IASbaba’s Daily Current Affairs – 15th October, 2016
TOPIC:General Studies 3
Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Inclusive growth and issues arising from it.
Importance of latest RBI rate cut
In news: In October first week, a new Monetary Policy Committee (MPC) decided at its first policy review to reduce the benchmark repurchase rate by 25 basis points to 6.25 per cent. What is its importance and what should be expected?
The Reserve Bank of India’s key policy interest rate has now been cut to its lowest level since 2011.
The unanimous decision of MPC is said to be in consonance with the objective of achieving consumer price index inflation at 5% by Q4 of 2016-17.
The retail inflation had already dropped to 5.05% in August. The wholesale inflation also reduced to 3.57% for September.
The RBI Governor clarified that the central bank aims to achieve the 4% inflation target within a range of +/- 2 per cent as the medium term objective by 2021. This means that the earlier objective of taming inflation to 4% level by March 2018 stands null and void.
The RBI rate cut performs the very important task of ‘signalling’.
Despite the high growth rate of 7.5% that the Indian economy seems to be registering over the past two years — this is the highest rate among the major economies of the world. Particularly, the performance of Indian industry in general, and manufacturing in particular, continues to be far from satisfactory.
Thus, the impact of policy change is necessary to be assessed.
The rate cut of 25 basis points is not expected to bring about a dramatic change in the investment climate. It has to be supported by many other important factors to be operating favourably and in tandem. Two of these are:
The Keynesian ‘animal spirits’– it calls for the investors to have a substantial measure of spontaneous optimism about their projected line of activity. Currently, this optimism seems to be lacking.
Keynesian ‘animal spirits’ is used to describe human emotions and instincts that influence and guide human behaviour which can be measure through ‘consumer confidence’.
There is need of administrative and bureaucratic environment which facilitates and encourages investment activity. 2016 marks 25 years of economic liberalisation but despite the plethora of reforms that have been undertaken in the spheres of industry and commerce, India presents a picture of a country that is still rule bound.
There is no doubt that constant measures are being taken by government of India in terms of ‘ease of doing business’ and there has been improvement in index in the past year. This has to be a motivating factor for the potential investors.
Thus, the rate cut offers a signal or a directional indicator suggesting that the central bank is interested in maintaining the growth momentum.
This is important particularly against a background where the RBI in recent times had been substantially identified with pursuing an inflation targeting approach, to the exclusion of all other contending objectives.
Two key factors seem to have contributed to the rationale for the rate cut
The RBI is now guided by retail inflation in deciding its monetary actions. So, with the fall in retail inflation in August to 5.05%, the RBI was confident of reducing the repo rates.
More importantly, there is expectation of decline in food prices due to good monsoons in past Kharif season. This will further soften the food articles inflation, especially pulses and vegetables.
The world economy is witnessing generalised weak investment and trade activity. This has been worsened by sharpening of inequality across most major economies of the world.
The consequence of this is a suppression of aggregate demand.
Thus, the decision of MPC comes in the background of such global deceleration scenario in 2016.
However, amidst this condition, India presents a contrasting picture where the overall growth rate seems to be reasonably satisfactory, with the possibility of a good agricultural performance, which would boost rural demand.
Thus, the rate cut seems justified.
However, much of the success of rate cut now will depend on how it will be transmitted to the final users via the banking system.
Virtually banking are confronting the problem of excessively large volume of non-performing assets (NPAs). It is known that this problem has not risen overnight and the major defaulters have been from among the top business houses in the country.
The problem has been rooted in crony capitalism where many questionable deals are pertaining to political party in power.
Thus, dealing with this problem requires a great deal of firm actions and decisions and pragmatism along with systemic change in the nature of the political economy that has been practised so far.
Connecting the dots:
What is repo rate? What does its increase or decrease signify and how it affects the Indian economy? Explain in detail.
A good monsoon is guarantee to better economic condition. Do you agree? Substantiate this statement with suitable examples.
General Studies 1
Population and associated issues, poverty and developmental issues, urbanization, their problems and their remedies.
General Studies 2
Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Development processes and the development industry
Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes
Compact settlement- Time for redevelopment of cities
Traditionally, Indian human settlements have always been very compactly built, except perhaps in the coastal or hilly regions.
There are many advantages of compact settlement of cities over urban sprawl which includes less car dependency thus lower emissions, reduced energy consumption, better public transport services, increased overall accessibility etc.
Over the time, various global movements such as the ‘garden city’ movement and so on have led to cities spreading horizontally. The introduction of automobiles added to urban sprawling.
However, now it seems to have come back to full circle with desire of having a compact settlement due to problems faced like commuting long distances, environmental pollution on account of combustion engine driven vehicles, time and health casualties, safety issues, etc.
In 1973, the term ‘compact city’ was first coined by George Dantzig and Thomas L Saaty, two mathematicians whose work had a profound impact on urban planning in modern day.
The UN HABITAT III New Urban Agenda Draft stated that there is a commitment to promote the development of urban spatial frameworks, including urban planning for
Sustainable management and use of natural resources, especially land
Appropriate compactness, density and polycentrism (having multiple centres).
