Category: Policy Analysis

  • India-Australia Strategic Partnership: Leveraging Aerospace Capacity

    India-Australia Strategic Partnership: Leveraging Aerospace Capacity

    Category : India India’s, Military, India-Australia Relations
    Title : India-Australia strategic partnership: Leveraging aerospace capacity
    Author : M Matheswaran 02-06-2020

    The forthcoming virtual summit between Indian Prime Minister Narendra Modi and Australian Prime Minister Scott Morrison assumes considerable significance for an India-Australia strategic partnership, particularly as it comes against the backdrop of heightened friction with China for both countries. Enhanced defence cooperation between the two countries could be an important signal to Beijing of the costs of overly assertive strategic behaviour – whether in the Himalaya or in trade. For some years, defence cooperation has largely focused on the naval relationship. Now is the time for enhanced air-power cooperation.

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  • India’s Farming Progress Lies In Adoption Of Smart Agriculture

    India’s Farming Progress Lies In Adoption Of Smart Agriculture

    From being a country that was a food importer till the early 1970s, India’s green revolution transformed the country into becoming self-sufficient in food production and a significant exporter of agricultural products. However, Indian agriculture, hampered by marginal farm holdings suffered from poor technology and lack of modernisation, resulting in production that is far below its potential. With a population of 1.24 billion, Indian agriculture is already challenged.
    The Railway versus Irrigation controversy during the early years of the 20th century was evidence that the British undervalued the significance of improving irrigation in an agrarian economy such as India. R C Dutt, in his famous book ‘The Economic History of India in the Victorian Age’, shows the disparity in funds allocated for railways and that for irrigation purposes. The glaring disparity is believed to be one of the reasons for the 1890 famines. Akin to the pre-independence time, the Economic Survey 2019-20 shows static growth in agriculture from 2014 to the present day. The growth rate in agriculture was a negative 0.2% in 2014-15. Inadequate fund allocation, illiteracy of the farmers, deficient safety nets, lack of microcredit organizations and low incentive for the farmers to adopt climate-smart and efficient technology are some of the reasons for prolonged sluggishness in Indian agriculture. India’s prosperous neighbour, China, however, has managed accelerated growth in both agricultural and industrial sectors. The reason is the proactive nature of the Chinese and the ability to make the most out of little. Since the 1990s China has left India far behind in the field of revamping farming techniques. A leader of innovation, China has turned its weaknesses into strength- rooftop agriculture to compensate for the lack of adequate farming land, AI sensing smart robots to store data and supplement human labour, automated water management schemes that led to rice becoming one of Chinas staple food grains. China has surpassed India in rice production, despite India having more available freshwater for crop production. This indicates the need for India to improve its learning curve as far as international agricultural policies are concerned.
    China has surpassed India in rice production, despite India having more available freshwater for crop production.

    Smart Techniques and Precision Farming

    In this vein, the identification of the techniques of smart farming that can give a boost to the decaying agricultural sector of India is critical. Using smarter techniques like Precision farming, efficient water management techniques and Artificial intelligence are sure-shot methods to increase productivity per acre of land. Precision Agriculture avoids the improper and excess application of pesticides and fertilizers and enables the farmer to use land according to its quality and nature. This leads to a reduction in cost, increase in output and climate-friendly agriculture. ‘Big data’ in Precision farming provides the farmer with data regarding soil quality, raw material requirements and weather changes, which can be stored for a later date. This is a massive game-changer for a sector which substantially depends on weather conditions and faces the brunt of climate change. China has been using automated ‘driverless’ tractors, mowers, AI drones to spray pesticides, and smart robotic sensors to analyse environmental conditions. This increases the speed of farming at an exceptional rate. Precision Farming is a potential salvager at a time when the water tables in India are diminishing at a rapid rate due to unprecedented demand by the agricultural and industrial sectors. Smart farming can potentially break the nexus between outmoded agriculture, climate change and hunger. The longer we delay the implementation of such techniques, the closer we move towards an impasse, which even modernisation might not be able to fix.
    ‘Big data’ in Precision farming provides the farmer with data regarding soil quality, raw material requirements and weather changes, which can be stored for a later date. This is a massive game-changer for a sector which substantially depends on weather conditions and faces the brunt of climate change.

    Predicament of Marginal Holdings

    The Indian predicament can be traced back to decades of neglect towards the agricultural sector. Even with plans like ‘doubling farmer’s income by 2022’, most states except Punjab, Haryana and Karnataka have not even envisaged a plan for smart farming. A plethora of structural barriers impedes the coveted modernization required by our agricultural sector. The average size of landholding by an Indian rural household is a marginal 1.1 hectare. This restricts the use of modern equipment like large tractors and robot sensors as a smart substitute for manual labour. The digital illiteracy of the farmers also presents a hurdle owing to the absence of local experts to impart training and information to the farmers. The connectivity and problem of unstable internet is also a cause of roadblock. Government policies historically have adopted a ‘one-size-fits-all’ approach, thus excluding approximately 86% of small and marginal farmers. For schemes like PM-Fasal Bima Yojana, the small farmers have to pay balance of the premium for crop insurance, which is almost impossible for a debt-strapped farmer. The newly extended PM-KISAN scheme requires farmers in a digitally primitive nation to check their balance by registering themselves on a web-portal page. With basic crop insurance schemes not living up to the expectation, we naturally question the efficacy of schemes to promote smart agriculture. The evaluation of the NMMI scheme for Micro Irrigation recorded that the benefit from the scheme did not reach almost half of the intended beneficiaries, even after they applied for it. The PMKSY scheme simply reached a meagre 1/10th of the farming population targeted.
    A plethora of structural barriers impedes the coveted modernization required by our agricultural sector. The average size of landholding by an Indian rural household is a marginal 1.1 hectare.

    Policy Focus for Smart Agriculture

    A dedicated approach to developing smart agriculture with mass disbursements of benefits, education and economic incentives to our farmers will eventually translate into long-run economies of scale for the agricultural community at large. The US government extensively aids research and development in agricultural technology, along with training given to farmers to understand the new technology. The British government, besides allocating 20 million dollars for sustainable agriculture, also incentivizes private aggrotech firms to invest in smart technology. South Korean government has already created 4,300 jobs in the smart agricultural sector through timely action and aid. India, although lagging in several fields, is endowed with cheap rural labour, the second largest arable land area after the US, a leader in global trade in raw agricultural products and a massive potential growth trajectory in agriculture. Extension services and R&D are at a nascent stage in India and only within reach of large farmers. To expand the scale of the programme it is necessary to ease the transition of small and marginal farmers into the ambit of smart farming. Institutional setups, adequate support and building a steady architecture to execute smart farming should be focus areas for the Indian government in the face of dwindling food production.

    References:

    https://www.smart-akis.com/index.php/network/what-is-smart-farming/
    https://www.smartindianagriculture.com/https://www.changemakers.com/discussions/entries/smart-agriculture-helping-structure-new-industry-chinahttps://www.basf.com/cn/en/media/BASF-Information/Food-nutrition/future-farming.htmlhttps://www.youtube.com/watch?v=PdIr6pP-Rec&list=PLTeiJVqL7DL6yhlOMh4lPv_BCQ5KKMgBd&index=2&t=0shttps://www.downtoearth.org.in/coverage/natural-disasters/climate-smart-agriculture-54437https://www.futurefarming.com/Smart-farmers/Articles/2018/5/South-Korea-creates-4300-jobs-in-smart-farm-industry-283765E/https://krishijagran.com/agriculture-world/amazing-how-smart-farming-techniques-by-south-korea-can-future-proof-agriculture/Image Credit: Adobe Stock

  • Covid 19: India uses Crisis to bring-in Economic Reforms as Package

    Covid 19: India uses Crisis to bring-in Economic Reforms as Package

    India’s four-phase lockdown of 68 days to deal with the Covid-19 threat has, while slowing the spread of the virus, come at huge economic costs. The lockdown for a vast majority of the people is, undoubtedly, the harshest in the world.

    The coronavirus triggered lockdown and its ensuing series of extensions have disrupted more than 60 percent of economic activities in the country, posing a huge threat to the  economy. The crisis was underway when the global economy was slowing down and India, in particular, had to deal with a poor health care system and an economy already under distress. Unemployment rate is estimated to be around 27 percent post lockdown and has resulted in nearly 12.2 crore people losing their jobs. In addition, a  severe slump in consumer demand is expected to persist for the next few quarters. Almost 85 percent of India’s workforce is engaged in the informal sector – quite naturally the government is under stress to implement effective policy reforms to counter the downturn. 

