business model.

Unfortunately, the Reserve Bank of India’s (RBI’s) approach seems to be to bolt the barn door after the horse has escaped. And, by imposing severe withdrawal restrictions on depositors (recently relaxed)—inevitable when problems have been allowed to fester—those who suffer are largely the poor folk enticed by the higher deposit rates that cooperative banks offer.

What is more, the problems at PMC are only the latest and most publicized in the cooperative sector, which has been beset by bad loans and poor governance for donkey’s years. A business model in which you offer depositors high interest rates, and lend money to borrowers of often dubious credentials at low interests, can easily run into difficulty due to the resultant wafer-thin profit margins, especially when such banks are used as piggy banks for well-connected politicians and others.

Unfortunately, the regulatory response thus far has been symptomatic, with little that shows an understanding of the underlying disease. What is needed at cooperative banks is fundamentally reformed governance so that a crisis such as the one that has befallen PMC—with an extraordinary 70% of the loan book represented by one business group with close ties to the bank—does not occur in the future. It is but a more extreme version of the malaise in public sector banks more generally, in which NPAs have built up because borrowers with political connections received loans they should never have got in the first place.

Former RBI governor Urjit Patel understood that painful medicine had to be administered and that this would be the only way out to cleanse the banking sector and jump start the investment cycle, at least on the supply side of the credit situation. Unfortunately, RBI under his successor appears not to have stuck to the path laid out by Patel, but has hewn closer to the government’s position of laxer regulation, especially under the Prompt Corrective Action (PCA) framework. This amounts to little more than kicking the can down the road, and putting off the day of reckoning.crackIAS.com

There is a classic political economy dilemma here: the long-run health of the banking sector requires short-run transitional costs, as banks do the heavy lifting of cleaning up their loan books. This dichotomy—between long-run gain and short-run cost—is at the root of many deferred or unfinished reforms, and one of the main reasons that reforms only occur at a time of crisis, when kicking the can down the road is no longer a viable option.

The other interesting element in the public reaction to the PMC Bank crisis is the direct appeal by many frustrated depositors to Prime Minister Narendra Modi to solve the problem, ubiquitous Page 36 on social media. Some of the videos doing the rounds document absolutely distraught, impoverished depositors literally begging and pleading with the Prime Minister to help them out. One cannot possibly imagine such a response in advanced economies, where the reaction of a disgruntled public would more likely be of anger at the failure of politicians and regulators, rather than one of entreaty.

This is a reminder, if any were needed, of the still somewhat feudal relationship between the ruler and the ruled that appears to characterize Indian democracy. What exactly do these folks expect the Prime Minister to do to help their respective personal situations?

The crisis at PMC and, more broadly, unresolved issues in the banking sector as well as other spheres of the economy seem to suggest that the government does not have a coherent and well thought-out overarching strategy for economic policy, including toward the unfinished economic reforms agenda. Rather, policy seems reactive rather than forward-looking.

Thus, the corporate tax cuts—which I support—are presented by those close to the government and its acolytes as a magic bullet, with an insouciance and complacency when it comes to other pressing reforms, including of labour laws, and other critical failures such as of infrastructure.

While rationalizing taxes is a good start, it cannot serve as a fix to the sort of problems that we are seeing at PMC Bank and other troubled banks. Those can only be handled through a more stringent regulatory process and, more fundamentally, legislative reform that overhauls the governance of cooperative banks as well as of the larger public banking sector. The fundamental political economy problem is that public sector banks serve multiple masters and, as a consequence, loan decisions are not always based on economic and financial logic. This bedevils cooperative banks as well.

The PMC crisis should be a warning to the government: get serious on economic reforms. Time is running out.

Vivek Dahejia is a Mint columnist

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 37 Source : www.thehindu.com Date : 2019-10-07 FINANCE MINISTER TO INAUGURATE NATIONAL TAX E-ASSESSMENT CENTRE Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation & Black Money incl. Government Budgeting

Finance Minister Nirmala Sitharaman will on Monday inaugurate the IT Department’s National E- assessment Centre (NeAC), which will reduce face-to-face interaction between taxpayers and tax officials. The setting up of NeAC is in line with the Prime Minister’s vision of ‘Digital India’ and promotion of ease of doing business, the Finance Ministry said in a statement.PTI

Subscribe to our 1 or 2 years plan and get our special edition e-book on "The Mahatma and The Hindu" free

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 38 Source : www.thehindu.com Date : 2019-10-07 A ROAD TO ECONOMIC REVIVAL RUNS THROUGH AGRICULTURE Relevant for: Indian Economy | Topic: Agriculture Issues and related constraints

One of the world’s fastest growing economies, India, is now facing sluggish growth, with the Reserve Bank of India sharply cutting GDP growth forecast to 6.1% for 2019-20, which is lowest in last six years; there has been a sharp decline in the performance of key sectors.

While some economists feel this slow pace is also a stage to bounce back and is cyclical, others (policy pundits) see this as a gross failure of economic reforms and even a colonial legacy, which only time will tell. Whatever the reason for the slowdown, the opportunity to speed up must accommodate a diverse body of opinion and options for sustainable and inclusive growth.

The conventional approach of fiscal and monetary stimulus options to address the relics of a slow pace would only give immediate relief and not an enduring solution. Hence key policy measures as they exist now must reach out to emancipate that which is dragging growth while stimulating key sectors.

The ripples of the slowdown are gradually moving to the primary sectors which is already reeling under an unprecedented confluence of pressure. Real agricultural and allied gross value added (GVA) grew by 2.9% during 2011-12 to 2017-18, while in the National Agricultural Policy (2000), it should have been around 4%, to attain an overall economic growth of 8%. A highly skewed and unprecedented monsoon, erratic rainfall, and extreme natural events are creating havoc as far as farms and farmers are concerned which in turn are likely to disrupt supply chains, fuel inflation and have a negative impact on consumption, all of which can further dampen the prospects of revival of the economy.

In addition, the current growth rate in the farm sector is less than adequate to take on developmental challenges originating from the Sustainable Development Goals, mainly zero hunger, no poverty, life on land, and gender equality. Hence any key reforms packages in improving the economy should also take cognisance of the crisis in the agricultural sector.

The key to addressing the slowdown lies in a selective group of reforms in the key sectors.

As always the push must start with the primary sector. First, there is a great need to accept the role of agriculture in invigorating crucial economic segments. The sector is a potential enabler and employer for more than 50% of the population; it also has the potential to revive “animal spirits” by ensuring farm viability: increasing the ratio of farm to non-farm income to 70:30 by 2022-23 from the present 60:40. According to the agriculture census 2015-16, the real income of farmers doubled in almost 20 years from 1993-94 to 2015-16. As the target to double farmers’ incomecrackIAS.com by 2022 is nearing, there must be fast-lane options and swift actions to ensure curated reforms on land, market, price, and ameliorate supply side constraints. As reiterated in the past, the Agricultural Developmental Council (ADC) in line with the GST Council is a dire need to make agricultural reforms more expressive and representative. For better income distribution, there is also a need to revisit regional crop planning and the agro-climatic zone model at the highest possible level so as to make agriculture the engine of sustainable economic growth in India 2.0 by 2022.

Second there is a strong case to believe that deindustrialisation 2.0 and creative destruction is under way from the decreasing growth rate, and that slowly fading reform to stimulate the Page 39 traditional sectors is adding to unemployment and job loss. There is immense need to promote occupations which are less influenced by the slowdown such as farming, handloom, handicrafts and others.

Third in the Economic Survey 2018-19, the working age population will continue to rise through 2041. Therefore, there is urgent need to increase the job-to-investment ratio which is currently very low. Some estimates say that 1 crore investment in India can create only four formal jobs. What has been less noticed and assessed in any survey is that inter-State migration has a huge impact on personal consumption expenditure. Giving a policy nudge to in-situ employment creation is a must for a stable income and spending. Also, there must be efforts to have an accurate picture of unemployment data in order to have policy that is closer to facts. Fourth, there is a need to reconsider the few distorting reforms that are often stated to revive the short- term chaos in the long run. Finally, the sweet spot created by low oil prices in the past is slowly taking its turn to hit the economy to further cut down aggregate demand.

The occasional dip in growth due to various reasons will slow the pace to achieving a $5-trillion economy by 2024. This is the right time to execute a slew of doable agricultural reforms as the role of agriculture in reversing the slowdown is immense in the light of its nearly 20% contribution to a $5-trillion economy. Therefore, a blend of efforts from a range of sectors, agriculture and allied sectors is warranted to enable overall growth.

Naveen P. Singh and Ranjith P.C. are with the ICAR-National Institute of Agricultural Economics and Policy Research, New Delhi. The views expressed are personal

You have reached your limit for free articles this month.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences. We briefcrackIAS.com you on the latest and most important developments, three times a day. *Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

How an idea for a ‘perfect Mumbai feature story’ failed to materialise Page 40 Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 41 Source : www.indianexpress.com Date : 2019-10-08 THE WRONG WAY OUT Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation & Black Money incl. Government Budgeting

Abhyankar is a CITU office bearer and CPI(M) Maharashtra state committee member.

Within three months of the budget session, unprecedented tax breaks have been announced outside Parliament, almost rewriting the tax regime. The government coffers will be lighter by Rs 1.45 lakh crore, and the nation will have to wait for the private corporate sector to rescue us from the slowdown. Surprisingly, there is a deafening silence on the issue of fiscal deficit despite the fact that the revenue forgone is more than 1 per cent of GDP.

Will this extraordinary measure pull the Indian economy out of the slowdown? The slowdown is essentially sluggish aggregate demand in the economy leading to a fall in production, investment, employment and income. To decipher it, we have to decode the components of aggregate demand. It should be noted that the slowdown has been years in the making with the market shrinking due to adverse terms of exchange faced by majority of the population and also due to rising structural unemployment.

With low and falling employment elasticity, the multiplier effect of GDP growth will not lead to healthy growth in private consumption demand. Employment elasticity, which indicates the percentage growth in employment for each 1 per cent change in growth, has come down from 0.4 per cent in the 1990s to 0.2 per cent for the five years preceding 2014, reaching a low of barely 0.1 per cent in recent years. Also, it has been observed that capital expenditure (capex) in the private sector has been falling for seven years.

Expenditure by the central government, as a percentage of GDP, has also been falling for the last four years. It declined from 13.3 per cent in 2013-14 to 12.2 per cent in 2018-19. Of this, capex has come down to 2.4 per cent from 3 per cent over the same period. Also, capex plans of public sector enterprises are at the lowest levels in the last 14 years.

Around 44 per cent of the labour force works in agriculture. Their share in the GDP is merely 15 per cent and is declining faster than the fall in their proportion of the labour force employed in the sector. The exit of labour from agriculture could have been a positive step towards industrialisation. But, unfortunately, it is not so. They are dropping out due to deep economic distress, and not for gainful alternative employment. This has led to two disturbing consequences: First, there is a substantial rise in the rate of open unemployment; and second, a large crackIAS.comsegment of the population, particularly women, are dropping out from the labour force. That is the reason why the labour force participation rate of women in India has declined to 23 per cent in 2018 from 42 per cent in 2011. The overall figure (male and female) has dropped to about 50 per cent in 2018 from 63 per cent in 2011 (all figures are for the age group 15-63 from PLFS report).

The bargaining power of the working class in industries and services except in the top layer in the IT and finance sectors, has been falling over the past two decades due lax enforcement of labour laws, leading to the informalisation and contractualisation of almost 80 per cent of employment in the formal sector. The share of the labour in value-added in the formal sector has Page 42 dropped from 33 per cent in 1990-91 to 23 per cent in 2012-13.

Thus, it is unrealistic to expect that the private corporate sector or even foreign investment would invest in an economy with a shrinking market. Would they risk their capital in new ventures or expansion just because the rate of taxation is low? The Keynesian equation that rising inequality essentially leads to a shrinking market size at the macro level is being vindicated in India.

What is needed is enhanced government spending and investment, to enlarge the scope of employment guarantee to urban areas. This could save the economy from falling into a recession. The tax breaks are counterproductive, as they would almost paralyse the already weak financial muscle of the government.

The writer is member, CPM Maharashtra state committee and a CITU activist

Download the Indian Express apps for iPhone, iPad or Android

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 43 Source : www.livemint.com Date : 2019-10-08 THE GREAT DISRUPTION OF 2016 Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation & Black Money incl. Government Budgeting

According to a study published recently by the US National Bureau of Economic Research, demonetization reduced jobs by up to three percentage points

India’s overnight ban on high-value currency notes in 2016 was a shock alright. Just how big, however, has been a matter of dispute. According to a study published recently by the US National Bureau of Economic Research, demonetization reduced jobs by up to three percentage points and hurt economic activity by a similar magnitude in the first two months after it took effect on 8 November that year. Research has also found that the exercise—aimed at spiking black money, curbing corruption and depriving terrorists of funds—led to a two-percentage point decline in bank lending in that period.

The research paper, authored by such scholars as the International Monetary Fund’s Chief Economist Gita Gopinath and Reserve Bank of India’s Abhinav Narayanan, examines the impact of demonetization across the country at the district level to make national-effect estimates. The paper concludes that figures put out earlier had underestimated the economic impact of the move.

From an academic point of view, the paper’s attention to detail, especially its reliance on data for various parameters on the ground, offers us the reassurance that this study is reasonably comprehensive. The research method employed also reveals that the note ban’s shock was felt unevenly across the country, with some regions hit harder than others because they had a higher proportion of high-value notes in circulation. The study’s period of analysis is rather short, though, and has not captured the secondary effects of the ban are arguably still being felt. As many observers have noted, late 2016 disrupted a recovery of

India’s economy and sent it into a prolonged slump from which it is yet to emerge.

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END crackIAS.comDownloaded from crackIAS.com © Zuccess App by crackIAS.com Page 44 Source : www.thehindu.com Date : 2019-10-09 STIRRING UP THE TRUTH ABOUT ZERO BUDGET NATURAL FARMING Relevant for: Indian Economy | Topic: Agriculture Issues and related constraints

Most criticisms of modern agricultural practices are criticisms of post-Liebig developments in agricultural science. It was after the pioneering work of Justus von Liebig and Friedrich Wöhler in organic chemistry in the 19th century that chemical fertilizers began to be used in agriculture. In the 20th century, the criticisms levelled against Green Revolution technologies were criticisms of the increasing “chemicalisation” of agriculture.

Claims were made that alternative, non-chemical agricultures were possible. Organic farming became an umbrella term that represented a variety of non-chemical and less-chemical oriented methods of farming. Rudolf Steiner’s biodynamics, Masanobu Fukuoka’s one-straw revolution and Madagascar’s System of Rice Intensification (SRI) were examples of specific alternatives proposed. In India, such alternatives and their variants included, among others, homoeo- farming, Vedic farming, Natu-eco farming, Agnihotra farming and Amrutpani farming. Zero Budget Natural Farming (ZBNF), popularised by Subhash Palekar, is the most recent entry into this group.

According to Mr. Palekar, all knowledge created by agricultural universities is false. He calls Liebig as “Mr. Lie Big”. He labels chemical fertilizers and pesticides as “demonic substances”, cross-bred cows as “demonic species” and biotechnology and tractors as “demonic technologies”. At the same time, Mr. Palekar is also critical of organic farming. For him, “organic farming” is “more dangerous than chemical farming”, and “worse than [an] atom bomb”. He calls vermicomposting a “scandal” and Eiseniafoetida, the red worm used to make vermicompost, as the “destructor beast”. He also calls Steiner’s biodynamic farming “bio-dynamite farming”. His own alternative of ZBNF is, thus, posed against both inorganic farming and organic farming.

Mr. Palekar’s premise is that soil has all the nutrients plants need. To make these nutrients available to plants, we need the intermediation of microorganisms. For this, he recommends the “four wheels of ZBNF”: Bijamrit, Jivamrit, Mulching and Waaphasa. Bijamrit is the microbial coating of seeds with formulations of cow urine and cow dung. Jivamrit is the enhancement of soil microbes using an inoculum of cow dung, cow urine, and jaggery. Mulching is the covering of soil with crops or crop residues. Waaphasa is the building up of soil humus to increase soil aeration. In addition, ZBNF includes three methods of insect and pest management: Agniastra, Brahmastra and Neemastra (all different preparations using cow urine, cow dung, tobacco, fruits, green chilli, garlic and neem).

To begin with, ZBNF is hardly zero budget. Many ingredients of Mr. Palekar’s formulations have to be purchased. These apart, wages of hired labour, imputed value of family labour, imputed rent overcrackIAS.com owned land, costs of maintaining cows and paid-out costs on electricity and pump sets are all costs that ZBNF proponents conveniently ignore.

Second, there are no independent studies to validate the claims that ZBNF plots have a higher yield than non-ZBNF plots. The Government of Andhra Pradesh has a report, but it appears to be a self-appraisal by the implementing agency; independent studies based on field trials are not available. There is a report from the La Via Campesina for Karnataka, but it is based on accounts of practitioners and not field trials. One field trial is ongoing at the G.B. Pant University of Agriculture and Technology, but its full results will be available only after five years. According to reliable sources, preliminary observations of these field trials have recorded a yield shortfall of Page 45 about 30% in ZBNF plots when compared with non-ZBNF plots.

Third, most of Mr. Palekar’s claims stand agricultural science on its head. Indian soils are poor in organic matter content. About 59% of soils are low in available nitrogen; about 49% are low in available phosphorus; and about 48% are low or medium in available potassium. Indian soils are also varyingly deficient in micronutrients, such as zinc, iron, manganese, copper, molybdenum and boron. Micronutrient deficiencies are not just yield-limiting in themselves; they also disallow the full expression of other nutrients in the soil leading to an overall decline in fertility. In some regions, soils are saline. In other regions, soils are acidic due to nutrient deficiencies or aluminium, manganese and iron toxicities. In certain other regions, soils are toxic due to heavy metal pollution from industrial and municipal wastes or excessive application of fertilizers and pesticides.

On their part, agricultural scientists do identify the improper/imbalanced application of fertilizers, that too with no focus on micronutrients, as a matter of concern. Hence, they recommend location-specific solutions to nurture soil health and sustain increases in soil fertility. They suggest soil test-based balanced fertilisation and integrated nutrient management methods combining organic manures (i.e., farm yard manure, compost, crop residues, biofertilizers, green manure) with chemical fertilizers. But ZBNF practitioners appear to insist on one blanket solution for all the problems of Indian soils. One of Mr. Palekar’s favourite remarks is that “soil testing is a conspiracy”.

Fourth, Mr. Palekar has a totally irrational position on the nutrient requirements of plants. According to him, 98.5% of the nutrients that plants need is obtained from air, water and sunlight; only 1.5% is from the soil. All nutrients are present in adequate quantities in all types of soils. However, they are not in a usable form. Jivamrit, Mr. Palekar’s magical concoction, makes these nutrients available to the plants by increasing the population of soil microorganisms. All these are baseless claims. The Jivamrit prescription is essentially the application of 10 kg of cow dung and 10 litres of cow urine per acre per month. For a five-month season, this means 50 kg of cow dung and 50 litres of cow urine. Given nitrogen content of 0.5% in cow dung and 1% in cow urine, this translates to just about 750 g of nitrogen per acre per season. This is totally inadequate considering the nitrogen requirements of Indian soils.

Finally, the spiritual nature of agriculture that Mr. Palekar posits is troublesome. Some of his statements are odd. He has claimed that because of ZBNF’s spiritual closeness to nature, its practitioners will stop drinking, gambling, lying, eating non-vegetarian food and wasting resources. For him, only Indian Vedic philosophy is the “absolute truth”. By placing cows at the centre of ZBNF, he (wrongly) claims that India’s cattle population is falling. From there, he espouses empathy for the activities of gau rakshaks. All of this reeks of a cultural chauvinism that uncritically celebrates indigenous knowledges and reactionary features of the past.

Undoubtedly, improvement of soil health should be a priority agenda in India’s agricultural policy. We needcrackIAS.com steps to check wind and water erosion of soils. We need innovative technologies to minimise physical degradation of soils due to waterlogging, flooding and crusting. We need to improve the fertility of saline, acidic, alkaline and toxic soils by reclaiming them. We need location-specific interventions towards balanced fertilisation and integrated nutrient management. While we try to reduce the use of chemical fertilizers in some locations, we should be open to increasing their use in other locations. But such a comprehensive approach requires a strong embrace of scientific temper and a firm rejection of anti-science postures. In this sense, the inclusion of ZBNF into our agricultural policy by the government appears unwise and imprudent.

R. Ramakumar is NABARD Chair Professor and Arjun S.V. is a student at the Tata Institute of Page 46 Social Sciences, Mumbai

You have reached your limit for free articles this month.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 47 Source : www.livemint.com Date : 2019-10-09 GOVT NEEDS TO SIMPLIFY, RATIONALIZE LABOUR LAWS TO MAKE THEM EFFECTIVE Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

The code also proposes partial payment of gratuity and maternity benefit

India has 44 central, 387 state labour laws, 67 central and 1,333 state labour filings and 674 central and 26,484 labour compliances. Multiplicity of laws, multiple enforcement authorities and multiple licenses, registrations and returns have created an environment which breeds non- compliance and lowers the guard on the very section we intend to protect and safeguard, pushing millions of citizens to informal employment.

What is needed is simplification, rationalization, digitisation of labour laws to make them comprehensive, effective, easy to comply. Subsuming our labour laws based on relevance into four labour codes is our first step in that direction. Post approval of the Code on Wages Bill, all attention is on the Social Security code.

Upto 45% wage confiscation due to mandatory social security deductions has led to a large section of the workforce choosing to be informal. I have always believed that the only social security India can afford is more formal jobs, hence, this code is of particular interest to me.

Just to summarise the positives of this code for me. To begin with, it subsumes Payment of Gratuity Act, Maternity Benefit Act, Employee Compensation Act, Unorganised Workers Social Security Act, Existing Labour Welfare Funds Acts, Cess Acts—BOCW, Beedi Workers, Cine Workers, Mine Workers into one thereby reducing multiplicity. It also proposes partial payment of gratuity and maternity benefit by the government albeit more beneficial for those in the informal sector. It is also appreciable that the government is recognizing the advent of gig . While provision of health and life cover seems genuine for gig workers, proposal to extend such benefits even for their old age looks tough to implement. The code also says that EPFO and ESIC would be body corporates.

The code contains provisions relevant to changing these two autonomous bodies to body corporates. We are aware that these social security bodies maintain huge corpus and to manage the funds, the code states that financial adviser and CAO chief accounts officer shall be appointed. In addition, the government is also proposing to make amendments to ESIC and PF Laws simultaneously. At this stage, it is not clear whether these two Acts would get subsumed with the code. After making amendments through notification, there are chances (and one hopes so) that these two Acts and Schemes may get subsumed into the codes.

My concernscrackIAS.com include the potential increase of burden on employers towards the proposed social security funds. Above all, I am forced to wonder our ability as a nation to afford social security for the large section of the informal sector from the perspective of creation of corpus as well as our ability and bandwidth to implement and supervise an ambitious attempt of this nature. A structural solution towards massive formal job creation is probably the only way forward for a young population like ours.

I am glad that they are acknowledging the evolution of the gig economy and companies in the space who are pulling out low-paid informal workers to earn more and have dignity of labour and life. The policy, however, is premature and overambitious. The IT sector in India grew well Page 48 because it had the freedom to flourish. The case is similar with gig economy players. They need to have freedom to flourish without a lot of regulations. As the government cannot track workers, it will track and task employers. It means the cost will go up and companies will pass on the cost to gig workers, reducing their take home income.

Rituparna Chakraborty is co-founder and executive vice president of TeamLease Services.

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 49 Source : www.livemint.com Date : 2019-10-09 CHINA HAS PULLED AHEAD OF INDIA ON FAR MORE THAN THE ECONOMY Relevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms

In economic terms, it’s around a dozen years ahead of us, but the gap is much larger when social indicators are considered

The spectacular rise of China over the past few decades has no parallel in human history. The People’s Republic of China was established 70 years ago this month under conditions of economic misery. It is today the main geopolitical challenger to the US. As a result of its profound economic transformation, China has taken a lead over India in the past two decades. How large is this lead?

This is a question worth asking as the Chinese economy inevitably begins to move out of the fast lane now that China is a middle-income country. The loss of momentum will perhaps be deeper than expected if the strategic squeeze being applied by the US has its desired effect. A forthcoming working paper by economists M. Zhu, L. Zhang and D. Peng estimates that the rate of expansion of the Chinese economy will be down to 4% by 2030. A few private sector economists believe that China could end up growing at half that rate.

Let us begin with standard economic measures. This column takes data from multilateral agencies such as the International Monetary Fund (IMF) in order to make the numbers comparable, though the use of the dollar as a unit of measure means these comparisons are sensitive to movements in the exchange rates of the two Asian giants.

