1. Economic development is a process of shifting resources from low to high productivity sectors, thereby raising economy-wide levels of productivity. Discuss.
Note: The question is fairly direct and most of you have written a good answer. But some of the common mistakes that most of you have committed are –
Many of you have spent a lot of words explaining what economic development is.
The question is asking about raising ‘economy – wide’ levels of productivity. But most of you have given example of just one sector and interconnection is missing.
Intro: The definition of Economic Development or importance of resource allocation can be mentioned here.
Generally with increase in capital, the productivity also increases. But that happens only upto a level, after that with increase in capital, the productivity remains stagnant and efficiency comes down. Hence optimal resource allocation is very important.
Generally as the economy will grow the resources shift from low productivity to high productivity sectors. Here you can give example of either a developed country or India.
India has always been an agricultural economy. During Green revolution, the resources were pumped in agriculture sector to increase the productivity and efficiency. As the masses were directly dependent on agriculture, per capita income increased and condition of rural dwellers improved. After sometime the as compared to the investment the productivity got low.
At this time, India shifted its resources towards service sector. That created new skills, new jobs, new opportunities and growth rate increased. It also helped in the growth of agriculture as it shared extra load of agricultural sector. It also helped in development of infrastructure thereby helping the agriculture again.
The country has recently turned towards the manufacturing sector. With decreasing productivity in other two sectors, the resources are being shifted to manufacturing to launch India in a new growth trajectory.
NOTE: You can also mention the shift of British economy from agrarian -> Manufacturing -> Service sector.
Conclusion: You can mention some schemes and steps of the government to shift the resources.
2. Mobile money and post offices offer two alternative financial delivery mechanisms that can quickly and efficiently meet the objective of financial inclusion in India. Comment
Financial Inclusion Definition:
Financial Inclusion refers to the making the financial products and services e.g. banking, Insurance, credit, loans- accessible and affordable to the whole population, and especially the economic weaker sections of the society.
Limitations of traditional challenges:
Traditional channels employed for the financial inclusion- banking correspondents, opening zero balance accounts- suffer from following weaknesses:
Lack of brick and mortar branches of banks in rural and remote areas. Banking channels are concentrated in Urban areas which hampers last mile inclusion.
Illiteracy of the rural people hampers in their accessing the banking services.
Lack of financial education and awareness etc.
Case for/ Advantages of Mobile and Postal Banks:
Mobile Banking and Payment Banking through Post offices offer alternative financial delivery mechanisms that can be a major enabler in the penetration of financial products among weaker sections and rural areas. These have following inherent advantages:
Majority of households today possess the mobile phone. More than 90% of Indian population has access to mobile phones. Further, there is good network availability in rural areas. This factor would help in popularizing the mobile banking among masses.
Will take off the extra burden on traditional banking channels, this will increase their efficiency and service delivery
No need to create extra physical infrastructure, as the only infrastructure needed is new Servers.
Quicker delivery of services, remittances, transfers etc can be made within hours now using IMPS, BHIM app etc, this makes it even more convenient for migrant workers.
Greater choice of other financial services, people can now check various services like insurance, mutual funds etc through the mobile phone and can compare and purchase it online. This will boost trade and commerce.
There is already an establishment of post offices and good networking of postmen in rural areas.
Post Banks could be used as a banking channel and post men banking correspondent. Further, reliability of post offices would act as a catalyst in the growth of the payment banking.
These new channels would need to improve and augment itself, if it is used to lead financial inclusion truly.
Making the mobile banking secure,
Financial literacy and awareness among masses
Steps to identify and check cyber fraud, with penetration of mobile technology, interstate as well as international frauds are going to grow.
Constant technology upgradation as technology becomes obsolete very soon and the sophistication of hackers and criminals increases.
Converting rural post offices into banks creates threat of physical robbery, as their safety cannot be ensured due to geographical reasons
Offering loans and other products through payment and mobile banking.
Best answer: Redeemer911.
Mobile money and post offices can go a long way in bringing financial inclusion given the numerous limitation of other financial delivery mechanisms such as leakages, inclusion/exclusion error, lack of access, etc. These two have following advantages over other mechanisms such as:
> Low cost delivery – savings can be reinvested in financial products
> Identification of beneficiary via their mobile number or wallet id
> Ease of access via mobile wallet will save opportunity cost
> Transparency in fund transfer
> Remittances can easily be transferred in form of mobile money
Limitations of Mobile money
> Low e-literacy, especially in rural sectors
> Pew Research Centre’s survey 2016 showed only 17% of Indians own a smartphone.