    In response to the contraction in the economy, the Prime Minister has announced a second round of economic package that stands at roughly around 10 percent of the Gross Domestic Product. The USA and Japan have announced relief packages of 13 and 21 percent of their GDP respectively. In comparison, India has seemingly provided a substantial Rs 20 lakh crore stimulus- highlighting the concept of ‘self-reliance’ as a way forward to deal with the economy post the pandemic. The stimulus package includes previous steps taken by RBI such as moratorium on loan repayments, interest rate cut, etc. In the five tranches of the stimulus package, the Finance Minister has announced a slew of measures to address the structural issues of Indian economy. However, it is estimated that the immediate fiscal boost will be only around 1 percent of GDP and most of the fiscal and monetary policies will attract long term capital with medium run  stabilization of the economy.

     

    Micro Medium and Small Scale Enterprises 

    Focusing on reviving the small businesses and micro enterprises, under this tranche Rs 3 lakh crore is allocated for collateral free loans for business enterprises. This package is estimated to be around Rs 5.94 lakh crore including RBI measures to improve liquidity in the economy. However, the direct fiscal cost for the government is around Rs 16,500 crore. For the stressed MSME units, the central government is planning to facilitate Rs 20,000 crore as subordinate debt and Rs 50,000 crore through equity infusion. Non Banking Finance Companies (NBFC) that serve the MSMEs will receive Rs 30,000 crore under investment guarantee scheme. While the six broad measures look attractive, the MSME sector in India is dominated by micro enterprises that are largely unregistered. However, these measures will not immediately benefit the micro business units with necessary working capital. Most of the enterprises and small business units are cash strapped and are on the verge of disappearing. Ninety-nine percent of the sector comprises micro enterprises – businesses with less than 10 working employees.

    Most of the enterprises and small business units are cash strapped and are on the verge of disappearing. Ninety-nine percent of the sector comprises micro enterprises – businesses with less than 10 working employees. 

    While the government has taken supply side measures to incentivize businesses, two important challenges remain intact. One, the large number of unregistered micro businesses might not benefit from the credit line offered by the government. Two, if the demand recovers slowly, it is likely the business sector especially small enterprises will suffer despite credit being infused. It is important to note that the supply and demand side has to be revived at the same rate to ensure sustainability of the MSME business. 

     

     

    Migrant labourers and Farmers: 

    Second stimulus of the Finance minister’s announcement was focused on migrant labourers and farmers. Close to 150 million internal migrants are present in India according to the latest census report.  Rs 3500 crores is to be spent on migrant labourers not covered under the Public Distribution System (PDS). Rs 5000 crore is set aside to facilitate easy access to street vendors. Funds worth Rs 6000 crore is planned for enhancing employment among adivasis and tribal groups. For the next two months, around 8 crore migrant labourers not covered under PDS will be provided 5kgs of grains per person and 1 kg chana per family in a month. ‘One Nation One Ration Card’ is a welcome move given the leakages present in the PDS, but the national coverage of this scheme is expected only by March 2021.  Additionally, in the National Food Security Act, 2013 , based on the 2011 census data, it is estimated that around 100 million people do not fall under this safety net accounting for growth in population over the past decade. The initiative to record and track the data on unregistered labourers is important for fiscal stimulus response to a COVID hit economy. National portability of ration cards is important but the execution is time consuming and does not address the problem of people being excluded from the ration card system. Universalizing PDS and decentralizing decisions to achieve food security with an efficient supply chain should be an immediate intervention. States with higher migrant labourers and people with less access to PDS should be targeted to universalise food distribution.  Acknowledging the shortcomings of the PDS and food supply channel, an emergency plan to ensure food supply to people below poverty line for the next six months needs to be prioritised.

     

    ‘One Nation One Ration Card’ is a welcome move given the leakages present in the PDS, but the national coverage of this scheme is expected only by March 2021. 

     

    Agriculture and Allied activities:

    Under the third tranche of the economic stimulus package, the government has taken bold measures to invest in agriculture and allied activities. Total package announced was worth Rs 1.63 lakh crores – relatively less compared to earlier stimulus packages. The main focus was on enhancing agriculture infrastructure, financing farm gate produce and improving post harvest supply.  A series of other funds were allocated for disease control for animal husbandry, promotion of herbal products and fisheries. Rs 10,000 crore was unveiled to support 2 lakh Micro Food Enterprises on a cluster based approach. 

    Lack of cold storage and supply chain was identified by the government to create an Agriculture Infrastructure Fund of Rs 1 lakh crore. A big push for agriculture reforms was spelled out by the decision to deregulate six commodities including cereals, pulses, oil and vegetables by amending  the Essential Commodity Act, 1955.

    Many experts believe the reforms undertaken were long due for India to enhance productivity of the agriculture  sector. But deregulation of essential products during the time of lockdown with poor food supply chains might not be beneficial especially for marginal farmers.  Almost 92 percent of the Food Supply Chain is controlled by the private sector and most of the farmers are not informed about Minimum Support Price and adopt unscientific farming practices. With liquidity constraint in the economy, demand for essential food is substantial. Factoring the drawbacks of PDS in supplying food items to the bottom section – a high probability of market failure is underway potentially hurting both farmers and consumers. Except for concessional credit for farmers and agriculture loans, the package has  limited scope to reduce the distress faced by the agrarian sector in near future. As far as the reforms are concerned, there was a clear bias towards post harvest investment. However, the productivity and scale of production has been the biggest problem in India that requires effective land reforms. India’s agriculture sector also suffers without adequate investment in Technology and Research & Development. During an unprecedented crisis, Indian government is pushing for big reforms but the structural issues of marginal-land farming are largely ignored. Even as a reform package─it is evident that it is likely to benefit primarily large farmers in the medium term.

    Except for concessional credit for farmers and agriculture loans, the package has  limited scope to reduce the distress faced by the agrarian sector in near future.

     Infrastructure, Defence  & Aerospace 

    Under this package, eight key sectors: coal, minerals, defence production, aerospace management, airports, power distribution, space and atomic energy were in the spotlight. In an effort to boost employment, a proclamation of structural reforms was stated in the fourth  tranche. The coal and mining industry is expected to receive an infrastructure development fund – making the sector self-reliant in production. The Foreign Direct Investment limit in defence has been increased from 49 percent to 74 percent to encourage foreign investment in production. In the aviation industry, India decided to open up 6 airports for auction. Additionally, three airports are to be operated under the Public Private Partnership model. Optimization of air space, building a hub for aircraft maintenance and overhaul are some of the important measures covered under this package. 

    Privatization and Globalization (New Economic Policy, 1991)- COVID-19 crisis has offered a space for the government to initiate certain radical measures to privatise a few industries.

    Private partnerships in the areas of space exploration and atomic energy offers an immense potential for private companies to get incubated for research and development. Sharing an economic pressure similar to the 1991 Balance of Payment crisis that resulted in Liberalization, Privatization and Globalization (New Economic Policy, 1991)- COVID-19 crisis has offered a space for the government to initiate certain radical measures to privatise a few industries. The measures will undoubtedly help the business ecosystem in India to develop in the medium term.  Though there seems to be a claim about substantial job creation this is not likely to happen immediately. 

    Rural Employment & Public Health

    In the final announcement, Rs 40,000 crore was allotted to Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) to replace direct transfer from central government to migrant workers. Inadequate data about inter state informal labourers has placed limitations on policy formulation during the time of crisis. Under the Pradhan Mantri Garib Kalyan Yojna, Rs 50 lakh per person insurance cover will be applicable for health professionals. To ensure ease of doing business, non adherence to the Companies’ Act will be decriminalised. The government also committed to increasing health expenditure to face pandemics in the future. The finance minister also encouraged companies to entertain the idea of digital India to conduct meetings and businesses online. 

    The last two announcements together accounted for Rs 48,500 crore and experts criticize that most of them do not provide immediate relief for the people in distress. 

    Conclusion

    India has evidently seized the opportunity during the crisis to introduce reforms to boost the economy in the long run. The reform package undoubtedly is impressive on paper but in terms of immediate support to various sectors in distress it offers little. For example, a large part of the package – Rs 8.04 lakh crore- is additional liquidity injected by monetary policy in the last three months.  An investment bank has predicted that India will face a deeper recession in the short term but the economic stimulus would help the economy after a few quarters. As a consequence the real growth rate is to drop down by 5 percent year-on-year in 2020. Even after a massive package, the situation of poor and middle-class people remains bleak. The reforms might bear fruits in future but deferring the policy response to address current challenges will manifest into huge burden on vulnerable sections of the people. Current economic crisis has undoubtedly offered the central government to take advantage of the weak bargaining power of the stakeholders to push reforms but low attention is paid to immediate distress.

