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IASbaba’s Daily Current Affairs – 26th Sep 2017

ECONOMY

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.

Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

Framing of A New Industrial Policy

Background:

A new industrial policy is being framed by the government.

Changed outlook:

Until the 1980s, industrial policy was driven by the theory that the Government must closely manage the flow of investments into selected industrial sectors to nurture their development.
Dissatisfaction with this approach, primarily because it stifled entrepreneurship, made the Government change its approach from the 1990s towards a free market approach with the expectation that market forces would cause industrial growth to accelerate.
However, that did not happen. India’s manufacturing sector, which should have been a principal driver of industrial growth and creator of jobs, languished at 16 per cent of the economy. While the services sector grew, overall job growth did not keep pace with the growth of the population.
The underlying approach to industrial growth in India until the 1990s was top-down planning, of attempting to manage the inputs-outputs of the economy through licenses to produce and allocations of resources.
After the reforms of the 1990s, the paradigm shifted to the other extreme, of ‘leaving it to the market’, and hoping that freedoms to invest and produce would result in the growth of more jobs and livelihoods. However, the bureaucracy continued to tie up enterprises in knots.

Comparison with China:

By 2009, Chinese capital goods’ production capacity was about 50 times as large as India’s and India was importing machinery, power generation equipment, and other capital goods in increasing quantities from China.
India’s industrial sector had become much smaller than China’s and lost its depth too.

Process of industrialization:

The process of a country’s industrialization is a process of enterprises in that country acquiring capabilities to produce more complex products that they could not produce before.

Workers learn skills they did not have before.
Managers of enterprises learn to apply technologies and manage processes that they could not before.
Government policymakers and implementers learn how to create conditions for industrialization.

Framing of new industrial policy:

What needs to be done?

The development of enterprises and the development of skills of workers cannot be put into separate, disconnected policy silos.
Case study-
The skills provided to people must fit the jobs they do. Therefore, successful programmes to develop skills cannot be managed within a ministry dedicated to labour or skills.
This approach, wherein industrial training institutes were under the labour ministry (and may now be moved to the skills ministry) resulted in the mismatch between the output of the skills programmes and requirements of industry, and trainees finding that they could not get jobs.
Less than 20 per cent of the millions trained by this government’s (and the previous one’s) drive to skill millions have found jobs. On the other hand, enterprises complain to the industrial development department that they cannot grow because they do not have people with the requisite skills. Therefore, policies for developing skills must mesh with policies to stimulate growth of enterprises.
A ‘systems view’ is required to connect many parts of the system and many policies — for investment promotion, trade regulation, enterprise regulation, labour policies, etc — to enable the economy to deliver the results citizens want from growth, namely better jobs and livelihoods.
Case study-
Improvements to one part of the system can have unintended consequences on other parts. Making it easier for one sector to produce by reducing duties on its inputs creates inverted duty structures which can hurt the growth of the input sector. This has resulted in the weakening of India’s machinery sector, for example, and weakened the country’s industrial base.
The effects of policies that may be good for one part of the system on other parts must be understood before they are implemented.
A ‘whole of government’ approach is required for coordinated implementation — at the Centre, in the States, and on the ground — to make it easier to do business in India.

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Industry’s inadequate expenditure on research and development:

Huawei’s R&D expenditure (around $6.5 billion) is about the same or more than that of Indian industry, while Microsoft spends (around $12 billion) about the same as the Indian government.

If India has to realize its ambition of increasing its share of manufacturing in GDP (gross domestic product) to around 25% from 17% currently, industry will have to significantly step up its R&D expenditure.
Currently, R&D spending amounts to around 0.9% of GDP. The private sector in India accounts for around 35% of the country’s total R&D spending, compared to many advanced economies as well as China, where the corresponding number is around 70%.

This will need to be addressed by the new industrial policy, else it risks remaining a structural headwind that will continue to weigh on India’s productivity growth going forward.

The new industrial policy should aim to push for technological deepening in sectors where Indian companies are globally competitive and also provide a road map to enable industry to diversify across sectors.
Healthcare is one sector where there is significant potential to increase both public and private R&D expenditure. Focusing on healthcare equipment and services for example, where India has no R&D presence, would assist in technological deepening within the healthcare sector—and also in providing affordable and accessible healthcare through “frugal” medical devices.

Conclusion:

Making of the industrial policy should be a consultative process and it should be well coordinated across various ministries and backed by strong research. The framing of the new industrial policy should be seen as an opportunity to chart a meaningful path for industry’s role in India’s development.

