1. Recent initiatives and steps taken by the government indicate towards an economic discourse that reflects a liberalizing pattern across sectors. Do you agree? Critically examine.
Liberalization of an economy refers to freeing up of the role and ownership of the state in the various sectors of the economy accompanied with significant transfer of factors and means of production- land, labour, capital and entrepreneurship- in the private hands.
Liberalization in India started in 1991 with the start of LPG reforms. It has a history of 25 years and in this span India has constantly opened its economy for free and open trade.
Recent years have seen a surge of this opening in all areas, as seen in-
FDI reforms- hitherto reserved sectors like defense; railway and insurance have been now opened for FDI. Investment through automatic route has been permitted in majority of sectors and FIPB itself has been phased out. In 2015 India stood ahead of US and China in receiving FDI.
Free and open trade- many FTAs have been signed. In last 25% our trade with Israel as increased 200%. Trade with almost countries has seen an upsurge.
Ease of doing business-single window clearances, easy tax administration, digitization of approval, self-assessments are to simply entry and exit by reducing formalities and delays. E-biz portal and permanent residence scheme are major initiative in this direction.
Privatization-pulling out of state’s stack in PSUs like IndiGo, creating space for private enterprises, deregulation of commodities like diesel and petrol prices. NITI Aayog’s radical privatization plan and mooting of privatization of many NCD health services in district hospitals.
Minimum government- debureaucratization, digitization, rolling back of state, rationalization of subsidies and reorganization that state has no business in business. Disbanding of planning commission and ending of five years plans (command and planned economy).
Government is promoting self-entrepreneurship (Start-up India), focusing on demand side development rather than supply side, incentivizing Dalit capitalism and minimizing police raj. New foreign trade policy,2015 has vision of open trade, ease of doing business and extension of SEZs.
However, on some fronts the government has shown reluctance and caution while liberalizing various sectors of economy. In some areas government’s record has not been so impressive either. For example,
Many sectors are under government approval rule for FDI eg. FDI in Defense over 49%.
2.Condition of domestic content requirement by the government to promote domestic industries along with foreign investment,
3.Transfer of technology clause in defense and high tech products to ensure not only money but advanced knowledge also well comes to India.
4.Government still does not allow privatization in few sector like Railway operation, Atomic Energy etc.
5.Multi brand retail and FDI in agro processing sector is restricted due to domestic compulsions.
On the other hand,
Manufacturing Sector – The share of manufacturing has remained stagnant: 16.41% in 1989-90 and 16.2% in 2015-16 due to infrastructure problems, tax burden, etc
2.Defence – A quick entry with the intention of an equally quick cash-out and exit can, in the long run, actually hurt India’s security
3.Civil Aviation – Increased to 100% but former cap of 49% for foreign investment retained, hence may not attract funds.
4.Retail sector – many states oppose FDI in multi-brand retail
5.Arbitration and legal issues- Despite increase in Ease of doing Business ranking, India ranked at 186 out of 189 in ‘Enforcing contracts’ that hinders investment.
The recent efforts of the government in promoting liberalization and privatization of the economy, attracting foreign investment has been impressive. These efforts, however, has to be sustained with complementary reforms in labour laws and land laws to truly liberalize the economy.
2. What is IIP? Discuss the recent trend of IIP. What does it indicate?
IIP stands for Index of Industrial Production. It is calculated monthly by Central Statistical Organization. It measures the growth and performance of Indian industrial sector covering Manufacturing, Mining and Electricity.
It is an important metric to understanding growth of Indian economy, especially its industrial sector. Recently the index was updated and some changes were introduced.
Base year was changed from 2004-5 to 2001-12.
Only Organized sector will be measured.
The weightage of sub sectors measured have under gone some change.
8 core industries ,measured under IIP, Refinery products have highest weightage now, earlier it was Electricity.
The recent trend of IIP depict:
1.Sluggish but retrieving manufacturing sector growth.
2.Most of the industries and mining sector showed stable growth.
3.Electricity generation grew rapidly mainly on account of capital goods growth.
What does it indicate?
1.The recent trend of IIP indicates a sluggish growth during the period of demonetization and a decline in some sectors post demonetization.