    The author was supported by Ms S P Bharani, on summer internship at TPF.

    Image Credit: Adobe Stock

  • COVID-19 Challenges for India: Tackling MSME Sector and Unemployment

    COVID-19 Challenges for India: Tackling MSME Sector and Unemployment

    The COVID-19 pandemic has shaken global markets as countries struggle to battle national and global health crisis. Indian government has announced an economic stimulus of  Rupees 20 lakh crore (Rs 20 trillion corresponding to $ 267 billion), roughly 10% of GDP for FY 21, in which six measures were framed for the Micro Small Medium Scale Enterprises (MSME). Government has allocated 3 lakh crore for collateral-free loans, additional debt and equity infusion with slew of other measures to protect the bruised MSME sector. The rise in the number of casualties and infected cases  all over the world present a grim picture. This is expected to result in a global recession that could lead to a loss of over $ 3 trillion to the global GDP. India, in an effort to contain the spread, has extended the lockdown at the cost of freezing almost 60 percent of its economy. Third extension of lockdown on May 3rd in order to flatten the curve will further contract the demand for next few quarters. IMF has revised India’s growth downwards to 1.9 percent for the year 2020 and 7.4 percent for the year 2021. Although the growth projection is not negative as in the cases of Eurozone and the US, India will need to overcome significant structural challenges to bring the economy back into a high growth trajectory. The cost of battling COVID-19 is not limited to the dip in growth but also includes the bleak prospects of a sizable percentage of the population being pushed below the poverty line.

    Apart from the virus, India faces two key challenges. Firstly, almost 80 percent of its labour force is part of the informal sector, which is expected to take major hit as a result of  the lock-down. Secondly, as India’s working age population will continue to expand  till 2055─ the cost of missing this demographic dividend will directly impact the future growth trajectory. Japan, China, South Korea and Singapore have capitalized on their demographic dividends and experienced double digit growths. The current disruption in the global economy will have a significant impact on India’s growth for the next few years. Therefore, diagnosing the systemic problems in the economy is crucial to developing a viable strategic economic policy. The Periodic Labour Force Survey (PLFS) notes that only nine percent of Indian workers are employed with organizations having more than 20 workers. Rest of the labour force are employed with small enterprises which have been forced to lay-off most of their employees due to the extended lockdown.

     Business Supply versus People Demand

    Contributing 30-35 percent of the GDP— Micro, Medium and Small scale industries face a higher risk of shutting down their production due to cash flow constraints. All India Manufacturers association reported that 43 percent of the MSMES will cease to operate with the lockdown extension. Around 99 percent of the MSMEs are dominated by Micro enterprises in which labour intensive production units are already under stress with restricted labour movements. Finance minister’s attempt at redefining MSME by including businesses with higher investment and turnover does not address the main problem of majority of unregistered micro enterprises shutting down due to less or nil operating capital.

    A total of 114 million people are employed in MSMEs and the shortage in working capital as a consequence of the lockdown would drive most businesses out of the market. Furthermore, an extended demand shock would curb the production and supply, as a result of which small industries with limited capital will most likely shut down. Additionally, 86 percent of the enterprises are unregistered and 71 percent of labourers have no written job contracts. Since most of the enterprises function in highly unorganised sectors, they would have been forced to lay off employees.  Thus relevant policies will need to be recalibrated in order to address the problem of unemployment– currently estimated to be 27.11 percent. The share of MSME exports is valued at $147.7 billion– showing an impressive jump from the previous value at $75 billion. The small number of exporting businesseswill be clamped down due to insufficient liquidity especially with weak global demand.  Hence, the policy must focus on balancing to keep the interest rates low in the long run and enhance discretionary spending to boost investors’ confidence. One of the six measures announced by the government is to protect the local MSMEs from unfair foreign competition. Pursuing a protectionist policy in the business sector before the recovery of domestic demand would imply higher risk of the economy being caught in a low demand cycle. Additionally, the recent exemption of labour laws threatens the workers’ income─ reducing the revival rate of consumer demand. According to a latest reading of the consumer demand risk map, casual labourers in both rural and urban areas are at highest risk of salvaging potential expenditure.

    Need to Reorganize MSME and Boost Employment

    Although strong relief packages are demanded, India has limited fiscal space. The slew of measures announced by the central bank to ease the liquidity will cushion the MSME sector during the lockdown period. However, incentivizing small scale businesses to operate amidst weak demand would need recapitalizing finance based on the firm’s productivity. A structural makeover of the business sector will call for measures beyond just monetary policy. While current economic stimulus aims at protecting the business sector, challenges remain in adopting a medium term policy given the unorganized structure. The OECD countries have broadly undertaken measures to reduce the impact on their Small and Medium Enterprises (SMEs) by providing wage subsidies, loan guarantees, direct lending and modified structural policies. The Reserve Bank of India (RBI) has similarly offered a much-needed loan moratorium, cuts in the Cash Reserve Ratio (banks minimum reserve requirement to be held with RBI) and working capital financing. Although the second round of relief package has focused on small industries, the expectation of a burgeoning fiscal deficit to 5.07 percent from revised estimate of 3.8 percent means that financial  stimulus is somewhat of a double edged sword.

    Even prior to the pandemic, unemployment was at a 45 year’s high at 8.5 percent and consumption was on downtrend. The economic response for India must factor in the welfare loss while assessing the economic consequence. In five out of the first ten years of entering its demographic dividend phase, Japan was experiencing double digit growth.  If India is not to lose out on growth momentum during the current stage of its youth bulge, it would require effective and radical policy measures to counter the problem. Economic relief packages during the crisis must be followed with strategies to provide economic security to the working age population across the country.

    To keep up with the growth of the working age population, estimates suggest that India must create 10 million jobs annually. Ease of doing business becomes a crucial factor in creating employment opportunities. Indian policymakers are tasked to identify the methods to sustain the operations of MSME sector post lockdown. The large workforce resulting from India’s youth bulge cannot be undermined by this crisis. Policy prescription to create rapid employment and facilitate business operations is the priority. For India, it is important to endeavour to balance the immediate financial response with continuous public and human capital investment. Biting the fiscal bullet is inevitable in a crisis situation but assessing the cost of growth foregone is crucial to strategize policies for future. The real challenge lies in the transition of role from being protective to promotional through structural operations by factoring in the consumption demand. Temporary infusion of money in businesses and renovation of MSME sector is much needed to realize the ‘Make in India’ dream.

    Image Credit: Adobe Stock

  • Need to Redefine MGNREGS: Response for a  post pandemic Economy

    Need to Redefine MGNREGS: Response for a post pandemic Economy

    The Union budget 2020 was heavily criticized for allocating only INR 60,000 crore on the UPA flagship program, Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA). Discontent continues even after the relief package mentioned INR 200 per person will be paid for the next three months. With 7.6 crore workers registered under MGNREGA program around one trillion (INR) would be required to fulfill the promise. The pandemic has disrupted almost every physical activity, thereby disrupting the physical labour economy. The unfolding crisis across the country and  the poor health infrastructure especially in rural areas poses a major challenge to combat the spread of the virus .  According to the National Health Report, India’s government hospitals average a low figure of one bed per 1844 patients.  The magnitude of the health crisis becomes apparent with the inadequacy in health infrastructure in rural India. The ongoing COVID-19 crisis is reshaping the entire global economy and is expected to be a stress test for government institutions. Even after the crisis, policy making and social programs will remain the key areas in which continuous revision must happen – to build a resilient economy in the long run. As the pandemic influenced financial crisis looms large, it is opportune to discuss public employment programs in bridging infrastructure gaps and financial losses. 