> Security issue – Agencies as well as customers still lack trust on such digital platforms due to the security risks involved and lack of a strong cyber security infrastructure.
> Issues with server management – Given the huge population i.e. customer, any mishap with server management could delay, or even deny, the benefits.
> Failure of NOFN and less penetration of wireless internet in rural areas limits the use of mobile money
> The lack of interoperability among the various mobile wallets
> Fees charges by wallets to transfer mobile money into bank account
> Increased presence in rural areas
> Vast experience as a financial delivery mechanism eg- wages under MGNREGA paid via Post offices
> Traditional trust in post office as an institution
> As a payment bank, it will be able to offer other banking services in rural areas as well
Limitations of Post offices
> Despite Project arrow, full scale modernisation of infrastructure is yet to take place
> Connectivity problems at post offices often delay or deny financial services
> Lack of private participation and competition affects its profitability
Ratan Watal committee has provided a way forward for the effective use of mobile money such as amendments to the Payments and Settlement Systems Act, 2007 to provide for competition and innovation, open access and interoperability, consumer protection, regulations on systemic risks and data protection, a ‘DIPAYAN’ fund is proposed from savings generated from cashless transactions to expand digital payments along with a ranking of states, government departments, districts and panchayats to encourage digital payments, etc. If implemented along with robust PM Digital Saksharta Abhiyan will ensure efficient financial delivery via mobile money. On the other hand, role of Post offices must also be expanded so that it becomes a self-sustaining profitable organisation. e.g.-In UK, the Royal Mail even offer broadband services.
3. The labour market ecosystem in India has witnessed many structural changes that include- increasing use of contract labour, competitive federalism and relocation of labour intensive manufacturing to smaller cities. Can these changes ensure the growth of productive employment in the economy? Evaluate.
Unemployment is the greatest economic challenge facing India. Expanding productive employment is central to poverty reduction and enhancing economic growth. The government has realized the necessity, thereby the labor market in India has witnessed many structural changes.
How far structural changes have ensured labor productivity?
1) Contract labor-
The regulatory cholesterol in terms of strict labor laws have forced the employers to employ labor on contract basis. This provides the flexibility to hire and fire workforce as per demand and helps increase productivity of the industry. However the labor productivity rarely enhances as the employers does not invest much in skilling laborers and the employers does not develop any firm specific skill.
2) Competitive federalism-
With proper impetus from the central government, the competition between states to attract investments and to stay ahead in economic aspects has led to changes in labor laws as seen in case of Rajasthan and Maharashtra. This has led to improving employability and overall productivity. However the care must be taken that sons of soil theory doesn’t get reinforced.
Also the poor states may lose out and find it difficult to compete.
3) Relocation to smaller cities-
Relocation helps the manufacturing industries in saving more owing to low capital cost including land and labor. It also helps in regional development and more importantly it helps create sustainable jobs for women, thus helping improve female labor force participation rate.
The above changes can surely enhance labor productivity. However there are other structural changes which must be initiated:
Effective implementation of Shramev Jayate Karyakram and Skill India mission.
Reforming strict labor laws keeping in mind the interests of both the employers and the workforce.
Sector specific skill training to our workforce.
India surely needs to create jobs but the jobs must be sustainable and for this improving labor productivity will be crucial.
4. Are privacy concerns over Aadhar valid? Critically examine.
The data collected via Aadhar is very sensitive, If it is seeded with other services like PAN, Bank account, Mobile connection, domestic flights etc it will give rise to an all-encompassing Surveillance system, i.e, the welfare character of Aadhar is being turned into a surveillance character.
the implementation of the law is even worse – publishing UID numbers is punishable by up to three years in jail. Even then AADHAR details of many Jio users was released on magicapk.com. recently.
if data is ‘leaked’, only the UIDAI – not the affected person – is authorized to file an FIR under the Aadhaar Act. The aggrieved person has no right to access any court of law for such a leak.
Aadhar act allows government to share the details of any individual in national interest without defining the term national Interest.
Absence of Data protection and privacy laws had made the citizens vulnerable, both against the state as well as private firms.
