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IASbaba’s Daily Current Affairs – 29th May 2017

ECONOMY

TOPIC:

General Studies 2

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

General Studies 3

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

Special Purpose Vehicles

Introduction

The economic development of the country is plagued by delays and continuous issues with clearances. In this light concept of Special purpose Vehicles (SPVs) have served a cause worth to its purpose. Most of the recent projects in infrastructure and development have been successful and promoted.

Special Purpose Vehicles – What?

A special purpose vehicle/entity (SPV/SPE) is a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt.
An SPV/SPE is also a subsidiary corporation designed to serve as a counter party for swaps and other credit sensitive derivative instruments.
Although the SPVs/SPEs are used to isolate financial risk, due to accounting loopholes, these vehicles may become a financially devastating way for CFOs to hide debt, as with the Enron bankruptcy.
In India SPV is expected to lend funds, especially debt funds of longer maturity, directly to eligible projects to supplement loans from banks and financial institutions.
The SPV, according to the proposal, will become a vehicle for channelising funds for projects in the roads, ports, airports, and tourism sectors.
These SPVs, meant to achieve specific goals in key policy areas, have delivered by adopting an innovative management model

Issue:

A marked feature of present government’s approach to economic governance is to get specific functions executed through corporate special purpose vehicles.
The idea is not entirely new—the setting up of Solar Energy Corporation of India and National Skill Development Corporation, for instance, was by previous government.
These companies are now on fast track, also having started a bunch of new ones. The idea is to create a hybrid of a government-controlled body and bestowing it with the efficiency and nimbleness of the private sector. It seems to be working.

Curbing bureaucratic hurdles

There are many companies that are vested with specific tasks — Energy Efficiency Services Ltd, Invest India Ltd, SECI, NSDC and the recently-formed Digital India Corporation, to name some.
A few more are likely to be formed soon, for instance, the GSTN, the company that will be mandated with the task of running the IT backbone for the goods and services tax.
While Digital India Corporation is too new to be taken up for assessment, the performance of others is open for judgement.

Some successful models

Invest India, for instance. The government owns 49 per cent of it, so technically it is not a public sector undertaking. (The other 51 per cent is held by three industry bodies — FICCI, CII and Nasscom.)
- Invest India’s remit is not to make money for the shareholders, but to facilitate investments into India, hand-hold investors through the bureaucratic maze.
- In the 18-odd months of its existence, the company has handled over 70,000 investor queries, brought in over $62 billion of investment commitments, of which around $ 4.5 billion have been made.
Unlike Invest India, Energy Efficiency Services Ltd is a for-profit company, which is expected to make money for its shareholders, who are four power sector PSUs — NTPC, PGCIL, PFC and REC.
- EESL is profitable, its mandate is to pull out the energy inefficient electrical gadgets in use (such as incandescent bulbs) and replace them with energy efficient ones (such as LEDs) through a model that lets the customer pay for the costlier replacements out of their savings in energy bills. The company has no option but to be for-profit because it needs capital to make upfront investment in energy efficient gadgets.
- EESL seems to have clicked, it is planning an IPO. But more than profits, its efforts have helped avoid 6 GW of peak time power, save 30 billion units of electricity, worth ?12,000 crore, annually (so far). The secret of its success: functional independence.
Solar Energy Corporation of India is a different kettle of fish.
- It was created during the previous government, but present administration dusted the not-for-profit ‘Section 25 company’ and made it into a ‘Section 3 company’ (in the new Companies Act) which is allowed to engage in commercial activity, such as buying, selling, making profits and distributing dividends.
- That put SECI on rocket fuel. SECI has actively been floating tenders for solar plants and earlier this year, it also put through the country’s first auction of wind power capacity. In the last two years, SECI has been involved in over 5,000 MW of solar and wind capacity. In 2015-16, it made a post-tax profit of ? 20 crore, and paid out a tenth of it as dividend to its shareholder, the Government of India.
The National Skill Development Corporation is 51 per cent owned by industry bodies.
- Many views have been expressed about its efficacy — there have been high level exits and criticisms about the low hit-rate in placements, but many in the industry believe that the Corporation is still a “work in progress”.
- Yet certain numbers are revealing. In the three years to 2012-13, it trained six lakh people; in 2013-14 alone, the number was 10 lakh, which rose to 34 lakh in the following year.
- Till date, NSDC has trained 1.15 crore people in 7,000-odd training centres.
The lesson is simple: give people independence and the opportunity to do something for the country, there will be results.