     Demand driven workfare programs intend to provide 100 days of employment for rural households. This scheme was launched with an objective to alleviate poverty and create public assets.   Recognising the vagaries of the agriculture sector to provide stable employment, the program sought to guarantee minimum income for subsistence level labourers and also internalized short term shocks in the rural economy. In principle, the ‘right to work’ element offered a legitimate progress in public-policy discourse by empowering women and marginalized communities to work. The laudable results of the employment program have more or less achieved its social objectives by increasing individual asset creation and enhancing savings rate. Almost 50 percent of the population dependent on agriculture fall back to government employment schemes in times of labour market failure. Low productivity, inadequate modern technology, high dependence on rainfall and bottlenecks to reach the market are primary sources of such failures. Execution of public employment in India is  plagued by rampant corruption and efforts to effectively implement the scheme faces hurdles and results in marginal progress. In the wake of economic slump with falling consumption in rural India and high unemployment rates, infusing cash in the hands of people is always the priority. However, marginal increase in budget allocation for public work programs has invited criticism from the economists – expecting the rural economy to struggle with slow recovery. With acute shortage of skilled labourers and an education system failing to impart quality skill education, a public employment program can be more dynamic in resolving the socio-economic and food security problems. The primary objective is to offset short term economic disturbance and smoothen consumption expenditure, but the development of the program in responding to the needs of the community is also important.  Successful implementation of an employment program must factor-in convergence with other departments, quality of assets created and skill levels imparted under the program. .The three-week lockdown due to covid-19, further extended by two weeks, has exposed the inadequacy of public health infrastructure, more so in rural areas and for informal labour groups, to address their health and the resulting financial hardship. Converging the needs of villages to enhance better response during a crisis with the employment program would result in bringing accountability and creating assets.

    India has experimented with a plethora of universal public programs such as Public Distribution System and Integrated Child Development Scheme (ICDS). In a similar vein, MGNREGS has been an important public work programme with the aim of reducing poverty and enhancing income levels. At this juncture, revising and reviewing MGNREGA scheme with the objective to reduce leakage in the system is a priority. A clear balance between the twin objective of providing employment and creating infrastructure has been missing in the literature. The gap between theoretical policy and reality has raised  concern and the need to review the current approach . The obvious gap in infrastructure requirements identified during the time of crisis must converge with public programs. Such carefully designed schemes with tangible objectives will provide economic security in the short run and improve rural infrastructure in the long run. 

    Work completion rate can be used as a proxy for productivity because individual labour productivity is hard to ascertain with heterogeneous work projects. Although the official MGNREGA website suggests an average of 90 percent of work completion, open government data shows a decline in work completion rate from 43.8 percent in 2008-09 to 28.4  percent in 2015-16. Financial support through employment should account for both quality of assets created and the process of such creation. This would internally check and balance the operation of the scheme and intuitively bring in accountability. At present, the scheme contains the above mentioned elements but has not been used to evaluate the execution of the program. Convergence between departments to create assets and the work completion rate might explain the effectiveness of a program in physical terms. 

    An efficient model should enhance the skill levels of rural youth and is more than necessary to counter the loss of jobs already happening due to coronavirus lockdown. Unskilled and semi-skilled labourers will face lay-offs as industries with the recent norm on social distancing adjust to capital intensive businesses. The percentage of rural population in the age group of 15-59 receiving vocational training has reduced from 1.6 percent in 2011 to 1.5 percent in 2015-16. Unemployment rate among rural youth (15 to 29) has increased from 5 percent in 2011 to 17.4 percent in 2017-18. Although the highest unemployment rate is observed among rural females, the employability of rural youth reduces as education increases. The paradox of educated unemployment is not complex to decode, but a significant skill gap is the fundamental problem from the labour supply side. The Expanded Public Works Program (EPWP) introduced in South Africa to address the skill gap among the youth has succeeded in reducing poverty and unemployment rates. The program has been designed to create labour intensive projects not limited to infrastructure but extends to social, cultural and economic activities. The percentage of young workers under this scheme witnessed a rise from 7.73 % in 2017-18 to 10.06 % in 2019-20 in reference to the low levels of employment. This would mean the nature of the guarantee program has shifted from giving opportunities for seasonal unemployed to educated unemployed. The change is indicative of the deeper crisis faced in the rural economy and calls for a sustainable plan to use public programs as a tool to also impart skill training for the rural youth. State’s increasing dependence on work programmes to create employment needs to be revised based on community requirements. While enhancing rural employment is the immediate concern, the process of achieving it suffers from various executive problems such as corruption among government staff and individual’s lack of willingness to work. Amidst the lockdown situation due to COVID-19, unemployment will increase sharply. A well-devised strategy to address economic losses on priority and emphasis on health infrastructure through public employment must resonate in policy-making after the impact of the coronavirus crisis subsides. 

     

  • Reflections on “Peace” in Afghanistan: Leaving a Misguided War and Choosing Not to Look Back

    Reflections on “Peace” in Afghanistan: Leaving a Misguided War and Choosing Not to Look Back

    Kahlil Gibran, the Lebanese-American poet, artist, writer and philosopher, famously said ‘History does not repeat itself except in the minds of those who do not know history’. In today’s generation very few know and understand history, and so it is most likely that very few will see that the recent US-Taliban peace deal has an eerie resemblance to the end stage of the Vietnam war. US Special envoy, Zalmay Khalilzad and Taliban political chief, Mullah Abdul Ghani Baradar signed a ‘historic’ peace deal on February 29, 2020 in Doha, capital of Qatar  paving the way for ending two decades of American military fighting in Afghanistan and their return. In the context of the US-Taliban peace deal that raises more questions than answers, TPF revisits an article written by Andrew J Bacevich few months ago. Comparing the two similar situations (US-Vietcong deal and US-Taliban deal) in a very incisive analysis, Andrew Bacevich raises very relevant observations. Effectively this means that the US is exiting after conceding defeat to the Taliban and abandoning the Afghan government that it supported all this while. It would be only a matter of time before the Taliban, with active support from Pakistan, dismantles whatever semblance of stable governance and democracy that has been built over the last 15 years in war-torn Afghanistan. TPF

    This article was first published in “TomDispatch.com”    The Peninsula Foundation is happy to republish this article with permission from ‘TomDispatch.com’.  TPF  

    Andrew J Bacevich

    When the conflict that the Vietnamese refer to as the American War ended in April 1975, I was a U.S. Army captain attending a course at Fort Knox, Kentucky. In those days, the student body at any of our Army’s myriad schools typically included officers from the Army of the Republic of Vietnam (ARVN).

    Since ARVN’s founding two decades earlier, the United States had assigned itself the task of professionalizing that fledgling military establishment. Based on a conviction that the standards, methods, and ethos of our armed forces were universally applicable and readily exportable, the attendance of ARVN personnel at such Army schools was believed to contribute to the professionalizing of the South Vietnamese military.

    Evidence that the U.S. military’s own professional standards had recently taken a hit — memories of the My Lai massacre were then still fresh — elicited no second thoughts on our part. Association with American officers like me was sure to rub off on our South Vietnamese counterparts in ways that would make them better soldiers. So we professed to believe, even while subjecting that claim to no more scrutiny than we did the question of why most of us had spent a year or more of our lives participating in an obviously misbegotten and misguided war in Indochina.

    For serving officers at that time one question in particular remained off-limits (though it had been posed incessantly for years by antiwar protestors in the streets of America): Why Vietnam? Prizing compliance as a precondition for upward mobility, military service rarely encourages critical thinking.

    On the day that Saigon, the capital of the Republic of Vietnam, fell and that country ceased to exist, I approached one of my ARVN classmates, also a captain, wanting at least to acknowledge the magnitude of the disaster that had occurred. “I’m sorry about what happened to your country,” I told him.

    I did not know that officer well and no longer recall his name. Let’s call him Captain Nguyen. In my dim recollection, he didn’t even bother to reply. He simply looked at me with an expression both distressed and mournful. Our encounter lasted no more than a handful of seconds. I then went on with my life and Captain Nguyen presumably with his. Although I have no inkling of his fate, I like to think that he is now retired in Southern California after a successful career in real estate. But who knows?

    All I do know is that today I recall our exchange with a profound sense of embarrassment and even shame. My pathetic effort to console Captain Nguyen had been both presumptuous and inadequate. Far worse was my failure — inability? refusal? — to acknowledge the context within which that catastrophe was occurring: the United States and its armed forces had, over years, inflicted horrendous harm on the people of South Vietnam.

    In reality, their defeat was our defeat. Yet while we had decided that we were done paying, they were going to pay and pay for a long time to come.

    Rather than offering a fatuous expression of regret for the collapse of his country, I ought to have apologized for having played even a minuscule role in what was, by any measure, a catastrophe of epic proportions. It’s a wonder Captain Nguyen didn’t spit in my eye.

    I genuinely empathized with Captain Nguyen. Yet the truth is that, along with most other Americans, soldiers and civilians alike, I was only too happy to be done with South Vietnam and all its troubles. Dating back to the presidency of Dwight D. Eisenhower, the United States and its armed forces had made a gargantuan effort to impart legitimacy to the Republic of Vietnam and to coerce the Democratic Republic of Vietnam to its north into giving up its determination to exercise sovereignty over the entirety of the country. In that, we had failed spectacularly and at a staggering cost.

    “Our” war in Indochina — the conflict we chose to call the Vietnam War — officially ended in January 1973 with the signing in Paris of an “Agreement Ending the War and Restoring Peace in Vietnam.” Under the terms of that fraudulent pact, American prisoners of war were freed from captivity in North Vietnam and the last U.S. combat troops in the south left for home, completing a withdrawal begun several years earlier. Primary responsibility for securing the Republic of Vietnam thereby fell to ARVN, long deemed by U.S. commanders incapable of accomplishing that mission.

    Meanwhile, despite a nominal cessation of hostilities, approximately 150,000 North Vietnamese regulars still occupied a large swathe of South Vietnamese territory — more or less the equivalent to agreeing to end World War II when there were still several German panzer tank divisions lurking in Belgium’s Ardennes Forest. In effect, our message to our enemy and our ally was this: We’re outta here; you guys sort this out. In a bit more than two years, that sorting-out process would extinguish the Republic of Vietnam.

    Been There, Done That

    The course Captain Nguyen and I were attending in the spring of 1975 paid little attention to fighting wars like the one that, for years, had occupied the attention of my army and his. Our Army, in fact, was already moving on. Having had their fill of triple-canopy jungles in Indochina, America’s officer corps now turned to defending the Fulda Gap, the region in West Germany deemed most hospitable to a future Soviet invasion. As if by fiat, gearing up to fight those Soviet forces and their Warsaw Pact allies, should they (however improbably) decide to take on NATO and lunge toward the English Channel, suddenly emerged as priority number one. At Fort Knox and throughout the Army’s ranks, we were suddenly focused on “high-intensity combined arms operations” — essentially, a replay of World War II-style combat with fancier weaponry. In short, the armed forces of the United States had reverted to “real soldiering.”

    And so it is again today. At the end of the 17th year of what Americans commonly call the Afghanistan War — one wonders what name Afghans will eventually assign it — U.S. military forces are moving on. Pentagon planners are shifting their attention back to Russia and China. Great power competition has become the name of the game. However we might define Washington’s evolving purposes in its Afghanistan War — “nation building,” “democratization,” “pacification” — the likelihood of mission accomplishment is nil. As in the early 1970s, so in 2019, rather than admitting failure, the Pentagon has chosen to change the subject and is once again turning its attention to “real soldiering.”

    Remember the infatuation with counterinsurgency (commonly known by its acronym COIN) that gripped the national security establishment around 2007 when the Iraq “surge” overseen by General David Petraeus briefly ranked alongside Gettysburg as a historic victory? Well, these days promoting COIN as the new American way of war has become, to put it mildly, a tough sell. Given that few in Washington will openly acknowledge the magnitude of the military failure in Afghanistan, the incentive for identifying new enemies in settings deemed more congenial becomes all but irresistible.

    Only one thing is required to validate this reshuffling of military priorities. Washington needs to create the appearance, as in 1973, that it’s exiting Afghanistan on its own terms. What’s needed, in short, is an updated equivalent of that “Agreement Ending the War and Restoring Peace in Vietnam.”

    Until last weekend, the signing of such an agreement seemed imminent. Donald Trump and his envoy, former ambassador to Afghanistan Zalmay Khalilzad, appeared poised to repeat the trick that President Richard Nixon and National Security Advisor Henry Kissinger pulled off in 1973 in Paris: pause the war and call it peace. Should fighting subsequently resume after a “decent interval,” it would no longer be America’s problem.  Now, however, to judge by the president’s Twitter account — currently the authoritative record of U.S. diplomacy — the proposed deal has been postponed, or perhaps shelved, or even abandoned altogether.  If National Security Advisor John Bolton has his way, U.S. forces might just withdraw in any case, without an agreement of any sort being signed.

    Based on what we can divine from press reports, the terms of that prospective Afghan deal would mirror those of the 1973 Paris Accords in one important respect. It would, in effect, serve as a ticket home for the remaining U.S. and NATO troops still in that country (though for the present only the first 5,000of them would immediately depart). Beyond that, the Taliban was to promise not to provide sanctuary to anti-American terrorist groups, even though the Afghan branch of ISIS is already firmly lodged there. Still, this proviso would allow the Trump administration to claim that it had averted any possible recurrence of the 9/11 terror attacks that were, of course, planned by Osama bin Laden while residing in Afghanistan in 2001 as a guest of the Taliban-controlled government. Mission accomplished, as it were.

    Back in 1973, North Vietnamese forces occupying parts of South Vietnam neither disarmed nor withdrew. Should this new agreement be finalized, Taliban forces currently controlling or influencing significant swaths of Afghan territory will neither disarm nor withdraw. Indeed, their declared intention is to continue fighting.

    In 1973, policymakers in Washington were counting on ARVN to hold off Communist forces. In 2019, almost no one expects Afghan security forces to hold off a threat consisting of both the Taliban and ISIS. In a final insult, just as the Saigon government was excluded from U.S. negotiations with the North Vietnamese, so, too, has the Western-installed government in Kabul been excluded from U.S. negotiations with its sworn enemy, the Taliban.

    A host of uncertainties remain.  As with the olive branches that President Trump has ostentatiously offered to Russia, China, and North Koea, this particular peace initiative may come to naught — or, given the approach of the 2020 elections, he may decide that Afghanistan offers his last best hope of claiming at least one foreign policy success. One way or another, in all likelihood, the deathwatch for the U.S.-backed Afghan government has now begun. One thing only is for sure. Having had their fill of Afghanistan, when the Americans finally leave, they won’t look back. In that sense, it will be Vietnam all over again.

    What Price Peace?

    However great my distaste for President Trump, I support his administration’s efforts to extricate the United States from Afghanistan. I do so for the same reason I supported the Paris Peace Accords of 1973. Prolonging this folly any longer does not serve U.S. interests. Rule number one of statecraft ought to be: when you’re doing something really stupid, stop. To my mind, this rule seems especially applicable when the lives of American soldiers are at stake.

    In Vietnam, Washington wasted 58,000 of those lives for nothing. In Afghanistan, we have lost more than 2,300 troops, with another 20,000 wounded, again for next to nothing. Last month, two American Special Forces soldiers were killed in a firefight in Faryab Province. For what?

    That said, I’m painfully aware of the fact that, on the long-ago day when I offered Captain Nguyen my feeble condolences, I lacked the imagination to conceive of the trials about to befall his countrymen. In the aftermath of the American War, something on the order of 800,000 Vietnamese took to open and unseaworthy boats to flee their country. According to estimates by the United Nations High Commissioner for Refugees, between 200,000 and 400,000 boat people died at sea. Most of those who survived were destined to spend years in squalid refugee camps scattered throughout Southeast Asia. Back in Vietnam itself, some 300,000 former ARVN officers and South Vietnamese officials were imprisoned in so-called reeducation camps for up to 18 years. Reconciliation did not rank high on the postwar agenda of the unified country’s new leaders.

    Meanwhile, for the Vietnamese, north and south, the American War has in certain ways only continued. Mines and unexploded ordnance left from that war have inflicted more than 100,000 casualties since the last American troops departed. Even today, the toll caused by Agent Orange and other herbicides that the U.S. Air Force sprayed with abandon over vast stretches of territory continues to mount. The Red Cross calculates that more than one million Vietnamese have suffered health problems, including serious birth defects and cancers as a direct consequence of the promiscuous use of those poisons as weapons of war.

    For anyone caring to calculate the moral responsibility of the United States for its actions in Vietnam, all of those would have to find a place on the final balance sheet. The 1.3 million Vietnamese admitted to the United States as immigrants since the American War formally concluded can hardly be said to make up for the immense damage suffered by the people of Vietnam as a direct or indirect result of U.S. policy.

    As to what will follow if Washington does succeed in cutting a deal with the Taliban, well, don’t count on President Trump (or his successor for that matter) welcoming anything like 1.3 million Afghan refugees to the United States once a “decent interval” has passed. Yet again, our position will be: we’re outta here; you guys sort this out.

    Near the end of his famed novel, The Great Gatsby, F. Scott Fitzgerald described two of his privileged characters, Tom and Daisy, as “careless people” who “smashed up things and creatures” and then “retreated back into their money or their vast carelessness” to “let other people clean up the mess they had made.” That description applies to the United States as a whole, especially when Americans tire of a misguided war. We are a careless people. In Vietnam, we smashed up things and human beings with abandon, only to retreat into our money, leaving others to clean up the mess in a distinctly bloody fashion.

