IASbaba’s Daily Current Affairs – 27th August, 2016

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IASbaba’s Daily Current Affairs – 27th August, 2016

ECONOMY

TOPIC: General Studies 3

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Investment models

Looking for possible ‘green shoots’ in our economy

‘Green shoots’ is a popular phrase used to describe signs of economic recovery.
RBI Governor Raghuram Rajan was the first to talk of spotting ‘green shoots’ in the Indian economy.

This article analyzes where the economy is headed. Will there be possible ‘green shoots’? If yes, in which sectors?

Expenditure method for calculating GDP

Since everything that is produced by the economy is purchased, one method of measuring GDP is by measuring total expenditures.

The expenditure method is a method for calculating gross domestic product (GDP), which totals consumption, investment, government expenditure and net exports.

i.e., GDP = consumption + investment + government expenditure + exports – imports.

A closer look at these components will give us a fair idea of the bright spots and those areas which are still struggling to rear their heads.

CONSUMPTION

In a developing economy, usually the consumption component of GDP is relatively large. This is because:

When the income of households is small, a large part of it goes into consumption-related items — be it food, education or medical expenses.
The remaining portion that is saved, comes back as ‘investments’ or gets taxed by the government.

India, which is a developing economy, has largely been a consumption-driven economy.

About 58 per cent of its GDP, as measured by the expenditure method, comprises consumption expenditure.
Investments, which are essentially capital investments, account for 27 per cent.

These two components together constitute 85 per cent of GDP, making them crucial drivers for the Indian economic growth.

‘King’ Consumer

Usually, as the income level of an economy rises, the consumption component increases.

According to Keynesian theory, an increase in production increases consumers’ income, and they will then spend more. If we know what their marginal propensity to consume is, then we can calculate how much an increase in production will affect spending. This additional spending will generate additional production, creating a continuous cycle. The higher the MPC, the higher the multiplier—the more the increase in consumption from the increase in investment.

While we consider last five years, the share of consumption expenditure in the Indian economy has improved while that of investments fell.
So, which areas within consumption have shown a growth over the last few years?

When we look at indicators that capture trends in consumption, such as — consumer confidence index, IIP figures to automobile sales and monsoon data, it provides good news.

i.e., the consumption trend is up and eight out of 10 consumption-based indicators show an uptick in growth figures.

Statistics:

Consumer Confidence Index (CCI), which tracks the sentiment among household consumers, was up.
Urban consumers have grown: Continuing demand for consumer credit shows that Indian consumers, especially the urban lot, are continuing to buy consumer goods.
Auto producers have made the most of the growing demand from urban India by showing strong growth in the recent past.
Improving consumer sentiment as well as pick-up in sales of cars, motorcycles and tractors indicates that rural and urban consumer demand is robust.

INVESTMENT

The Investment component, while a relatively smaller component of the GDP, also has close linkages with the rest of the economy.

It is not entirely upbeat in the investment segment. While green shoots are visible in some pockets, some areas are still struggling. Eleven out of 20 investment-based indicators showed uptick in growth figures.

Performance of core sectors:

Among the core sectors, production growth is higher in coal, steel, cement and electricity generation.

The growth in steel production has moved from the negative to the positive territory which, to a large extent, has been helped by protectionist government policies in recent times.

Crude petroleum and natural gas, hit by structural bottlenecks, continue to be in negative growth trend. Growth in fertiliser production is also lower.

Manufacturing performance:

IIP figures for manufacturing are up for the year.

Nikkei PMI (Purchasing Managers Index) figures are up.

So, some green shoots in manufacturing activity are beginning to show up.

However, one RBI’s survey report hints at lower capacity utilisation, facilities going underutilised due to lower demand, companies are unlikely to spend on capacity expansion, thus delivering a setback to overall capital investment. The survey shows, however, that there is a pick-up in new orders.

Capital goods performance

Many industries are postponing their investments, which has led capital goods sector to slump in the recent past.

IIP capital goods index reported a contraction.

However, it needs to be noted that only one item – insulated rubber cables – pulled the overall IIP-capital goods growth figures on the negative side this year.

Services performance

Services is showing a more promising trend than manufacturing.

Sharp acceleration in new business has provided growth momentum for the service sector, which is also the largest section of our economy.