Connecting the dots:

The new industrial policy being framed must focus on a holistic approach towards handling the issues being faced by manufacturing sector in India. Discuss.

DEFENCE/SECURITY

TOPIC:

General Studies 3:

Security challenges and their management in border areas; linkages of organized crime with terrorism.
Role of external state and non-state actors in creating challenges to internal security.

General Studies 2:

India and its neighbourhood- relations.

Maintaining regional stability

Background:

It has been one year since the special forces of the Indian Army carried out surgical strikes to destroy terror launchpads in Pakistan-occupied Kashmir on September 29, 2016.
It is important to take stock at this point on how India-Pakistan bilateral relations and the regional security situation have evolved over the past year since the strikes.

Turn of events:

Being critical at international forums-
Showing no appetite for a bilateral rapprochement, the two acrimonious neighbors have limited their interactions to firing across the borders in Jammu and Kashmir and calling each other names in global forums.
At the United Nations General Assembly a few days ago, for instance, External Affairs Minister Sushma Swaraj termed Pakistan a “pre-eminent exporter of terror” — to which Pakistan’s Permanent Representative to the UN, Maleeha Lodhi, responded: “India is the mother of terrorism” in South Asia.
Future of SAARC in jeopardy-
The future direction of the foremost regional forum, the South Asian Association for Regional Cooperation (SAARC), remains unclear after India dropped out of the 2016 Islamabad summit in the wake of the Uri terror attack. (The summit was eventually postponed.)
Embattled regional stability-
The regional security situation remains embattled, because of confused American policies in South Asia, continuing turmoil in Afghanistan, heightening India-China rivalry, and the India-Pakistan hostility.

Regional stability- Challenges:

There are two sets of challenges that are more apparent today, one year after the surgical strikes.

One, the India-Pakistan escalation ladder has become far more precarious today it has ever been in the past one and a half decades, i.e. since the ceasefire was agreed to in 2003.
The recurrent, and almost daily, occurrence of border battles between the two militaries in Jammu and Kashmir today have a worrying potential for escalation to higher levels.
The border stand-offs often lead to, as is evident from the data from the past 15 years, military, political and diplomatic escalation as well as contribute to escalating an ongoing crisis.
The September 2016 operation has made ceasefire violations more worrisome in at least two ways:
Pakistan has been retaliating ever since the surgical strikes by increasing the pressure on the frontlines; and
Surgical strikes have reduced the critical distance between ceasefire violations and conventional escalation.
The perils of preventive strikes are unpredictable. Preventive strikes in hyper-nationalist bilateral settings could defy our expectations and go out of control, with disastrous implications.

Have the surgical strikes helped the country’s overall national security environment?

The Central government argues that surgical strikes have been a spectacular success.
Has surgical strikes improved our national security in plain practical terms. The first obvious question to ask is whether the strategy of punishment has worked vis-à-vis Pakistan.

There are two reasons why the strategy of punishment may not have worked. For one,

A strategy of punishment requires consistency and commitment. The momentum achieved by the surgical strikes was not followed up (despite several attacks thereafter), nor was the government committed to its declared determination to respond firmly to terror strikes, thereby lacking in both consistency and commitment.
Pakistan’s responses thereafter of supporting insurgency in Kashmir, aiding infiltration across the border, and allegedly supporting attacks on the Indian army convoys and bases continued without much reaction from New Delhi

This has led to a visible lack of credibility on New Delhi’s part which makes one wonder whether, bereft of domestic political uses, there was any strategic planning behind the September operation.

National security in peril:

By all accounts, India’s national security environment is fraught today.

Terror attacks in Kashmir continue to break the calm. Launch pads and terrorist camps have increased since last year.
Since the surgical strikes, at least 178 militants and 69 Army personnel have been killed. Forty-four army personnel were killed between January and September this year, compared to 38 last year between January and September (including those killed in the Uri Army base attack).

Surgical strikes may have been a tactical victory for New Delhi, but its strategic value is far from settled.

Conclusion:

With two hostile neighbours on either side, terror attacks against India on the rise, and the South Asian neighbourhood unsure of India’s leadership any more, New Delhi has a lot to be concerned about the continuation of its pivotal position in the region and the nature of its future engagement with it.
The events since September last year have further contributed to South Asia’s regional ‘insecurity complex’.
For a country that has traditionally been the regional stabiliser, New Delhi must avoid aggression and self-imposed regional exclusion.

Connecting the dots:

· A year after the surgical strikes across the Line of Control, India must recover its role as a regional stabiliser. Critically analyze.