    Count on us, probably sooner rather than later, doing precisely the same thing in Afghanistan.

    Image Credit: www.upi.com

  • Budget 2020: Rhetoric vs Reality

    Budget 2020: Rhetoric vs Reality

    Sharing structural similarities with the 1991 economic conditions, , the current decline in Indian economy is in desperate need  for radical reforms to energize the growth. Faced with severe fiscal constraints, the optimistic projection of revenue by the government   seems more of a challenge than realistic prospects for economic growth. Tax revenue is expected to fall short by INR 2.5 lakh crores in FY20 as the GDP records an 11- year low of 4.5 %.  As against the target of INR 24.6 lakh crores, there is likely to be a shortfall of INR 2 lakh crores for the current fiscal year. Expenditure cannot only depend on the expected revenue and fall in revenue collection will become a grave concern to achieve the fiscal deficit target set at 3.5 percent .  The budget is expected to balance deficit and growth by laying down a plan for fiscal consolidation and pushing the growth fundamentals. The Finance Minister in her speech mentioned three pillars under which the budgetary allocation has been rationalized. There is a need for deeper examination of budget proposals  beyond the slogans of the budget speech in order to comprehend the government’s long-term economic strategy.

    Aspirational India

    The agriculture sector with poor growth rate yet employing 50 percent of the workforce required significant capital infusion. 2.6 lakh crore has been allocated to agriculture & allied activities out of which 75,000 crores are dedicated to double farmers’ income. In reality, implementing a cash transfer scheme with a huge quantum of finance is a strenuous task facing  challenges on the ground. Schemes such as setting up solar panels and village storage run by Self Help Groups will act as a non monetary support measure. However, infusion of cash in rural credit structure and ease in acquiring credit facilities is largely ignored. The absence of  adequate investment for R & D in agriculture is a major shortfall in the budget. A target to increase the milk production capacity to 108 million tonnes is ambitious, yet no road map has been laid down to enhance the capacity in the current structure.  Weak consumption and high unemployment has contracted rural economic growth but the budget has failed to directly inject finance to increase effective demand. Sharp cuts in MGNREGA budget is giving rise to concerns as the total money in circulation in the economy continues to be low.

    Income insecurity will weaken the consumption demand for a few more quarters, arresting the medium-term growth. Healthcare Sector has been allocated  a total of 67,000 crores which is a significant increase of 10 percent compared to the last budget. The government’s flagship healthcare program, Pradhan Mantri Jan Arogya Yojana or  Ayushman Bharat, is allocated 6,400 crores which is the same as the previous year along with the National Rural Health Mission being allotted 28,000 crores. The Finance Minister has approved a Private-Public Partnership (PPP) between private medical colleges and hospitals in the country. The initiative is aimed to improve the skill levels of enrolled students to export their services abroad. Effectiveness of the PPP model in healthcare will depend on the amount of scrutiny and quality checks placed at the execution stage. Highest decline in funds was for Rashtriya Swasthya Bima Yojana from Rs 156 crores to Rs 29 crores, and Food Safety & Standards Authority of India was reduced to Rs 283.71.

    The draft of National Education Policy in 2019 invited multiple debates but achieving quality education has been the common goal across all levels of education. Human capital investment and skill development has been crucial to the 2020 budget with an allocation of almost 1 lakh crore for education and training. Breakup of funds for education under primary, secondary and higher education was not spelt out.  Finance minister citing the increase in gross enrolment ratio of girls in education has clearly missed the data on falling rates of women in labour force. The narrow lens of viewing enrolment number as a measure  women empowerment has to be revisited to achieve gender equality status. Encouraging apprenticeship and internships in rural areas for engineering and technical graduates is an important mention as the students lack experiential learning. Higher education population stands at around 36.6 million, surging the demand for  institutions offering graduate courses. The Government due to its limited fiscal capacity has allowed private institutions to address the demand for higher education. Despite this opening up tertiary education remains at only 25.8 percent of Gross Enrolment Rate. Quality in higher education is still a distant dream in India and it is important to dedicate funds to improve the quality of higher education in particular.

    Economic Development 

    Under Economic Development, promoting MSME sector and developing infrastructure have been the focus areas. Setting up NIRVIK scheme for higher export credit disbursement and facilitating investment clearance cells is a favourable move for medium and small scale business. Primarily, encouraging potential start-ups to equip their operations  with technology and managerial skills for creating export market demand must take precedence.

    National Logistic Policy is underway to revamp the transport infrastructure and new trains are to be operated under PPP. 100 new airports to be developed under UDAAN scheme is expected to create substantial employment in infrastructure sector. Linking basic Bharatnet services to 1 lakh gram panchayats is a notable initiative to improve the internet connection at local unit level. An exclusive direct investment in disruptive technology and artificial intelligence continues to be absent indicating India’s lag in becoming more competitive. Failure of the ‘Make in India’ initiative to materialize as expected is a relevant evaluation to reframe the fund allocation to accelerate indeginious production. Foreign trade of India presents a grim picture with exports slipping by 1.8 % in the last few months.  Although the political aspect of ditching Regional Comprehensive Economic Cooperation (RCEP) played well, quitting a multilateral trade deal has reduced the scope to upgrade domestic technologies. Frailty of the economy has clearly reduced the incentive for small businesses to invest in production and service despite schemes dedicated for this domain. Entrepreneurship culture in a favourable environment to undertake small businesses with insurance cover should aim at utilizing the existing human and capital resources through upgraded technology. A National Pipeline project has been proposed to ensure public spending on road, irrigation, power (conventional and renewable), railways and housing. Under this project, substantial funds are allocated for roads and least is for rural infrastructure. A prepaid  ‘smart metering’ system is to be substituted for conventional energy meters. On the financial front, tax concessions for corporate companies and foreign investment have been proposed. Reducing income tax slabs cheered the middle class but it has been a necessary and not sufficient condition to push the economy in a growth trajectory. Extension of tax holiday for real estate corporations would not qualify as fiscal stimulus with poor housing demand. As Dr Rathin Roy, economist suggests, either productivity should improve for pushing the demand at existing wage or minimum wage should increase. Decoding his post-Keynesian idea, structural crisis present in India offers much more complexity in practice. Land, labour and capital market reforms are inevitable to catch the growth momentum in the long run. Revising tax structure under Goods & Service Tax (GST) does not count for a structural reform to revive growth and scant attention has been paid for resolving systemic issues using budget as a tool. 

    Caring India

    The last pillar of the budget, emphasizing the importance of national and social security,  allocated funds for marginal groups, senior citizens and women, adopting a populist measure.  Over 6 lakh anganwadi workers are to be given smartphones and the budget estimate for nutritional related programs stands at 35,600 crores. Proposals were made to establish Indian Institute of Heritage and Conservation along with the development of 5 archaeological sites.  Major schemes like PM KISAN, Direct Benefit Transfer, Pradhan Mantri Awas Yojna and ICDS (Integrated Child Development Service) witnessed a jump from revised budget estimates of 2019-20. The Finance Minister in her budget had mentioned a number of schemes aimed at the Environment, Pollution and Climate Change. It includes 4,400 crores for the Clean Air Policy, 460 crores for Pollution Control and 3,100 crores for the Ministry of Environment, Forest and Climate Change. The last budget witnessed reduction in GST rates on Electric Vehicles (EV) and an annual tax reduction of up to 1.5 lakhs on interest paid to purchase EVs. However, the current budget has increased the custom duties to curb the import of cheap materials from China making the vehicles more expensive. National Adaptation Fund for Climate Change (NAFCC) is a central sector scheme set up to support concrete adaptation activities that mitigate the adverse effects of climate change. The Budget missed out on the replenishment of the much-needed NAFCC and has ignored it for two consecutive years. The overall fund allocation for Climate Change and Environment has increased by 5 per cent in the budget. Promoting sustainable business practices at micro levels is a key in tackling climate change. Accommodating the green budget would demand more involvement beyond mere budget allocation, effective plans need to be developed that can constantly track the progress of India’s climate change dialogue and advocacy.