It leads to the creation of a ‘personal data economy’, which will monetise information about people’s personal life ahead of creating adequate digital and legal literacy and safeguards around these issues.
Exclusion errors: Fingerprints of labourers and the elderly people also diminish too many times and then the Aadhar does not work. Because of this, it is very difficult to get ration etc. The Economic Survey 2016-17 says that some states report authentication failures: estimates include 49 percent failure rates for Jharkhand, 6 percent for Gujarat, 5 percent for Krishna District in Andhra Pradesh and 37 percent for Rajasthan
Aadhar data is only accessible to the UIDAI.
The law has stringent provisions in case of breach of data, any unauthorized publication of data is punishable by upto 3 years.
It uses 128-bit encryption which is hard to crack
UIDAI has introduced the Lock facility where by the users can lock their biometric information to prevent misuse of information.
5. The ongoing layoffs in the IT sector is a disturbing signal for the economy .Do you agree?
India’s IT sector which reaped the benefits of LPG reforms of 1991 , seen as poster boy in global IT sector has lost a lot of its sheen due to both domestic and international factors resulting in massive layoffs(job cuts) which can be attributed to automation, disruption due to newer technologies, protectionism among advanced economies(hiring locals, H1B visa regime change etc.) fuelling a sense of despair amongst middle class and lowered aspirations in the youth
This massive job losses can have a spiralling effect on India’s economy
Risein frictionalunemployment: Though the effect may seem transitory for skilled workforce its impact may be higher in ITES and IT dependent sectors .
Loss of Remittances from abroad: ASSOCHAM estimates 40% less H1B visas awarded to Indians significantly affecting our remittances
Effect on human capital : Nationalemployabilityreport 2016 says 80% of engineers are unemployable which can further rise due to automation and lack of skills will not be eligible for reemployment and thus has an adverse impact on GDP
Sectorial impact: Since many of the job losses are in the formal sector the informal sector which already houses 84% of jobs will further be bulged setting up a demographic tsunami.
Effect on exports: Since many of the IT companies have already received huge tax incentives in the form of SEZs with a promise of increasing exports and increased employment it would be a case of double jeopardy for the Government hit by loss of revenue on both fronts.
6.Effect on GDP : With the economy still reeling from the aftermath of demonetisation IT( a 150billion$ industry) growth has been the slowest in a decade according to CIIreport 2016 which will affect the service sector which contributes a whopping 60% to the economy.
Can also cause a huge dent on image of India’s corporate governance.
Though the picture appears disturbing but not entirely distressing
IT field is known for adapting to changing dynamics hence there will be a push to adapt higher technology and innovation in the field along with creation of high skilled employees from the low tech jobs they are involved in now.
Stringent visa norms can result in brain gain and pave a way for Make in India in IT/ITES sector.
Can also help in diversification of IT/ITES exports to newer and unchartered destinations with potential for more job creation and thus minimise negative impact on the economy.
BEST ANSWER: LINCOLN
India is known as the back office of the world due to its IT prowess. IT is an important sector for India due to its job creation potential, contribution to foreign exchange earnings.
Recent reports of layoff from IT firms are disturbing signal because:
1) Job creation in India is far below the required numbers, in such a scenario IT layoff will add salt to the wounds.
2) It signals the reduction in potential of IT sector to be one of engines of growth of economy.
Long term slowdown in IT sector will reduce foreign exchange inflow, may lead to worsening Current Account Deficit problems.
3) Competition from other developing nations like Philippines, Turkey, China, and Indonesia in IT sector is very high.
4) Looming threat of tightening visa rules in USA, Australia, Singapore etc. affecting IT sector profitability.
5) Indian IT sector is known for its back office jobs and not innovation. Rising prospects of automation, cloud computing etc. can affect the IT growth
But there is a silver lining that gives much more optimistic view of this to come:
1) India IT firms are increasingly adopting automation, cloud computing etc.
2) Many new generation start-ups are actively involved in churning out innovative products.
3) Tightening of visa rules in US for Indian IT workers will have bigger impact on US economy, hence drastic measures won’t be taken.
4) Indian firms’ contribution to foreign economies like US etc. have been highlighted creating a good will for them
5) Infosys and TCS management have said they see not reduction in their hiring targets for next 2 years.
Adopting new technology and climbing up the innovation ladder is the way forward for out IT firms. Government should ensure while negotiating trade agreements that mobility of labour is in no way restricted.
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