IASbaba's Daily Current Affairs Analysis

IAS UPSC Prelims and Mains Exam – 4th June 2019

(MAINS FOCUS)

ECONOMY

TOPIC: General studies 3

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Structural reforms for tackling economic slowdown

Background:

Economic slowdown:

Official estimates released recently show GDP growth slowed to a five-year low of 6.8% in 2018-19, even as the unemployment rate rose to a 45-year high of 6.1% in 2017-18.
Agriculture gross value added (GVA) growth is estimated at negative 0.1% and manufacturing GVA growth at 3.1% in the January-March quarter.
The economy is struggling with an investment and a manufacturing slowdown, rural distress, unremunerative farm incomes, stagnating exports, a banking and financial mess and a jobs crisis.
Sales figures from fast moving goods makers and continuing production cuts at car manufacturers confirm that consumption spending have slowed.

The economic priority for the new government ought to be credible course correction in policy — its formulation, articulation and the setting of goals.

Reforms taken in past:

Structural reforms — spanning an overhaul of labour and land policies and a much-needed manufacturing push, ‘Make In India’, for absorbing the slack from the farms — had been abandoned by the end of 2015.
The initial energy and enthusiasm gave way to misadventures such as demonetisation and the poorly designed rollout of the Goods and Services Tax (GST) regime.
The decrepit public banking system and the problems of the financial sector received little policy attention.
Even the insolvency and bankruptcy reform, a sound economic reform, that got rolled out rather gradually and tentatively is already in danger of getting diluted.
The Constitution was hurriedly amended for rolling out reservations based on economic criteria and that fiscal giveaways for middle class Indians and farmers dominated the Interim Budget presented in February without considering the magnitude of the challenge on the economic front.

Way ahead:

Generating sustainable livelihoods:

Public provision of toilets, cooking gas connections and dwellings or Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) wage jobs and income supplement schemes are temporary sources of relief. They are not an economic growth model or strategies for reducing poverty. They can help the poor survive by providing meagre resources for subsistence.
Reducing poverty needs economic growth to generate sustainable livelihoods for the poor. And this cannot be remedied by redistributive taxation policies alone.
The government’s ‘Make In India’ strategy was a step in the right direction, and needs to be revived. Done right, it can absorb the slack from the farms.
Few organised sector jobs get generated in India because industries prefer capital-intensive production despite the economy’s relative abundance of low-wage labour.
If production were less capital-intensive, more organised sector jobs would be created. Plus, labour’s bargaining power would improve.

The government needs to take up the backlog of economic reforms pending since the first burst in the 1990s.

For the role they play in jobs creation, smaller firms ought to be incentivised with easy credit and taxation norms.

Data collection

Lastly, no evolution of the policy paradigm will be possible if the crisis of credibility in the collection, estimation and presentation of official statistics is not addressed appropriately.

Conclusion:

The new government must leverage the public trust voters have placed in it to get the economy on track. Structural reforms with meticulous planning and proper implementation will help.

Connecting the dots:

Official data shows India is facing an economic slowdown. Structural reforms ensuring more job creation will help. Elucidate.

NATIONAL

TOPIC: General studies 2

Government policies and interventions for development in various sectors and issues arising out of their design and implementation

Development processes and the development industry- the role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders.

Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and Bodies constituted for the protection and betterment of these vulnerable sections.

NREGA 3.0: Part I

Background:

In the run up to the elections, a plethora of redistributive programmes, including farm loan waivers, cash transfers and minimum income guarantees came to the forefront as campaigners sought to suggest solutions for rural distress.
Amongst these is a proposal to launch a revised NREGA 3.0, in which 150 days of employment would be guaranteed to the rural poor.
Almost 15 years after it was enacted, the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) its time we analyse its impact on the poor.

What does the NREGA intend to do?

Enacted as a legal right, the NREGA’s primary goal is social protection for the most vulnerable.
India has had relative success with workfare, with the Maharashtra Employment Guarantee Scheme being the most important precursor to the NREGA.
The primary advantage of workfare programmes over farm loan waivers, cash transfers and minimum income programmes is that the poor self-select themselves into the programme, thus reducing the identification costs.
The ability of a programme to parsimoniously target the ultra-poor without elaborate means testing is critical for its long-term success, particularly when fiscal resources are scarce. Crucially, the most basic tenet of the NREGA — its self-targeting mechanism — does work. Poorer and disadvantaged households are more likely to seek NREGA work.

Issue of demand-supply gap:

In practice, however, not all those who demand NREGA work receive it. In 2009/10, almost half the households in rural India wanted NREGA jobs but only a quarter received them, according to estimates by Liu and Barrett (2016). More recently, employment provided under NREGA in 3,500 panchayats in 2017/18 was a third less than that demanded.

Impact of NREGA on poverty:

Three available national counterfactual-based studies show modest increases in household per capita expenditures and consumption in the first few years of the programme, the picture is entirely different for marginalised groups, who have benefited greatly due to NREGA.

A study shows Scheduled Caste and Scheduled Tribe recipients increased their real monthly per capita expenditure by 37 per cent in the lean season of 2008, cutting poverty by almost half.
Likewise, state-level studies show NREGA favours the most disadvantaged. The poorest SC/ST households and those with a disabled member saw higher growth in consumption and nutritional intake in the short-run, and in the medium-term, substantially increased their non-financial assets.
In Bihar, a study estimates that NREGA reduced poverty by roughly 1 percentage point in 2009.

Reducing vulnerability:

Aside from its impact on the poorest, NREGA also plays a critical role in reducing vulnerability.
Research indicates that NREGA provides employment after an adverse rainfall shock, enables workers to smoothen their consumption with variations in rainfall, and reduces risk during the lean season.

Conclusion:

Despite been severely rationed, NREGA acts, as per its mandate, as a very desirable social protection mechanism amongst the most disadvantaged classes.
Compared to other proposals on the table, NREGA efficiently allows the most disadvantaged to spur their consumption in times of rural distress.
As a new administration weighs policy options at a time of rural unemployment and weakening consumption, pre-monsoon, it would be prudent to substantially ramp up NREGA so all those who demand jobs, receive them.

Connecting the dots: