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IASbaba’s Daily Current Affairs – 9th Oct 2017

INTERNATIONAL

TOPIC: General Studies 2:

India and its International relations.

Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

India-EU relationship

In news:

The talks to negotiate the India-European Union trade pact, the Broad-based Trade and Investment Agreement (BTIA), did not progress during the 14th India-EU Summit, held in New Delhi on October 6.
Both sides continue to recalibrate their bargaining power and understanding of their relative positions on the international stage.

Recent changes:

Much has changed for the EU since the last summit held in Brussels in 2016:

Several key elections, including in France and Germany.
Visible rifts between eastern and western European countries on what core EU values are and should be.
The inaugration of Donald Trump as U.S. President and consequent retreat of America from its leadership role in the West has provided a significant external stimulus to the EU’s identity shift.

Similarities:

On multi-polarity:

India and the EU reaffirmed their commitment to a “rules-based” international order and a “multipolar” world.
This is significant in the context of the U.S. moving towards reneging on several international deals. Mr. Trump has said he is going to “decertify” the nuclear deal with Iran — a deal that the EU is keen to uphold — and his administration has given notice of intent to withdraw from the Paris Accord.
The reference to multipolarity is a recognition that there is more than just one chair at the top table, not just with the U.S.’s shifting position but also due to Russia and China’s ascent.

On Terrorism:

The India-EU joint statement on terrorism this year called for “decisive and concerted actions” against Hafiz Saeed, Dawood Ibrahim, Lashkar-e-Taiba and other purveyors of terror; this will further bolster India’s efforts to call out Pakistan on the issue of sponsoring terror.
The EU itself has been no stranger to terrorism these last few years and the two sides have agreed to enhance cooperation at multilateral and bilateral interactions.

Trade talks: Issues

The talks regarding Broad-based Trade and Investment Agreement (BTIA) didn’t move forward because of following challenges:

A disagreement on whether the protection of foreign investments will be part of the BTIA or dealt with in a stand-alone treaty.
A challenge is India wanting a greater ease of movement of temporary skilled workers to provide services in the EU.
The EU and other developed countries have been historically reluctant about moving forward on this and the issue has become more challenging with the rise of populism and protectionism in Europe.
All too often, the movement of skilled workers from India to developed countries is made onerous with barriers to overcome in terms of salary thresholds, recognition of qualifications, visa fees, social security and so forth.
The EU wanting greater market access for its automobiles and its wines and spirits.

The liberalisation of services and access to EU markets for those who deliver them go hand in hand with the liberalisation of the goods market; wanting an open market for automobiles and liquor but unduly restricting the movement of natural persons is not acceptable.
There are winners and losers from globalisation on both sides of the border and it is up to governments to institute policies to redistribute the gains from trade.

The EU not granting “data secure” certification to India — a condition that facilitates the cross-border transfer of personal data, key to a number of companies’ services, especially in the IT industry.
India does not have a stand-alone data privacy law. On the other hand, the EU is at the forefront of protecting citizens’ rights as regards what happens to their data online. It will be no easy task for the government to align its laws to a standard required by the EU to get the appropriate certification.
It would certainly be a leap forward for for consumer rights and privacy standards in the digital age if India were to adopt and implement strict standards for handling data, an outcome desirable in itself.

Cementing the bond:

India and the EU should continue to welcome each other’s leadership roles in the world, primarily because of commonly shared values.

The EU is India’s largest trade partner and it is also, like India, wary of China’s political (the summit declaration makes a reference to freedom of navigation principles) and economic dominance.
The EU is concerned about China flooding global markets with inexpensive steel and its response to China’s Belt and Road Initiative has been lukewarm.

But the strength of China’s relationship with EU member states themselves is heterogeneous, with China trying to make inroads into Eastern and Central Europe through infrastructure investments. This makes it vital for India to cement its bonds with the EU further.

Conclusion:

With around €100 billion in bilateral goods and services trade last year, India and the EU have a lot to gain from a trade deal. It’s not just about trade. It is far from clear what presence the EU will have in a decade’s time.
However, it will certainly be beneficial for both India and the EU to keep each other close as they feel their way around the emerging international order.

Connecting the dots:

In the multi-polar world, a strong relationship between India-EU is called for. However, the trade talks between the two is not moving forward. Discuss the issues involved.

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.

