Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Economic Reforms 2.0
Introduction:
The BJP now has an overwhelming majority in the Lok Sabha, hopes have picked up again of a radical reorganisation of the economy that improves the “collective good”.
There is a long list of reforms that often appear on wish-lists, each discussed for decades.
For example, the problems of the railways have been repeatedly documented, their criticality for the economy highlighted, and suggestions for ending the government’s monopoly, splitting it, corporatising it, listing it or privatising it have been made.
Administrative reforms were first discussed more than five decades ago.
India’s laggard manufacturing has similarly dominated economic literature and the voices of commentators for a long time.
The challenges of power distribution: Notoriously inefficient state-government monopolies; or on agriculture, where India’s workforce remains disproportionately large.
Moving towards conclusion:
There are a few areas where significant background work has been done, and the process needs to move towards conclusion.
Labour reforms: More than 40 laws with often contradictory clauses are to be replaced by four new laws (or codes); The first of these (the code on wages) now needs to be legislated. The code on labour could be next.
There are some long-standing issues like urban infrastructure and affordable housing where intent has been shown and efforts made, but with limited success so far: Continued focus would be of the essence.
The realisation in the past few years that there is scope for significant improvement in the abysmally low direct tax to GDP ratio also needs to see some follow-through.
Recent challenges:
India’s growing dependence on imported energy:
One cannot grow economically without consuming more dense forms of energy, and India either does not have domestic sources of dense energy, or does a poor job in extracting and using them. As a result, import dependency is rising, creating growth risks.
PSUs dominated financial systems:
The government tried to privatise PSUs by selling the shares to private banks and NBFCs. This had worked (even if unintentionally) in airlines and telecom, but once the NBFCs growth slowed due to a funding crunch, the problems in this approach have become obvious.
The recent economic slowdown is perhaps worsened by a lack of financial capacity in the system: A decisive approach on the financial architecture in India is necessary.
Slowing foreign capital inflows:
Total capital inflows as a share of GDP last year fell back to 2002 levels, and can become a cap on economic growth.
The objective should not just be to attract more foreign capital, as it can cause undesirable volatility, but to prudently assess which risks are worth taking, given the changing domestic and global environments.
Better measurement and transparency:
Everyone being on the same page on where our fiscal deficits are, where our growth is, and if we are creating enough jobs, is important.
Even if some of the distrust on growth metrics is politically generated, there is no doubt that the Indian economy is very hard to measure, and that the time spent debating whether the economy is growing or not is a waste.
Challenges:
Reforms are disruptive, and the more radical ones almost by definition involve uncertainty. Issues in execution can imperil even the best intended changes.
Given that reforms use up political capital, or goodwill of the masses, it is tempting to target incremental improvement.
Even steps that improve the “collective good” have interest groups that would lose economic power. The losers can exert more pressure in the near term than the beneficiaries whose gains can be more diffuse.
Conclusion:
Spending the political capital earned by the new government to push through some long pending decisions will act as a stimulus for our economy.
Connecting the dots:
Various economic reforms have been taken in recent times; the process needs to move towards conclusion. In the same light the recent challenges need to be tackled with in order to make Indian economy robust. Comment.
AGRICULTURE/ECONOMY
TOPIC: General studies 2 and 3
Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Issues related to direct and indirect farm subsidies
Agri Reforms 2.0
Background:
Series of reforms such as e-NAM and the price deficiency payments scheme to deal with farmers’ distress over falling prices were introduced by the last government.
The Centre, taking a leaf out of States such as Telangana and Odisha, introduced income support, indicating a paradigmatic shift in the direction of farm support policy.
Key Issues and Solutions:
Issues of overproduction:
A statistical analysis points out that farming has become drought-resilient, with food and horticulture output rising since 2015-16, despite a succession of below-normal or deficient monsoons. The output of milk, fish and eggs have increased sharply over the last decade. Farmers’ income has not improved because of-
The absence of demand.
Absence of supply chain that can ensure viable farm gate prices while reaching the produce in time to the consumer.
Solutions:
Agri-marketing reforms need to be foregrounded, going beyond the e-NAM initiative.
Measures to promote self-sufficiency in crucial crops such as pulses from a nutritional point of view need to be kept up. Pulses are a big plus for soil fertility and for their low water requirements.
The sharp spurt in horticulture output should be sustained by improvements in marketing channels as well as in crop insurance.
It is possible to introduce product differentiation in crop insurance schemes.
Cold storages need more attention than ever before with rising horticulture potential.
The state of food processing parks needs to be reviewed.
It should also be ensured that all States implement the Model Agricultural Produce and Livestocks Marketing Act, 2017, and encourage investments in agri-processing. Doing away with APMC yards, without anything to take their place, is not a good idea as Bihar’s experience has shown.
Low export growth:
Despite record-high food production, policy mis-management has seen agri imports growing at 9.8 per cent CAGR in the last five years while exports growth has been muted at 1.1 per cent CAGR.
Institutional reforms such as creation of farmers’ producers organisations can help in breaking credit, logistics and marketing bottlenecks.
Centre should come up with long-term policies on exports and imports that help producers deal with non-tariff barriers.
Inappropriate crop choices:
Subsidies for paddy and cane in rainfed regions, such as free electricity, have led to inappropriate crop choices.
The Centre must adopt a holistic approach towards water management and agriculture.
Haryana’s incentive scheme for shifting away from paddy is worth emulating.
Conclusion:
The Centre is on the right track in its farm policies; its policy mix needs to be fine-tuned. Continuity in income support and workable agri-marketing policies are called for.
Connecting the dots:
While multiple reforms have been taken keep agricultural sector as a priority, more needs to be done. Comment.