Railways, port traffic, increase in arrivals of foreign tourists and improved domestic air traffic, are providing the necessary growth momentum for this sector.

GOVERNMENT EXPENDITURE

While private investment is likely to be sluggish, government’s infrastructure spends in roads and railways could be leading to higher production in the core industries of steel, cement and coal.

Some green shoots are visible here and investors can start looking at cyclical stocks in these sectors. However, there are some concerns in this sector such as power and real estate are still laden with high debt and grappling with regulatory issues, which should be solved (through a bottom-up approach).

It is expected that government spending will be higher and this higher spending will provide impetus to capital goods manufacturers that make products related to construction, logistics, etc., because of government orders.

Service sector will also be benefitted with urban consumption increasing. Public spending in tour operators, aviation companies, media, healthcare, hospitality, etc., will boost service sector.

Financial services, especially micro-finance companies and companies catering to retail segment will also get boosted, given the higher demand for credit.

Conclusion

The OECD composite leading India index, which tracks green shoots in the economy, is up for the year.

In spite of external sector looking vulnerable at this juncture, there are signs of green shoots in the domestic economy.

The current account balance to GDP is almost at similar levels of 1.1 per cent of GDP — and over the last two years has come down from 1.7 per cent.

Raising the growth rate to over 8 per cent in the next two or three years is achievable. However, there are some huge challenges that certainly cannot be overcome as long as the government operates within the present straitjacket of fiscal consolidation and inflation targeting; policies that tend to reduce growth in the medium-term. Increased public expenditure and boosting investment is the need of the hour.

NATIONAL

TOPIC:

General Studies 2

Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Issues relating to development and management of Social Sector or Services relating to Health, Education, Human Resources.

General Studies 1

Social empowerment

Surrogacy (Regulation) Bill, 2016

What: The draft Surrogacy (Regulation) Bill 2016 was cleared by the Union cabinet in August 2016.

Bill in brief: The bill proposes a ban on commercial surrogacy, restricting “ethical” and “altruistic surrogacy” to legally-wedded infertile Indian couples, who have been married for at least five years.

Aim: To protect the woman from victimization at the hands of those whose need for a child may tempt them to overlook the rampant exploitation in current commercial surrogacy ecosystem.

Background

Surrogacy is legal since 2002.
Surrogate for some years now has become an accepted practice in India, especially due to IVF techniques.
UN report (2012): India has $400 million surrogacy industry
Accurate figures are not known but around 2,000 infertile couples– foreigners and Indian- hire the wombs of Indian women to carry their embryos through to birth every year.
Celebrity couples popularised surrogacy practice.
However, not much has been known about surrogate mother’s rights and protecting her bodily integrity is a challenge as fertility industry mostly remains unregulated.
Poverty, relatively low medical costs, skilled medical personnel and lax laws have made India a haven for those seeking surrogacy.
Activists and social scientists point outà poor women who rent their wombs are the most vulnerable and their socio-economic condition makes them susceptible to exploitation.
Time and again incidents of unethical practices, exploitation of surrogate mothers, abandonment of children born out of surrogacy and rackets of intermediaries importing human embryos and gametes have surfaced.
228th report of the Law Commission of India has also recommended for prohibiting commercial surrogacy and allowing ethical altruistic surrogacy to the needy Indian citizens.
Thus, widespread condemnation of commercial surrogacy prevalent in India and unregulated surrogacy industry compelled the government to form a statutory provision for the same.

Proposed Features of Surrogacy (Regulation) Bill

Included: Heterosexual couple, married for five years.
Also included: Heterosexual couples with a mentally or physically challenged child or one with a life-threatening disorder.
Out of purview: Single men and women, heterosexual couples who choose not to opt for marriage, gay couples, transgender persons
Only Altruistic surrogacy: Only a married relative, who must have herself borne a child, and is not an NRI or a foreigner, can be a surrogate mother, once in a lifetime. There will be no money involved except medical expenses.
Prohibits: commercial surrogacy including sale and purchase of human embryo and gametes.
Indian couples with biological or adopted children are prohibited from having children through surrogacy.
Commercial surrogacy will result in a jail term of at least 10 years and a fine of up to Rs. 10 lakh.