Conclusion:

SPV being remodeled on sector specific basis has worked wonders for the same areas. It is important to note that with increase autonomy performance has also increased. Welfare governance should not be misunderstood as philanthropic governance. Right sizing of governance is a key to success and good economics can make good politics.

Connecting the dots:

Analyse the model of SPVs with the help of examples and their contribution to economic governance.

AGRICULTURE/ECONOMY

TOPIC:

General Studies 2

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

General Studies 3

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Issues related to direct and indirect farm subsidies

Doubling Framer’s Income by 2022- Requires Structural Changes

Overview:

Agricultural productivity levels have been stagnant for the past ten to 15 years. An estimated 70% of the country’s arable land is prone to drought, 12% to floods, and 8% to cyclones. NITI Aayog recently highlighted that the agricultural sector is 28 years behind its time.

Farmers are trapped in a new cycle of distress at a time when the fiscal capacity of the government is weak.

The anniversaries of the Champaran agitation led by Gandhi and the Naxalbari uprising led by the Maoists thus provide a good opportunity to refocus on the structural challenges in Indian agriculture. Indian history tells us that anger in the Indian countryside can have very profound political consequences.

What is important is that both these historic events were based on the grievances of Indian peasants. Their distress was the root cause of important flash points in Indian history.

Why India hasn’t faced such episodes in past few decades despite persistent cycles of farmer distress?

One, Indian agriculture has moved on from feudalism. The tight hold that landlords had over peasants has eased, thanks to rise of capitalism in farming, non-farm jobs in rural areas and migration to cities.
Two, Subsidies for farm inputs – Major initiatives such as Green Revolution, guaranteed prices for certain types of farm produce etc. have taken some pressure out of agriculture.

The major farmer or peasant protests since the 1980s have thus been focused on getting more benefits from the government rather than making any fundamental changes in the way agriculture is organized.

Doubling Framer’s Income by 2022

Objective of the present government is to double the income of farmers in by 2022 when India would celebrate 75 years of Independence.

7 strategies listed by Government:

Big focus on irrigation with large budgets, with the aim of “per drop, more crop.”
Provision of quality seeds and nutrients based on soil health of each field.
Large investments in warehousing and cold chains to prevent post-harvest crop losses.
Promotion of value addition through food processing.
Creation of a national farm market, removing distortions and e-platform across 585 stations.
Introduction of a new crop insurance scheme to mitigate risks at affordable cost.
Promotion of ancillary activities like poultry, beekeeping and fisheries.

“Agriculture will have to grow at 12 or 14% so that the farmers’ income gets doubled by 2022. While according to the World Bank data at present, the growth rates stand at a poor 1.2%. However, there is yet no clear articulation of strategy on how to reach this commendable goal.

The above mentioned seven strategies wouldn’t suffice. Removing structural challenges faced by Indian agriculture is equally important.

Way ahead:

Focus should be on reducing number of farmers in agriculture:

This will require industrialization of India which the government is trying to achieve through ‘Make in India’ plan

Dismantling the system of state controls:

Free Indian agriculture from price controls
Removing restrictions on movement of farm produce
Insuring from commercial risks rising due to volatile prices
Providing access to global markets

Conclusion:

To sum up, absence of uprisings like Champaran or Naxalbari shouldn’t be taken as an indicator of absence of distress in agriculture. The cycles of distress in which Indian farmers stays trapped can lead to anger which can have serious political consequences.

India’s first Prime Minister Jawaharlal Nehru said in 1947: “Everything can wait, but not agriculture.” What India is witnessing today is exactly the reverse. All the other sectors in the Indian economy are surging ahead. Agriculture is the only one which is moving in the opposite direction.

Given the weak fiscal capacity of the government it is required that policy makers focus on above mentioned structural changes in Indian agriculture.

Connecting the dots:

Critically analyze the strategies outlined by the Indian government to achieve the target of doubling farmers’ income by 2022. Elaborate on the need to make structural changes in Indian agriculture and what more is required to achieve the target.