It will be through infill or planned urban extension strategies to trigger economies of scale and agglomeration, strengthen food system planning, enhance resource efficiency, urban resilience and environmental sustainability.
The spatial development strategies are encouraged which take into account prioritising urban renewal by planning for the provision of accessible and well-connected infrastructure and services, sustainable population densities, and compact design and integration of new neighbourhoods in the urban fabric, preventing urban sprawl and marginalisation.
There is a commitment to promote safe, inclusive, accessible, green and quality public spaces as drivers of social and economic development.
It will leverage their potential to generate increased social and economic value, including property value and to facilitate business, public and private investments and livelihood opportunities for all.
Thus, it is clear that present day thinking and general agreement in the world over is for developing compact neighbourhoods.
Situation in India
The central city areas in India, particularly residential areas have become very old with stressed infrastructure where buildings have deteriorated and outlived their useful life.
Though there are new projects coming up in cities but they are in far flung areas which lack adequate infrastructure and are difficult to access.
Therefore, there is a need for redevelopment of central city areas to unlock property potential, capture value and redevelop.
There is an inherent advantage of centrality of the location, well established infrastructure and connectivity. When this is added to the need for housing and commercial spaces, it ignites the demand side of redevelopment.
Fortunately, the policies in India recognises this inherent potential and provides for the same. Also, the real estate industry advocacy has also contributed to the favourable policy climate.
Advantages of redevelopment
The owners of existing properties in the neighbourhoods get free of charge, new housing and infrastructure.
The new infrastructure is of a larger size and has better specifications, sometimes comes with some monetary benefits as well.
Also, the real estate developers are given additional floor area (FAR/FSI) so that they can generate additional space which can be sold in the open market and offset costs.
This increases the value and quality of infrastructure provided.
The local agencies are able to generate revenues for providing the additional infrastructure to support the increased densities.
A percentage of EWS housing is mandatory and contributes to inclusiveness of the development.
The city gets a new urban form and face which technologically advanced, sustainable and contemporary.
Mumbai city has always been short of urban spaces due to its geographical location.
The policy of redevelopment in Mumbai, the first of its kind in the country, came with redevelopment of the slum areas (SRD).
Under the popular SRD scheme, several lands of high property value got developed where the slum dwellers were resettled from their shanties into ‘pucca’ high rises and the developers also put up housing units for sale in the open market.
Today, there has been considerable amount of housing stock created, particularly for the EWS population, which would have been otherwise not possible.
Although issues such as quality of redevelopment for the EWS or redevelopment of only those lands with high land values where the developer sees good profits have arisen, the policy has been a hit.
The popularity of this model has spread to lands occupied by cooperative housing societies, Maharashtra Housing and Area Development Authority (MHADA) colonies and other areas. The government quarters are also proposed to undergo such development.
Thus, though the city as a whole has been densified and the demands on the infrastructure have increased, there have been constant efforts to gear up the infrastructure including renewal of public transport to contain itself by accommodating more and minimise sprawl.
The initial ‘Master Plan’ for Delhi was based on the American model of wide roads and ‘drive to work’ philosophy.
However, with the changed circumstances and the uncontrolled sprawl, there is now growing need to contain the same and instead grow denser.
Safety considerations, availability of large tracts of unutilised or underutilised land in the city has prompted the latest version of the Master Plan to take a serious look at the conscious provision for redevelopment.
In areas close to the Metro lines, an FAR of 400 is permissible with an additional 15% FAR mandated for EWS. It is launched as Transit Oriented Development (TOD) where intense compact developments are permitted along the Metro lines so as to encourage mass transit.
The Delhi Metro Rail Corporation has already undertaken over a dozen redevelopment projects, for both commercial and residential purposes with the association of various developers.
Redevelopment in other areas is also permitted with a high FAR of 300.
The real estate industry is now permitted to develop and contribute to the development of the city, which was till recently the sole preserve of the Delhi Development Authority (DDA).
In Delhi also, slum development was the initiation point. But it is facing many hiccups and slum redevelopment projects (like Katputli slum project) are hanging for long.
However, Delhi needs more redevelopment plan of underutilised government housing which dominate the Delhi residence.
Thus, Delhi has to now evolve from its low density, low rise and segregated land use image of urban sprawl to that of a high density, high rise and mixed use compact development.
The policy frameworks of Mumbai and Delhi are in alignment with global thinking of promoting safe, sustainable, thriving, compact developments.
These evolving policies and clarity in rules will promote redevelopment which can enrich the lives of all segments of the society and at the same promote the economy and take people out of the cycle of low incomes and make them more prosperous.
But, as always experienced, policy is brilliant but implementation is lethargic. For redevelopment, the policy is in tune with smart development and thus, the implementation should be speedy and time bound.
The municipal officers have to be sensitised to customer service and also create consumer awareness of the procedures for urgent reinforcement.
The commitment of central government for ‘development’ and ‘improve systems of local governance’ should be made successful with cooperation from all the stakeholders.
Connecting the dots:
Is compact city development related to smart cities concept? Discuss
Urbanisation is an indices of economic and social development. Critically analyse
What is redevelopment of cities? Do you think it will lead to creation of sustainable, healthy cities in India? Examine.