At the turn of the century, the Chinese economy was 2.5 times the size of the Indian economy. It is now nearly five times larger. The gap looks a little less daunting when it is seen on a time scale. India’s gross domestic product (GDP) in 2019 will be around $2.9 trillion. China crossed that mark in 2007. In other words, India is around a dozen years behind China in terms of economic size.

The record is very similar when we consider average incomes. The average Chinese was twice as rich as the average Indian in the year 2000. She is now nearly five times richer. It is a broadly similar story if we consider purchasing power parity, rather than market exchange rates. The average income in India in 2019 will be an estimated $2,972. China was at this level in 2006. Once again, it is a gap of a dozen years.

What really distinguishes China from India is the ability of the former to grow rapidly on a sustained basis instead of in short bursts. For example, China doubled its per capital income from the $3,000 level in five short years. This is similar to the rate at which a country such as SouthcrackIAS.com Korea achieved in the 1980s.

Indonesia had an average income of around $3,000 in 2010. It has not yet been able to double its per capita income from that level, and may struggle to do so even by 2024, going by current IMF forecasts. The big question to ask, now that Indian per capita income is around that $3,000 mark, is this: Will real incomes double from here at Chinese or Indonesian speed?

If the gap in economic terms is around 12 years, what about the gap in social indicators? Here are a few health indicators that can give us an idea about the overall gap in social indicators. Let us start with the prevalence of stunting among children below five years. Around a third of Indian Page 50 children were stunted in 2014; China faced the problem with the same intensity way back in 1990. Less than a tenth of Chinese children below five years fall prey to stunting today.

Consider births attended by skilled health workers. In 2016, 81.4% of births in India were in proper medical centres. This has been an impressive improvement. However, China was at 94% as long back as 1990. Almost every birth in China today is overseen by a trained health worker.

The third example is access to sanitation. In Indian cities, 72.01% of the population had access to at least basic sanitation services in 2017. Compare this with the 77.49% of Chinese city dwellers with access to sanitation in 2000, or the 90.79% today. It is much the same in the rural areas. 52.23% of Indian villagers had access to decent sanitation in 2017. China was at this level in 2005. Of course, these numbers could yet change dramatically, depending on the success of the Swachh Bharat programme.

The upshot: China is around a dozen years ahead of India in purely economic terms, but the gap is far larger when social indicators are considered. It is important to remember that China had crossed India’s current levels of social indicators when its per capita income was far lower than $3,000.

A lot of the ongoing discussion over the gap between the two countries focuses on the former, rather than the latter. However, they need to be considered together because of their interlinkages. India cannot provide a better quality of life to its citizens unless it maintains rapid economic growth on a sustained basis for at least the next two decades. And rapid economic growth will not be sustainable unless there are investments in human capital, especially if the country’s demographic dividend is to be meaningful.

Niranjan Rajadhyaksha is a member of the academic board of the Meghnad Desai Academy of Economics.

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 51 Source : www.thehindu.com Date : 2019-10-10 THE MINIMUM WAGE SOLUTION Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

Labourers at work under the NREGA job scheme

The government made two recent announcements at two ends of the spectrum to mitigate the economic crisis. One concerns a new indexation of NREGA wages meant to increase rural incomes. The second is a reduction in corporate tax rate.

Prices of commodities increase each year, so it’s important to accurately estimate how much a NREGA labourer should earn in 2020 if she earned 179 (national daily average NREGA wage) in 2019. For this, we need a good index to benchmark and revise the wages. Indices are (weighted) averages of the prices of a basket of goods consumed and the index must be based on the main items of consumption for rural households. NREGA daily wages are to be indexed with an updated inflation index called the Consumer Price Index-Rural (CPI-R) instead of the older Consumer Price Index-Agricultural Labourers (CPI-AL). The calculation of CPI-AL involved more food items in the consumption basket while the calculation of CPI-R involves more non- food items such as healthcare and education. CPI-R better reflects the rural consumption basket compared to CPI-AL.

Although this new indexation is critical, it will have a sizeable impact on increase in rural incomes only if the base NREGA wages are high. For example, let’s assume a 10% increase in wages due to the new indexation. Then NREGA wages in Kerala at 271 per day, one of the highest, would become 298. However, if NREGA wages were equal to the State minimum wages, the wages in Kerala would increase from 490 to about 540. A substantial increase in NREGA wages and subsequent indexation with CPI-R would be meaningful for the workers and the economy. But barring three States/UTs, NREGA wages are still lower than the State minimum wages elsewhere, in violation of the law.

Minimum wages are neither a dole nor an act of charity. They are a legal mandate that are arrived at by calculating the minimal nutritional requirement and basic needs of an individual. In fact, the Fair Wages Committee of the Ministry of Labour (1949) noted in a progressive report that a “living wage” should also include education, healthcare and insurance besides the bare essentials. In Sanjit Roy v. State of Rajasthan (1983), the Supreme Court held that paying less than minimum wages is akin to “forced labour”. In Workmen v. Management of Raptakos Brett (1991), it said that the aforementioned provisions must be added to arrive at a moral “living wage” to ensure basic dignity of life. Yet, the current daily NREGA wages are just a quarter of the minimum daily living wage of 692 as outlined in the 7th Pay Commission. The currentcrackIAS.com corporate tax cut will only widen economic inequality. According to the Oxfam Inequality Report 2018, in one year, the wealth of the richest 1% in India grew by 20.91 lakh crore, which is equivalent to the 2017-18 Budget. According to estimates by CRISIL, due to the recent tax cut, 1,000 companies would have annual savings of around 37,000 crore. In comparison, the last annual NREGA budget is 60,000 crore. So the estimated gains of more than a 1,000 companies would be equivalent to the annual earnings of around 7.2 crore NREGA labourers. What is worse is that the budget allocation for NREGA gets exhausted by October of each financial year, leading to delays in payment of wages. These are all legal violations.

According to a 2015 IMF report, “if the income share of the top 20% (the rich) increases, then GDP growth actually declines over the medium term”, while “an increase in the income share of Page 52 the bottom 20% (the poor) is associated with higher GDP growth”. While corporate tax cuts and lower interest rates would give corporations some liquidity, it is unlikely that rural demand will increase. On the contrary, without a substantial increase in NREGA wages, the wages would barely match inflation levels leading to wage stagnation in real terms. It is therefore economically prudent to substantially increase the budget for public programmes such as NREGA. This would lead to higher disposable income for the poor which in turn would have positive multiplier effects in the economy.

On economic, ethical, and legal counts, it behoves the government to pay attention to the poor. However, the ruling party seems to pander to the super rich. In circumstances of unsustainable wages, the poor would be forced to become part of the migrant labour force eager to eke out a modicum of existence. India Inc. would, in turn, benefit by absorbing them at throwaway daily wages leaving no alternatives for labourers. Jean Dreze and Amartya Sen’s poignant — almost dystopian — imagery of India having pockets of California in a sea of sub-Saharan Africa is still eerily true. This, at the twilight of the second decade of the 21st century, is deeply worrying

Rajendran Narayanan teaches at Azim Premji University, Bengaluru, and Sakina Dhorajiwala is a researcher with LibTech India

You have reached your limit for free articles this month.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience. SupportcrackIAS.com quality journalism - Subscribe to The Hindu Digital Please enter a valid email address.

How an idea for a ‘perfect Mumbai feature story’ failed to materialise

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 54 Source : www.thehindu.com Date : 2019-10-11 IT IS STILL AN AMBER LIGHT FOR ROAD SAFETY Relevant for: Indian Economy | Topic: Infrastructure: Roads

The Motor Vehicles (Amendment) Bill, 2019 passed by the Lok Sabha on July 23 and by the Rajya Sabha on July 31 has 63 clauses with the aim of reducing road traffic fatalities and injuries in India. The amended MVA has several new provisions: increased compensation for road accident victims, a Motor Vehicle Accident fund to provide compulsory insurance cover to all road users, defining a good Samaritan, recall of a defective motor vehicle, development of a National Transportation Policy, a National Road Safety Board, recognising taxi aggregators and increased penalties for several offences. All these are intended to reduce traffic crashes by at least 50% by 2030 (a target set by the United Nations). Out of the many amendments proposed in the Act, the increased penalties have been implemented in many States from September 1, 2019; at the same time, many States have decided to “dilute” the suggested increase in penalties.

New penalties have been introduced for ‘faulty registration details, the concessionaire or the contractor who is responsible for a faulty road design or has not followed standards, and for guardians of juvenile offenders to be penalised. While there have to be penalties for offenders, there does not seem to be any correlation between stricter and higher penalties and a reduction in road traffic crashes in countries where road traffic deaths have reduced over the years’, examples being West Europe, the United States, Japan and Australia.

The idea of higher fines as a deterrent to traffic crashes is based on the assumption that a driver is careless and that the fear of a higher penalty will encourage “careful” behaviour while on the road. This goes against current scientific understanding in reducing traffic crashes that promotes the design of a system which can forgive mistakes made by road users. Road safety experts suggest that road designs such as lane width, shoulder presence, number of lanes and median design influence driving behaviour such as operating speeds, lane changing, etc.

Therefore, one could expect that ‘roads themselves play an important role in road safety, and improved geometry design and infrastructure could in turn help to improve road safety. Drivers can modify their behaviour based on what they see on the road ahead of them. Drivers are more likely to fall asleep or experience boredom on straight, monotonous, dual carriageway roads with little traffic’. Stricter penalties and intensive driver training cannot reduce the risk of driver fatigue. However, road engineers can change the road design to reduce boredom and monotony.

Given the understanding from traffic safety theories of the last 50 years, safety interventions have to be based on three important principles: recognition of human frailty, acceptance of human error, and creation of a forgiving environment and appropriate crash energy management.crackIAS.com Experience from the U.S. and European countries shows that road standards alone cannot ensure safe roads for all unless safety performance is evaluated.

There is another factor in India. The density of small towns and villages along highways and the presence of tractors, three-wheelers, cars, buses, trucks and truck trailers on these highways present a very different traffic mix as compared to North America and western Europe where most highway standards have been developed. Pedestrian and motorcyclist involvement in fatal crashes on highways is greater than those involving other road users. In the past two decades, there have been major investments in expanding the national highway system in India. Yet, fatalities have continued to grow. Can the amended MVA address these concerns? Page 55 Despite the efforts of the last few decades, the number of road traffic fatalities has continued to increase in India.

A Ministry of Road Transport and Highways (MoRTH) report of 2018 has listed 1,51,430 fatalities. However, for the same year, the World Health Organisation estimates nearly 300,000 deaths. In fact a government of India study by the Registrar General and Census Commissioner, India (‘The Million Death’ study) also reports at least a 50% under-reporting of traffic fatalities and a higher share of pedestrian and motorised two wheelers as Road Traffic Collision victims when compared to the MoRTH report. The MVA amendments do not address the reliability of crash estimates, which form the basis of designing preventive strategies.

It has been a tradition in ‘road safety to analyse road safety data in order to understand why crashes occur, which factors influence risks, and what determines crash severity, and then, based on this understanding, to arrive at reliable conclusions on how to prevent them most effectively and efficiently. This is called a data-driven approach. In this approach, priorities are derived by using crash data, background data, exposure data and data on safety performance indicators’. This is what researchers call as a scientific method and evidence-based interventions. India has still not created a culture of producing scientific evidence for designing preventive strategies. A report from New South Wales, Australia in 2007 evaluated the effectiveness of stricter penalties which said: “It is suggested that substantial increases in fines and licence disqualifications would have limited potential in deterring recidivist offenders. The present analysis failed to find any evidence for a significant relationship between [the] fine amount and the likelihood that an offender will return to court for a new driving offence. Nor was there any evidence from our analyses to suggest that longer license disqualification periods reduced the likelihood of an offender reappearing before the courts.” Increased fines alone, as suggested in the amended MVA, will not have the intended effect of reducing traffic crashes. Current traffic safety science suggests that if road users do not have their share of responsibility, for example due to a lack of knowledge or competence, or if personal injuries occur, or for other reasons that lead to risks, the system designers (road designers) must take further measures to prevent people from being killed or seriously injured.

Therefore, if there is to be a reduction in India in the growing health burden due to traffic crashes, it requires establishing a system or institutional structure which enables the generation of new knowledge-new road standards thereby ensuring safe highways and urban roads. Thus, we have a long way to go in ensuring “safe road behaviour”.

Geetam Tiwari is Professor, Civil Engineering Department and Transportation Research and Injury Prevention Programme, Indian Institute of Technology, New Delhi

You have reached your limit for free articles this month. RegistercrackIAS.com to The Hindu for free and get unlimited access for 30 days. Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes. Page 56 Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 57 Source : www.livemint.com Date : 2019-10-11 THE EFFICIENCY PROMISE OF THE BANKRUPTCY CODE Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

The IBC is a reform measure that could aid our quest for faster growth if it works the way it was expected to. Let’s sort out the problems that have held it back from doing exactly that

Three years after the adoption of the Insolvency and Bankruptcy Code (IBC), it remains a work in progress. Recent reports suggest the government may bring in a short, time-bound online bidding process to resolve corporate bankruptcy cases. This is likely to improve transparency and reduce litigation over business failures—an efficient way to deal with which is crucial for an economy to optimize its allocation of resources. The IBC, one of the Narendra Modi government’s biggest reforms, had envisaged a mechanism by which creditors could wholly or partially recover their dues from a company unable to pay back, with the insolvent business taken over to be revived or sold off, so that it—or its assets—could swiftly get back to generating value under new ownership. In theory, it’s about capital moving to the best hands. In practice, its intent has been thwarted much too often. At the heart of the IBC legislation was its time-bound approach to resolving insolvency cases, but the initial 270-day deadline proved inadequate, with several lenders unsure of their stance, some promoters trying every legal device to retain their firms, and the very process frequently getting caught in a judicial quagmire. Some high-profile cases have been plodding along for years now.

To be fair, the government has been trying to safeguard the system from abuse and assure all stakeholders of a fair deal. Last year, for instance, it amended the relevant Act to protect homebuyers, placing them at par with financial creditors. However, this was done in a hurry, it seems. Now that bankruptcy courts have been stormed with realty cases because even a lone homebuyer can file one, there is word that this part will be tweaked so that only a majority of such “creditors" can push the red button. A few other problems, thankfully, have already been addressed. This July, eight changes were made to ease the resolution process, the most important one being an extension of the maximum time that can be taken to a more realistic 330 days.

Will IBC cases move faster? Going by a fresh set of proposals that the government is reported to be considering, there is a good chance that they will. In case the assets or shares of a bust company are being auctioned, a clear time window would be specified for eligible bidders to place financial bids. So far, creditors of a company undergoing insolvency proceedings have been at liberty to negotiate with bidders on a case-to-case basis. This lends itself to a drama of bids and counter-bids, with bank officials being chased and lawyers sniffing around for opportunities to entrap the process in litigation. Moving this part online should speed up resolutions. No doubt, there’s other work still to be done. The tribunals that deal with IBC cases couldcrackIAS.com do with stricter guidelines to distinguish between financial and operational creditors. The latter are those owed money in the usual course of business, and blurring their demands with the claims of lenders could muddle things up. Likewise, secured lenders need to be marked apart from unsecured lenders with greater clarity. The former have contractual claims to collateral against unpaid loans, and these rights must take precedence over the claims of the latter. Resolution orders should not end up casting the basis on which banks lend money in doubt. The IBC is a major reform. Fully functional, it could yet live up to our expectations.

Log in to our website to save your bookmarks. It'll just take a moment. Page 58 Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 59 Source : www.indianexpress.com Date : 2019-10-12 THE POLICY WAY OUT Relevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms

The writer is professor of economics, Royal Bank research professor and Johal Chair, University of British Columbia, Canada

It is by now clear that India is in the middle of a sharp growth slowdown. The debate surrounding the slowdown is whether it is a cyclical downturn or a structural correction. Diagnosing the problem is key for devising policy responses. Cyclical slowdowns can be dealt with using temporary fiscal and monetary stimulus. Structural problems, on the other hand, require long-run policy responses.

There are a few clues that point to the slowdown being structural rather than cyclical. For one, most of the growth between 2014 and 2017 was sparked by a sharp increase in government spending. Given India’s oil imports, the decline in the world price of oil by almost USD 50 a barrel between 2014 and 2016 represented a windfall revenue gain of USD 75 billion annually, or 3 per cent of GDP. Since the fiscal deficit barely moved, the government effectively used the windfall to finance various government schemes. Now that oil prices have reverted towards their previous levels, maintaining a stable fiscal deficit has necessitated a reduction in government expenditures.

The above suggests that absent the oil windfall, Indian growth over this period would have been 2-3 percentage points lower annually. Put differently, the economic slowdown has been ongoing for almost four years now. Cyclical downturns last a few quarters, maybe a year. Negative growth pressures for four years indicate structural problems.

A second clue that the problems are structural can be gleaned from the behaviour of investment demand. Throughout the period 2016-2018, a number of commentators and industry representatives kept up a drumbeat of criticism of the Monetary Policy Committee’s refusal to cut rates. The argument was that high real interest rates, along with the restrictions imposed by the Reserve Bank of India on banks’ lending in order to deal with the NPA problem, were jointly responsible for low investment demand. Since the beginning of 2019, both the monetary policy stance as well as the Prompt Corrective Action (PCA) norms have been relaxed by the RBI under a much more pliable RBI leadership. However, investment demand has barely moved in response.

The good news is that dealing with structural problems doesn’t require fiscal spending. Instead, it involvescrackIAS.com non-pecuniary costs. The government has to expend some of its considerable political capital in order to usher in long-term labour and land reforms. These aren’t easy because the state governments have to be roped in to get these reforms going.

The move to lower the corporate tax rate is a good one. It has the characteristic of a capital market structural reform as long as it is not used as a temporary fiscal measure. The government needs to signal unambiguously to markets that this is a permanent reduction of the base rate. Else, the uncertainty surrounding the longevity of the tax cut will undo a lot of its potential upside.

The financial infrastructure within which the economy operates is another key structural Page 60 bottleneck that needs to be addressed urgently. At the centre of this problem is the public sector banking network which accounts for 75 per cent of India’s banking assets. Public sector banks introduce two complications to the financial system. First, they allow for capture of the credit allocation system by non-market forces. Second, since the regulator of banks is the RBI which is itself owned by the government, this amounts to the regulator regulating the entity that it itself is reporting to! This system is subject to regulatory capture. The government can induce regulatory changes by just changing the personnel it appoints to the upper management of the RBI or to its board, a scenario that played out in gory detail over the last year.

India needs to urgently begin reducing the importance of public sector banks in the economy. This can be done either through privatisation of existing public sector banks or through the granting of banking licenses to private operators. Given that the on-tap banking licenses on offer have attracted little interest so far suggests that the privatisation of public sector banks needs to be prioritised.

One of the few transformative ideas that was put forth in the July budget was issuing sovereign bonds. Unfortunately, it appears to have run into headwinds. The idea needs to be pursued for multiple reasons. First, sovereign bonds would force government debt to be priced in a more competitive setting. Currently, it is priced in a sheltered domestic bond market. Second, issuing sovereign bonds will force greater clarity and transparency of macroeconomic data since international creditors will demand that. Lastly, things like failure to achieve policy targets or reticence in releasing data will attract rapid punishment by markets. This fear will provide greater discipline to policymaking.

The government would also do well to revisit the appointments process to key technical and regulatory bodies. Functions like monetary policy, banking supervision, data collection and dissemination, audit of government financial accounts, are all technical jobs. Moreover, they need to be independent of government direction. It is crucial that technically competent people manage the institutions that oversee these functions. Appointing career bureaucrats with little to no domain training or background to run them doesn’t help in either facilitating functional competence or in signaling the independence of these institutions from government control. Domain competence needs to be prioritised.

The writer is professor of economics, Royal Bank research professor and Johal Chair, University of British Columbia, Canada. Views are personal

Download the Indian Express apps for iPhone, iPad or Android

END crackIAS.comDownloaded from crackIAS.com © Zuccess App by crackIAS.com Page 61 Source : www.thehindu.com Date : 2019-10-14 A TAX POLICY THAT COULD WORK Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation & Black Money incl. Government Budgeting

The Indian government should now be desperate to raise more tax revenues. It missed its tax targets massively in the last fiscal year, largely because of poor goods and services tax (GST) collections. Its declared budgetary target for the current year requires tax receipts to increase by around 25%, when the first quarter increase was only 6% over the previous year. In the misplaced belief that what is required to address the current slowdown is more tax relief to corporates, it has offered tax rate reductions to 25% of profits to companies that do not avail of other concessions, and further rebates to new companies. So very significant tax shortfalls are likely even in the current year, unless the government takes proactive measures.

But such measures need not — and should not — take the form of the tax terrorism that this government has been prone to, or increasing GST rates, which would be regressive and counterproductive in the slowdown. Fortunately, there are other measures that could provide significantly more tax revenues to the government. One obvious low-hanging fruit is a strategy to ensure that multinational companies (MNCs) actually pay their fair share of taxes.

It is well known that MNCs manage to avoid taxation in most countries, by shifting their declared costs and revenues through transfer pricing across subsidiaries, practices described as “base erosion and profit shifting” (BEPS). Matters have got even worse with digital companies, some of the largest of which make billions of dollars in profits across the globe, but pay barely any taxes anywhere. The International Monetary Fund has estimated that countries lose $500 billion a year because of this. Also, it creates an uneven playing field, since domestic companies have to pay taxes that MNCs can avoid.

The Organisation for Economic Co-operation and Development (OECD) has now recognised this through its BEPS Initiative, and has even attempted a belated attempt to include developing countries through what it calls its inclusive process. So far, this process has delivered a few benefits, but these are limited because it has continued to operate on the basis of the arm’s- length principle of treating the subsidiaries as separate entities.

But this can change if there is political will. The basic idea is breathtakingly simple, and has been proposed by the Independent Commission for the Reform of International Corporate Taxation, or ICRICT (full disclosure: I am a member).

The idea is this: since an MNC actually functions as one entity, it should be treated that way for tax purposes. So the total global profits of a multinational should be calculated, and then apportioned across countries according to some formula based on sales, employment and users (for digitalcrackIAS.com companies). This is something that is actually already used in the United States where state governments have the power to set direct and indirect tax rates.

Obviously, a minimum corporate tax should be internationally agreed upon for this to prevent companies shifting to low tax jurisdictions (ICRICT has suggested 25%). Then, each country can simply impose taxes on the MNCs operating in their jurisdictions, in terms of their own shares based on the formula.

It could be argued that this would only work if all countries agree, and certainly that is the ideal to be aimed at. But the beauty of this proposal is that just some large countries can move the debate and make it less advantageous for global companies to shift their profits around. If the Page 62 big markets such as the United States and the European Union together decided to tax according to this proposed principle, there would be little incentive for many MNCs to try and shift reported profits to other places. Indeed, the Indian government has already proposed in a white paper that it could take such a unilateral initiative for digital companies.

The OECD BEPS Initiative will be meeting on October 19 to set out its own proposal, and for the first time, it is willing to consider the possibility of unitary taxation. But there are some stings in the tail that may well render the proposed measures practically impotent. These concerns are set out clearly in a new report from ICRICT.

The biggest problem is the arbitrary separation between what OECD calls “routine” and “residual” profits, and the proposal that only residual profits will be subject to unitary taxation. This has no economic justification, since profits are anyway net of various costs and interest.

The proposal does not clearly specify the criteria for determining routine profits, instead suggesting that the “arm’s-length principle” will be used to decide this, which defeats the entire purpose. As it happens, there is no system of corporate taxation anywhere in the world that makes such a distinction — so why should an international system rely on this?

Another concern is about the formula to be used to distribute taxable profits. The OECD suggests only sales revenues as the criterion, but developing countries would lose out from this because they are often the producers of commodities that are consumed in the advanced economies. Instead, the G24 group of (some of the most influential) developing countries has proposed that a combination of sales/users and employment should be used, which makes much more sense.

It is important for the Indian government to look at this issue seriously and take a clear position at the OECD meeting, because the outcome will be very important for its own ability to raise tax revenues. A government that is currently ineffective in battling both economic slowdown and declining tax revenues cannot afford to neglect this crucial opportunity. But more public pressure may be required to make the government respond.

Jayati Ghosh is a professor of economics at Jawaharlal Nehru University, New Delhi

You have reached your limit for free articles this month.

Already have an account ? Sign in

Sign up for a 30-day free trial. Sign Up Find mobile-friendlycrackIAS.com version of articles from the day's newspaper in one easy-to-read list. Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day. Page 63 *Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 64 Source : www.thehindu.com Date : 2019-10-15 ‘FASTAGS WILL WORK AS AADHAAR, TRACK VEHICLES’ Relevant for: Indian Economy | Topic: Infrastructure: Roads

A FASTag uses Radio Frequency Identification (RFID) technology to make cashless payments through a prepaid account linked to it. The tag is fixed to the windscreen of a vehicle and an RFID antenna in the canopy of the toll gate scans the QR code and the tag identification number, following which the boom barrier lifts to allow a vehicle to pass through it without the need for a vehicle to stop.