    The defence budget for 2020-21 stands at 3.37 lakh crores, constituting 1.5% of the GDP, excluding pensions. Capital and revenue expenditure is valued at 1.18 and 2.18  lakh crores and pension at 1.33 lakh crores. This will affect several big projects taken up by the armed forces to build capabilities against Pakistan and China as there has been only a marginal increase in capital expenditure compared to previous year (1.08 lakh crores). Armed forces will be forced to cut down on arms and equipment purchases, thereby diluting the state’s priority on national security. However, with adequate government support there is scope for the private sector to bridge  the gap in areas of maintenance and logistics of the armed forces. Corporate tax cuts in the manufacturing sector, strategic disinvestment in Central Public Sector Enterprises (CPSE) and abolition of ‘angel tax’ for start-ups is appreciable. However, more involvement and sincere efforts should be undertaken by the Government to enhance private sector involvement in creating additional funding for developing a robust defence industry and meeting the needs of the armed forces at the same time.

     A recent study by Oxfam reported that 73% of the total wealth is owned by 1% of India’s population, as a result the number of billionaires has increased to 120 in 2019 from nine in 2000. A funding strategy that does not  attend to the growth of income among masses would lead to furthering the inequality and handicap the long term growth of an economy. Budget continues to be a powerful instrument to reallocate resources through fiscal policies and reduce economic inequality in a country. Facing a high risk of missing the demographic dividend, the budget was expected to make radical and structural reforms. Immediate measures to revitalise economic wealth among middle-class and rural residents is the need of the hour. The ostensible budget might garner popularity but the foundation to achieve India’s growth potential remains insufficient. Choice between managing fiscal deficit at the cost of reduced demand and initiating growth at the cost of huge fiscal deficit summarizes budget decisions. Biting the fiscal bullet, the finance ministry has assumed more accountability in explaining every component of expenditure but has failed to provide confidence for a resurgent Indian economy. Micro level assessment reveals a rosy picture but the exercise has undoubtedly choked the Indian economy in the short run.

    Contributions by

    Manjari Balu and Swaminathan S are Research Analysts with TPF.

    Aditya Balakrishna is an Intern with TPF.

    Views expressed are their own.

    Image Courtesy: Sanjay Rawat // www.fortuneindia.com

  • A discourse in Refugee Policy and National Decisions : The  Indian context

    A discourse in Refugee Policy and National Decisions : The Indian context

    South Asian states have experienced refugee movements since independence from the British colonial rule and yet once again in 1971 when East Pakistan was split from West Pakistan. The territory of India as it is today has been at the forefront of this influx along with two other nations in the region – Pakistan and Bangladesh while Afghanistan has been a state that has sent out its citizens as refugees all along due to the state of prolonged internal conflicts, and in its immediate neighborhood.

    According to the United Nations, the projected number of refugees is estimated to be around 2.5 million in South Asia, with India alone hosting around 2,00,000 (number registered with UNHCR). Unofficially, India is said to have nearly 437,000 refugees. It is not only the regional atmosphere but also the volatility of the countries in neighboring regions – Syria, Iraq, Tibet and Myanmar that have led to an exodus of populations into South Asia. Apart from wars and persecution, economic deprivation and climate change are driving people out of their home countries. India, sharing borders with all of the South Asian countries where Maldives being contiguous in the Indian Ocean Region, has inevitably been the first or second destination for refugees fleeing their homes. However, India has failed to adopt a legal framework to confer refugee status to people who have fled home countries for a well-founded fear of persecution, discrimination or deprivation of any kind thus blurring the lines between migrants who have entered illegally and refugees.

    Recently, India passed the Citizenship Amendment Act that seeks to grant citizenship to Buddhists, Christians, Hindus, Jains, Parsis and Sikhs who entered India before the 31st of December 2015 from Pakistan, Bangladesh and Afghanistan. The Act has an arbitrary cut-off date, omits the mention of Muslims, does not convincingly explain the rationale behind grouping the three countries, thus any argument of replacing the ad hoc refugee policy would only stand frail. This article, with this premise at the crux will attempt to examine why India has to work towards formulating a holistic refugee policy framework followed by a law and how there is a need for one to ensure the domestic population does not turn hostile to refugees.

    Understanding Refugees in India

    India has allowed for the entry of refugees under the Foreigners Act, 1946; The Foreigners Order, 1948; Registration of Foreigners Act, 1939; and The Passport Act (Entry into India), 1920; The Passport Act, 1967. Refugee populations from Afghanistan, Bangladesh, Myanmar, Eritrea, Iraq, Iran, Pakistan, Sri Lanka and Tibet among many other countries have crossed borders to enter India due to sectarian conflicts, political instability and even economic and climate change.

    South Asia is one of the most disaster-prone regions of the earth and has in recent years witnessed droughts, heatwaves, floods and rise in sea levels threatening both human lives and livelihoods for indefinite periods. Around 46 million people are estimated to have fled their homes in South Asia due to natural disasters between 2008 and 2013 despite a lack of precise estimate in how many have solely migrated due to climate change other than seasonal migration. This thus creates an intersection between economic and climate-induced migration. An estimated 20 million have been migrating from Bangladesh to India every year due to environmental adversities.

    However, it has only been the discourse on traditional security that has dominated the discussions outside of academia questioning the preparedness of India in managing the influx of refugees in the run-up to global and regional crises due to non-traditional securities such as environmental degradation and resulting ‘environment-economic’ splinter effects.

    Diplomacy vis a vis domestic governance

    While we are already witnessing how different sections of the society have not taken it well to religious narrative embedded in the Act, several other factors have also threaded themselves to the dismay of locals due to lack of concentrated effort to treat refugees. Refugees who fear deportation and brutal treatment under the law may disguise themselves as residents and thus in the long run contributing to the alarm and insecurity amongst the locals. This has been very evident in Assam that has for decades agitated over the growth in population in the state due to illegal migration from Bangladesh. It was more to do with struggle for resources, fears of demographic changes and losing control of governance, and less about religion. By resorting to naturalizing refugees and not resorting to repatriation agreements, India today maybe adding fire to the already burning fuel of ‘more mouths to feed and fewer resources’.

    India’s ad hoc policy has given it a leeway to treat refugees based on the country of origin depending on the geopolitics of the day. Today by sealing this arbitrariness as a law India has threatened its own scope to rectify its position in the wake of contestations. It is uncertain even being a signatory to The New York Declaration of Refugees and Migrants 2016, the precursor to the Global Compact on Refugees can realize India’s image as a responsible power while denying Rohingyas and Sri Lankan Tamils the due recognition as refugees.

    On the global stage, India’s treatment of refugees had until recently attracted a fair share of appreciation despite the lack of a national refugee law and notwithstanding the fact that the country is a non-signatory to the United Nations Refugee Convention nor the 1967 Protocol.

    India may not have an official reason on why it has not signed the convention, but sufficient correlative studies show us India’s skepticism arising due to the Euro-centrism of the convention, a threat to sovereignty and a narrow definition of refugees that does not cover the economic, social, and political aspects. Apart from this, the episodes of 1971 influx of refugees and earlier in 1945 linger over India’s unpleasant memories.

    Conclusion

    No refugee policy or domestic law remains an internal concern especially in South Asia where not only are the territorial borders porous but so are the divisions between communities. Due to its relatively better availability of economic opportunity and being a secular state, Indian policymakers are challenged by protracted refugee situations.

    Given the pressure on India’s resources from its huge and growing population, it does not have the capacity to host large refugee populations. India, therefore, has to evolve a 21st-century diplomatic mechanism with both the global community and the sending states to create opportunities for resettlement of refugees. With evolving geopolitics and rise of non-traditional security, it would be in India’s best interests to formulate multifaceted refugee policies bilaterally and multilaterally.

    Jayashri Ramesh Sundaram holds a masters in IR from RSIS, Nanyang Technological University, Singapore. She focuses on refugee issues and policy analysis. Views expressed are the author’s own.

    Image Credit: A Refugee special train during Partition. commons.wikipedia.org

  • Falling Consumption Expenditure: Need for Labour Market Reforms

    Falling Consumption Expenditure: Need for Labour Market Reforms

    Government withholding consumption expenditure data on the grounds of data quality has stirred many criticisms from economists and other interest groups. Growing concern over falling rural consumption especially amidst economic slowdown has crystallized a categorical debate on the nature of slowdown. Irrespective of the validity of methodology employed, low consumption expenditure can sequel falling growth rates. Slowdown of the automobile industry as a case, sluggish growth and rising unemployment corroborate the unofficial claims on falling consumption expenditure. According to Business Standard report, the average amount spent per month by an individual declined from INR 1501 in 2011-12 to INR 1,446 2017-18. Although falling rural consumption expenditure evinces an economic malaise, issue of inefficient labour market has received less attention. Consumption is considered an important way to assess the health of an economy according to neoclassical economists. Multiple theories on income and consumption relationship are advanced in the field of economics. According to permanent income hypothesis, consumption expenditure varies in relation to the expected future income. In simple terms, an individual’s consumption will be distributed across their lifetime based on the permanent income they are expected to receive. Every theory has reiterated the central role of income in determining the consumption levels of the individuals. 