Making service sector one of our strength

Introduction:

China and India are two of the fastest growing economies in the world. But they are following very different growth paths. China is a formidable exporter of manufactured goods. India has acquired a global reputation for exporting services, leapfrogging the manufacturing sector.

Background:

Services contribute more than manufacturing to India’s output growth, productivity growth and job growth. Given the relatively large size of the service sector compared to manufacturing, India’s growth pattern resembles that of the US.
We need to think on the answer to following questions-
Can services be as dynamic as manufacturing?
Can services contribute more than manufacturing to output growth, productivity growth and job growth?

Industrialization is not the only route to rapid economic development:

It is argued that industrialization is the only route to rapid economic development for developing countries. The potential for explosive growth was seen only in the manufacturing sector.
This is no longer the case:

The new industrial revolution and digital technological changes have changed the growth drivers in developing and developed countries. These technological changes have enabled services to be the new driver of growth.
The digital revolution, by lowering transaction costs in services and overcoming problems of asymmetric information, has made services more dynamic than in the past.
The emergence of e-commerce platforms is an example of how digital revolution can lower transaction costs, increase productivity as well as make it more inclusive.
For many internet-based businesses or services, fixed up-front costs can be high initially, but once the physical infrastructure is in place, each additional customer, user, or transaction incurs very little extra cost.

There is mounting empirical evidence that developing countries are relying more on services and less on manufacturing as drivers of growth and job creation.

The sectoral trends:

The chart shows the sectoral trends—agriculture, manufacturing and services—over the last four decades, for a large group of countries.
In the early 1970s, the relationship between the manufacturing labour share and income was far steeper than it is today, having followed a progressive erosion of the initial strength of this correlation over the past four decades.

Changed scenario:

The relationship between income and economic structure has shifted over time, with countries across the income distribution uniformly increasing the share of labour in service sectors.
While global growth convergence in manufacturing was a clear and strong trend some decades ago, it is no longer as strong in recent decades. Services show stronger growth convergence in recent decades.
A young population is generally more connected with technological changes.

Is services-led growth sustainable?

Global trade in goods has never fully recovered since the global financial crisis of 2007-08. But this is not the case with global trade in services, which has exploded. These are structural and not cyclical changes.
Globalization of services is the tip of the iceberg. Services, which account for more than 70% of global output, are still in their infancy. The long-held view that services are non-transportable, non-tradable, and non-scalable no longer holds for a host of services that can be digitized.

New opportunities for India:

The globalization of services provides new opportunities for India to find niches beyond manufacturing, where it can specialize, scale up, and achieve explosive growth.
As the services produced and traded across the world expand with globalization, the possibilities to develop based on services will continue to expand. This pace of change will be rapid in line with the digital revolution. Global internet usage has grown globally. But this growth is much faster in developing countries. India alone adds one million new users every month to a booming mobile phone market.
India’s demographic dividend should be an asset for the digital revolution and services-led growth. Job growth is important, as ten million more people will join the labour force every year in India. Agriculture and manufacturing create fewer jobs today compared to the past. But this is not the case with services.

Example: Take the example of mobile technology and examine its role in banking. Banking is currently concentrated in the urban areas, but cities are saturated with bank branches.
On the other hand, 300 million rural people across 300 districts in India have no access to banking.
Expansion of digital technology can play a big role in improving rural access to banking. Financial inclusion can be achieved through last-mile connectivity. Services are spatially more neutral compared to manufacturing.
So financial inclusion could in turn help medium-size cities, small towns and villages to become new drivers of growth.

What to do?

Specific strategies for services is required.
Investments in both physical and human infrastructure matter greatly for attracting new enterprises in both manufacturing and service industries. But unlike in the manufacturing sector, investments in human infrastructure, education and skills, matter much more.
Given its stage of development, India needs accelerated investments in both physical and human infrastructure to support new drivers of growth and job creation.

Conclusion:

The process of globalization in the late 20th century led to a sharp divergence of incomes between those who industrialized and broke into global markets and the “bottom billion” in some 60 low-income countries, where incomes stagnated.
India shouldn’t wait for China or other such giant industries to become uncompetitive in labor-intensive manufacturing. It should leap forward with its services sector which is already one of its strength.
Leaping forward would offer new hopes to other developing countries as well who are struggling to strengthen their economy in this competitive world.

Connecting the dots: