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IASbaba’s Daily Current Affairs 14th Oct, 2017

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  • October 14, 2017
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IASbaba’s Daily Current Affairs – 14th Oct 2017

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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.

Creating Jobs

Background:

For three demographic groups there is anurgent need of jobs:

  • A growing number of better educated youth;
  • Uneducated agricultural workers who wish to leave agricultural distress behind; and
  • Young women, who too are better educated than ever before.

India is indeed the fastest growing large economy in the world; yet with investment low, credit offtake low, capacity utilisation in industry low, agricultural growth low, plant load factor low, the job growth is low as well.

What can policy-makers do to revive job growth?

  • Industrial, trade policy:
    An industrial and trade policy is needed.
    For 20 years after economic reforms began in 1991 there was no National Manufacturing Policy, and the Policy, when it came in 2011, was not even implemented.
    While the DIPP is preparing the industrial policy document, it is essential that trade policy is consistent with such an industrial policy. Otherwise the two may work at cross purposes and undermine each other’s objectives. This is precisely what has happened over many years.
    Excessive imports have been decimating Indian manufacturing. An inverted duty structure has the following features: higher duty on intermediate goods compared to final finished goods, with the latter often enjoying concessional customs duty. As a result, domestic manufacturers face high tariffs since the last 12-15 years, leading to higher raw material cost at home, emanating from the unfavourable inverted duty structure. This has prevented many manufacturing sectors from growing since economic reforms began. This must be corrected.
    The automobiles sector in India faced no inverted duty structure, and has thrived. India has become in the last decade one of the largest producers of vehicles of several kinds in the world now. Electronics faced an inverted duty structure, but the Finance Minister has made changes, and slowly electronics manufacturing has grown.
  • Special packages are needed for labour-intensive industries to create jobs.
    There are a number of labour intensive manufacturing sectors in India such as food processing, leather and footwear, wood manufacturers and furniture, textiles and apparel and garments.
    The apparel and garments sector received a package from the Government of India last year. The other labour intensive sectors have been ignored. The nature of the package will need to be individually designed for each sector.
  • Cluster development:
    There should be cluster development to support job creation in micro, small and medium enterprises (MSMEs).
    Most of the unorganised sector employment is in MSMEs, which tend to be concentrated in specific geographic locations. There are 1,350 modern industry clusters in India and an additional 4,000 traditional product manufacturing clusters, like handloom, handicraft and other traditional single product group clusters.
    There is a cluster development programme of the Ministry of MSMEs, which is poorly funded and could be better designed as well. But the Ministry’s total annual budget for all programmes, including cluster development, is grossly inadequate. Spread over 6,000 clusters, it becomes even more inadequate to transform MSMEs located in clusters.
  • Aligning urban development with manufacturing clusters to create jobs.
    The Ministry of Urban Development (MoUD) has a programme called AMRUT (Atal Mission for Rejuvenation and Urban Transformation) aimed at improving infrastructure for small towns. Infrastructure investment by the government always creates many jobs. But the programme does not take into account whether the infrastructure investment under it is taking place in towns which have clusters of unorganised sector economic activities. Hence an engagement between the Urban Development and MSME Ministries is necessary to ensure that this is happening. It will attract more investment to industrial clusters, which is where most non-agricultural jobs are.
  • Focus on women:
    Girls are losing out in jobs, or those with increasing education can’t find them, despite having gotten higher levels of education in the last 10 years. Secondary enrolment in the country rose from 58% to 85% in a matter of five years (2010-2015), with gender parity.
    Skilling close to clusters (rather than standalone vocational training providers), which is where the jobs are, is likely to be more successful. The availability of jobs close to where the skilling is conducted will also enhance the demand for skilling.
  • Public investments in health, education, police and judiciary can create many government jobs.
    Public investment in the health sector has remained even in the last three years at 1.15% of GDP, despite the creation of the national health policy at the beginning of 2017. The policy indicates that expenditure on health will rise to 2.5% of GDP only by 2025. Preventive and public health have always been in all countries the responsibility of government. More government expenditure in health means more jobs in government and better health outcomes.
    Revitalise schools-
    Government schools also have such poor quality. The number of teachers required, at secondary and higher secondary levels, is very high, particularly in science and mathematics. Many new government jobs can be provided if more young people could be trained specially to become teachers for science and mathematics at the secondary and higher secondary levels.
    The same applies to the police and the judiciary. While the number of paramilitary personnel continues to grow, State governments are not filling even sanctioned posts in the policy and in the judiciary (at all levels there are vacancies). More police and a larger judiciary can both reduce crime as well as speed up the process of justice for the ordinary citizen.

Conclusion:

·         Thus, in order to create jobs, it is crucial to align policy across sectors and upgrade the country’s social infrastructure. Above recommended steps can go a long way in boosting job growth in the country.

Connecting the dots:

  • In order to createjobs,it is crucial to align policy across sectors and upgrade the country’s social infrastructure. Analyze.

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.