A general decline in overall economy- currency crunch, the uncertainty surrounding the fitment of rates in GST etc.
Slow uptick in industrial performance especially manufacturing sector, failure in reviving investment climate, pressure on Banks due to huge NPAs.
Impact of global slowdown, low petroleum prices and stagnant demand on the economy.
However, caution need to be take while analyzing IIP figures and connecting it with the growth prospects of the economy due to:
Shift in base-year to 2011-12 is expected to provide a more realistic picture but also inflates the growth figure due to a more recent base year of slower growth.
It does not cover the unorganized sector where major government policy decisions like demonetization impact the most.
There has also been a change in number of industries considered under the index.
Hence, it might be too optimistic to conclude that the new IIP ensures resumption of high growth era. However, it is considered to have more realistic coverage and be reflective of the market realities.
3. Make in India initiative is in its third year. Analyse its performance and suggest ways to make it bigger, better and more effective.
The “Make in India” global initiative was launched in 2014. It aims at promoting India as an important investment destination and a global hub for manufacturing design and innovation, to invite both domestic and foreign investors to invest in India. The initiative is based on following four pillars: New Processes, New Infrastructure, New Sectors and New Mind-set.
The initiative can be seen as a success based on following points:
Investment: Liberalized FDI rules making India one of the top destination for investors.
There is an improvement in business environment with the initiatives taken to improve Ease of Doing Business.
Manufacturing hub: New manufacturing plants have been set up by MNCs like Huawei, Xiaomi etc.
MSMEs have got a boost due to schemes like StandUp India
Gave boost to competitive federalism resulting into reforms in areas which were under state’s list and thus central government could not do much, example- labour laws.
Indigenisation in defence sector: this will in long term help strengthen our security forces.
Jobless growth is still a major concern threatening India’s demographic dividend to turn into demographic crisis.
Service sector- not being given enough attention.
Structural reforms remain- red tapism, bureaucratic hassle etc.
Index of industrial production is falling continuously over months.
Given the shortcomings, much more needs to be done to make the initiative bigger, better and more effective.
Labor law reforms has been a long standing requirement and it must be done as early as possible.
Services sector must be focused upon especially sectors like tourism. Also, trade agreement in services must be negotiated at WTO meetings.
Skilling workforce keeping in mind the challenges of automation.
Strengthening the judiciary so as to ensure faster disposal of cases and thus helping maintain investors’ trust on our justice system.
Issue of NPA must be resolved so as to ensure availability of funds.
Reducing policy uncertainty over laws like land acquisition law, environmental regulations etc.
Bringing our bilateral investment treaty in sync with international parameters.
Creating world class research and development (R&D) if India is to see its economy grow in the fourth industrial revolution era.
The above measures must be implemented effectively so as to further improve the effectiveness of the Make in India campaign and spur India on a path of sustainable economic development.
4. What are the constitutional provisions that protect one’s right to express his/ her opinion? Is this right threatened in India? Critically examine.
Preamble of the constitution provides LIBERTY of thought, expression, belief, faith and worship.
Art 19 (1): Protection of certain rights regarding freedom of speech etc
(1) All citizens shall have the right
to freedom of speech and expression;
to assemble peaceably and without arms;
to form associations or unions;
Art 25: Freedom of conscience and free profession, practice and propagation of religion.
Limitations imposed by the constitution:
Against Art 19(1): Reasonable restrictions can be imposed in the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality or in relation to contempt of court, defamation or incitement to an offence
Against art 25: These rights can be curtailed only on the grounds of public order, morality and health.
These rights are threatened in the following manner:
ban on news channels like NDTV
censorship on movies like Udta punjab and lipistik under my burkha for showing reality of the society
rampant invocation of sec 124 of IPC that deals with sedition, such as sedition charges on university students of JNU while they were having descent on SC verdict.
freezing bank accounts of NGOs like Green peace and 360 for raising environmental issues in the country which were contradicting with the development of the country.
Criminal defamation cases against the journalists such as on 2 journalists by the Karnataka State Assembly.
SC verdict to play national anthem in theaters also takes away once choice to “not” to express his patriotism and feelings for nation although he might have it far more than one singing.
Apart from states other communal elements with political backing are also violating this right of citizens, by forcing citizen to chant certain slogans like “vande matram” and “bharat mata ki jai” as keeping silence and not speaking is also part of liberty of expression.
Defending of these rights:
Constitution says the restriction imposed should be reasonable and not arbitrary. The Judiciary has played a proactive role in upholding the rights.
The SC has strike down the Sec 66A of IT Act saying that it is against the Part III of the constitution.
Social media, media and civil society have been active and vocal in defending these rights, numerous campaigns and movements have been organized towards this end.
5. What are ‘masala bonds’? Why were they in news recently? What are they meant for? Discuss.
What are Masala Bonds:
These are rupee-denominated borrowings by Indian entities in overseas markets. Usually, while borrowing in overseas markets, the currency is a globally accepted one like dollar, euro or yen.
The International Finance Corporation (IFC), the investment arm of the World Bank, last November, issued a ?1,000 crore bond to fund infrastructure projects in India. These bonds were listed on the London Stock Exchange (LSE). IFC then named them Masala bonds to give a local flavour by calling to mind Indian culture and cuisine.
While it may seem odd to name a staid debt instrument after food stuffs, it has been done in the past. Chinese bonds, named Dim-sum bonds after a popular dish in Hong Kong, have been around for while. So have Japanese bonds named Samurai after the country’s warrior class.
India has seen a handful of issuances since the country allowed masala bonds in 2015, including from Housing Development Finance Corp, Adani Transmission as well as from a few state-run companies.
Why in news:
The RBI said masala bonds must have a minimum maturity of three years for issuances of up to $50 million. Sales above that amount would need to have maturities of five years or above.
It also set an all-in-cost ceiling of 300 basis points above a similar maturity government bond for masala bond issuances.
The RBI said it was changing the rules for masala bonds “with a view to harmonize” the present regulations on external commercial borrowings. It did not elaborate any further.
India has been keen to spur the sales of rupee-denominated bonds overseas, but the RBI has been cautious about domestic companies raising funds abroad because of worries about having excessive debts owed to overseas investors.
Masala bonds, since, are denominated in domestic currency; it is risk proof from the point of view of the domestic recipient from the fluctuation of domestic currency. Hence, they are considered a safe investment option for the recipient of the investment.
Earlier the domestic companies used to raise in overseas market but in local currency. It led to the problem of excessive burden in the balance sheet in the wake of the weakening of the Rupees, as it added huge interest burden at the time of repayment.
This currency risk would now be absorbed by the investors and in turn they will get higher rate of return for their investment as compared to EU and USA.
Domestic companies will have new avenues to raise capitals and due to low interest rate prevailing overseas it would be win-win situation. Furthermore, funds would allow companies to set up new investments and in turn would help in raising employment and furthering the cause of initiatives such as ‘Make in India’
This step is very good as in short term it will help companies but in medium and long term it would also help in internationalization of currency.
Best Answer: Lincoln.
Masala Bonds are rupee denominated instruments enabling Indian companies to borrow money from foreign markets. There are debt instruments with fixed term and interest rate.
They were in news recently due to new set of RBI regulations on Masala Bonds
1) RBI guidlines bring Masala Bonds on par with External Commercial Borrowing in other correncies.
2) Minimum maturity term and maximum coupon rate has been fixed. Minimum 3 years with 5 year term for deals above $50 million.
3) RBI also has allowed Commercial banks to use Masala bonds to get money fro their capital requirement and for funding infrastructure projects like affordable housing.
The restrictions on Masala bonds have created some concerns regarding the prospect of future growth of such instruments. But India being the one of fastest growing economy with bright future foreign investors will want to tap into Indian investment markets.
Benefits of Masala Bonds
1)They are rupee denominated hence the exchange rate risk is on the investor and not on Indian borrowers.
2) It is an instrument for foreign investors to invest in India.
3) India needs serious capital investment to fund its infrastructure projects, masala bonds can help meet some of it.
4) The Banks have to meet capital requirements of Basel norms and provision for NPA etc., masala bond offer an avenue for Banks to borrow from abroad.
Masala bonds like DImsum bonds (China), Samurai bonds (Japan) has huge potential for bringing in capital to Indian economy to satisfy its developmental and economic needs
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