The Minister mentioned that cameras will capture the images of vehicles, but officials involved with the initiative explained that it is the FASTag that will help track vehicles.

“A FASTag is linked to a bank account. When a vehicle passes through a toll, an SMS with date, time and place of transaction will be sent to the owner of the vehicle. The master data of all transactions will be with the concessionaire of the toll booth concerned, along with the bank with which the owner has registered the FASTag and the National Payments Corporation of India,” officials said.

The Minister was quoted in a press statement saying that FASTags are “likely to reduce the nation’s GDP loss by bringing down loss of fuel while waiting at toll plazas.” FASTags are acceptable across 490 National Highways out of the total 527. These can also be used at nearly 39 State Highways. So far there are six million users in the country.

You need to subscribe or sign-up to read Today's Paper articles.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences. We briefcrackIAS.com you on the latest and most important developments, three times a day. *Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com Page 65

crackIAS.com Page 66 Source : www.thehindu.com Date : 2019-10-15 GUJARAT BRINGS OUT NEW PORT POLICY Relevant for: Indian Economy | Topic: Infrastructure: Ports & Waterways

Shot in the arm:Jetty holders will also be allowed to bring in additional investment for augmenting cargo handling.afp

In a bid to boost infrastructure and attract investment in the port and logistics sector, the Gujarat government has revised its port policy brought out in 1995 and removed restrictions on 33 private jetties, allowing them to handle third party cargo.

The new policy allows the captive jetties to be full-fledged commercial ports across the 1,600- km-long coastline in the State. Gujarat Maritime Board (GMB), a nodal agency and port sector regulator in the State, is aiming at attracting approximately Rs. 4,000 crore of new investments in port-related infrastructure in the State.

“Gujarat has a coastline of about 1,600 km. It has four private ports along the coastline and 33 captive jetties, which handle about 45% of cargos, while private ports handle about 46% of total cargos handled by GMB ports. Emphasis was given to utilise the in-place capacity of captive jetties which are underutilised,” the preamble of the new policy stated.

Landing fees

As per the new policy, existing captive jetty holders will be permitted to handle third party cargo more than 50% of the total cargo on their captive jetty by paying landing and shipping fees.

Moreover, the jetty holders will also be allowed to bring in additional investment for augmenting cargo handling facility and back up areas.

According to GMB CEO Mukesh Kumar, the maritime board will invite new players to set up smaller ports with an initial investment of Rs. 300 crore.

You need to subscribe or sign-up to read Today's Paper articles.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements. A selectcrackIAS.com list of articles that match your interests and tastes. Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support The Hindu's new online experience with zero ads. Page 67 Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 68 Source : www.indianexpress.com Date : 2019-10-15 EASING POVERTY Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

On Monday, the Royal Swedish Academy of Sciences awarded the 2019 Nobel Prize in Economics to Abhijit Banerjee, Esther Duflo and Michael Kremer for their “experimental approach to alleviating global poverty”, which, it said, has had a clear impact on policies to fight poverty around the world. Among the things that make this moment special is the fact that Banerjee becomes the second Indian to have received the Nobel prize in Economics, and Duflo is only the second woman to have been awarded after Elinor Ostrom in 2009.

Banerjee and Duflo co-founded the Abdul Latif Jameel Poverty Action Lab, which has helped popularise Randomised Control Trials (RCT), a technique of exploration which draws from medical research to examine the impact of policy interventions on individual behaviour through controlled trials. It involves selecting two sets of individuals at random, one of the two is then exposed to a policy intervention. The experiment examines the impact of such interventions, often over long periods of time, to gauge the impact of policy, and whether it justifies the costs associated with it. Drawing on these field experiments to understand the lives of poor, they have examined government interventions to see what works and what doesn’t in developing countries. For instance, they found that it was possible to dramatically increase the quality of education in urban India, at a relatively reasonable cost, through remedial education and computer assisted learning programmes. The results of another experiment suggested that multi-topic medical training of informal healthcare providers may offer an effective short-run strategy for improved health care, while another found that most businesses funded by microfinance firms tended not to grow. Banerjee, who has been in favour of shifting to cash transfers, has in the past argued for a universal basic income architecture.

Though RCTs have become widespread in recent times, some are sceptical about over-relying on them. Angus Deaton, who won the 2015 Nobel prize in economics, noted that while RCTs can play a role in building scientific knowledge, they can only do so as part of a cumulative programme. “Small scale, demonstration RCTs are not capable of telling us what would happen if these policies were implemented to scale”, he noted. But, despite the conditional nature of these studies, it is difficult to deny that policy interventions require better understanding to ensure efficient outcomes, especially in countries with limited state capacity and resources. In India, where billions are poured in the name of the poor, often without proper understanding of what works and what doesn’t, and where there is little faith in evidence-based policy-making, such crackIAS.comresearch can be enormously valuable in informing public debate. Download the Indian Express apps for iPhone, iPad or Android

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com Page 69 Source : www.indianexpress.com Date : 2019-10-15 AN ECONOMICS FOR THE POOR Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

The Nobel Prize in Economics for 2019 has been awarded to Abhijit Banerjee, Esther Duflo and Michael Kremer for “their experimental approach to alleviating global poverty”. The approach, popularly known as Randomised Control Trial (RCT), has been the buzzword among development economists for almost two decades. Banerjee, Duflo and Kremer have used this technique (inspired by the use of RCTs in medical science) to test the effect of small interventions on individual behaviour.

Most of these interventions carried out under the aegis of Abdul Lateef Jameel Poverty Action Lab (J-PAL), co-founded by Banerjee and Duflo, in Africa and Asia, have produced evidence on the response to a particular intervention by the poor using these randomised trials. The approach basically examines the impact of these micro interventions by treating one set of individuals/households and comparing the outcome with another set of individuals/households, which are similar in all other respects but have not been treated with the intervention. India has been among the biggest laboratories of these experiments with several experiments on diverse themes such as literacy, nutrition, health, micro-finance and so on.

The RCT approach has its share of supporters as well as critics. While it has enamoured a large number of development economists for its simplicity, where inferences on what works or not are drawn from field experiments, it has also been criticised for reducing the study of poverty to small interventions unconnected to the lived experiences of the poor. The discomfort among many established scholars is that this fashionable trend has made the historical, institutional and social structures of the persistence of poverty less relevant to understanding why the poor continue to remain poor. Others have picked holes in the methodology. However, it has not deterred development economists from using this approach for designing experiments and conducting them to understand how the lives of poor people change as a result of these micro interventions. There have been questions about whether the results can be replicated in different societies, as well as on the ethics of some of the experiments, which have been conducted in collaboration with participating governments. It is also worth pointing out that the method is as good as the range of interventions that can be undertaken.

While critics may have been unfair to RCTs in some respects while correctly pointing out the pitfalls in an RCT-based approach, there is no denying that all the three scholars have contributed a great deal to putting poverty and development economics back on the agenda of economics.crackIAS.com Newer methods and approaches are necessary for the discipline struggling to find relevance in an increasingly complex world, which is as much defined by the microeconomics of small interventions as well as the macroeconomics of development such as government policy and structures of production. As Angus Deaton (Nobel Prize winner of 2015) says: “RCTs can play a role in building scientific knowledge and useful predictions but they can only do so as part of a cumulative programme, combining with other methods, including conceptual and theoretical development, to discover not ‘what works’, but ‘why things work’”.

RCT has become almost like a movement, encouraging many young economists (sometimes called “randomistas”) to visit rural areas and observe the lives of the poor. It may not have had any credible and long lasting impact on the lives of researchers and the population studied, but Page 70 the fact that so many young economists are immersing themselves in the lives of the poor and trying to understand poverty is itself an achievement. More so at a time when economics has often been criticised for being far removed from reality.

The other achievement, although not necessarily for the better, has been the attempt to give scientific colour to the discipline of economics through the use of evidence generated from these experiments. It certainly has convinced many governments to use facts and evidence in policy prescriptions and induced a degree of caution while introducing new interventions. Even in India, there is evidence of RCTs contributing to improvements in financial management and flow of funds for various government programmes including in the field of education.

While it would have been good if RCTs could predict the effects of demonetisation on the lives of the poor, it is also a reality that most such decisions are not contingent on evidence based on hard facts but on the whims and fancies of the government of the day. Despite the tentative nature of much of this evidence, there is no denying that policy interventions do require better facts and evidence for efficient outcomes. This is true not only for evidence generated by RCTs, but also data generated by our statistical systems including the National Sample Survey (NSS).

Incidentally, both Kremer and Banerjee did their PhD work at Harvard University. Banerjee had completed his MA in economics from the Centre for Economic Studies and Planning (CESP), JNU, before proceeding to Harvard for doctoral studies. Banerjee supervised Duflo’s doctoral work at MIT. While both Banerjee and Duflo remain engaged with research in India, Kremer was one of the first to use these experimental methods and look at micro-interventions to examine their impact on poverty. The Nobel recognition will hopefully encourage more rigorous work on some of the long-standing problems of development economics, including on poverty and social mobility. Hopefully, it will spur our own government to take data and evidence more seriously.

The writer teaches economics at JNU

Download the Indian Express apps for iPhone, iPad or Android

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com crackIAS.com Page 71 Source : www.thehindu.com Date : 2019-10-15 FINANCIAL STABILITY AND THE RBI Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

The Reserve Bank of India (RBI) recently carried out its mandatory bi-monthly announcement on the future course of monetary policy. These announcements ostensibly offer ‘forward guidance’ to economic participants, so that they may plan their future. Arguably, though, the public would have perhaps been more interested in knowing how the RBI intends to respond to the unusually large number of instances of fraud that have surfaced in the financial sector of late. The RBI’s reputation as a regulator has been affected by these. What led the bank to this place needs understanding.

Central banks command an important position in the market economies of the West today. How in a democracy so much power could be ceded to an unelected body must itself come as a surprise. It reflects two things: the political power of financial interests in the U.S. economy and the global intellectual influence of the American economic model. This model revolves around the goal of maximum creation of wealth by private individuals unimpeded by societal objectives. Leave alone the distribution of income, not even the objective of ensuring stability of the economy is allowed to come in the way of private individuals pursuing wealth enhancement.

Public regulation, which sets limits to private activity, is rejected as an unnecessary interference in beneficial activity that maximises social gain, and is therefore to be avoided. When applied to finance, this model requires of the government only one action, namely, the control of inflation. Now, it is difficult to see why anticipated inflation, being an increase in all prices at the same rate, is harmful to production, the basis of an increase in wealth. After all, when prices rise together, no one individual is worse off if the inflation has been perfectly anticipated. It is unanticipated inflation that is the problem for producers, as it has the potential to derail their profit calculations. However, inflation, even when fully anticipated, can harm holders of financial assets yielding fixed incomes by eroding their wealth.

Borrowers on the other hand are better off with inflation as the real value of their outstanding loans are now less. While the problem of inflation can in principle be tackled through inflation- indexation, the practice is not widespread. This leaves owners of financial wealth averse to inflation.

As the volume of financial wealth in an economy increases so does the power of its owners over government. Now inflation control tends to take centrestage in economic policy formulation. When inflation control is implemented via monetary policy it results in higher interest rates. Managers of financial wealth lobby for such a policy on behalf of their clients. This lobbying is the origin of the policy of inflation targeting. Inflation targeting by the central bank involves use of the interest rate to keep inflation under control. As it targets inflation it must let go of the employmentcrackIAS.com objective. Though ‘flexible inflation-targeting’ is meant to take care of this objection, inflation is retained as the target and the central bank is not accountable for unemployment. In fact, in situations where growth, employment and inflation are jointly determined, and mostly they are, inflation-targeting via the interest rate can lower inflation only by suppressing growth. This is the mechanism by which inflation-targeting inevitably lowers growth. Is this an argument for leaving inflation unchecked? No, it isn’t. On the other hand it points to other means of keeping inflation low, which, as has been demonstrated for India, would take the form of checking food-price inflation.

If inflation-targeting is essentially a response to the concerns of the financial sector, it tends to go with the view that the sector needs no particular regulation. This view was ascendant in the Page 72 United States and the United Kingdom before the ‘North Atlantic Financial Crisis’ of 2008, so dubbed by Rakesh Mohan and Partha Ray to convey that its provenance is related to the policies pursued in that geography. Following this crisis, however, there has been substantial re- thinking on inflation-targeting and the role of central banks. Essentially it was recognised that lulled into complacence by low inflation, the U.S. central bank had ignored the possibility of financial instability. Instability had progressed due to the complete violation of the norms of prudence by U.S. investment banks and housing societies in a climate of relatively lax regulation. Alan Greenspan, the chairman of the U.S. Federal Reserve for 19 years, an arrangement seriously questionable in a democracy, was to acknowledge to a congressional committee that everything he had believed in regarding the functioning of the economy turned out to be false.

In a monumental failure of the imagination, India’s policymakers adopted inflation-targeting as the defining function of its central bank, even as the rest of the world was reassessing its credibility. Though the switch was effected by legislation only in 2015, a hawkish inflation stance had emerged at the RBI some two years prior to that. The real interest rate swung upward by over 5 percentage points. Inflation did come down, but that it continued to decline even as the real interest did not do so commensurately belies the possibility that inflation-targeting alone is responsible for it. Commodity prices, both of oil and domestic agricultural goods, have grown slower since. Oil prices have actually been declining in certain phases, and would surely have had a direct impact on inflation. But the slowing of the economy after 2016, which we are still experiencing, suggests that inflation-targeting may have had an impact on growth. This would not be surprising at all.

After the adoption of inflation-targeting in India, besides the slowing growth, we see the repetition of a pattern observed in the U.S. We have seen the appearance of stress in the financial sector. Following the rising non-performing assets, or NPAs, of public sector banks, we now see the emergence of instability in the private segment of the financial sector. The most prominent case is that of non-banking financial company, ILFS. While some part of the burden this company faced before it was rescued by the government of India may have been due to a slowing economy, there was evidence of malfeasance, which went undetected also in the cases of Punjab National Bank and the Punjab and Maharashtra Co-operative Bank (PMC Bank). Improper conduct was also evident in the cases of Yes Bank and ICICI Bank. Scenes of agitated depositors outside the PMC Bank’s office in Mumbai must have sent shivers down the backs of millions of Indians who have trustingly entrusted their hard-earned money to India’s banks, only to find their trust violated with impunity in pursuit of private gain. The latter would be unacceptable even if the act is not risky, which in the case of PMC Bank was extraordinarily so.

The emergence of financial instability in India following the institution of inflation-targeting is in line with what we have seen in the Anglo-American economic area. In India, the virtual redefinition of the central bank’s functions appears to have encouraged the RBI to consider its work done once inflation is within target. Televised monetary policy statements every two monthscrackIAS.com would be no more than a charade, if inflation slows for extraneous reasons, and a smokescreen, if financial stability has been compromised due to lax regulation of the financial sector.

Even as the TV screens gurgle with news of some microscopic cut in the repo rate I see hapless vendors at Delhi’s swanky new airport scrambling for change. In the new India, the buck, it seems, stops nowhere.

Pulapre Balakrishnan is Professor of Economics, Ashoka University, Sonipat, Haryana and Senior Fellow, IIM Kozhikode Page 73 You have reached your limit for free articles this month.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 74 Source : www.thehindu.com Date : 2019-10-15 ECONOMICS OF POVERTY: ON ECONOMIC SCIENCES' NOBEL Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

Development economics just got a boost with the award of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to three economists who have worked, and are still working, to understand and alleviate poverty — Abhijit Banerjee and Esther Duflo of Massachusetts Institute of Technology, and Michael Kremer of Harvard University. This is only the second time a woman has bagged the prestigious award, popularly called the Economics Nobel, and it is a first for a husband-wife duo to win in this discipline — Mr. Banerjee is married to Ms. Duflo. In the words of the Royal Swedish Academy of Sciences, the experiment-based approach of the three laureates has transformed development economics and turned it into a “flourishing field of research”. One of their studies resulted in benefiting 5 million children in India through programmes of remedial tutoring in schools. The three adopted an evidence-based approach to apply theory to real-life situations using randomised trials and assessing the outcomes. The effort was to understand the impact of interventions to achieve desirable outcomes. The approach is derived from the concept of clinical trials in the pharmaceuticals industry.

If this sounds like gobbledygook, the experiment that Mr. Banerjee and Ms. Duflo carried out in Rajasthan some years ago would explain the concept better. Despite immunisation being free, women were not bringing in their children for the vaccination shot. The two MIT economists decided to give a bag of pulses free to women who brought their babies for vaccination. Word soon spread and the rate of immunisation shot up in the region. Another experiment they did was in Mumbai and Vadodara to understand learning outcomes in the field of education. Was it lack of access to textbooks or hunger that caused poor learning outcomes? Through field studies, Mr. Banerjee and Ms. Duflo established that the problem is that teaching is not adapted to the needs of the students. Learning outcomes improved in schools that were provided with teaching assistants to support students with special needs. The importance of the work being done by the three laureates cannot be overemphasised. Governments across the world, including in India, spend big money on social schemes without the vaguest of ideas on whether their objectives have been met. The field-work based approach that these economists have perfected has revolutionised the field of development economics and made it more relevant in policy making. The government would do well to borrow from the research of these laureates to understand the impact of its several schemes, and where necessary, tweak them to derive maximum benefit for the thousands of crores of rupees that it spends.

You have reached your limit for free articles this month.

RegistercrackIAS.com to The Hindu for free and get unlimited access for 30 days.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements. Page 75 A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Boris Johnson seems bent on delivering a no-deal Brexit

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 76 Source : www.livemint.com Date : 2019-10-15 A GANGRENOUS WOUND THAT COULD BLOCK INDIA’S ECONOMIC RECOVERY Relevant for: Indian Economy | Topic: Infrastructure: Energy incl. Renewable & Non-renewable

Reforms in the power sector are urgent if the country is to eliminate distortions that keep the economy below its potential

Ever since it returned to power with a thumping majority this summer, the government of Prime Minister Narendra Modi has been dealing with interruptions to rosy straight-line projections. A cyclical economic downturn exacerbated by continuing banking sector issues, a severe contraction in automobile sector demand, and, most recently, a seven-year low in industrial output appear to have jolted the government.

Even as the government scrambles to respond to this slowdown, structural impediments to long- term growth have been festering. One area where the wounds threaten to turn gangrenous is in the power sector. India’s power sector is a mixed tale of positive and negative developments over the last 10 years.

Electricity is critical to fulfilling the growth aspirations of a developing economy. It fuels industry, agriculture, and, consequently, consumer demand. India has made impressive strides in the power sector over the last 15 years. It is now the third-largest producer and consumer of power in the world. To mix some metaphors, with an installed capacity of 350 gigawatts (GW), India is a global powerhouse. With an annual electricity production estimated at about 1,300 billion units, India’s power generation has been growing at approximately 6-7% a year over the last 10 years, keeping pace with real gross domestic product (GDP) growth. Installed capacity has been growing faster than GDP at nearly 11% per annum over the last decade. India has diversified sources of power, with thermal coal/gas constituting 66%, nuclear 2%, renewables 13%, and hydro power 19% of installed capacity. The renewables component is growing rapidly with both solar and wind expected to generate 175GW of power by 2022.

The power sector in an economy is typically broken into three segments: Generation, transmission and distribution. These three segments and power trading are regulated in India under a consolidated and modernized Electricity Act of 2003, which was promulgated during the tenure of former prime minister Atal Bihari Vajpayee. It is a landmark regulation that opened the way for the power sector to keep pace with a fast-growing economy by bringing competition to the generation and distribution segments. Generation was fully de-licensed and distribution by private companies was permitted under license for rural and urban areas. The Act of 2003 catalysed power generation in the country, including for captive power plants.

Believe it or not, India has an overall surplus of power in terms of generation today. The real troublecrackIAS.com is that this power is not available where and when it is needed. Geographically, the north and north-east of the country are short of power, particularly during peak periods. Jammu and Kashmir, for instance, has a 20% deficit both for normal and peak periods, and Uttar Pradesh is chronically short of power. At the same time, capacity utilization for thermal plants measured by plant load factor (PLF) has been declining. This decline in PLF arises from a combination of non- availability of fuel, surplus capacity/inadequate demand in geographical pockets, and competition from other sources of power.

The transmission and distribution segments are in much deeper trouble. Growth in transmission capacity and investment, particularly for inter-regional movement, has fallen short of the Page 77 requirement. Distribution companies (discoms), most often owned by the states, are deeply indebted to banks and have also accumulated accounts payable to upstream companies. The central government’s Ujjwal Discom Assurance Yojana (UDAY) scheme has been a mixed success, with some relief of the debt burden borne by discoms and moderate performance improvements in transmission and distribution (T&D) losses.

If the power sector is to play its role in India’s growth, a nuanced set of reforms is now required. The generation side requires reforms that encourage environmental sustainability and a focus on the quality and reliability of electricity. With the renewable share increasing, we need greater emphasis on balancing power sources to overcome the variability of renewable electricity supply. The transmission sector requires investment and the ability to get projects completed. The distribution sector needs radical reforms such that bad debts and accounts payable are dealt with “shock and awe" rather than in drips. Broken balance sheets cannot be fixed incrementally. Looking ahead, state electricity regulatory commissions that govern discoms should be able to set and raise tariffs as necessary. Like with cooking gas, the smarter way to provide subsidies is by removing price interventions for agriculture and residential consumers, and making direct benefit transfers instead. This would eliminate distortionary pricing and level the playing field between sectors.

If these issues continue to fester, power will become a major impediment to India’s growth prospects. Commentators have begun to spew untruths about 5% GDP growth being the new normal. That will become a truism only if we do not address structural issues that hold us back, such as those in the power sector. According to a World Bank report, if distortions in the power sector are reduced, we could add up to 4% to our annual growth rate. Delivering on that idea would certainly be one way to retain the balance of power in future elections.

P.S.: “The past cannot be changed, the future is yet in your power"—Anonymous.

Narayan Ramachandran is chairman, InKlude Labs. Read Narayan’s Mint columns at www.livemint.com/avisiblehand

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 78 Source : www.livemint.com Date : 2019-10-15 A FINE BALANCE TO USE SCIENCE TOOLS IN ECONOMICS Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

Banerjee and team applied the rigour of scientific experimentation to social sciences

Abhijit Banerjee’s Nobel Prize for Economics, along with Esther Duflo of Massachusetts Institute of Technology (MIT) and Michael Kremer of Harvard University, has been a long time coming. As a matter of fact, his work was among the few shortlisted for this recognition some years ago.

The trio’s journey towards the Nobel began in the 1990s, with Kremer’s (he was then at MIT) field experiment in rural Kenya, which concluded that supplying textbooks to schools did not improve students’ learning outcomes. While this conclusion itself was an interesting one, it is the process by which Kremer arrived at the result—with the use of randomized control trials (RCTs)—that marked the beginning of the evolution of what some describe as a new approach to development economics.

RCTs are standard experimental tools in the field of science—say in medicine—but their effective application to the field of development economics was revolutionary. RCTs are controlled experiments—where two large and arguably similar groups are considered, and only one is subject to a specific intervention. The outcomes of each group are then compared with each other, and this reveals whether the intervention was effective or not.

In applying RCTs in the field of social science, a fine balance has to be maintained. If one is too fastidious about following an exacting scientific method, only a handful of social situations will lend themselves to suitable study.

On the other hand, with the intent to accommodate the shades of grey that are an inevitable aspect of social science, one may tend to relax scientific rigour too much. This will call into question the veracity and credibility of the study’s conclusions. The beauty of the work done by Banerjee and team over the last many years lies in dealing with uncertainty to perfect this balance, and effectively applying the rigour of scientific experimentation to the social sciences to develop deep insights into this century’s “wicked problem" of poverty.

Getting this balance right has enabled RCTs to be applied on a global scale to study the efficacy of attempted interventions. Till date, nearly 1,000 RCT evaluations have been completed in 83 countries, studying various dimensions of poverty, including microfinance, access to credit, behaviour, healthcare, immunization programmes, and gender inequality.

However,crackIAS.com this pioneering work has not been devoid of criticism in the academic world. Scholars like Angus Deaton at Princeton University argue that any dilution of the scientific method for the field of social science rendered the conclusions questionable. Others question whether this approach to efficacy testing of interventions is actually economics.

Much of the work of MIT’s Jameel Poverty Alleviation Lab (J-PAL), co-founded by Banerjee and Duflo, has been conducted in India. J-PAL’s South Asia operations have been active in India since 2007 and its 150 researchers and 1,000 field surveyors share some of the credit for Banerjee and team’s contributions to alleviating poverty in the world. Page 79 This overdue recognition for a food-loving, soft-spoken son of economist parents is no “random" event. It will no doubt breathe some cheer into his life and to MIT, both of which have faced some headwinds in recent times.

Kapil Viswanathan is vice chairman of Krea and president of Institute for Financial Management and Research.

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 80 Source : www.livemint.com Date : 2019-10-15 CHINA’S ECONOMIC FUTURE IS NOT AS BRIGHT AS IT WAS TILL RECENTLY Relevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms

Chinese military might on display can’t hide the fact that its economy is past its best growth years

The Chinese Communist Party celebrated the 70th anniversary of the founding of the People’s Republic of China on 1 October with a military parade that did not hide its prowess. It was raw power projection. The US has been warned, though I very much doubt that it played a role in the mini trade deal that China and the US appear to have struck last week. If China’s economy matched its military strength, the world might have more reasons to be worried. That is not the case. Far from it.

Many writers, including yours truly, have written premature obituaries on China’s economy many times in the last few years. It is easier to explain forecasting failures than to get them right. One explanation is that unlike the former Soviet Union, China is too embedded in the global economy for its economic collapse not to affect others. Second, just as is the case with sovereign states and their leaders, corporate and many personal fortunes too, are tied to access to China’s markets and much else. The same can be said for think-tanks, research scholars, former government officials, and scores of others. Sample this: An Open Letter To Donald Trump From The Australian People, 17 September 2019. Third, China’s strong and coercive state apparatus ensures that even if foreign money left, domestic money is not allowed to leave in prodigious quantities and threaten economic and financial stability. That threat loomed on the horizon in 2015-16 when China responded with draconian capital controls that remain to this day. Without domestic capital fleeing, its “house of cards" economy would not unravel. Fourth, with authoritarian regimes, it is always the case that they look in control until they don’t.

In August, the International Monetary Fund (IMF) published its annual Article IV Consultation Report on China. In the report, IMF publishes “Selected Economic Indicators" which shows its estimates of China’s government debt and deficit. These are different from official estimates.

As of 2018, IMF estimates that China’s government debt as a proportion of gross domestic product (GDP) was 72.7% and its government fiscal deficit was 11.2% of GDP. In the Article IV Consultation Report published in July 2018, the projection for 2018 was 72.4% and 10.7% of GDP, respectively, for these. Further, the July 2018 report forecast that the government’s budget deficit ratio would slowly drop to 10.3% by 2023 and that its debt ratio would rise to 91.6% by 2023. Let us now look at what the report of August 2019 projects for the future.

The IMF sees the budget deficit ratio rising to 12.7% in 2019, dropping to 12.2% in 2020 and furthercrackIAS.com to 11.4% by 2024. Consequently, the government debt ratio keeps rising and, according to the IMF’s projections, it crests at 100% in 2024. The estimate for 2024 is 101.5% of GDP. Let us see where they stand for India, for comparison.

For one, India’s Article IV Consultation Report for 2019 has not been released yet. That is interesting because the previous report was released in August 2018. Second, in the report released in August 2018, India’s fiscal deficit, according to IMF’s projection, was 3.5% for 2019- 20 while the government’s new budget deficit estimate for 2019-20 is 3.3%. IMF treats divestment and licence auction proceeds as “below-the-line" financing. Interestingly, IMF projects the cyclically adjusted fiscal deficit for India at 6.5% of GDP for 2019-20. A few private Page 81 sector analysts think that the true general government budget deficit is somewhere around 9% of GDP, if one includes the off-budget borrowing by government-owned entities and statutory corporations.

There is much hand-wringing in informed circles about India’s fiscal situation. However, in most countries, not just in China, if one includes many off-budget items, the true fiscal deficit would be much larger than official estimates. It is partly because governments have a natural proclivity and reason to spend more than they earn and, two, economic growth rates are lower than desired which, in turn, is because too much borrowing has brought much of it forward. However, bond markets are not pricing in the risk of many governments inflating away the debt or simply writing them off, thanks to their central banks having become the dominant part of the bond market. China is rated A+ and its 10-year government bond yields 3.2%. India’s 10-year government bond is rated BBB- and yields 6.71%. The pricing of European sovereign bonds is much more egregious. The 10-year Greek government bond is rated B+ and it yields 1.49%. There is discrimination in the bond market without much reason, and reason is not the same as an explanation.

Monday morning headlines scream that China’s imports and exports are in deep contraction and a private research group estimates China’s real GDP growth at 4.4% versus the official estimate of 6.2% (China’s Weak Growth Is Not A Consequence Of Rebalancing by Fathom Consulting, 9 September 2019). China’s military may barely succeed in hiding its brittle economy and the fact that it is largely a friendless nation with its best growth years behind it. That is perhaps the reality for the next 70 years.

V. Anantha Nageswaran is the dean of IFMR Graduate School of Business, Krea University

These are the author’s personal views

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 82 Source : www.hindustantimes.com Date : 2019-10-15 A NOBEL PRIZE THAT GIVES US HOPE Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

Oct 15, 2019-Tuesday -°C

Humidity -

Wind -

Metro cities - Delhi, Mumbai, Chennai, Kolkata

Other cities - Noida, Gurgaon, Bengaluru, Hyderabad, Bhopal , Chandigarh , Dehradun, Indore, Jaipur, Lucknow, Patna, Ranchi

Whether economics is a science or not is a longstanding debate. Developing sophisticated models and powerful theories have captured the imagination of thousands of young economics students. There is an equal number of practitioners that believes such abstract modelling is very distant from the real world. These are not esoteric debates. Even though the global economy has grown faster than ever under capitalism, millions have failed to reap its benefits. Capitalism’s defence, especially in a democracy, is that it is possible to help the have-nots by making policies directed towards them. Many such policies have been made and implemented. Yet, poverty persists. What’s to blame?

The Nobel Committee’s decision to award this year’s prize to Abhijit Banerjee, Esther Duflo and Michael Kremer is an endorsement of the fact that those seeking to reduce poverty would do better to know how the poor behave. It might not be enough to announce a free vaccination programme to reduce child mortality. Giving a couple of kilogrammes of pulses or a steel bowl might be the critical factor in determining whether mothers walk the extra mile to bring their children to the vaccination centre. Banerjee and Duflo have set up what they call a poverty action lab at MIT to develop these insights. They and their comrades devote a lot of time conducting randomised controlled field trials (RCTs), particularly in India, to find out what works and what doesn’t to fight poverty. That they’ve been awarded the highest honour in the discipline is recognition of the fact that there’s still hope to fight poverty without succumbing to the polarisingcrackIAS.com debate between right and left wing populism. Like all scholars, Banerjee et al too have been criticised. Their peers have accused them of belittling theoretical and structural constraints in the fight against poverty. It is true that RCTs cannot replace macroeconomics. RCTs can’t help us understand recessions which can throw millions into poverty at once. That is no reason to ignore their work and contribution in the fight against poverty, though. If there’s one reason why this year’s Nobel in economics should be celebrated, it is the following: Poverty can’t be eradicated without recognising that the poor have an agency and RCTs are needed to understand how exactly such agencies work.

First Published: Oct 14, 2019 19:21 IST Page 83

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 84 Source : www.indianexpress.com Date : 2019-10-17 FIVE YEARS OF MAKE IN INDIA Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Industry & Services Sector incl. MSMEs and PSUs

Christophe Jaffrelot is senior research fellow at CERI-Sciences Po/CNRS, Paris, professor of Indian Politics and Sociology at King's India Institute, London, and non-resident scholar at the Carnegie Endowment for International Peace. He offers valuable insights on South Asian politics, particularly the methods and motivations of the Hindu right in India.

Jumle is an associate at Ikigai Law, New Delhi

Prime Minister Narendra Modi launched the Make in India campaign on September 25, 2014 with these words: “I tell the world, ‘Make in India’. Sell anywhere but manufacture here.” Modi aspired to emulate China — a country he had visited many times as Gujarat chief minister — in attracting foreign investment to industrialise India. The objective was, officially, to increase the manufacturing sector’s growth rate to 12-14 per cent per annum in order to increase this sector’s share in the economy from 16 to 25 per cent of the GDP by 2022 — and to create 100 million additional jobs by then.

Five years later, this policy has produced contrasting results. Foreign direct investment (FDI) has increased from $16 billion in 2013-14 to $36 billion in 2015-16. But this remarkable achievement needs to be qualified from two standpoints. First, FDIs have plateaued since 2016 and second, they are not contributing to India’s industrialisation. FDIs in the manufacturing sector, in fact, are on the wane. In 2017-18, they were just above $7 billion , as against $9.6 billion in 2014-15. Services cornered most of the FDIs — $23.5 billion, more than three times that of the manufacturing sector. This is a clear reflection of the the Indian economy’s traditional strong points, where computer services, for instance, are remarkably developed. But can a country rely on services without developing an industrial base? The response is clearly no and this is why “Make in India” was initiated.

The idea, then, was to promote export-led growth: Foreign investors were invited to make in India, not necessarily for India. But few investors have been attracted by this prospect, and India’s share in the global exports of manufactured products remains around 2 per cent — China’s is around 18 per cent.

Why has Make in India failed to deliver? First, a large fraction of the Indian FDI is neither foreign nor direct but comes from Mauritius-based shell companies. Indian tax authorities suspected that mostcrackIAS.com of these investments were “black money” from India, which was routed via Mauritius. Second, the productivity of Indian factories is low. According to a McKinsey report, “workers in India’s manufacturing sector are almost four and five times less productive, on average, than their counterparts in Thailand and China”. This is not just because of insufficient skills, but also because the size of the industrial units is too small for attaining economies of scale, investing in modern equipment and developing supply chains. Why are companies small? Partly by choice, because labour regulations are more complicated for plants with more than 100 employees. Government approval is required under the Industrial Disputes Act of 1947 before laying off any employee and the Contract Labour Act of 1970 requires government and employee approval for simple changes in an employee’s job description or duties. Page 85 Infrastructure is also a problem area. Although electricity costs are about the same in India and China, power outages are much higher in India. Moreover, transportation takes much more time in India. According to Google Maps, it takes about 12.5 hours to travel the 1,213 km distance between Beijing to Shanghai. A Delhi to Mumbai trip of 1,414 km, via National Highway 48, in contrast, takes about 22 hours. Average speeds in the China are about 100 km per hour, while in India, they are about 60 km per hour. Railways in India have saturated while Indian ports have constantly been outperformed by many Asian countries. The 2016 World Bank’s Global Performance Index ranked India 35th among 160 countries. Singapore was ranked fifth, China 25th and Malaysia 32nd. The average ship turnaround time in Singapore was less than a day; in India, it was 2.04 days.

Bureaucratic procedures and corruption continue to make India less attractive for investors. It has made progress in the World Bank’s Ease of Doing Business index, but even then, is ranked 77 among 190 countries. India ranks 78 out of 180 countries in Transparency International’s Corruption Perception Index. To acquire land to build a plant, for instance, remains difficult. India has slipped 10 places in the latest annual Global Competitiveness Index compiled by Geneva- based World Economic Forum (WEF).

There was clearly a contradiction in the attempt to attract foreign investors to Make in India before completing the reforms of labour and land acquisition laws. Liberalisation is not the panacea for all that ails the economy, but it is a prerequisite if India intends to follow an export- oriented growth pattern.

A significant move in this direction was made last month with the reduction of the company tax from about 35 to about 25 per cent (at least on paper), a rate comparable with most of India’s neighbours. This reform is also consistent with the government’s effort to compete with South East Asian countries, in particular, to attract FDIs. This competition has acquired a new dimension in the context of the US-China trade dispute. After the Trump administration increases tariffs on Chinese exports to the US, several companies will shift their plants from China to other Asian countries. Some of them have already done so. According to the Japanese financial firm Nomura, only three of the 56 companies that decided to relocate from China moved to India. Of them, Foxconn is a major player which will be now assembling its top-end iPhones in India. Whether other big multinationals will begin to show interest at manufacturing in India remains to be seen.

But India will have to face another external challenge too as it sees capital fleeing the country. The net outflow of capital has jumped as the rupee has dropped from 54 a dollar in 2013 to more than 70 to a dollar in 2019, at a time when oil is becoming more expensive.

Jaffrelot is senior research fellow at CERI-Sciences Po/CNRS, Paris, and Professor of Indian Politics and Sociology at King’s India Institute, London. Jumle is an associate at Ikigai Law, New DelhicrackIAS.com Download the Indian Express apps for iPhone, iPad or Android

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com Page 86 Source : www.thehindu.com Date : 2019-10-17 THE THIRD NOBEL LAUREATE’S INDIA LINK Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

Michael Kremer

From Gujarat cotton farmers to coffee growers in Karnataka and paddy farmers in Odisha, the research of 2019 Economics Nobel laureate Michael Kremer and the company he founded have impacted the lives of more than six lakh agriculturists in India.

Annual income growth

Randomised controlled trials — the research for which the Nobel was awarded — showed that a low-cost mobile phone-based agriculture consulting service, developed by Dr. Kremer’s company, led to an annual income growth of about Rs. 7,000 per farmer.

Yields rise

When farmers could call a helpline for real-time expert advice on sowing and irrigation decisions and inputs such as seeds, fertilizers and pesticides, yields rose by 28% for those producing cumin and 8.6% for those growing cotton in Gujarat, tests showed.

Dr. Kremer’s fellow awardees — Esther Duflo and Abhijit Banerjee — have well-documented personal and professional links to India.

For the third awardee, the biggest India connection comes through Precision Agriculture for Development (PAD), the non-profit he co-founded in 2016 along with three others, including fellow Harvard professor Shawn Cole.

“Much of our work across India today stems from the research conducted by Shawn and Michael among cotton and cumin farmers in Gujarat in 2011 and 2012,” PAD India director Madhur Jain told The Hindu .

Their randomised control trial among 1,200 farmers showed that introducing a customised mobile- based agricultural extension system had a significant impact on income and yields, with a 10-fold return for investment in the subsidised service. “This research provided proof of concept that fuelled the expansion of our work across the country,” said Mr. Jain. PAD crackIAS.comIndia began work with 2,000 cotton farmers in Gujarat in 2016, and now reaches six lakh farmers across the country, with the biggest contingent of 5.25 lakh coming from Odisha.

Working with the Coffee Board of India, PAD India has connected 15,000 coffee growers in Karnataka to hydrologists and agronomists over the last year, with a plan to ramp up numbers to 50,000 farmers in the near future.

Nationwide, PAD India projects get 800-1,000 calls a day, with answers being provided within two hours to 72% of the queries. Almost all queries get answered within 24 hours.

You need to subscribe or sign-up to read Today's Paper articles. Page 87 Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 88 Source : www.thehindu.com Date : 2019-10-17 A COST-EFFECTIVE WAY TO POWER GENERATION Relevant for: Indian Economy | Topic: Infrastructure: Energy incl. Renewable & Non-renewable

India has been aggressively expanding its power generation capacity. Today’s installed capacity of 358 GW is about four times of what it was in 1997-98, which shows a doubling of capacity in each of the past two decades — or about 75 MW per day. By India’s historical standards, these are astonishing numbers indeed. In recent years, the major growth drivers have been renewable energy sources such as solar and wind power, and investment from the private sector. The private sector accounts for almost half the installed generation capacity. For the last three years, growth in generation from renewables has been close to 25%. India aims to have a renewables capacity of 175 GW by 2022 and 500 GW by 2030. Solar and wind power plants would account for much of the targeted capacity from renewables. How can this be achieved?

Today, thermal generation capacity accounts for about two-thirds the installed generation capacity in the country. This shows that though there is increasing awareness about the environmental impact of fossil fuels, the reliance on thermal plants is unlikely to end any time soon. (Table 1 underlines the two major advantages that thermal power plants enjoy relative to solar and wind power plants). Thermal plant capacities are large and therefore targeted capacity additions can be achieved by constructing fewer such plants. On average, it would take 18 solar or wind projects to generate the same quantity of power as one thermal plant. For the same reason, switching from fossil fuel to renewables will remain challenging as the administrative overheads that would have to be incurred in setting up the multiple projects could significantly add to the cost.

Not surprisingly, infrastructure projects have an inverse relationship between size and unit cost, indicating economies of scale. As the capacity of power plants increases, the average cost of power per MW reduces. The average cost per MW for a thermal plant is about 25% lower than that of a solar plant. In order to surmount the cost advantages that large thermal plants enjoy today, we must focus on developing larger solar and wind power plants that can also exploit similar economies of scale.

The next point is that of ownership. Over the last two decades, 63% of the total planned generation capacity has come from the private sector. Private investment has been even more pronounced in renewables, accounting for almost 90% of investment in wind and solar projects. So has private investment helped?

Table 2 has the answer. Private sector plants have an average cost per MW that is 12-34% lower for all categories except solar. Lower capacity cost has a direct impact on electricity tariffs. Electricity tariffs broadly consist of two components: fixed capacity costs and operation and maintenance costs, which include fuel expenses. In general, capacity costs account for more than 90%crackIAS.com of the levelised cost of electricity, irrespective of the fuel type. If we are able to create additional capacity at lower cost, then it will play a big role in keeping electricity tariffs low. Private investment in the power sector has not only helped in augmenting capacity but has also helped in lowering cost.

Even as total capacity in generation has been growing, the cost of installing additional capacity has fallen (Table 3). The reasons for the decline could be as follows: First, advances in technology have resulted in the construction of larger power plants. Compared to the 15-year period before 2013, power plants installed in the past six years have on average been significantly bigger, even twice as large in the case of hydel power. The economies of scale in power generation appear to have been dramatic. The second point could be the increasing Page 89 share of private sector investment. The share of private sector in capacity creation has been 70% in the last decade as compared to 46% in the decade before that. And, as indicated previously, private sector capacity has lower costs.

Falling marginal costs suggest that retiring some existing high-cost capacity plants with newer plants could be explored.

With economic growth, the demand for power in India is only going to increase further. To put things in perspective, China added generation capacity that was equal to a third of India’s total installed capacity in 2018. As India continues to ramp up capacity, it is imperative to create generation assets with the lowest unit cost by optimising plant capacities and encouraging private sector investment. Declining marginal cost for capacity provides opportunities for replacing existing capacity with newer capacity that are more efficient. However, the challenge of replacing fossil fuel-fired plants with renewables prevails.

Thillai Rajan A. is Professor, Department of Management Studies, IIT Madras and Associate, Mossavar Rahmani Center for Business and Government, Harvard Kennedy School. Akash Deep is Senior Lecturer in Public Policy, Harvard Kennedy School

You have reached your limit for free articles this month.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

How an idea for a ‘perfect Mumbai feature story’ failed to materialise

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 91 Source : www.livemint.com Date : 2019-10-17 THE STORY OF A TRIO’S EXPERIMENTS WITH DEVELOPMENT Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

The three Nobel laureates’ field experimental approach to poverty relief has guided many a policy

This year, the Royal Swedish Academy of Sciences awarded the prize in economic sciences to Abhijit Banerjee, Esther Duflo and Michael Kremer “for their experimental approach to alleviating global poverty".

The field experimental approach to study poverty alleviation and aid its effectiveness started with a simple programme in the mid-1990s, when economists Michael Kremer and Edward Miguel participated in the distribution of deworming medicine to school children in Kenya. Lacking pills for every child, the administrators randomized the selection for those who were treated. The group that received treatment for worm disease not only suffered from less infection, predictably, but also had better school attendance and outcomes. In following up with the students after a decade, they found that those who received the deworming medication reported 20% more earnings than the control group, a remarkable return for a deworming pill costing a few cents. Even more surprising was that parents in Kenya were acting irrationally in not adopting such a simple and cheap way to improve their children’s lives.

The study yielded three important insights. First, there is a systematic way to evaluate the effectiveness of the billions spent on development aid each year using randomized controlled trials (RCTs). Second, a small intervention such as deworming may go a long way in solving development problems, and RCTs can test ideas before they are scaled up. Third, experiments may be used to nudge irrational behaviour away to get better outcomes. It prompted an explosion in the use of RCTs on these three margins, and the idea spread to other areas such as education, microcredit, agriculture and bureaucracy in developing countries.

Given the success of the Kenya deworming study, can economists now apply the results to other parts of the developing world? Unfortunately, it is not that simple, and the results cannot be generalized. A 2012 paper by Duflo, with Rema Hanna and Stephen P. Ryan, reported an experiment in Rajasthan where teachers in 57 randomly selected schools received a camera, with instructions to have a student take a time-stamped picture of the teacher and the other students at the start and close of each school day. Teachers were paid for the days they were present. Teacher absenteeism in the treatment group fell by 21% relative to the control group, and the students’ test scores improved. The use of time-stamped logs of teachers’ presence, linkedcrackIAS.com to their pay, reduced absenteeism, which is both logical and unsurprising. However, when a similar study was done on health workers in Rajasthan, the result was the opposite. In their remarkably honest book Poor Economics, Duflo and Banerjee discuss a study to reduce absenteeism in healthcare, where nurses were given a time-and-date stamp to affix on a register attached to a wall of the centre several times a day to prove their presence. Those who didn’t show up at least half the time would get their wages docked. While nurse attendance increased from 30% to 60% at first, by the end of the study, it had fallen to 25%, even lower than in the comparison group. In this case, time-stamped monitoring had increased absenteeism. The reason was hidden in the method. While RCT estimates are unbiased because they randomize the target group, this property is of limited practical value. Nancy Cartwright and Nobel laureate Page 92 Angus Deaton argue that the results from these experiments only apply to the sample selected for the trial, in that particular context, and justification is required to extend the results to other groups. Other development economists such as William Easterly, Lant Pritchett, and Eva Vivalt have also criticized RCTs for being unable to generate results with external validity.

Banerjee, Duflo and Kremer are thoughtful about the context and struggles of the poor, and they are also aware of the limitations of these experiments and problems with simple one-size-fits-all solutions. Many economists and policymakers, however, have played fast and loose with the implications of these experiments, often using them to guide large-scale policies that are far more general in application.

Another important criticism is that the obsession with RCTs as the “gold standard" for evidence crowds out other big questions of development economics, such as the role of institutions, property rights, culture and immigration in alleviating poverty. These big institutional questions are less suited for randomized testing and, therefore, underexplored by contemporary economists.

This year’s prize is particularly relevant for India, as it has the second largest number of people in extreme poverty (living on less than $1.90 a day). Much of the work by the laureates is situated in India.

Of the three winners, Esther Duflo is the least surprising, as every second recipient of the John Bates Clark Medal goes on to win the Nobel. Duflo is also the second woman, after Elinor Ostrom, and the youngest economist, at 47, to win. Most laureates are awarded the prize only in their later years, but this year is an exception, as Banerjee is 58 and Kremer is 54 years old. All three are at the peak of their careers and actively engaged in enriching their field. This makes this year’s winners extremely powerful within economics, a power they must use with rigour, scrutiny, scepticism, and a lot of responsibility.

Shruti Rajagopalan is a senior research fellow with the Mercatus Center at George Mason University, US.

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 93 Source : www.thehindu.com Date : 2019-10-17 EXPLAINED Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

Abhijit Banerjee, right, talks during a news conference with Esther Duflo at Massachusetts Institute of Technology in Cambridge, Mass., Monday, Oct. 14, 2019. | Photo Credit: AP

The 2019 Nobel Prize in Economic Sciences was awarded to three economists on Monday for their pioneering research into the use of experimental approaches to fight global poverty. The trio, based in the United States, includes Abhijit Banerjee and Esther Duflo, who currently work at the Massachusetts Institute of Technology, and Michael Kremer of Harvard University.

The Prize committee noted that these economists "introduced a new approach to obtaining reliable answers about the best ways to fight global poverty." The new Nobel laureates are considered to be instrumental in using randomised controlled trials to test the effectiveness of various policy interventions to alleviate poverty.

A randomised controlled trial is an experiment that is designed to isolate the influence that a certain intervention or variable has on an outcome or event. A social science researcher who wants to find the effect that employing more teachers in schools has on children’s learning outcomes, for instance, can conduct a randomised controlled trial to find the answer.

The use of randomised controlled trials as a research tool was largely limited to fields such as biomedical sciences where the effectiveness of various drugs was gauged using this technique. Mr. Banerjee, Ms. Duflo and Mr. Kremer, however, applied RCT to the field of economics beginning in the 1990s. Mr. Kremer first used the technique to study the impact that free meals and books had on learning in Kenyan schools. Mr. Banerjee and Ms. Duflo later conducted similar experiments in India and further popularised RCTs through their book Poor Economics, published in 2011.

At any point in time, there are multiple factors that work in tandem to influence various social events. RCTs allow economists and other social science researchers to isolate the individual impact that a certain factor alone has on the overall event. For instance, to measure the impact that hiring more teachers can have on children’s learning, researchers must control for the effect that other factors such as intelligence, nutrition, climate, economic and social status etc., which may also influence learning outcomes to various degrees, have on the final event.

Randomised controlled trials promise to overcome this problem through the use of randomly picked samples. Supporters of RCTs believe that since all random samples are subject to the same array of "confounding" factors, they are essentially identical to one another. Using these randomcrackIAS.com samples, they believe, researchers can then conduct experiments by carefully varying appropriate variables to find out the impact of these individual variables on the final event.

A researcher, for instance, may supply one random set of schools with more teachers while other schools are left alone. This will allow him to gauge the effect of hiring more teachers on learning. Many development economists believe that RCTs can help governments to find, in a thoroughly scientific way, the most potent policy measures that could help end poverty rapidly.

A popular critic of randomised controlled trials is economist Angus Deaton, who won the Page 94 economics Nobel Prize in 2015. Mr. Deaton has contended in his works, including a paper titled "Understanding and misunderstanding randomised control trials" that simply choosing samples for an RCT experiment in a random manner does not really make these samples identical in their many characteristics.

While two randomly chosen samples might turn out to be similar in some cases, he argued, there are greater chances that most samples are not really similar to each other. Other economists have also contended that randomised controlled trials are more suited for research in the physical sciences where it may be easier to carry out controlled experiments. They argue that social science research, including research in the field of development economics, may be inherently unsuited for such controlled research since it may be humanly impossible to control for multiple factors that may influence social events.

You have reached your limit for free articles this month.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

The 2019 Nobel Prize for Chemistry was awarded to John B. Goodenough, M. Stanley Whittingham and Akira Yoshino for working towards the development of practical lithium-ion batteries.crackIAS.com Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In Page 95

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 96 Source : www.thehindu.com Date : 2019-10-19 ‘NO MDR ON DIGITAL PAYMENT TO LARGE FIRMS’ Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

The Union government on Friday said banks or system providers will not impose charges or merchant discount rate (MDR) on customers as well as merchants on digital payments made to establishments having turnover in excess of Rs. 50 crore from November 1.

Amendments to this effect have been made in the Income Tax Act as well as in the Payment and Settlement Systems Act 2007.

The new provisions “shall come into force with effect from November 1, 2019,” the Central Board of Direct Taxes (CBDT) said in a circular.

You need to subscribe or sign-up to read Today's Paper articles.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 97 Source : www.prsindia.org Date : 2019-10-19 THE FINANCIAL RESOLUTION AND DEPOSIT INSURANCE BILL, 2017 Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

Highlights of the Bill

● The Bill establishes a Resolution Corporation to monitor financial firms, anticipate risk of failure, take corrective action, and resolve them in case of such failure. The Corporation will also provide deposit insurance up to a certain limit, in case of bank failure.

● The Resolution Corporation or the appropriate financial sector regulator may classify financial firms under five categories, based on their risk of failure. These categories in the order of increasing risk are: (i) low, (ii) moderate, (iii) material, (iv) imminent, and (v) critical.

● The Resolution Corporation will take over the management of a financial firm once it is classified as ‘critical’. It will resolve the firm within one year (may be extended by another year).

● Resolution may be undertaken using methods including: (i) merger or acquisition, (ii) transferring the assets, liabilities and management to a temporary firm, or (iii) liquidation. If resolution is not completed within a maximum period of two years, the firm will be liquidated. The Bill also specifies the order of distributing liquidation proceeds. Key Issues and Analysis

● The Resolution Corporation will exercise certain powers including: (i) classification of firms based on risk, and (ii) directing the management of a firm to return their performance based incentive. However, the Bill does not specify a review or appeal mechanism for aggrieved persons to challenge the decision of the Resolution Corporation.

● A financial firm will have to be resolved within two years of being classified as ‘critical’. However, the point at which the resolution process ends is not specified in the Bill.

● crackIAS.com Under the Bill, the Resolution Corporation will take over a firm classified as ‘critical’. However, it may choose to resolve the firm. It is unclear why the Corporation is given a choice to undertake resolution.

● The Bill specifies that the Corporation will take over the administration of a firm, and exercise the powers of the board of directors, as soon as the firm is classified as ‘critical’. However, it also allows the Corporation to supersede the board of a firm if it is classified as ‘critical’. The provision allowing the Corporation to supersede the board of a firm classified as ‘critical’ may be redundant. Page 98

● The Bill requires financial firms to pay fees to the Resolution Corporation, including those specified in Clause 33. However, Clause 33 does not specify fees that these firms will be required to pay. PART A: HIGHLIGHTS OF THE BILL[1]

Context Figure 1: Distribution of financial assets in India Sources: Report of the Working Group on Resolution Regime for Financial Institutions; PRS. Financial firms include banks, non-banking financial companies, insurance companies, pensions funds, stock exchanges, and depositories. These firms accept deposits from consumers, invest these funds, and provide loans. Often these firms borrow from each other. Failure of a firm may result in adverse consequences for other financial firms, and could trigger off system-wide financial instability. Such failure may be resolved by merging the failing firm with another firm, transferring its assets and liabilities, or reducing its debt. If resolution is found unviable, the firm may be liquidated, and its assets sold to repay creditors.

In 2008, the failure of a large financial firm impacted countries across the world, and led to a global financial crisis.[2] After the crisis, several countries such as the US and those across Europe developed specialised resolution capabilities for addressing such failure.2,[3],[4]

Currently in India, there is no specialised law for the resolution of financial firms. Monitoring and resolution of firms are managed by the respective regulators. Over the last few years, expert committees have noted certain limitations in the current framework which include: (i) involvement of multiple regulators preventing specialised resolution capabilities for the entire financial sector being developed, (ii) regulators exercising forbearance and delaying resolution in the hope of reviving a firm, and (iii) availability of limited methods to resolve firms.2,5 Committees have also noted that currently there are no provisions to resolve certain financial firms such as companies managing mutual funds or securities firms. The powers of regulators to resolve similar entities also varies (e.g., RBI has powers to wind-up or merge scheduled commercial banks, but not co-operative banks).2,[5]

In this context, the Financial Resolution and Deposit Insurance Bill, 2017 was introduced in Lok Sabha on August 10, 2017.1 The Bill seeks to establish a Resolution Corporation to monitor financial firms (along with regulators), and resolve them in case of failure. Note that the Insolvency and Bankruptcy Code, enacted in 2016, addresses the failure of non-financial firms such as companies and partnership firms.[6]

Key FeaturescrackIAS.com

The Bill seeks to establish a Resolution Corporation to monitor financial firms and resolve them in case of failure. It repeals the Deposit Insurance and Credit Guarantee Corporation Act, 1962 and amends 22 other laws.1

● Coverage: The Bill will apply to banks, insurance companies, stock exchanges, depositories, payment systems, non-banking financial companies, and their parent companies. The central government may notify any other entities or funds to be covered under the Bill. Page 99 Resolution Corporation

● The Bill seeks to establish a Resolution Corporation which will comprise 11 members: (i) a Chairperson, (ii) a representative each from regulators (i.e., RBI, SEBI, IRDA and PFRDA), (iii) a representative of the Ministry of Finance, (iv) three members appointed by the central government, and (v) two independent members. The Chairperson and members will have expertise in subjects including finance, economics, and resolution. ● Functions: The Resolution Corporation will classify financial firms based on their risk of failure, undertake resolution or liquidation of financial firms in case of failure, provide deposit insurance to consumers, and monitor systemically important financial institutions. The Corporation may investigate the activities of financial firms or undertake search and seizure operations if provisions of the Bill are being contravened. ● Risk based classification: Financial firms will be classified under five categories based on their risk of failure by either the Resolution Corporation or the regulator (i.e., the RBI for banks, IRDA for insurance companies, and SEBI for stock exchanges). These categories are: (i) low, (ii) moderate, (iii) material, (iv) imminent, and (v) critical. The Corporation may classify firms in three of these five categories, while the regulators may classify firms under any of the five categories (see Figure 2). Such classification will be based on objective criteria such as adequacy of capital and debt. In case of a difference of opinion, the Corporation and regulators will consult each other. After such consultation, the order of the Corporation will be final, and binding on the financial firm. ● Monitoring: The Corporation and regulators will monitor financial firms based on their risk of failure. As this risk increases above acceptable levels (under ‘material’ or ‘imminent’ categories), the Corporation or the regulator may direct the firm to take certain actions to mitigate risk of failure. These include: (i) preventing the firm from accepting deposits, (ii) prohibiting it from acquiring other businesses, or (iii) increasing its capital. Further, firms in the ‘material’ and ‘imminent’ categories will formulate resolution and restoration plans. The Corporation may supersede the board of a firm, if it is classified under the ‘imminent’ or ‘critical’ categories, for a maximum period two years.

Figure 2: Monitoring and resolution of financial firms Sources:crackIAS.com The Financial Resolution and Deposit Insurance Bill, 2017; PRS.

● Deposit insurance: The Resolution Corporation will provide deposit insurance to banks up to a certain limit (to be notified). This implies that repayment of a certain amount to each depositor will be guaranteed by the Corporation, in case a bank fails. The Corporation will subsume the functions of the Deposit Insurance and Credit Guarantee Corporation, which currently provides deposit insurance of up to one lakh Page 100 rupees. Resolution Process

● Resolution: The Resolution Corporation will take over the administration of a financial firm from the date of its classification under the ‘critical’ category. The Corporation will resolve the firm using various methods specified in the Bill within one year. This time limit may be extended by another year (i.e. maximum limit of two years). During this period, the firm will be immune against all legal actions.

Figure 3: Order of priority for distributing assets Sources: The Financial Resolution and Deposit Insurance Bill, 2017; PRS.

● Methods of resolution: The Resolution Corporation may resolve a financial firm using any of the following methods: (i) transferring the assets and liabilities of the firm, (ii) merger, acquisition or amalgamation of the firm, (iii) creating a bridge financial firm (where a new company is created to take over the assets, liabilities and management of the firm), (iv) bail-in (internally transferring or converting the debt of the firm), or (v) liquidation (subject to approval by the National Company Law Tribunal). If the Resolution Corporation fails to resolve the firm within two years, the firm will be liquidated to repay its debt. Proceeds from liquidation will be distributed in an order of priority specified in Figure 3.

Other Provisions

● Systemically important financial institutions (SIFIs): The central government may designate a financial firm as a SIFI. This would include financial firms whose failures may have a significant impact on the stability of the financial system. Classification as a SIFI would require any firm which is not covered under the Bill, to also comply with its provisions. ● Offences: The Bill specifies penalties for certain offences committed by members of a financial firm. These offences include concealment of property and destruction or falsification of evidence. Penalties will vary based on the nature of the offence, with the maximum penalty being imprisonment for five years, along with a fine. ● Funds: The Corporation will constitute three Funds: (i) Corporation Insurance Fund for deposit insurance, (ii) Corporation Resolution Fund for resolution expenses, and (iii) Corporation General Fund for all other functions. ● BarcrackIAS.com on jurisdiction: The Bill prohibits any court or tribunal from entertaining matters related to the decisions of the Resolution Corporation or regulators, unless specified in the Bill. PART B: KEY ISSUES AND ANALYSIS

Certain powers of the Corporation may not have a review mechanism

The Bill establishes the Resolution Corporation to monitor financial firms (such as banks, insurance companies, stock exchanges, and depositories), pre-empt their failure, and resolve or liquidate them in case of failure. Failure of these financial firms may impact financial stability as Page 101 they hold consumer deposits, extend credit, facilitate investment in the economy, and also borrow from each other. Therefore, the Resolution Corporation may have to exercise its powers with urgency, and address such a failure to avoid any risk to the financial system. The Bill does not specify a review or appeal mechanism for some of these decisions.

One argument to not allow an appeal may be that certain decisions of the Resolution Corporation may require urgent action to prevent the failure of a financial firm. However, this may leave aggrieved persons without a recourse to challenge the decision of the Resolution Corporation if they are unsatisfied. Given that clause 133 of the Bill prevents courts from entertaining any matters related to decisions of the Resolution Corporation, the only remedy available to a person aggrieved by an order of the Corporation is to file a writ before the High Courts under Article 226 of the Constitution.[7] The RBI Working Group on Resolution Regime for Financial Institutions (2014) had recommended that an appeal and grievance redressal mechanism should be available for stakeholders to challenge an improper decision of the Corporation.2 We discuss two instances where an appeal mechanism is unavailable, below:

Classification of financial firms based on their risk of failure

The Resolution Corporation may classify a financial firm under the ‘material’, ‘imminent’ or ‘critical’ categories. Before such classification, the financial firm will be given an opportunity to be heard. However, the final order passed by the Resolution Corporation will be binding on the financial firm, and has to be complied with.

Depending on its classification, the firm may be subject to corrective action or resolution, including steps which: (i) prevent it from accepting deposits, (ii) prohibit it from acquiring other businesses, or (iii) require the firm to raise additional capital by issuing securities or selling assets. The Resolution Corporation will take over the management of a firm under the ‘critical’ category, and resolve it. The Bill does not specify a mechanism for an aggrieved financial firm to appeal the classification order of the Resolution Corporation.

Ordering members of financial firms to return performance based incentive

Under the Bill, the Resolution Corporation may designate a proportion of remuneration given to the chairperson, chief executive officer (CEO) or director of a financial firm, under ‘material’ or ‘imminent’ category, to be linked to their performance. Subsequently, if the financial firm is classified as ‘critical’, the Resolution Corporation may order the chairperson, CEO or director to return their performance based incentive after giving them an opportunity of being heard. Such direction may be issued to these officers if their actions or omissions resulted in the financial firm being classified under ‘critical’ risk.

The Bill does not specify a mechanism for an aggrieved person to challenge the order of the Resolution Corporation. This order directing a person to return the performance based incentive will becrackIAS.com final, and a failure to comply with it will result in recovery being initiated in the manner specified in the Income Tax Act, 1961.

Lack of clarity in certain parts of the classification and resolution process

Under the Bill, the Resolution Corporation or the regulators may classify financial firms in any of the five categories based on its risk of failure: (i) low, (ii) moderate, (iii) material, (iv) imminent, or (v) critical. In this context, we examine certain processes in the Bill which may be unclear.

End of the resolution process unclear in certain cases Page 102 The Bill specifies that the Resolution Corporation will take over the administration of the financial firm once it is classified as ‘critical’. The Resolution Corporation may then resolve the financial firm using any of the following methods: (i) transfer of assets and liabilities to another entity, (ii) merger or acquisition, (iii) transferring assets and liabilities of the financial firm to a temporary firm known as a bridge financial firm, (iv) bail-in (involving internal restructuring of liabilities including conversion of debt into equity), or (v) liquidation. However, the Bill does not indicate the point at which the resolution process will be deemed to be complete.

For some of these methods, such as transfer or merger, the completion of the resolution process may be inferred from the point when the new management takes over the administration of the firm. In case of liquidation, the Bill specifies that the National Company Law Tribunal will approve the dissolution of the financial firm after all its assets have been sold. However, for some other methods such as bail-in, the point at which the resolution process is complete may be unclear.

Note that under the Insolvency and Bankruptcy Code, 2016, the resolution process for a defaulting company ends when a resolution plan is approved by the National Company Law Tribunal. Further, the Tribunal passes an order lifting the moratorium on any lawsuits against the company.6

Resolution Corporation takes over the financial firm but may choose to resolve it

The Bill establishes the Resolution Corporation to monitor financial firms, prevent risk to their financial health, and resolve them in case of failure. Clause 58 of the Bill specifies that upon being classified as ‘critical’, the Resolution Corporation will take over the administration of a financial firm to continue its operations. However, Clause 48 of the Bill states that the Resolution Corporation may choose to resolve the financial firm. Since the purpose behind taking over the administration of the financial firm is to resolve it, it is unclear why the Resolution Corporation is being given a choice to undertake resolution.

Corporation superseding the board of a ‘critical’ firm’ may be redundant

Under Clause 58 of the Bill, the Resolution Corporation takes over as the administrator of a financial firm as soon as the financial firm is classified as ‘critical’. As the administrator, the Resolution Corporation will: (i) manage the operations of the financial firm, and (ii) exercise the powers of the board of directors, among others. However, Clause 62 (1) of the Bill allows the Resolution Corporation to supersede the board of directors of the financial firm if it is classified as ‘critical’.

Given that the powers of the board of directors of the financial firm are vested in the Resolution Corporation as soon as it is classified as ‘critical’, a separate provision allowing the Corporation to supersedecrackIAS.com a firm’s board when it is classified as ‘critical’ may be redundant. Fees payable by financial firms under section 33 not specified

Clause 22 (1) of the Bill requires financial firms to pay the Resolution Corporation: (i) fees for resolution, and (ii) fees for administrative expenses including fees charged under Clause 33. However, Clause 33 does not mention fees which the financial firms will be required to pay to the Resolution Corporation.

Annexure: Comparison of international laws with the proposed framework

Table 1 below compares the provisions of the Financial Resolution and Deposit Insurance Bill, Page 103 2017 with the laws of other countries.

Table 1: International comparison of resolution laws Action United States United Kingdom Australia India (Proposed Bill) ● Regulators: Four ● Regulators: regulators for ● Regulators: Prudential banks Securities and Regulation including Investments Authority Federal Commission (PRA) and ● Regulators: RBI Reserve regulates Financial (banks and Board. securities. Conduct NBFCs), SEBI Securities and Australian Authority (FCA) (securities Exchange Prudential regulate the markets), IRDA Commission Regulation financial (insurance) and Authori regulates Authority sector. PFRDA ties brokers and (APRA) and (pensions). stock Reserve Bank ● Resolution exchanges. monitor the Authority: ● Resolution financial Bank of Authority: ● Resolution sector. England or Her Resolution Authority: Majesty’s Corporation. Federal ● Resolution Treasury Deposit Authority: (equivalent of Insurance APRA. Ministry of Resolution Finance). Corporation (FDIC). ● Banks and NBFCs. ● Banks and non- banking ● Banks. ● Insurance financial Companies. ● Banks. companies ● Other entities

(NBFCs). such as ● Other entities ● Insurance Covera investment firms such as stock Companies. ge ● Other entities (manage exchanges, ● Other entities such as holding securities and depositories, and such as holding companies mutual funds) holding crackIAS.comcompanies. (parent and holding companies. company of a companies. financial firm). ● Entities notified by the central government. ● FDIC classifies ● Regulators ● APRA ● Corporation and Monitor firms in five risk classify firms on supervises and regulators ing categories a five-point risk classifies firms classify firms on a based on to failure scale. in different risk five-point risk to Page 104 capital. categories failure scale.

● Submission of based on ● Submission of Resolution capital, assets, ● Submission of Resolution Plans and and Restoration and Plans by firms to Restoration management, Resolution Plans PRA. Plans by firms among others. by firms. to FDIC. ● Upon breach of any conditions ● Appointment of (such as ● Upon a statutory adequacy of ● Upon satisfaction of manager by capital). classification as two conditions APRA. ‘critical’. which include ● FDIC appointed high likelihood of ● In case of as liquidator by ● Resolution a firm failing. insurance the regulators, Corporation Initiatio companies, n of or the licensing ● Assessment by Court appoints a procee authority. The ● (Administration regulators and judicial manager dings FDIC may also during ‘critical’ Bank of to take control of appoint itself. stage, and England. the firm. ● supersession of

● FDIC takes board of directors ● Bank of England ● Judicial over under ‘imminent’ takes over manager takes administration or ‘critical’ stage). administration. over after being administration. appointed as liquidator. ● One year (may Time ● No specified ● No specified ● 90 days. be extended by limit time limit. time limit. one year). ● Transfer of ● Purchase and assets and Assumption Stabilisation tools: liabilities. Transactions 1. Transfer of assets and liabilities. (transfer of all ● Bridge Service 2. Bridge Service ● Transfer of or part of Provider. Provider. assets and assets and 3. Bail-In (internal liabilities. liabilities). ● Merger or Resolut reduction of debt). ion ● Bank Insolvency Acquisition. crackIAS.com● Bridge Service method ● Bridge Service Procedure. Provider. ● s Provider ● Bail-In. Bank (temporary Administration ● Merger or company to ● Liquidation. Procedure. Acquisition. operate firm). ● Temporary Public ● Run-off insurance ● Paying off Ownership. company depositors. (allowing insurance policies Page 105 to run their due course without acquiring new business). ● Operated by ● Operated by ● Financial Claims Resolution ● Operated by Financial Scheme Corporation. FDIC. Services operated by

Deposit Compensation APRA. ● Limit to be Insuran ● Bank deposits Scheme. specified through ce of up to ● Bank deposits of regulations 250,000 US ● Bank deposits of up to 250,000 (currently DICGC dollars. up to 85,000 Australian insures up to 1 pounds. dollars. lakh rupees). Note: Bank Insolvency Procedure is used when the failing firm is put into liquidation and depositors are paid off; Bank Administration Procedure is used to put a part of a failed firm (that has not been transferred to a bridge service provider or private sector purchaser) into administration.

Sources: United Kingdom Banking Act, 2009, United Kingdom Insolvency Act, 1986, United States Code Title 11-Bankruptcy, United States Federal Deposit Insurance Act, 1950, Report of the Working Group on Resolution of Regime for Financial Institutions, RBI, January 2014, The Bank of England’s Approach to Resolution, 2014; The Australia Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010; The Australia Banking Act 1959; Report on Strengthening APRA’s Crisis Management Powers, 2012; The Deposit Insurance and Credit Guarantee Resolution Corporation Act, 1961; The Financial Resolution and Deposit Insurance Bill, 2017; PRS.

[1]. The Financial Resolution and Deposit Insurance Bill, 2017.

[2]. Report of the Working Group on Resolution Regime for Financial Institutions, Reserve Bank of India, January 2014.

[3]. Banking Resolution and Recovery Directive, European Union, Directive 2014/59/EU of the European Parliament and of the Council, May 15, 2014.

[4]. Key Attributes of Effective Resolution Regimes for Financial Institutions, FSB, 2014. [5]. ReportcrackIAS.com of the Committee to Draft Code on Resolution of Financial Firms, September 2016. [6]. The Insolvency and Bankruptcy Code, 2016.

[7]. Writ is an extraordinary remedy available to all persons for enforcing their constitutional and legal rights, or to compel public authorities to discharge their relevant duties.

DISCLAIMER: This document is being furnished to you for your information. You may choose to reproduce or redistribute this report for non-commercial purposes in part or in full to any other person with due acknowledgement of PRS Legislative Research (“PRS”). The opinions expressed herein are entirely those of Page 106 the author(s). PRS makes every effort to use reliable and comprehensive information, but PRS does not represent that the contents of the report are accurate or complete. PRS is an independent, not-for-profit group. This document has been prepared without regard to the objectives or opinions of those who may receive it.

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 107 Source : www.economictimes.indiatimes.com Date : 2019-10-20 INDIA TO SPEND USD 1.4 TRILLION ON INFRASTRUCTURE IN NEXT FIVE YEARS: NIRMALA SITHARAMAN Relevant for: Indian Economy | Topic: Investment Models: PPP, SEZ, EPZ and others

As part of its goal to become a USD 5 trillion economy by 2024, India plans to spend USD 1.4 trillion on its infrastructure in the next five years, Union Finance Minister Nirmala Sitharaman said on Saturday.

Addressing the annual meeting of the International Monetary Fund ( IMF) here, Sitharaman said a task force has been constituted in the finance ministry that will draw up a national infrastructure pipeline for the next five years.

"As we envisage becoming a five trillion-dollar economy by 2024-25, our focus on creating world-class infrastructure has become even more resolute. If we spent USD 1.1 trillion on infrastructure in the last 10 years (2008-17), we now are going to invest about USD 1.4 trillion in the next five years," she said.

India, she said, has taken various steps to enhance infrastructure investment by launching innovative financial vehicles such as Infrastructure Debt Funds (IDFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs) and laying down a framework for municipal bonds.

"We are already applying Public Private Partnership (PPP) models in the country. We have adopted the Asset Recycling model to modernize existing infrastructure, like highways, while providing government with upfront capital to support new infrastructure," she said.

India is also trying to develop brownfield assets as a separate asset class for infrastructure investment, the finance minister said.

Such assets, having passed the stages of land acquisition and environmental and forest clearances, are considerably de-risked and hence, institutional investment from pension, insurance and sovereign wealth funds are forthcoming in such assets, she said.

Another initiative is the National Investment and Infrastructure Fund (NIIF), which is aimed at channeling investments from both domestic and international sources into infrastructure, the minister noted.

India's experience with such innovative modes of funding holds an important example in financingcrackIAS.com of infrastructure for other developing countries, she said.

Noting that the rural economy is vital for India, which depends heavily on agriculture, she said the country has achieved high food grains production but returns in the sector are somewhat subdued due to a dip in agricultural commodity prices globally and depressed food prices domestically.

"To provide relief by way of income support to the farmers, the government has announced the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) this year...nearly 145 million beneficiaries in total will stand covered under this scheme," she said. Page 108 Sitharaman said India is adopting Zero Budget Natural Farming model to promote the use of organic seeds and natural fertilizers by farmers.

"This will reduce their expenditure and remove their dependence on credit. Such a step would contribute to our goal of doubling farmers' income by 2022," she asserted. As part of its goal to become a USD 5 trillion economy by 2024, India plans to spend USD 1.4 trillion on its infrastructure in the next five years, Union Finance Minister Nirmala Sitharaman said on Saturday.

India is also trying to develop brownfield assets as a separate asset class for infrastructure investment, the finance minister said.

India's experience with such innovative modes of funding holds an important example in financing of infrastructure for other developing countries, she said.