Recalibrating Industrial Policy

Background:

A recent report by Deloitte LLP pointed out that India’s young population will drive its economic growth to overtake China and other Asian tigers in the next few decades. The potential workforce in India is set to increase from 885 million to 1.08 billion in the next 20 years and hold above the billion mark for 50 years. This potential can only be achieved if enabling conditions for growth are created and sustained.

In this context, the discussion paper on Industrial Policy 2017, released recently by the Department of Industrial Policy and Promotion (DIPP), becomes relevant. The government’s initiative on starting a discussion on a future-ready industrial policy is timely and welcome.

Issues with the discussion paper:

  • Piecemeal approach
    While the stated objective of the new policy is to provide “an overarching umbrella policy framework”, the document considers FDI, exports, domestic value addition, technology development, employment, etc, in a piecemeal manner.
    While the focus in the DP is on increasing “global strategic linkages” and there is a noteworthy call for undertaking an FDI policy review, there is no mention of the ongoing industrial slowdown and growing import dependence of Indian industry after 25 years of liberalisation of trade and FDI policies.
  • A new industrial policy for India must necessarily discuss ideas for creating jobs for and in Unfortunately, the DIPP discussion paper does not delve into this issue. Perhaps this is the result of a conventional approach which confines the scope of industrial policy to “manufacturing enterprises”, distinct from and unrelated to agriculture (including rural non-farm sectors) and the services sectors.
    Any design of industrial policy must appreciate its linkages and interaction with agriculture and services policies at a granular level, and with trade, competition and sector-specific policies at a broader level. This will not be possible without a systems’ view informed by a whole-of-government approach.
  • The policy suggests incentives to select sunrise sectors, and possibly enterprises, which could potentially disincentivize competition and innovation, and curb the growth of other sectors. Such a straitjacket sector-specific approach might result in policies soon becoming out of sync with dynamic economic developments and with our World Trade Organization (WTO) obligations. While sectoral policies can be a valuable supplement to an industrial policy, an effective industrial policy cannot be merely a collection of sectoral policies.
  • Moreover, despite the evidence that the credit needs of MSMEs are unmet by private commercial banking and financial entities, the DP has recommended other market-based financing instruments such as peer-to-peer lending and crowd sourcing. Experiences from other countries including Brazil and China show that long-term financing needs of SMEs can be effectively supported publicly. Purely market-based mechanisms suggested by the DP may play only complementary roles.
  • Despite the evidence that the credit needs of MSMEs are unmet by private commercial banking and financial entities, the DP has recommended other market-based financing instruments such as peer-to-peer lending and crowd sourcing. Experiences from other countries including Brazil and China show that long-term financing needs of SMEs can be effectively supported publicly. Purely market-based mechanisms suggested by the DP may play only complementary roles.
  • trade liberalisation in most sectors has also not been aligned with development needs. This has been exacerbated by signing free trade agreements (FTAs) on the basis of an argument that participation in FTAs will enable Indian firms to become part of global value chains (GVCs) and improve their export capabilities. This has been especially reflected in the kind of tariff liberalisation that India undertook in its FTAs with Asean, Japan and South Korea, whereby the country has reduced or eliminated tariffs across the board. In the absence of active industrial policies to upgrade the domestic manufacturing and technological base, such tariff liberalisation has led to these partners achieving greater market penetration in India than what India could achieve in their markets. In light of such evidence, the DP should have recommended that more FTAs should not be signed before evaluating the existing agreements.

Way ahead:

  • Focusing on poorer hinterlands:
    In relation to the rising workforce, the Economic Survey 2016-17 pointed out that the richer peninsular states in India will initially witness a sharp increase in working age populations, followed by a sharp decline. In contrast, the poorer hinterland states will remain young and dynamic, characterized by a rising working age population for some time, plateauing towards the middle of the century.
    The poorer states in the hinterland are characterized by a substantial rural, informal economy where agriculture and allied non-farm activities are the principal sources of livelihood. For India to realize its economic potential, it is this population which needs to be tapped and provided opportunities.
  • We need to recalibrate not just FDI policy, but equally crucially, trade policy.
    Simultaneously, the country requires active interventions to build and upgrade domestic entrepreneurial and technological capabilities.
  • It would be timely for a new industrial policy document to dissociate both state support for industrial development and public-sector firms from the legacy of the excesses that were part of import-substitution industrialisation and grant them their rightful place in financing long-term investment and technological change.
    To ensure this, financing mechanisms must be designed in ways that preclude political leverage to avoid rent-seeking behaviour and inefficiency. Moreover, any government support must be time-bound and periodically modified based on performance monitoring. This was one of the factors that distinguished the successful industrial policy regimes of South Korea and Taiwan.

Conclusion:

A new forward-looking industrial policy for India must have Bharat as its soul. It must prioritize the creation of livelihoods in rural and semi-urban areas, and should recognize the importance of growth in the rural non-farm and agriculture-allied economy for industrial development. It needs to take a more holistic view on FDI, technology development and trade.

Connecting the dots:

  • A new forward-looking industrial policy for India must have Bharat as its soul. It must prioritize the creation of livelihoods in rural and semi-urban areas, and should recognize the importance of growth in the rural non-farm and agriculture-allied economy for industrial development. Discuss.

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