The law is not yet in the public domain

Why the bill is criticised?- Overview

Constitutional violations

Article 14 of the Constitution guarantees “equality before the law and equal protection of laws to all persons”.
Article 21 guarantees “protection of life and personal liberty of all persons”.
Thus, restricting conditional surrogacy to married Indian couples and prohibiting others on the basis of nationality, marital status, sexual orientation or age, is not an example of law promoting equality.
The right to life includes the right to reproductive autonomy — that includes the right to procreation and parenthood.
It is not the right of state to decide the modes of parenthood. Constitutionally, the state cannot interfere in the prerogative of a person(s) to have children, naturally or through surrogacy.
Right to reproductive autonomy and parenthood is a part of right to life of any person- single or foreigner. It cannot be circumvented, especially when the Indian law already permits parenthood through inter-country adoptions from India — by single persons or foreign couples.
The purpose of legislation should be to protect women from exploitation in name of surrogacy and not to dictate terms to individuals on their life choices and decisions.

Artificial Reproductive Technology (ART) guideline was more inclusive

ART= A technology used to achieve pregnancy in procedures such as fertility medication, artificial insemination, in vitro fertilization and surrogacy. It is also called fertility treatment.
2005: National Guidelines for Accreditation, Supervision and Regulation of Artificial Reproductive Technology (ART) Clinics in India was formulated, after extensive public debate that involved 4000 participants all over India through workshops and seminars, by Indian Council for Medical Research (ICMR).
One provision of ART guidelines stipulates that there shall be no bar to the use of ART by single women and no ART clinic will refuse to offer its services to them.
ART guidelines did not bar an unmarried woman from opting for artificial insemination with donor semen. A child born to a single woman through such a procedure was deemed to be legitimate
Successive draft bills of 2008, 2010 and 2013 had reportedly proposed that ART in India be available to all, including single persons and foreign couples.
However, Draft ART bills of 2014 and 2016 restricted surrogacy to Indian married infertile couples. The fate of the ART Bill, 2016, is unknown.

Contrary to surrogacy, adoption is easier

Union Ministry of Women and Child Development has an entirely opposite policy with respect to inter-country adoptions.
It facilitates fast-track adoptions from India by foreigners.
The Juvenile Justice (Care and Protection of Children) Act, 2015 (JJ Act) allows a court to give a child for adoption to foreign parents, irrespective of the marital status of such a person.
The JJ Act also authorises state governments to recognise one or more of its institutions or voluntary organisations as agencies for the placement of orphans for adoption, by adhering to Central Adoption Resource Agency (CARA) guidelines.
The latest 2015 guidelines governing adoption of children have streamlined inter-country adoption procedures. They permit single parent adoptions but bar single males from adopting a girl child.
The problems pertaining to adoption of Indian children by foreigners were resolved by guidelines, which over the years have acquired statutory status.

Understanding surrogacy

Meaning: when a couple wants a baby but is unable to have a child because either or both partners are medically unfit to conceive, they take help of another woman.
Traditional surrogacy: the surrogate mother is artificially inseminated with the sperm of the father. She carries the child for full term and delivers it for the couple. Surrogate mother is the biological mother.
Gestational surrogacy: Mother’s eggs are fertilised with the father’s/donor’s sperm and then the embryo is placed into the uterus of the surrogate, who carries the child to term and delivers it. The biological mother is the woman who gives eggs and surrogate mother is Birth mother.
Thus, there is absolutely no dispute that the surrogate mother needs to be protected, physically, financially and emotionally.
The procedures done by reputed doctors and in regulated clinics ensure the nutrition and well-being of the surrogate mother.
Emotional connect: It can be tricky as bearing a baby for nine months could bring in a connection at some level. But some surrogate mothers have also opined that they feel a sense of service in bearing a baby for a childless couple. However, it has to be done with full consent.
Financial empowerment: The money received by surrogate mothers empower them to look after their own children better, and even plan for the future and invest in a home.
Middlemen are culprits: They lure unsuspecting women into surrogacy with false promises, taking a cut or commission larger than what the baby-bearing woman receives.

(This is part one of the article on surrogacy regulation bill, 2016)

Next part will have detailed insight into why the bill is considered impractical, what has been government’s viewpoint and how is surrogacy undertaken elsewhere the world?

Connecting the dots:

The recent government bill of surrogacy regulation has been criticised for interfering in individual’s right to attain parenthood. Do you agree? Explain.