Noting that the rural economy is vital for India, which depends heavily on agriculture, she said the countrycrackIAS.com has achieved high food grains production but returns in the sector are somewhat subdued due to a dip in agricultural commodity prices globally and depressed food prices domestically.

Sitharaman said India is adopting Zero Budget Natural Farming model to promote the use of organic seeds and natural fertilizers by farmers. Page 109 "This will reduce their expenditure and remove their dependence on credit. Such a step would contribute to our goal of doubling farmers' income by 2022," she asserted.

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com

crackIAS.com Page 110 Source : www.thehindu.com Date : 2019-10-22 ‘TOTAL WEALTH IN INDIA TOUCHES $12.6 TRILLION’ Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

Concrete craze:Personal wealth in India is dominated by property and other real assets, the report said.Paul Noronha

Total wealth in India increased fourfold between 2000 and 2019, reaching $12.6 trillion in 2019, making India the fifth globally in terms of the number of ultra-high net-worth individuals, as per a Credit Suisse study.

According to the study, the wealth per adult in India grew by an average of 11% annually over the period 2000–2019 and the wealth per adult is estimated at $14,569 in mid-2019 after a year of moderate growth.

“Prior to 2008, wealth rose strongly, from $2,127 in 2000 to $6,378 in 2007. After falling 29% in 2008, it rebounded and grew at an average rate of 12% up to 2019,” said the report while adding that personal wealth in India is dominated by property and other real assets, which make up the bulk of household assets.

Incidentally, while India has 8.27 lakh adults in the top 1% of global wealth holders – 1.6% share of the global pool — it is estimated that India has 4,460 adults with wealth of over $50 million and 1,790 that have more than $100 million.

However, the study also found that while the number of wealthy people in India has been on the rise, a larger section of the population has still not been part of the growth in overall wealth.

“While wealth has been rising in India, not everyone has shared in this growth. There is still considerable wealth poverty, reflected in the fact that 78% of the adult population has wealth below $10,000,” stated the report, while highlighting the fact that a small fraction of the population — 1.8% of adults — has a net worth of more than $100,000. Meanwhile, as per the financial major, India is expected to grow its wealth very rapidly and add $4.4 trillion in just five years, reflecting an increase of 43%.

You need to subscribe or sign-up to read Today's Paper articles.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list. EnjoycrackIAS.com reading our articles without intrusion from advertisements. A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad Page 111 mobile applications and print. Our plans enhance your reading experience.

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

crackIAS.com Page 112 Source : www.thehindu.com Date : 2019-10-22 GDP IS A MEANS, NOT AN END Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

MIT economists Abhijit Banerjee and Esther Duflo, who, along with Michael Kremer, won the 2019 Nobel Prize for Economics for their “experimental approach to alleviating global poverty”, have published a new book, Good Economics for Hard Times. The book explains where the economy has failed, where ideology has blinded us, and where and why good economics is useful, especially in today’s world, write the authors in the preface. An excerpt:

Growth in India, like that in China, will slow. And there is no guarantee it will slow when India has reached the same level of per capita income as China. When China was at the same level of per capita GDP as India is today, it was growing at 12% per year, whereas India thinks of 8% as something to aspire to. If we were to extrapolate from that, India will plateau at a much lower level of per capita GDP than China. The growth tide does raise all boats, but it doesn’t lift all boats to the same level — many economists worry that there may be such a thing as the middle income trap, an intermediate-level GDP where countries get stuck or nearly stuck. According to the World Bank, of 101 middle-income economies in 1960, only 13 had become high income by 2008. Malaysia, Thailand, Egypt, Mexico and Peru all seem to have trouble moving up.

Of course, there are many pitfalls in any such extrapolation, and India should treat it as what it is: no more than a warning. It is quite possible that India’s growth, in spite of all its problems, has very little to do with some special Indian genius. Instead, it has a lot to do with the flip side of misallocation: the opportunities of being an economy with a large pool of potential entrepreneurs to draw upon and lots of unexploited opportunities.

If this is the right story, India should start to worry about what happens when those opportunities begin to run out. Unfortunately, just as we don’t know much about how to make growth happen, we know very little about why some countries get stuck but others don’t — why South Korea kept growing but Mexico did not — or how one gets out. One very real danger is that in trying to hold on to fast growth, India (and other countries facing sharply slowing growth) will veer towards policies that hurt the poor now in the name of future growth. The need to be “business friendly” to preserve growth may be interpreted, as it was in the U.S. and U.K. in the Reagan- Thatcher era, as open season for all kinds of anti-poor, pro-rich policies (such as bailouts for over indebted corporations and wealthy individuals) that enrich the top earners at the cost of everyone else, and do nothing for growth.

If the U.S. and U.K. experience is any guide, asking the poor to tighten their belts, in the hope that giveaways to the rich will eventually trickle down, does nothing for growth and even less for the poor. If anything, the explosion of inequality in an economy no longer growing has the risk of beingcrackIAS.com very bad news for growth, because the political backlash leads to the election of populist leaders touting miracle solutions that rarely work and often lead to Venezuela-style disasters.

Interestingly, even the IMF, so long the bastion of growth-first orthodoxy, now recognises that sacrificing the poor to promote growth was bad policy. It now requires its country teams to include inequality in factors to take into consideration when providing policy guidance to countries and outlining conditions under which they can receive IMF assistance.

The key, ultimately, is to not lose sight of the fact that GDP is a means and not an end. A useful means, no doubt, especially when it creates jobs or raises wages or plumps the government budget so it can redistribute more. But the ultimate goal remains one of raising the quality of life Page 113 of the average person and especially the worst-off person. And quality of life means more than just consumption. While better lives are indeed partly about being able to consume more, even very poor people also care about the health of their parents, about educating their children, about having their voices heard, and about being able to pursue their dreams. A higher GDP may be one way in which this can be given to the poor, but it is only one of the ways, and there is no presumption that it is always the best one.

The bottom line is that despite the best efforts of generations of economists, the deep mechanisms of persistent economic growth remain elusive. No one knows if growth will pick up again in rich countries, or what to do to make it more likely. The good news is that we do have things to do in the meantime: there is a lot that both poor and rich countries could do to get rid of the most egregious sources of waste in their economy. While these things may not propel countries to permanently faster growth, they could dramatically improve the welfare of their citizens. Moreover, while we do not know when the growth locomotive will start, if and when it does, the poor will be more likely to hop onto that train if they are in decent health, can read and write, and can think beyond their immediate circumstances. It may not be an accident that many of the winners of globalisation were ex-communist countries that had invested heavily in the human capital of their populations in the communist years (China, Vietnam) or countries threatened with communism that had pursued similar policies for that reason (Taiwan, South Korea). The best bet, therefore, for a country like India is to attempt to do things that can make the quality of life better for its citizens with the resources it already has: improving education, health and the functioning of the courts and the banks, and building better infrastructure (better roads and more liveable cities, for example).

For the world of policymakers, this perspective suggests that a clear focus on the well-being of the poorest offers the possibility of transforming millions of lives much more profoundly than we could by finding the recipe to increase growth from 2% to 2.3% in the rich countries.

Excerpted with permission from Juggernaut

You have reached your limit for free articles this month.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience. Page 114 Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

How an idea for a ‘perfect Mumbai feature story’ failed to materialise

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

crackIAS.com Page 115 Source : www.thehindu.com Date : 2019-10-22 ASIA’S REMARKABLE ECONOMIC TRANSFORMATION Relevant for: Indian Economy | Topic: Issues relating to Planning & Economic Reforms

Two centuries ago, in 1820, Asia accounted for two-thirds of the world’s population and more than a half of world income. It also contributed more than a half of manufacturing production in the world economy. The subsequent decline of Asia was attributable to its integration with the world economy shaped by colonialism and driven by imperialism. By 1962, its share in world income had plummeted to 15%, while its share in world manufacturing had dropped to 6%. Even in 1970, Asia was the poorest continent. Its demographic and social indicators of development, among the worst anywhere, epitomised its underdevelopment. Gunnar Myrdal, who published his magnum opus Asian Drama in 1968, was deeply pessimistic about the continent’s development prospects.

In the half century since then, Asia has witnessed a profound transformation in terms of economic progress of nations and living conditions of people. By 2016, it accounted for 30% of world income, 40% of world manufacturing, and over a third of world trade. Its income per capita also converged towards the world average, although the convergence was at best modest compared with industrialised countries because the initial income gap was so enormous. This transformation was unequal across countries and between people. Even so, predicting it would have required an imagination to run wild. Indeed, Asia’s economic transformation in this short time span is almost unprecedented in history.

It is essential to recognise the diversity of Asia. There were marked differences between countries in geographical size, embedded histories, colonial legacies, nationalist movements, initial conditions, natural resource endowments, population size, income levels and political systems. The reliance on markets and degree of openness in economies varied greatly across countries and over time. The politics too ranged widely from authoritarian regimes or oligarchies to political democracies. So did ideologies, from communism to state capitalism and capitalism. Development outcomes differed across space and over time. There were different paths to development, because there were no universal solutions, magic wands, or silver bullets. Despite such diversity, there are common discernible patterns.

For Asian countries, political independence, which restored their economic autonomy and enabled them to pursue their national development objectives, motivated and drove this transformation. And, unlike Latin America and Africa, most Asian countries did have a long history of well-structured states and cultures, which were not entirely destroyed by colonialism.

Economic growth drove development. Growth rates of GDP and GDP per capita in Asia were stunning and far higher than elsewhere in the world. Rising investment and savings rates combined with the spread of education were the underlying factors. Growth was driven by rapid industrialisation,crackIAS.com often export-led. There was a virtuous circle of cumulative causation, wherever rapid investment growth coincided in time with rapid export growth, leading to rapid GDP growth. This was associated with structural changes in the composition of output and employment. The process was also supported by a coordination of economic policies across sectors and over time.

However, development outcomes were unequal across sub-regions and countries. East Asia was the leader and South Asia was the laggard, with Southeast Asia in the middle, while progress in West Asia did not match its high-income levels. In just 50 years, South Korea, Taiwan and Singapore joined the league of industrialised nations. China was a star performer throughout, making impressive strides in development after 1990. The economic dynamism of Page 116 Indonesia, Malaysia, and Thailand waned after the Asian financial crisis. The growth performance of India, Bangladesh and Vietnam was most impressive during the past quarter century, although India and Bangladesh did not match the rest of Asia in social progress. In comparison, the performance of Sri Lanka was respectable, while that of Turkey was average; but that of Pakistan and the Philippines was relatively poor.

Rising per capita incomes transformed social indicators of development, as literacy rates and life expectancy rose everywhere. Rapid economic growth led to a massive reduction in absolute poverty. But the scale of absolute poverty that persists, despite unprecedented growth, is just as striking as the sharp reduction therein. The poverty reduction could have been much greater but for the rising inequality. Inequality between people within countries rose almost everywhere, while the gap between the richest and poorest countries in Asia remains awesome.

Governments performed a vital role, ranging from leader to catalyst or supporter, in the half- century economic transformation of Asia, while their willingness and ability to do so depended on the nature of the state, which in turn was shaped by politics. Success at development in Asia was about managing this evolving relationship between states and markets, complements rather than substitutes, by finding the right balance in their respective roles that also changed over time. Countries where governments could not perform this role lagged behind in development.

The developmental states in South Korea, Taiwan and Singapore coordinated policies across sectors over time in pursuit of national development objectives, using carrot and stick to implement their agenda, and were able to become industrialised nations in such a short time span. China emulated these developmental states with much success, and Vietnam followed on the same path two decades later, as both countries have strong one-party communist governments that could coordinate and implement policies.

It is not possible to replicate these states elsewhere in Asia. But other countries did manage to evolve some institutional arrangements, even if less effective, that were conducive to industrialisation and development. In some of these countries, the institutionalised checks-and- balances of political democracies were crucial to making governments more development- oriented and people-friendly.

Economic openness performed a critical supportive role in Asian development, wherever it was in the form of strategic integration with, rather than passive insertion into, the world economy. While openness was necessary for successful industrialisation, it was not sufficient. Openness facilitated industrialisation only when combined with industrial policy. Clearly, success at industrialisation in Asia was driven by sensible industrial policy that was implemented by effective governments. In future, however, technological learning and technological capabilities are also essential to provide the foundations for sustaining industrialisation.

The countries in Asia that modified, adapted and contextualised their reform agenda, while calibratingcrackIAS.com the sequence of, and the speed at which, economic reforms were introduced, did well. They did not hesitate to use heterodox or unorthodox policies, or experiment and innovate, for their national development objectives. Learning and unlearning were part of a process in which economic policies were seen as means to the end of development, and not ends in themselves.

The rise of Asia represents the beginnings of a shift in the balance of economic power in the world and some erosion in the political hegemony of the West. The future will be shaped partly by how Asia exploits the opportunities and meets the challenges and partly by how the present difficult economic and political conjuncture in the world unfolds. Even so, by 2030, per capita income in Asia, relative to the world, will return to its level in 1820. In terms of per capita income, Page 117 however, it will be nowhere near as rich as the United States or Europe. Thus, Asian countries would emerge as world powers, without the income levels of rich countries.

Yet, it is plausible to suggest that in circa 2050, a century after the end of colonial rule, Asia will account for more than a half of world income and will be home to more than half the people on earth. It will thus have an economic and political significance in the world that would have been difficult to imagine 50 years ago, even if it was the reality in 1820.

Deepak Nayyar is Emeritus Professor of Economics at Jawaharlal Nehru University and former Vice-Chancellor of the University of Delhi. His latest book is ‘Resurgent Asia: Diversity in Development’ which has just been published

You have reached your limit for free articles this month.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Subscribe to The Hindu now and get unlimited access. AlreadycrackIAS.com have an account? Sign In Sign up for a 30-day free trial. Sign Up

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com Page 118 Source : www.thehindu.com Date : 2019-10-22 GOVERNMENT LAUNCHES BHIM 2.0 WITH NEW FUNCTIONALITIES, ADDITIONAL LANGUAGE SUPPORT Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Banking, NPAs and RBI

The IT Ministry on Monday unveiled a slew of new initiatives and programmes, including BHIM 2.0 that packs-in new functionalities, supports additional languages and has increased transaction limits.

Union Minister Ravi Shankar Prasad also launched a StartUp Hub portal and Indian Software Product Registry at IT Ministry’s MeitY Start-up Summit.

BHIM app, a UPI-based payment interface developed by National Payments Corporation of India (NPCI) that allows real-time fund transfer, was launched in December 2016.

“In order to make BHIM app more feature-rich and effective it has been enhanced with a bunch of new functionalities. Some of the striking features marking BHIM 2.0 include a ‘Donation’ gateway, increased transaction limits for high value transactions, linking multiple bank accounts, offers from merchants, option of applying in IPO, gifting money...,” an official release said.

The new version of BHIM also supports three additional languages - Konkani, Bhojpuri and Haryanvi - over and above the existing 13.

MeitY StartUp Hub (MSH) has been envisioned as an overarching collaborative platform to act as a national coordination, facilitation and interconnected centre for all activities in the tech startup ecosystem. MSH will support startups to reach out to mentors and facilitate startups to scale from ideation to marketplace.

“MSH portal brings onboard key constituents of the tech startup ecosystem with startups, technology incubation centres, Centres of Excellence (CoEs), mentors, VCs and angels together. It is also mandated to integrate existing programmes and innovation related activities of Ministry of ELectronics and IT (MeitY),” the release said.

The minister also launched an Indian software products registry, which will act as a single window portal to collate Indian software product database.

You have reached your limit for free articles this month. RegistercrackIAS.com to The Hindu for free and get unlimited access for 30 days. Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading our articles without intrusion from advertisements.

A select list of articles that match your interests and tastes. Page 119 Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

We look at IAF’s second mobile game, A Cut Above, which lets you choose between Rafale and six other aircraft

While a new Dark Souls-like game and a massive RPG from the legendary Studio Ghibli are both Anime in spirit, they are definitely universes apart

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience with zero ads.

Already a user? Sign In

crackIAS.com Page 120 Source : www.economictimes.indiatimes.com Date : 2019-10-22 HOUSEHOLD WEALTH MORE THAN DOUBLES TO $12.6 TN IN 2019: CREDIT SUISSE Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

In a year when the overall economic growth decelerated to a five-year low of 5.8 percent, a report has claimed that household wealth more than doubled USD 12.6 trillion in the calendar year 2019. Total wealth held by the households in the country had stood at USD 5.972 trillion in 2018, according to a report by Swiss bank Credit Suisse on Monday.

The startling report comes at a time when many analysts are concerned over almost all the key indicators are heading south or even contracting forcing the government to offer massive tax giveaways. The report also says household wealth in the country has grown four-times between 2000 and 2019, and the country will add another 43 percent or USD 4.4 trillion to wealth over the next five years.

A specific query on the reasons for doubling up of household wealth was not answered by the bank, which also has operations in the country as a brokerage and other activities. The report says this massive wealth includes both financial as well as investments in real assets like gold and property, and also takes on board currency movements. It can be noted that property market has been in the doldrums since late 2016 following the note-ban.

The wealth per adult stood at USD 14,569 as per the report, or up 3.3 percent, while their debt grew 11.5 percent to USD 120 billion. Financial assets grew at a lower 1.4 percent as against 6.9 percent increase in the non-financial assets, which reflects the volatile markets, the report notes, adding there are 8.27 lakh adults in the top 1 percent of global wealth-holders, who own 1.6 percent of the global wealth.

Nearly 4,500 possess wealth of over USD 50 million, while 1,790 have over USD 100 million, the report says. India is ranked fifth among the countries with ultra high net-worth individuals, according to the report. In a year when the overall economic growth decelerated to a five-year low of 5.8 percent, a report has claimed that household wealth more than doubled USD 12.6 trillion in the calendar year 2019. Total wealth held by the households in the country had stood at USD 5.972 trillion in 2018, according to a report by Swiss bank Credit Suisse on Monday.

The wealth per adult stood at USD 14,569 as per the report, or up 3.3 percent, while their debt grew 11.5 percent to USD 120 billion. Financial assets grew at a lower 1.4 percent as against Page 121 6.9 percent increase in the non-financial assets, which reflects the volatile markets, the report notes, adding there are 8.27 lakh adults in the top 1 percent of global wealth-holders, who own 1.6 percent of the global wealth.

crackIAS.com Page 122 Source : www.indianexpress.com Date : 2019-10-23 SMOOTH OPERATORS Relevant for: Indian Economy | Topic: Infrastructure: Railways

The writer is an officer of the Indian Railway Traffic Service, 1986 batch. Views are personal

Indian Railways is looking at the prospect of private operators running passenger services on the government-owned network. The Bibek Debroy committee had felt that the rail industry needs to be liberalised by allowing the entry of private operators to provide services.

The idea in the report was to encourage growth and improve services. Recent announcements indicate that IRCTC, currently a fully-owned subsidiary, has been roped in to kick-start the process by operating train services with value-added features. This is just the beginning and plans are to scale up by opening up routes to other players in the near future.

An empowered group has been constituted to expedite this process. For those of us in the rail industry, this is an exciting moment as it opens up the possibility of letting the market work towards better utilisation of the network, while improving services for passengers.

In 1991, the European Commission (EC) decided to open up the rail market. The Nineties were when it became fashionable to vertically separate the network industries (gas, telecom, electricity and railways). This separation was widely acknowledged as a way of introducing competition in the provision of services. Until then, these network industries were considered natural monopolies and railways were typically state owned.

The new institutional framework entailed infrastructure remaining a monopoly while there would be a market of service providers. The EC issued a directive imposing an accounting separation between transport services and infrastructure management. Some countries went in for clear separation with separate organisations while others went in for the softer option of separate accounting.

The first question that this poses in the Indian context is whether such separation between infrastructure and operations is a prerequisite for introducing private operations. To answer this question, we need to understand more about the new market that will open up.

The argument for separation stems from the need to move an internal transaction to the market. The EC directive provided a solution whereby even if the organisation continues to be vertically integrated, one could make the transaction to partially mimic the market if there was an accountingcrackIAS.com separation between services and infrastructure. Then there could be a price associated with the transaction between the two distinct units of accounting with separate cost calculations. In order to understand the importance of separation, we need to look more closely at what is being transacted.

The three basic elements of the market for train operations are: One, what the network owner sells to the private operator; two, how the price is determined for this transaction, and three, the terms of sale, that is, the contract design. Our focus is on the first element wherein the network owner sells a train path to the operator. Page 123 When a toll road is opened, we as motorists merely drive up to the gate, pay the toll and use the infrastructure. Opening up the railway network does not mean anyone can simply show up at the terminal with a locomotive and coaches and run it on the rail network by paying a fee. The train operator is providing a service to passengers and, therefore, needs to commit to a time schedule for passengers to board.

More importantly, safe railway operations require the discipline of central control of train movements and movements strictly regulated by signals demarcating sections and stations. A train path, therefore, has time and space attributes and gives the operator scheduled access to rail tracks which are to be used for running on sections, dwelling at stations and stabling at terminals.

In a vertically integrated railway, based on the assessment of demand by the commercial department, the operations department checks for the availability of a path and schedules a service along that path. Arranging for coaches, locomotives and crew to run the train are part of the solution but not important for this discussion. In the case of a private operator, one can imagine that the demand for a service will come from the operator and thereafter a similar solution is worked out.

It is here we must note that even the European Commission has not changed the train path allocation procedure and it remains the same as it was for the monopoly industry. While there is competition amongst train operating companies in Europe, there is not yet a market for train paths. Paths are allocated administratively based on the train service priority criteria that are well established.

Given the fact that despite nearly three decades of opening up of the rail sector in Europe, market forces are not determining the allocation of paths, it can safely be argued that the separation between infrastructure and operations is not a pre-requisite for this transaction of a train path.

We can then conclude that competition in train services can be introduced by allowing private train operators to participate and that separation of infrastructure management from transportation services is not essential to bring in this competition.

Should Indian Railways attempt a quantum jump and move towards a market-oriented allocation of train paths? On congested routes, can we allow market forces to resolve conflicts between train paths leading to an efficient outcome? These are some of the interesting issues that arise as we move along this path of opening up operations.

Could this be an opportunity to alter train scheduling in a way that leads to smoother operations across the length and breadth of the network, coast to coast? The writercrackIAS.com is a senior officer in the Indian Railways. Views are personal Download the Indian Express apps for iPhone, iPad or Android

END Downloaded from crackIAS.com © Zuccess App by crackIAS.com Page 124 Source : www.livemint.com Date : 2019-10-23 WHY HIGHER TAXES ARE NOT THE WAY TO BETTER WELFARE IN INDIA Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation & Black Money incl. Government Budgeting

Unlike in the West, conditions in the country are not suitable for soak-the-rich policies to succeed

Abhijit Banerjee, winner of the 2019 Economics Nobel along with Esther Duflo and Michael Kremer, has been talking up the idea of high and rising marginal tax rates for the rich. He has also criticized the Narendra Modi government’s recent corporate rate cut and said the money would have been better spent on the poor, which would have helped revive demand. He argues that there is no evidence that high tax rates deter investment or growth.

One need not quarrel with the idea of putting more money in the pockets of the poor, provided it can be funded appropriately and without setting off high inflation. But it is surprising that he should be advocating soak-the-rich policies in a country which is estimated to have lost around 5,000 millionaires in 2018 alone, according to an AfrAsia Bank-New World Wealth report. While the rich may be leaving India for reasons other than just high tax rates, surely, hiking marginal taxes will hardly convince them to return and invest in this country. Jobs and growth are created by boosting investment and entrepreneurship, not just consumption.

There have been studies to suggest that high marginal tax rates do not endanger growth, and the Eisenhower era US top rate of 91% is often cited as evidence that one should indeed fleece the rich to fund welfare. A research study by Peter Diamond and Emmanuel Saez of MIT and University of California at Berkeley, respectively, has even recommended that the US raise its top marginal tax rate to 73%.

Evidence from Europe, especially Scandinavia, where the top marginal rates are usually in the 40-50%-plus range, also suggests that the rich do not flee high-tax jurisdictions.

The problem with these arguments is that they are being universalized without context. If the US and Europe can raise taxes without investors voting with their feet, it is because they are globally powerful and their governments can impose their laws on smaller countries and tax havens. Consider how easily Indians have been forced to comply with the US Foreign Account Tax Compliance Act, though the US has no jurisdiction over Indian citizens. Equally, totalitarian countries can enforce high rates. Consider the case of China, where financial repression is the norm and the state can commandeer resources from anyone with its ability to track almost every citizen in every activity.

MonoculturalcrackIAS.com countries also find it easier to tax their citizens at a high rate; acquiescence is aided by the public knowledge that these taxes will serve to benefit someone we can identify with in terms of race or kinship. Once countries become diverse and culturally divergent, this willingness to pay high taxes reduces—as is the case with India.