    Income insecurity in Informal sector

    A study conducted  on consumption spending in Ghana concluded that income and inflation had a long-run relationship on consumption expenditure. The Monthly Per capita Consumption Expenditure (MPCE) in 2011-12 revealed that urban MPCE was higher by 84 percent than rural MPCE. India, operating as a dual economy, considers casual wages and regular salaries as a proxies to study informal and formal sector. The wage differential among salary earning individuals operating in informal and formal sector was higher than casual labourers’ wages. Increasing number of regular employees working in informal sector shifted the concern to penetration of ‘informality’ across the labour market.  Post globalization labour market has theoretically encouraged organized sector but the wage employment in the organized sector has employed more casual labourers with no social security. A new layer of casual labours was created post reforms to cushion the weight from competitive prices. Fragmentation within the organized sector with growing contractual labourers has weakened the expected income levels which could directly affect consumption behaviour. Working-poor in India are highly concentrated in the organized sector as casual labourers and self-employed with a combined share of 51 percent of the total workforce as of 2012.

     A recent report on consumption expenditure points out that rural monthly consumption has fallen by 10 per cent from INR 643 to INR 580 indicating a need to accumulate more income in rural India. The main industries functioning under informal structure were construction, manufacturing and wholesale-trade employing majority of unskilled and semi-skilled labourers. In 2011-12, rural employment contributed 76 percent of total informal sector labourers in the three main sectors. Almost 80 per cent of rural workers are engaged in casual employment and despite a moderate growth in casual wages over the years; it amounted to only 36 percent of a regular worker’s earnings. Increasing share of informal employment within the organized sector coupled with poor social security has reduced expected financial flow of labourers. State induced social spending would propel consumption levels to a limited extent but the underlying crisis in the rural labour market would continue to contract long term consumption expenditure. Total social sector spending as a percentage of GDP has reduced from 2.7 per cent in 2000 to 2 percent in 2014. Reduced government spending and lack of labour market reforms are responsible for poor disposable income in the rural economy. 

    Rural labour market instability

    Casual labourers have constituted consistently 28 percent in Indian rural labour force since 1983. The periodic labour force survey report (2017-18) observed a decline in the share of self-employment in both rural and urban sectors. The unemployment rate in urban sector is 7.3 percent, comparatively higher than rural unemployment rates of 5.8 percent. A major portion of rural labourers are associated with the casual sector in rural areas with unstable income and weak social security. For instance, average earning per day in public workfare programme such as MGNREGA has fluctuating wage rates in rural areas, recording as low as INR 136 in 2018. Such a precarious structure in the labour market has diluted the spending capacity of rural residents in the recent times. According to the usual status in employment, there is a moderate increase in casual labourers and salary earners but the self-employment rates have been on the downtrend. In 1983, 60 percent were self-employed, which has gone down to 57 percent in 2018 despite the attractive loan schemes introduced by the government. 

    Female workers’ earnings play a vital role in determining the consumption health of an economy, a drastic fall in female work participation deserves an in-depth investigation. Falling participation rate could mean either women drop out due to social conditions or due to unavailability of jobs matching their skills. While sufficient literature studying these two areas are available, the first issue can be viewed with scepticism as earnings of men have increased significantly while women’s wages have stagnated. Although overall women in the workforce have reduced, 73 percent of women are engaged in agriculture as primary activity compared to 50 percent of men. A deceleration in agriculture and low investment on public infrastructure in the past few quarters have  decimated the consumption capacity of rural India. Women being the bigger component of agricultural labour force, and with factors of social discrimination, tend to have lower wage rates, thereby contributing significantly to reduced capacity for consumption and expenditure.

    Labour market reforms needed to revive long term consumption

    It would be erroneous to isolate the core economic problem to be categorical- the structural issue or cyclical slowdown can be both demand-side and supply-side driven. The whole economic apparatus is strongly integrated and a supply-side constraint can indirectly choke the demand which would, in turn, weaken the growth. Many economists have recommended the need for structural reforms; labour and capital relations have to be redefined as a measure to redistribute the resources. Further, the labour code on wages, 2019 has invited criticisms on grounds of poor protection for informal labourers and favouring corporate profit. Financial ecosystem requires corporates to make profits but a stagnant reinvestment convulses the cycle. Deepening crisis in the economy is conspicuous and falling consumption reiterates the need for better land and labour reforms. 

    Closer examination of the rural labour structure provides a bleak picture of low-income concomitant with minimum social and economic security, thus seriously impacting rural economic consumption. According to the PLFS report, the percentage of rural regular salaried employees with no job contracts increased from 58 percent in 2004 to 69 percent in 2018. Around 88 percent of rural female casual labourers against 84 percent of rural male casual labourers had no union or association. Absence of union is a proxy for weak bargaining power which eventually distorts the real market wages for the labour. Systematic labour market reform is critical especially for fixing the minimum wages and restructuring the labour market. Failure of manufacturing and service sectors to absorb the excess unskilled labourers from the agricultural sector has posed a major challenge. A short term cash transfer or providing welfare schemes should not be mistaken for structural reform. Enhancing the skill levels of rural labourers so as to enable their displacement to the manufacturing sector would augment employment and income. 

    Effect of demonetisation on the informal rural economy cannot be underestimated; removing 80 percent of currency from the economy damaged small and medium scale businesses operating on cash. ‘Make in India’ has not succeeded in accelerating business entrepreneurship in the country. Only 5 % of the adult population manages to establish a business that survives for longer than 42 months according to Global Entrepreneurship Monitor, a rate that is the lowest in the world. Financial investment in medium scale and small scale industries has been poor due to bureaucratic hurdles and unfavourable business environment leading to world’s highest business discontinuation rate of 26.4 %.

    From the supply side, low reinvestment despite a reduction in interest rate has exacerbated the falling consumption situation. Slowing automobile industry and consistent downtrend in manufacturing have contracted the capacity for employment generation in the industrial sector. CMIE has observed corporate profits to be more volatile than wages in the last two decades. The standard deviation of increased profit was recorded to be 32 percent as compared to 6.3 percent in the wage share. The erratic change in profit component implies entrepreneurs are more likely to be discouraged to invest in a business and play it safe. This invariably allows only the big corporate companies to survive. Low share of labour income in the economy is undoubtedly a structural phenomenon; the state’s apathy to induce private capital investment is detrimental to the labour market as well. 

    Reforms should have distinct rural and urban labour market strategies

    Departing from viewing economy in a political lens, a state must prioritize market reforms especially labour reforms. It is the state’s responsibility to ensure efficient allocation of resources and guarantee economic development and welfare of people. The slogan of ‘minimum government and maximum governance’ can be realised only through radical reforms and policy changes.

    The problem of shrinking consumption in rural areas is an outcome of constraints in the supply-side and unorganized labour market. Mere infusion of money as a solution is neither practical nor sustainable; a long term strategy to improve the structure of the rural economy is necessary to address the current economic crisis. Policies should be directed towards energising the informal sector, provide social security and economic dynamism that accelerates capital formation and induces private investment to support business growth. Consumption levels can be revived by making demand side and supply side changes simultaneously; increasing public gross capital formation and encouraging private investment by improving the investment climate would revive private consumption. A clear distinction has to be drawn between rural and urban labour markets, reforms to monitor the movement and prices will emerge as a structural reform to support both growth and development. 

    Manjari Balu is a Research Analyst with TPF. Views expressed are her own. 

    Image credit: www.newskarnataka.com

  • Rural Development and Gender Equality: A reality check in Tamilnadu

    Rural Development and Gender Equality: A reality check in Tamilnadu

    Category : Agriculture/Rural Development/Gender Equality

    Title : Rural development and gender equality: A reality check in Tamilnadu

    Author : Manjari Balu 06.01.2020

    Tamilnadu continues to be one of the fastest growing states in India, despite some major declines due to political instability, rampant corruption, and populist measures at the cost of development. Despite significant progress in literacy, women’s education, and some aspects of social security, there are still major shortfalls with respect to rural employment, skill development, and gender wage inequality. Tamilnadu has to develop a policy framework to achieve employability through quality secondary education for women, shifting focus from only enrolment of girls in primary education. Manjari Balu analyses this issue in Tamilnadu.


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