To repeat, high tax rates are likely to work if a country offers huge economic opportunities, can enforce compliance even outside its sovereign jurisdiction, is largely homogeneous and mono- cultural, makes a reasonable assurance that the money will be put to good use, and its economy is largely free of corruption and the legal system is capable of punishing violations. Page 125 Almost none of these conditions are true in India at this stage of its development, and even small efforts to enforce better tax compliance attract the charge of tax terrorism, which may be partially true, given the venal nature of our bureaucracy and the legal system’s endless delays. As for corporate taxes, even the US finds it tough to prevent corporations from keeping their profits abroad in tax havens. Competitive tax rates are thus crucial till we reach a global understanding that countries must not compete on tax rates.

But beyond the simple ability to impose high marginal tax rates on individuals, there is the question of desirability. Despite high state capacity in advanced countries, few people would argue that states can spend money more efficiently than private parties. In India, this is even more true. In these circumstances, a rupee left in the hands of private individuals and companies may be put to better use than if handed over to politicians and bureaucrats.

It is also time to question the basic hypothesis that states can deliver welfare better to the poor, and that higher taxation is the way to fund this munificence. The marginal utility of higher incomes reduces as one moves up the income scale. This implies that beyond a certain level of income, wealth and personal consumption, the rich work largely to earn psychological rewards—by winning against competitors, taking on new challenges, earning plaudits from peers, and contributing to society. This may sound like an argument for higher taxation, but it is actually an argument to incentivize the rich to do more for society.

Ask yourself: If toilets have to be built for the poor, is it more likely that the Tatas would do it well or the government? So, rather than tax the Tatas and get the government to spend money on building poor quality toilets, wouldn’t it make more sense to incentivize the Tatas (or Birlas, or Ambanis or Shiv Nadars and Azim Premjis) to promote social entrepreneurship and investment in human capital?

Companies and individuals are more primed to deliver better outcomes. It is time to let go of the idea that higher taxes are the way to better welfare.

R. Jagannathan, is editorial director, ‘Swarajya’ magazine

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 126 Source : www.pib.nic.in Date : 2019-10-23 Relevant for: Indian Economy | Topic: Infrastructure: Energy incl. Renewable & Non-renewable

Vice President's Secretariat Tap the vast potential of solar energy around the world and make solar energy affordable for all: Vice President

Harness renewable sources to overcome the challenges posed by global-warming, climate change: VP

Addresses the 24th SUN Meet organized by Indian Institute of Public Administration

IIPA signs MoU with ISA International Solar Alliance for capacity-building of its member countries

Posted On: 21 OCT 2019 4:14PM by PIB Delhi

The Vice President of India, Shri M Venkaiah Naidu today called upon policymakers and experts in the renewable energy sector to take steps to tap the vast potential of solar energy around the world and make solar energy affordable for all. He urged all the member nations of International Solar Alliance to develop solar resources and related technology so that their reliance on fossil resources is reduced.

Speaking at the inaugural of 24th SUN Meet - i-SUN CaP (International capacity Augmentation Programmes for the “Sunshine Countries of ISA” organized by the Indian Institute of Public Administration in New Delhi, the Vice President said that moving to renewables would not only ensure energy security but also help in protecting the climate and reducing pollution.

Opining that global warming and climate change were affecting every aspect of human life and that there was an urgent need to protect the environment and ensure sustainability in development, the Vice President said that all nations must harness renewable resources to overcome the challenges posed by global-warming, climate change and pollution generated from conventional energy sources.

The Vice President said that he wanted to see every house, institution and organization to have their crackIAS.comown solar panels on rooftops to meet their energy demands and vastly reduce carbon footprint.

Observing that India has huge potential to become the leader in the solar energy sector, Shri Naidu expressed happiness over the way renewable energy resources have been developed in India.

Recalling that India and France were the founding countries of International Solar Alliance, the Vice President said that Prime Minister Shri Narendra Modi and former French President Mr. Francois Hollande initiated the project to combine the efforts of both countries to work against climate change and promote renewable energy in place of fossil fuels. Page 127 He said that the idea of a concrete road map towards sustainability had also been reiterated by the Prime Minister in the recent UN Climate Action Summit in New York. He said that the solar alliance would play an important role in realizing his dream of “Climate action: Time to Act Now”.

Shri Naidu said that the ISA’s vision includes undertaking joint efforts to reduce the cost of finance and the cost of technology in producing renewable energy across the globe and also to mobilize more than USD 1000 billion of investment by 2030 for massive deployment of solar energy and pave the way for future technologies.

The Vice President lauded IIPA for signing an MoU with International Solar Alliance for capacity- building of its member countries in the area of climate change adaptation and mitigation under ITEC-programme of Ministry of External Affairs.

Botswana also joined the International Solar Alliance by signing ISA framework agreement in the august presence of the Vice President and Minister of State for Power and New & Renewable Energy (IC) and Skill & Entrepreneurship, Shri R. K. Singh. Ambassadors and representatives from more than 50 member countries of ISA attended the event.

Shri T.N. Chaturvedi, Chairman, India Institute of Public Administration (IIPA), Dr. I.V. Subba Rao, Secretary, Vice President of India, Shri Shekhar Dutt, Vice Chairman, (IIPA), Shri Upendra Tripathy, Director General, ISA, Shri Surendra Nath Tripathi, Director, Indian Institute of Public Administration (IIPA) were among those present.

Following is the text of the Vice President’s address-

“Distinguished Dignitaries, Padma Vibhushan Shri T. N. Chaturvediji, Shri R. K. Singh, Minister of State for Ministry of Power and New & Renewable Energy (IC) and Skill Development & Entrepreneurship, Excellences,

Sisters & Brothers,

I am delighted to have you all for the inaugural of the 24th SUN MEET of the International Solar Alliance. As you are aware, IIPA is an autonomous academic institution of national eminence for training, research and information dissemination in streams related to Public Administration. I am happy that IIPA has become an internationally-known premier center for Training and Research in Public Administration and Good Governance.

I am also delighted to know that IIPA has signed an MoU with International Solar Alliance for capacity-building of its member countries. IIPA is already engaged in capacity building of Indian officers as well as of many friendly countries in the area of climate change adaptation and mitigation under ITEC programme of MEA. I am crackIAS.comsure that IIPA’s Centre of Environment and Climate Change will rise to the occasion and impart necessary training to the officials of the member countries of solar alliance in formulating their policies and programmes to generate solar energy.

I would also like to recollect that Prime Minister Shri Narendra Modi and former French President Mr. Francois Hollande had unveiled the International Solar Alliance (ISA) in 2015. France and India are the founding countries of ISA along with 121 member countries. The project was launched to combine the efforts of both countries to work against climate change and promote renewable energy in place of fossil fuels. The idea of a concrete road map towards sustainability has been reiterated by the Prime Minister in the recent UN Climate Action Summit in New York. The solar alliance will be playing an important role in realizing his dream of Page 128 “Climate action: Time to Act Now”.

ISA’s vision shows the way in this direction quite explicitly. It includes shared ambition to undertake joint efforts required to reduce the cost of finance and the cost of technology, mobilize more than USD 1000 billion of investment needed by 2030 for massive deployment of solar energy and pave the way for future technologies.

The ISA will also identify opportunities to bring in prosperity, energy security and sustainable deployment for all the people. ISA envisages to better harness the demand for solar technologies, innovation and capacity building, among others, to make solar energy affordable to all. The idea behind the association is to develop solar resources in various countries to reduce their reliance on non-renewable resources.

Countries which have come together for the project will identify and address gaps in their energy requirements through a collective approach. Some of the short-term priorities identified are: Assisting member countries in drafting solar policies; Encouraging collaborations in solar resource mapping in member countries and the deployment of suitable technologies; Designing training programmes for students/engineers/policymakers and others; organizing workshops, focused meetings and conferences and working with ISA member countries to strive for universal access to solar lighting.

Clearly, all these actions require the capacity to assess the requirement and bridge the gaps in order to meet the energy requirements in each country. This implies an effective networking and learning from each other. It is expected that the ISA member countries will also establish mutually beneficial relationships with several relevant organizations, both public and private sector as well as non-member countries. I have been informed that the ISA Secretariat has put in place a very effective governance structure of the Assembly, a Standing Committee, four Regional Committees and three Subject Committees for various areas.

I am quite confident that ISA will collectively address the energy challenges of tomorrow by scaling up the use of solar energy. I welcome all the new Members to the family and I sincerely hope that with more members joining the ISA, a more equitable socio-economic order that respects sustainability will be established. I hope that the ISA will serve as a laudable vehicle towards this goal.

I am happy that IIPA has organised the “i-SUN CaP (International capacity Augmentation Programmes for the “Sunshine Countries of ISA”. As stated earlier, the idea behind the alliance is to develop solar resources in various countries to reduce their reliance on energy needs for fossil resources. The objective of i- Sun Cap is Capacity Augmentation of the sunshine countries and Documentation.

It is within this context that policymakers will formulate plans to augment the capacity for successfullycrackIAS.com tapping the vast potential for solar energy around the world. I am sure that based on international experience and lessons, focus will be on solar-specific good practices. Ultimately, governments can design a suite of complementary policies that aligns most appropriately with unique national circumstances and goals.

I am hopeful that the association of IIPA and ISA will go a long way to reach out to the ISA Member Countries in their efforts of capacity building on policy issues. I wish the 24th SUN MEET all success.

Thank you.” Page 129 ****

RRK/SK/MS/RK

(Release ID: 1588609) Visitor Counter : 366

Read this release in: Urdu , Hindi

crackIAS.com Page 130 Source : www.economictimes.indiatimes.com Date : 2019-10-23 FDI IN INDIA: BRING $500 MILLION FDI, GET RELATIONSHIP MANAGER: GOVERNMENT Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Foreign Capital, Foreign Trade & BOP

(This story originally appeared in on Oct 22, 2019) NEW DELHI: Soon, those looking to invest $500 million or more in the country will have a designated person who will facilitate all clearances — from the Centre to local bodies — with officials from state government and central ministries too converging on one place to address investor queries and enhance flows.

Drawing from the experience in Gujarat, the department for promotion of industry and internal trade (DPIIT) and Invest India have joined hands to put in place a new mechanism aimed at attracting investors, many of whom have in the past complained of a plethora of clearances holding up their plans, officials told TOI.

“Very soon, we will be announcing it. Within Invest India, another format in which we actually do hand-holding from investment query that anybody makes to operationalising it in the field,” DPIIT secretary Guruprasad Mohapatra said at an event on Monday.

While the issue has been discussed with commerce and industry minister Piyush Goyal, a formal approval is awaited.

Now, Invest India scouts for space DPIIT secretary Guruprasad Mohapatra, who comes from the Gujarat cadre, is drawing upon the western state’s experience during PM Narendra Modi’s term where investment proposals were cleared quickly and facilitated by iNDEXTb, the state investment promotion body.

The Centre’s investment promotion agency Invest India is scouting for space, where officials from several ministries, including tax and environment and forest, will be present to address investment queries. State governments, too, will depute officers at the facility. The move follows several steps that have already been initiated. For instance, DPIIT has already put in place a platform that provides information on 21,000 acres of land that is almost in plug-and-play state across state industrial parks and the Delhi-Mumbai industrial corridor. Mohapatra has now asked for land available across private sector industrial parks also to be housed on the online platform so that investors can decide the location. Invest India, which already facilitates global investors, now intends to provide “relationship managers” to all investors looking to invest $500 million or more crackIAS.comin the country. NEW DELHI: Soon, those looking to invest $500 million or more in the country will have a designated person who will facilitate all clearances — from the Centre to local bodies — with officials from state government and central ministries too converging on one place to address investor queries and enhance flows.

While the issue has been discussed with commerce and industry minister Piyush Goyal, a formal approval is awaited.

crackIAS.com Page 132 Source : www.pib.nic.in Date : 2019-10-24 Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Industry & Services Sector incl. MSMEs and PSUs

Cabinet Union Cabinet approves revival plan of BSNL and MTNL and in-principle merger of the two

Spectrum of 4G to be allocated to the Telecom PSEs

Funding through capital infusion of over Rs 20,000 Crore

Sovereign guarantee for long term bonds of Rs 15,000 Crore

Union Government to bear cost of attractive VRS

Posted On: 23 OCT 2019 4:58PM by PIB Delhi

The Union Cabinet today approved the proposal for revival of BSNL and MTNL by administrative allotment of spectrum for 4G services, debt restructuring by raising of bonds with sovereign guarantee, reducing employee costs, monetisation of assets and in-principle approval of merger of BSNL & MTNL.

The following was approved by the cabinet:-

1. Administrative allotment of spectrum for 4G services to BSNL and MTNL so as to enable these PSUs to provide broadband and other data services. The said Spectrum will be funded by the Government of India by capital infusion in these PSUs at a value of Rs 20,140 Cr in addition; the GST amount of Rs 3,674 Cr to this spectrum value will also be borne by the Government of India through Budgetary resources. By using this spectrum allotment, BSNL and MTNL will be able to deliver 4G services, compete in the market and provide high speed data using their vast network including in rural areas.

2. crackIAS.comBSNL and MTNL will also raise long-term bonds of Rs 15,000 Cr for which sovereign guarantee will be provided by the Government of India (GoI). With the said resources, BSNL and MTNL will restructure their existing debt and also partly meet CAPEX, OPEX and other requirements.

3. BSNL and MTNL will also offer Voluntary Retirement to their employees, aged 50 years and above through attractive Voluntary Retirement Scheme (VRS), the cost of which will be borne by the Government of India through budgetary support. The ex-gratia component of VRS will require Rs. 17,169 Cr in addition, GoI will be meeting the cost towards Pension, Page 133 Gratuity and Commutation. Details of the scheme will be finalised by BSNL/MTNL.

4. BSNL and MTNL will monetise their assets so as to raise resources for retiring debt, servicing of bonds, network upgradation, expansion and meeting the operational fund requirements.

5. In-principle merger of BSNL and MTNL

It is expected that with the implementation of said revival plan, BSNL and MTNL will be able to provide reliable and quality services through its robust telecommunication network throughout the country including rural and remote areas.

*****

VRRRK/SC/SH

(Release ID: 1588848) Visitor Counter : 2493

Read this release in: Bengali , Urdu , Hindi , Marathi , Gujarati , Tamil , Malayalam

crackIAS.com Page 134 Source : www.thehindu.com Date : 2019-10-25 INDIA CLIMBS 14 NOTCHES IN EASE OF DOING BUSINESS RANKING Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Demographic Economics & Various Indexes

In the latest ranking for countries in ease of doing business, the World Bank has placed India 63rd out of 190 countries — an improvement of 14 places from its 77th position last year. The country’s score improved from 67.3 last year to 71.0 this year, as per The Doing Business 2020 study, released on Thursday.

The indicator measures the performance of countries across 10 different dimensions in the 12- month period ending May 1, 2019.

The 10 areas of study are: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.

An 11th area – employing workers – is measured, but not factored into the score. A total of 294 reforms had been enacted by 115 countries, the bank said. The indicator, however, is not necessarily representative of each country. For 11 countries, two cities were selected to construct the indicator – Delhi and Mumbai in the case of India. India also featured, for the third consecutive year, in the list of 10 economies where business climates had improved the most.

This list comprises Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, China, India and Nigeria. The report called India’s reform efforts “particularly commendable” given the country’s size. The country’s improved ranking was on the back of four reforms: starting a business, dealing with construction permits, trading across borders and resolving insolvency.

As a case in point, the report said there were improvements in the efficiency of acquiring building permits. Building a warehouse, for example, cost 4% of the warehouse value compared to 5.7% in the preceding year. Imports and exports became easier with a single electronic platform for trade stakeholders, among other things. The ‘resolving insolvency’ indicator, however, was mixed: the report noted that reorganisation proceedings had been promoted in practice, a positive for the indicator, but resolving insolvency had also been made harder because dissenting creditors would receive less under reorganisation than under liquidation.

Additionally, the report noted that the ‘Make in India’ programme and the government’s attention to the Ease of Doing Business indicator were a means to demonstrate ‘tangible progress’. The report also noted the government’s goal of making it to the top 50 list by 2020.

“GovernmentscrackIAS.com can foster market-oriented development and broad-based growth by creating rules that help businesses launch, hire, and expand,” World Bank Group President David Malpass said in a statement released on Wednesday.

You need to subscribe or sign-up to read Today's Paper articles.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list. Page 135 Enjoy reading as many articles as you wish without any limitations.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support The Hindu's new online experience.

Already a user? Sign In

crackIAS.com Page 136 Source : www.thehindu.com Date : 2019-10-25 GOOD REPORT CARD: ON EASE OF DOING BUSINESS Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Demographic Economics & Various Indexes

For an economy starved of good news, the news of a rise in India’s ranking by 14 places to 63 in the World Bank’s Ease of Doing Business 2020 survey is a positive development. India also figures in the top ten most improved countries in the world for the third consecutive year. From being ranked 142 in 2014 to 63 in 2020, it has been a significant upward journey for the country in a rank list that is an important input in the plans of global investors. The latest improvement has come on the back of the implementation of the Insolvency and Bankruptcy Code (IBC). India’s rank has improved from 108 to 52 in the “resolving insolvency” category with the overall recovery rate for lenders moving up from 26.5 cents to 71.6 cents to the dollar according to the World Bank. This is despite the IBC process being bogged down in courts as interested parties attempt to delay eventual resolution that may work against their interests. The reforms in trade procedures and paperwork as a result of India signing the Trade Facilitation Agreement at the World Trade Organisation are beginning to show. The country’s ranking in the “Trading across borders” category jumped 12 places from 80 to 68 signifying the abatement of paperwork in favour of electronic filing of documents and single-window customs procedures. Interestingly, there has been improvement in a parameter that most industrialists would consider as a problem even now: “Dealing with construction permits”. The country’s ranking has improved by 25 places from 52 to 27.

While the improvements are impressive and the rise in overall rankings in the last few years is noteworthy, the fact is that India is still below its competitors for global capital, particularly China, which at rank 31 is one level above France. The country lags in key metrics such as “Starting a business’, “Enforcing contracts” and “Registering property”. It should also be borne in mind that the rankings are based on samples and audits done in Mumbai and Delhi only (the World Bank has said it would be covering Bengaluru and Kolkata too from next year). Starting, running or shutting down a business may be easier in Delhi and Mumbai compared to Coimbatore or Hyderabad where it is probably more difficult. Admittedly, it is not easy to streamline processes across the country given India's federal set up where States have a big say in several parameters that go into the ranking such as securing building permits, land approvals, electricity connections, registering assets etc. Yet, this is the ideal that the country should be striving for. The easier part is now done and rise in rankings from hereon will depend on how much the Centre is able to convince the States to reform their systems.

You have reached your limit for free articles this month.

Register to The Hindu for free and get unlimited access for 30 days. AlreadycrackIAS.com have an account ? Sign in Sign up for a 30-day free trial. Sign Up

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading as many articles as you wish without any limitations.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly. Page 137 A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support quality journalism - Subscribe to The Hindu Digital

Please enter a valid email address.

Boris Johnson seems bent on delivering a no-deal Brexit

Subscribe to The Hindu now and get unlimited access.

Already have an account? Sign In

Support The Hindu's new online experience.

Already a user? Sign In

crackIAS.com Page 138 Source : www.livemint.com Date : 2019-10-25 THE EFFORT TO REDUCE POVERTY IN INDIA IS RIDDLED WITH COMPLEXITY Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

Despite the hype, randomized control trials don’t help much in framing policies to redress poverty

The Nobel Prize for economics this year has been awarded to Abhijit Banerjee, Esther Duflo and Michael Kremer for “their experimental approach to alleviating global poverty". The economists advocated the use of randomized control trials (RCTs) to understand the impact of micro- interventions on poverty alleviation. This has reignited the debate on the use of evidence in policymaking.

Drawing from medical sciences, RCTs have been in use in economics for more than two decades. The debate on them revolved largely around three aspects: their approach, methodology and impact on policy. The approach of using RCTs to address pressing development problems is perhaps the most contested. This involves “treating" a section of population with some micro-interventions and then examining the impact against a control group, which is similar in all aspects, except treatment. By design, these experiments are only as good as the nature of the interventions, and they typically examine micro aspects of behaviour—although not all aspects. Such interventions may be a useful tool for policymakers to understand the efficacy of a particular step, but are unlikely to provide solutions to some of the vexed issues of poverty, which is caused by multiple factors rooted in social, political and economic structures. Any claim, therefore, that these can solve global poverty not only exaggerates, but also shows an inaccurate understanding of why poverty persists and how societies that manage to reduce it do so. The approach holds—though not so explicitly—individuals or households responsible for their poverty, rather than the socio- economic and political context.

Similarly, the methodological superiority of the evidence collected is limited to drawing an inference on the benefits of the treatment. Further, the control groups are rarely similar on social, political and institutional aspects, despite the best possible design and implementation. It also isn’t possible to assess the impact of such interventions on parameters of individual welfare, since some of these may not be quantifiable. In addition, replication of an experiment in another context may produce completely different results, limiting their generalization.

But the real issue is the impact of such experiments on policy. While there is certainly an argument for the use of better evidence in policymaking, what is also important is the very nature of the intervention. Some policy instruments may be amenable to experiments, while a large crackIAS.commajority may not; particularly those that seek to alter the structure of production and distribution that drive growth, and, in turn, help reduce poverty. Macroeconomic policies, which have contributed to large-scale poverty reduction in countries such as China and India, have hardly been influenced by any RCT. Even large-scale social protection interventions such as the National Rural Employment Guarantee programme or the Mid-Day Meal scheme have emerged from political struggles, rather than RCT-based evidence. But despite the exaggerated claims on their usefulness to policy, RCTs may have some relevance in improving the design of some schemes.

RCTs have helped start debates on some policy interventions. The evidence generated through Page 139 such experiments on micro-finance, the quality of education and access to health services does suggest the need for better informed policies. The mad rush to view micro-finance as a panacea for poverty, for example, needs to be nuanced with evidence, which shows no impact on the poverty or income of recipients.

The need for better information and evidence for policy is regardless of which instrument is used. Perhaps multiple instruments and methodologies ought to be adopted. In fact, there is a long history in India of using large-scale secondary data as well as micro studies—such as village surveys conducted by agro-economic research centres—to guide government policy. A good example of this is the debate that led up to the passage of the National Food Security Act, in which large-scale National Sample Surveys were used together with micro experiments for a better design and approach to food security. Also, some of the insights came from evidence based on the experience of state governments and grassroot activists.

At a time when India’s economy is slowing down and all evidence points to an increase in deprivation, unemployment and hunger, data and evidence are crucial in not just understanding the extent of poverty, but also finding the pathway to lift millions out of it.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

crackIAS.com Page 140 Source : www.pib.nic.in Date : 2019-10-25 Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Demographic Economics & Various Indexes

Ministry of Commerce & Industry India ranks63 in World Bank’s Doing Business Report

India improves rank by 14 positions

Posted On: 24 OCT 2019 4:13PM by PIB Delhi

The World Bank released its latest Doing Business Report(DBR, 2020) todayon24th October 2019. India has recorded a jump of 14 positions against its rank of 77 in 2019to be placed now at 63rdrank among 190 countries assessed by the World Bank. India'sleap of14 ranks in the Ease of Doing Business ranking is significant considering that there has been continuous improvement since 2015 and for the third consecutive year India is amongst the top 10 improvers.As a result of continued efforts by the Government, India has improved its rank by 79positions in last five years [2014-19].

The Doing Business assessment provides objective measures of business regulations and their enforcement across 190 economies on ten parameters affecting a business through its life cycle. The DBR ranks countries on the basis of Distance to Frontier (DTF), a score that shows the gap of aneconomy to the global best practice. This year, India’s DTF score improved to 71.0 from 67.23 in the previous year.

India has improved its rank in 7 out of 10 indicators and has moved closer to international best practices (Distance to Frontier score).Significant improvements have been registered in ‘Resolving Insolvency’, 'Dealing with Construction Permits', ‘Registering Property’, ‘Trading across Boards’ and ‘Paying Taxes’ indicators.The changes in sevenindicators where India improved its rank are as follows:

S. Indicator 2018 2019 Change No. 1 Resolving Insolvency 108 52 +56 2 Construction Permits 52 27 +25 3 crackIAS.comTrading Across Borders 80 68 +12 4 Registering Property 166 154 +12 5 Paying Taxes 121 115 +6 6 Getting Electricity 24 22 +2 7 Starting a Business 137 136 +1 Overall rank 77 63 +14

Page 141 The important features of India's performance this year are:

● The World Bank has recognized India as one of the top 10 improvers for the third consecutive year. ● Recovery rate under resolving insolvency has improved significantly from 26.5% to 71.6%. ● The time taken for resolving insolvency has also come down significantly from 4.3 years to 1.6 years. ● India continues to maintain its first position among South Asian countries. It was 6th in 2014.

***

MM/ SB

(Release ID: 1589055) Visitor Counter : 536

Read this release in: Urdu , Hindi , Marathi , Bengali

crackIAS.com Page 142 Source : www.thehindu.com Date : 2019-10-27 EASE OF DOING BUSINESS LEAP CREDITABLE: WORLD BANK CHIEF Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Demographic Economics & Various Indexes

Digital push:David Malpass in New Delhi on Saturday.AFP

Calling for more “openness to reform” and specific reforms such as more local courts, setting up a fast-track commercial dispute resolution mechanism, land data digitisation and contract enforcement protections, World Bank President David Malpass says India must focus on structural improvements to improve its growth rate.

“India is being affected by the global environment and has slowed from the fast growth rates in over a year,” Mr. Malpass told presspersons on Saturday during a visit to Delhi where he met Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman and addressed NITI Aayog officials.

“My prescription is that there be an openness to reform and to innovation and improvements in government structures that allow faster growth.”

Mr. Malpass declined to comment on recent World Bank figures that slashed India’s growth forecast for the current year to 6%, down sharply from the 7.5% forecast in April, saying only “economists have lots of forecasts”.

He did not respond to a specific question about the impact of the 2016 demonetisation move, which the World Bank had praised in early assessments, but has in more recent studies, held the measure responsible for slowing growth.

Mr. Malpass congratulated the government on bringing India’s ranking in the World Bank’s annual “Ease of Doing Business”, from 140 in 2014 to 63 in the latest ranking. He credited the government’s moves to liberalise procedures for registering businesses, facilitating more cross- border trade, bankruptcy resolution and in the construction process, with the boost in rankings. Mr. Malpass will travel to Pakistan on this visit to the region, which has also jumped 28 spots to rank 108th during the latest World Bank surveys released on Thursday.

The World Bank President praised the government’s recent move to cut corporate tax rates, but cautioned that many more steps are required for India to attract investment into manufacturing.

“Other countries in Asia have done pretty well, and a country’s competitiveness is a combination of factors. It is partly the ease of doing business, but there are many other factors like macro- economiccrackIAS.com stability, skills of the workforce etc in order for companies to come here and invest,” Mr. Malpass said, adding that he spoke to Mr. Modi about the challenges in the financial sector in the country, as well as the “importance of data in the Indian economy and the role of the World Bank in helping collecting data”.

Mr. Malpass indicated that the Bank expects to continue with its current loan programme of about $5-6 billion a year, with a commitment of $24 billion for 97 ongoing projects. He will also address civil service probationers along with Mr. Modi, who are attending a special event at Gujarat’s Kevadia. Page 143 Celebrate Diwali with The Hindu and get 20% discount. You need to subscribe or sign up to read Today's Paper articles

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading as many articles as you wish without any limitations.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support The Hindu's new online experience.

Already a user? Sign In

crackIAS.com Page 144 Source : www.indianexpress.com Date : 2019-10-28 FARM LESSONS FROM CHINA Relevant for: Indian Economy | Topic: Agriculture Issues and related constraints

The writer is chair professor for agriculture at ICRIER. Views are personal

Gupta is a junior economist at Crisil Ltd.

India and China, the world’s most populous countries, have limited arable land — China has about 120 million hectares (mha) and India 156 mha. The challenge before the two countries is to produce enough food, fodder and fibre for their population. Both have adopted modern technologies in agriculture, starting with high yield variety (HYV) seeds, in the mid-1960s, increasing irrigation cover and using more chemical fertilisers to produce more food from limited land. China’s irrigation cover is 41 per cent of the country’s cultivated area, while India’s irrigation cover is 48 per cent. China’s total sown area, as a result of such irrigation, is 166 mha, compared to India’s gross cropped area of 198 mha. But even though China has less land under cultivation, its agriculture output is valued at $1,367 billion, more than three times that of India’s agriculture output, $407 billion. How has China made this possible? Are there lessons in China’s experience for India?

First, China spends a lot more on agriculture knowledge and innovation system (AKIS), which includes agri R&D and extension. China invested $7.8 billion on AKIS in 2018-19, 5.6 times the amount spent by India — $1.4 billion. A study by Ashok Gulati and Prerna Terway on the impact of investment and subsidies on agri-GDP growth and poverty alleviation revealed that the highest impact is from investments in agriculture research and education (R&E). The study estimated that for every rupee invested in R&E, agriculture GDP increases by Rs 11.2; and for every million rupees spent on agri-R&E, 328 people are brought out of poverty. Presently, India invests just about 0.35 per cent of its agri-Gross Value Added (GVA) while China spends 0.8 per cent (expenditure by Centre only) (See figure 1). To increase total factor productivity, India needs to increase expenditure on agri-R&D, while making the Indian Council for Agricultural Research (ICAR) accountable for targeted deliveries.

Better seeds that result from higher R&D expenditures generally require more fertiliser. It is worth noting that China’s fertiliser consumption in 2016 was 503 kg/ha of arable area compared to just 166 kgs/ha for India, as per World Bank estimates. No wonder, China’s productivity in most crops is 50 to 100 per cent higher than India’s.

Second, the incentive structure as measured by producer support estimates (PSEs) is much bettercrackIAS.com for Chinese farmers than Indian farmers. The PSE concept adopted by 52 countries, that produce more than three-fourths of the global agri-output, measures the output prices that farmers get in a free trade scenario. It also measures the input subsidies received by them. For Chinese farmers, the PSE was 15.3 per cent of the gross farm receipts during the triennium average ending (TE) 2018-19. For the same period, Indian farmers had a PSE of negative 5.7 per cent. In a way, this reflects that Indian farmers had been taxed much more than they have been subsidised — despite high amounts of input subsidies. This negative PSE (support) is a fallout of restrictive marketing and trade policies that do not allow Indian farmers to get free trade prices for their output.

This negative market price support is so strong that it exceeds the input subsidy support the Page 145 government gives to farmers through low prices of fertilisers, power, irrigation, agri-credit and crop insurance. The solution for correcting this situation is to carry out large scale agri-marketing reforms (APMC and Essential Commodities Act). But instead of doing that, the Indian government has been trying to jack up minimum support prices (MSPs) for 23 crops for farmers. Here, again, India can take a leaf out of the Chinese experience. They took that path as well. In fact, they gave procurement prices to farmers that were much higher than international prices. The result was massive accumulation of stocks of wheat, rice and corn. In 2016, such stocks touched almost 300 million metric tonnes (MMT) in 2016-17 (See figure 2). China had to incur a large expenditure as a result. Having burnt their fingers, China dropped the price support scheme for corn and in fact, has been gradually reducing support prices of wheat and rice. India’s stock situation in July 2019 was 81 MMT as against a buffer stock norm of 41 MMT. India needs to reduce the gamut of commodities under the MSP system and keep MSPs below international prices. Else, India will suffer the same problems of overflowing granaries which do not serve any purpose.

The third lesson pertains to direct income support schemes. China has combined its major input subsidies in a single scheme, which allows direct payment to farmers on per hectare basis and has spent $20.7 billion for this purpose in 2018-19. This gives the farmers freedom to produce any crop rather than incentivising them to produce specific crops. Inputs are priced at market prices giving right signals to farmers to use resources optimally. India, on the other hand, spent only 3 billion dollars under its direct income scheme, PM-KISAN in 2018-19, but the country has spent $27 billion on heavily subsidising fertilisers, power, irrigation, insurance and credit. This leads to large inefficiency in their use and also creates environmental problems. It may be better for India to also consolidate all its input subsidies and give them directly to farmers on per hectare basis and free up prices from all controls. This would go a long way to spur efficiency and productivity in Indian agriculture.

India can learn three lessons from China — investing more in agri-R&D and innovations, improving incentives for farmers by carrying out agri-marketing reforms, and collapsing input subsidies into direct income support on per hectare basis. This could put India’s agriculture on a high growth trajectory.

Gulati is Infosys Chair Professor for Agriculture and Gupta is research assistant at ICRIER

Download the Indian Express apps for iPhone, iPad or Android

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 146 Source : www.indianexpress.com Date : 2019-10-29 TAXING NEW SPACES Relevant for: Indian Economy | Topic: Issues relating to Growth & Development - Public Finance, Taxation & Black Money incl. Government Budgeting

The writer is assistant professor, NIPFP.

The proliferation of technology has challenged the conventional notions of economic activity. This is now a serious challenge for policy, particularly for taxation. The challenges of taxing digital companies are twofold. First, the existing laws tax business profits based on its physical presence in a country.

Such a pre-condition, conceived in 1920s, is dated since digital businesses no longer have to be physically present to operate in and interact with an economy. Second, these platforms use hard to value intangibles. They are often registered in low tax jurisdictions which further frustrate the efforts to appropriately tax digital companies.

In the early versions of the Base Erosion and Profit Sharing (BEPS) report on the issue, the Task Force on Digital Economy at the Organisation for Economic Co-operation and Development (OECD) mentioned three measures — an equalisation levy, withholding taxes and a new nexus rule. The first two are taxes on the gross turnover whereas the new nexus rule was to modify the taxable nexus beyond the physical presence in a country. While in principle it was agreed that data and user participation are critical for a platform, no consensus emerged on their economic contribution. Disparate views derailed the talk of a uniform solution while the OECD continued to work on value-creation by various business models. Revenue authorities around the world grew anxious since large tech companies were paying very low effective tax rates.

In 2016, India was the first to apply an equalisation levy. The levy was introduced outside the scope of the Income Tax Act and is applicable to a small set of companies operating in digital advertising. Globally too, there have been efforts to move past the OECD’s call for consensus and to apply unilateral measures. For example, France and Hungary have implemented digital taxes, while Belgium, Italy, UK and Spain have proposed similar taxes. These would apply to a wide range of digital services. The potential ramifications of these taxes could be over-taxation or a pass through of costs to consumers. While it remains to be seen how tenable these are under the EU’s state aid or WTO rules, such measures can give market jurisdictions greater power to tax.

Then in 2018, India proposed its long term solution to the problem — test for significant economiccrackIAS.com presence. The amendment, broadly similar to EU’s proposal, was based firmly on the understanding that if a digital platform reported sales from a country or had significant number of users it should be considered as having taxable presence in that jurisdiction. Though it is a stride in the direction of reform, it is far from final. First, for the law to be applicable, treaties would have to be suitably amended. Second, the more fundamental issue of what size of operations would qualify as economic presence needs to be answered. Third, even if a business qualifies as having economic presence in India, how much of its profits should be taxable in India.

At the heart of the discussion is a more fundamental political issue of the redistribution of taxing rights. Page 147 An example of this tension is the US President Donald Trump’s response to the French digital tax applicable to big tech companies that are predominantly residents of the US. Although, the agenda of taxing rights was strictly off the table, revisiting the age-old question of economic allegiance of a business made it impossible to ignore the elephant in the room. The OECD finally came around in 2019 when it published a policy note wherein its work plan was split into two pillars. Pillar one would examine the allocation of taxing rights whereas all anti-avoidance measures would be considered under the second pillar.

India has been extremely instrumental in driving this conversation. This is visible in the Programme of Work published in May 2019 which incorporates India’s key proposals — significant economic presence and fractional apportionment, and among others the Modified Residual Profit Split, supported by the US, and the distribution approach. In an effort to garner consensus, the OECD released its draft for a unified approach earlier this month. While the report stresses on simplicity, it is far from it. The three proposals in the earlier draft have been tied together to present a complicated compromise. Proposed therein is splitting up of global profits of a corporation into routine and non-routine. Then a fraction of non-routine profits would be allocated to the qualifying market jurisdictions and if there is any dispute arising from such taxation it would be resolved through mandatory or binding dispute resolution.

This would require serious effort and harder consensus on issues such as what constitutes routine profit. Seemingly, the promise of an overhaul is over-sold, especially since carve-outs are anticipated for sectors such as mining and financial services. A unified approach backing the new nexus rule is only a partial win for India. The reliance placed on conventional transfer pricing could make taxation of digital companies more messy. India is in a unique position as it offers a wide user-base and thus a large market for digital companies. The idea of consensus, though critical for international relations, must also be evaluated in light of the misalignment of economic interests between developing and developed countries. A good tax system is often evaluated along the axes of certainty, simplicity and neutrality. The suggested measures in some ways undermine these principles. A possible alternative may perhaps be to switch to a simpler withholding tax architecture.

The writer is assistant professor, NIPFP

Download the Indian Express apps for iPhone, iPad or Android

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 148 Source : www.livemint.com Date : 2019-10-29 A POLICY AGENDA TO MEET INDIA’S STEEP EMPLOYMENT CHALLENGES Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

We must enable small businesses to grow since these hold the greatest potential for job creation

As India battles an economic slowdown and myriad other associated problems, attention is bound to be deflected from the ever-present priority of job creation for the country’s youth bulge. There was cheerful news from India’s factories sector in the recently released Annual Survey of Industries for 2017-18.

Job creation in the sector has been steady, if not spectacular. The number of workers employed grew 4.8% in 2017-18. Total people engaged (including managers) rose 4.7%, the highest in four years. Promising as this is, the sheer magnitude of job creation required for young Indians to enjoy a life of dignity means that millions of them must become job providers rather than swell the ranks of job-seekers.

In the years after independence, India’s traditional industrial policy was built around three pillars—concessional credit, fiscal incentives and input subsidies. However, a growing body of research has upended this conventional wisdom and shown that the predominant source of job creation is firms that start small and formal, and eventually grow into medium-scale enterprises. In doing so, they reveal an alternative path to generating productive jobs in India. This is not to overlook the value of large firms, but only to highlight the disproportionate importance of startups in job creation. Some of the findings are particularly relevant.

One, although micro businesses dominate most countries’ economies, India’s economy has an excessive proportion of less productive, informal micro businesses. Two, employment in India is concentrated in these micro businesses, whereas in developed countries, it is concentrated in formal small and medium-sized firms. Three, productive jobs are created by firms that start out as formal. Four, new and young firms create more jobs than older, established firms. Five, growing and efficient firms are founded and run by educated entrepreneurs. Six, with age, Indian firms typically stagnate or decline in employment. Seven, India has a deficit of productive, job- creating entrepreneurs, and an excess of informal entrepreneurs focused on survival.

These findings suggest that government policies on micro, small and medium enterprises (MSMEs) must become more nuanced. Informal micro enterprises and single-person enterprises run by those lacking formal education should be termed “subsistence enterprises". The government would then be under an obligation to support them with basic public goods, including education and a robust social safety net. Educating the next generation is critical to breakingcrackIAS.com the iron grip of poverty and pulling single-person enterprises out of survival mode. However, support to these subsistence enterprises should be provided under anti-poverty measures and not under an economic development programme (much less under productive job-creation measures).

In general, the government’s perception of entrepreneurship as a viable solution to the lack of employment options is well-founded. International evidence is supportive of this: Startups and young firms create more jobs regardless of their size, and educated entrepreneurs have a far higher probability of success. Therefore, public policy to support entrepreneurship and MSMEs should target these entrepreneurs. However, any government support should be made Page 149 contingent on the enterprise’s progress in creating jobs and productive growth, thereby encouraging truly dynamic entrepreneurship.

To enhance the productivity of businesses and promote growth, the government should subsidise the provision of management support services—as industrial public goods—to young businesses. A nascent initiative in South Tamil Nadu shows that huge productivity gains are waiting to be unlocked in small businesses if entrepreneurs are made to understand the importance of some critical principles and concepts related to finance and human resources. Moreover, as education plays a big role in the growth of startups and their contribution to employment generation, institutions of higher learning should prepare students to be entrepreneurs in the same way that they equip them with functional, marketable skills.

The government should also periodically update the definitions of MSMEs to bring them closer to international standards. This will help ensure that businesses are not prematurely labelled as large and are not denied government support while still in need of it.

Finally, internalising the most important principle of public policy—if you cannot help, at least do not hurt—is the first thing the government can do to support entrepreneurs. It is a lot easier for governments to impede economic activity than to foster it. The difficulty in arresting and reversing the current narrative of an economic slide is a case in point. Just avoiding doing the wrong thing will obviate the need for the government to support the economy actively later. In other words, not getting in the way may be the most important policy intervention that any government anywhere could undertake.

This piece is based on the authors’ working paper, ‘India’s quest for jobs—a policy agenda’, published by Carnegie India earlier this month

V. Anantha Nageswaran and Gulzar Natarajan are co-authors of ‘The Rise of Finance: Causes, Consequences and Cures’

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 150 Source : www.thehindu.com Date : 2019-10-30 T.N. TO ENACT A LAW ON CONTRACT FARMING Relevant for: Indian Economy | Topic: Agriculture Issues and related constraints

Tamil Nadu has become the first State in the country to enact a law on contract farming with President Ram Nath Kovind giving assent to the Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act.

The State government in an official release on Tuesday said the law would safeguard the interests of farmers during times of bumper crop or when market prices fluctuate. They would be paid a pre-determined price, which had been arrived at the time of signing agreements with buyers.

Such agreements would have to be registered with designated officers from the Department of Agricultural Marketing and Agri Business.

Six-member body

A six-member body, called the Tamil Nadu State Contract Farming and Services (Promotion and Facilitation) Authority, would be formed to ensure proper implementation of the Act and make suggestions to the State government for promotion and better performance of contract farming.

Farmers could get support from purchasers for improving productivity by way of inputs, feed and fodder and technology. Also, farmers engaged in rearing of livestock for scale of economy in production and post-production activities would be covered. The latitude of the contracts may include “holistically from pre-production to post-production.”

Banned produce

However, any produce, banned by the Centre or State government or the Indian Council of Agricultural Research, would not be covered under contract farming. Chief Minister Edappadi K. Palaniswami had given instructions to officials to complete finalisation of rules and ensure early implementation of the law, the release added.

The formulation of the Act is based on a model law prepared by the Central government, which consulted various stakeholders, including State governments. In its budget for 2018-19, the Tamil Nadu government announced that it would come out with one such law. In February 2019, the Assembly adopted the bill.

‘Progressive reform’ AskedcrackIAS.com how the issue of the possibility of exclusion of small and marginal farmers has been addressed, given the preference of sponsoring entities for economies of scale to achieve profit maximisation, Gagandeep Singh Bedi, Agricultural Production Commissioner and Principal Secretary (Agriculture), told The Hindu that the Act specifically talks of the promotion of farmer- producers organisations (FPO) or farmer producer companies, comprising such farmers.

To another question, Mr. Bedi said the law was needed in the light of contract farming being “legalised” through the Agricultural Produce Marketing (Regulation) Act of 1987.

The existing law neither prohibited nor permitted contract farming. “The latest law is a progressive reform in agricultural marketing.” Page 151 Already, the State government had amended the 1987 law to permit e-trading. “We are in the process of preparing an FPO policy,” he pointed out.

Monitoring situation

On the possibility of the law leading to increase in monoculture farming and loss of crop diversity, Mr Bedi said “monoculture farming is fine up to certain extent for bringing out best varieties.

However, the government will always be monitoring the situation and we shall intervene, as and when required.”

You need to subscribe or sign-up to read Today's Paper articles.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading as many articles as you wish without any limitations.

A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.

Support The Hindu's new online experience.

Already a user? Sign In

END Downloaded from crackIAS.com crackIAS.com© Zuccess App by crackIAS.com Page 152 Source : www.thehindu.com Date : 2019-10-30 THE NEW GOLD STANDARD IN DEVELOPMENT ECONOMICS? Relevant for: Indian Economy | Topic: Issues Related to Poverty, Inclusion, Employment & Sustainable Development

Development economics has changed a lot during the last two decades or so, mostly due to the extensive use of ‘randomised control trials’ (RCT). ‘Randomistas’ are proponents of RCTs to assess long-run economic productivity and living standards in poor countries. Three randomistas, Abhijit Banerjee, Esther Duflo and Michael Kremer, were awarded the 2019 Nobel prize in Economics for their RCT-based studies on poverty worldwide.

The concept of RCT is quite old; instances of RCTs can be traced back in the 16th century. However, the statistical foundation of RCT was developed by British statistician Sir Ronald Fisher, about 100 years ago, mostly in the context of design of experiments.

In my experience I have seen the proportion of events by the same treatment varying between 10% to 35% in different clinical trials. Is it due to unknown distribution of treatment effects, and/or other external effects such as hospital care, hospital location, etc? Thus, for an unbiased evaluation of the treatment, its performance needs to be compared with some ‘control’, which maybe ‘no treatment’ at all or an ‘existing treatment’ other than the treatment under study.

The next task is to allocate the patients among two treatments/interventions at hand. Patients might prefer some treatment to the other. Prior knowledge of the treatments to be applied to them might induce a ‘selection bias’ due to unequal proportions of patients opting out from the study. ‘Randomisation’ is a procedure used to prevent this by allocating patients using a random mechanism — neither the patient nor the doctor would know the allocation.

‘Control’ and ‘randomisation’ together constitute an RCT. In 1995, statisticians Marvin Zelen and Lee-Jen Wei illustrated a clinical trial to evaluate the hypothesis that the antiretroviral therapy AZT reduces the risk of maternal-to-infant HIV transmission. A standard randomisation scheme was used resulting in 238 pregnant women receiving AZT and 238 receiving standard therapy (placebo). It is observed that 60 newborns were HIV-positive in the placebo-group and 20 newborns were HIV-positive in the AZT-group. Thus, the failure rate of the placebo was 60/238, whereas that of AZT was only 20/238, indicating that AZT was much more effective than the placebo. Drawing such an inference, despite heterogeneity among the patients, was possible only due to randomisation. Randomisation makes different treatment groups comparable and also helps to estimate the error associated in the inference.

The early applications of RCTs were mostly within the agricultural field. Sir Ronald Fisher himself was very reluctant to apply statistics to social sciences, due to their ‘non-experimental’ nature.crackIAS.com RCT got its importance in clinical trials since the 1960s, so much so that any clinical trials now-a-days without RCT were being considered almost useless.

Social scientists slowly found RCT to be interesting, doable, and effective. But, in the process, the nature of social science slowly converted from ‘non-experimental’ to ‘experimental’. Numerous interesting applications of RCTs took place in social policy-making during the 1960- 90s, and the ‘randomistas’ took control of development economics since the mid-1990s. About 1,000 RCTs were conducted by Prof. Kremer, Prof. Banerjee and Prof. Duflo and their colleagues in 83 countries such as India, Kenya and Indonesia. These were to study various dimensions of poverty, including microfinance, access to credit, behaviour, health care, Page 153 immunisation programmes, and gender inequality. While Prof. Banerjee thinks RCTs “are the simplest and best way of assessing the impact of a program”, Prof. Duflo refers to RCTs as the “tool of choice”.

There has been tremendous international attention on Finland’s Basic Income experiment (2017-18), where 2,000 unemployed Finns between ages 25-58 were randomly selected across the country, and were paid €560 a month instead of basic unemployment benefits. Results from the first year data didn’t have any significant effect on the subjects’ employment, in comparison with the control group comprising individuals who were not selected for the experimental group. Essentially this was also an RCT.

Critics of RCTs in economic experiments think that in order to conduct RCTs, the broader problem is being sliced into smaller ones, and any dilution of the scientific method leaves the conclusions questionable. Economists such as Martin Ravallion, Dani Rodrik, William Easterly, and Angus Deaton are very critical of using RCTs in economic experiments.

Randomisation in clinical trials has an additional impetus — it ensures that allocation to any particular treatment remains unknown to both patient and doctor. Such kind of ‘blinding’ is central to the philosophy of clinical trials and it helps to reduce certain kinds of bias in the trial. It is believed that the ‘outcome’ or the ‘treatment-response’ might be influenced if the patient and/or the physician are aware of the treatment given to the patient. However, such kind of ‘blinding’ is almost impossible to implement in economic experiments as participants would definitely know if they get any financial aid or training. Thus, randomisation must have a much less impact there. Often, economists miss such an important point.

However, unless randomisation is done, most of the standard statistical analyses and inference procedures become meaningless. Earlier social experiments lacked randomisation and that might be one reason that statisticians such as Sir Ronald Fisher were unwilling to employ statistics in social experiments. Thus, “RCT or no RCT” may not be just a policy decision to economics; it is the question of shifting the paradigm. The “tool” comes with lot of implicit baggage. With randomisation dominating development economics, implicitly, economic experiments are becoming more and more statistical. This is one philosophical aspect which economists need to settle.

Apparently, for the time being, many would concur with Harvard economist Lant Pritchett who criticises RCTs on a number of counts but still agrees that it “is superior to other evaluation methods”. The debate would continue, while the randomistas continue to gain momentum at the moment.

Atanu Biswas is Professor of Statistics, Indian Statistical Institute, Kolkata You havecrackIAS.com reached your limit for free articles this month. Register to The Hindu for free and get unlimited access for 30 days.

Already have an account ? Sign in

Find mobile-friendly version of articles from the day's newspaper in one easy-to-read list.

Enjoy reading as many articles as you wish without any limitations. Page 154 A select list of articles that match your interests and tastes.

Move smoothly between articles as our pages load instantly.

A one-stop-shop for seeing the latest updates, and managing your preferences.

We brief you on the latest and most important developments, three times a day.

*Our Digital Subscription plans do not currently include the e-paper ,crossword, iPhone, iPad mobile applications and print. Our plans enhance your reading experience.