Thursday, September 19, 2013

Social Security in India

Social Security refers to the measures which the Government takes in order to protect the workers from unexpected situations such as unemployment, sickness, maternity, old age, industrial accidents, etc.

These unexpected situations have the potential to wreck havoc in the life of workers and their families if the social security measures are not in place.

In India, a vast majority of the workforce is employed in the unorganized sector and a small percentage in the organized sector. Workers in the organized sector enjoy various social security benefits such as provident fund, pension, paid maternity, etc. However, majority of the workers who are in the unorganized sector are generally devoid of these benefits.

Realizing the importance of social security for unorganized workers, the Government has put in place several measures that target them and help them in receiving social security benefits. Some of them are Aam Admi Bima Yojana, Rashtriya Swasthya Bima Yojana, etc.

Despite such steps, 'universal social security' continues to be a distant dream in India. India, being a welfare state, has the obligation to make 'universal social security' a reality.

How to achieve universal social security?
a) Focus on the unorganized sector - Most of the workers that are devoid of social security are in the unorganized sector, as stated earlier. So, focus must be to develop the unorganized sector and make it organized. This will enable greater production and jobs on the one hand and greater protection to the workers on the other.

b) Augmenting Resources - The Government, already preoccupied with its myriad responsibilities, faces a resource crunch and finds it difficult to adequately finance the social security schemes. So, resources must be augmented by improving tax collections, reducing wasteful expenditure, putting in place transparent procurement procedures, etc.

c) Rationalization of schemes - In India, many social security schemes are in place, the benefits of which sometimes overlap. This needs to be rationalized. This will ensure that proper targeting of beneficiaries takes place as well as scarce resource are conserved.

Protecting the interests of the workers is a key responsibility of the State and the employer concerned. This should be accorded priority so that workers feel secure as regards their future.

Tuesday, September 17, 2013

Financial Inclusion

Financial Inclusion essentially means that every person can access and afford financial products and services transparently. This becomes all the more important for vulnerable groups of the society.

In India, despite a large-scale branch expansion of commercial banks, a significant portion of the population remains outside the financial system, that is, remain financially excluded making them vulnerable to exploitation.

How is financial inclusion beneficial?
a) It helps poor people to avoid exploitation - Poor people generally resort to non institutional sources of finance like village moneylenders, village traders, etc. for meeting their credit requirements. Such funds often come at an exorbitant rate of interest which the poor is unable to repay. They even go in for fresh lending without repaying their earlier debts, getting trapped in a cycle of debts. Such a situation can be avoided if they can access funds from the institutional sources of finance such as banks that charge a reasonable rate of interest.

b) It can help the government to disburse its benefits - If financial inclusion is complete and every person has a bank account, then it can help the government directly transfer the benefits into the bank accounts of the beneficiaries. This can avoid layers of intermediaries involved in the disbursal of benefits and help cut leakages.

c) It inculcates the habit of savings in individuals - Savings come in handy in times of distress and with financial inclusion and savings, such times can be sailed through easily.

d) It helps in economic growth - Financial Inclusion helps in raising savings of individuals. High savings imply greater capital formation and resultant economic growth.

How to achieve the goal of financial inclusion?
a) Self-Help Groups (SHGs) - SHGs have proved to an effective tool for micro-financing and achieving financial inclusion. SHG is a village-based intermediary formed as a group of 10-20 women which helps its members get finance from banks. Still the coverage of SHG network is low. It needs to be expanded, upgraded and made more professional.

b) Awareness - Poor people should be made aware of the benefits of financial inclusion so that they voluntarily associate themselves with banks and avoid resorting to moneylenders for their fund requirements. In this context, the role of civil society in creating awareness is important.

c) Greater use of IT - Use of IT has been limited in promoting financial inclusion. Once a network of broadband connectivity is laid down in our rural areas, it should be leveraged to access bank accounts and make transactions with the banks.

That said, a number of other innovative measures can be put in place for achieving the desired goal. In fact, the use of micro-ATMs, banking correspondent model, etc. are some such measures.

The goal of financial inclusion will elude us as long as we do not bring it to the forefront of our development agenda.

Monday, September 16, 2013

Widening Trade Deficit

India’s trade deficit has been widening rapidly and has become a major cause of concern for the policy-makers. The reason behind widening trade deficit is simple – the rate of growth of imports is higher than that of exports.
Why has India’s import growth rate been fast?
a) Development needs of the economy – This has led to large imports of capital goods to sustain our process of development.

b) Rise in Global Prices of crude oil – Some of our imports like crude oil are required to meet the energy needs of the economy. Due to lack of alternative sources of energy, India has to import large amounts of crude oil. As global prices rise, our import bill also increases.

c) Growing Consumption needs – In India, consumerism has been on the rise in recent years. To meet the consumption needs, India has to import the consumer goods which it fails to produce domestically.

Raising domestic production of capital and consumer goods and searching for new alternatives for energy hold promise for slowing down the growth rate of India’s imports.

Why has India’s export growth rate been slow?
a) Poor Infrastructure – This raises the cost of manufacturing and when high-cost manufactured goods are exported in the global market, they become uncompetitive.

b) Growing Domestic needs of the economy – Our increasing domestic requirements consume a large fraction of what is produced and leaves lesser for exports.

c) Global Slowdown – Due to the slowdown in the US and EU countries, our exports to these regions have stagnated. A revival in these regions would revive demand which would be beneficial for our exports.

Improving infrastructure, raising domestic production and revival of growth in western countries will give an impetus to India’s exports and help in narrowing India’s trade deficit.

Sunday, September 15, 2013

Myth of FDI

In India, the need for Foreign Direct Investment (FDI) has been highlighted from time to time. It has been said that FDI is 'all-good' for a developing country like India. It leads to transfer of technology, managerial skills, leads to employment and while supplementing domestic capital promotes economic growth. Foreign Direct Investment includes all investments made by companies, firms and individuals in various sectors of the Indian economy.

The Government has been liberalizing the rules and regulations for the inflow of FDI in the country from time to time.

Even though the above claims highlighting the positive effects of FDI are correct to some extent, there are several myths that need to be broken right away so that a clear picture of its positive and negative impacts comes to the fore.

Myth 1: FDI supplements domestic capital - This is only partially correct. Our indigenous industries that are unable to compete with the global MNCs are gradually shutting down leading to loss of jobs and production. Generally, the industries that shut down are small and medium industries which employ a lot of people. In effect, FDI has led to the destruction of domestic industries leading to unemployment.

Myth 2: FDI leads to transfer of technology - This happens only in a few cases in which the FDI limit is high. In other cases, it has not led to a significant transfer of technology and India continues to be one of the major importers of technology in the world.

Myth 3: FDI will lead to the development of the entire economy - In India, the distribution of FDI has been very uneven, both in terms of its flow to different sectors and its flow to different regions of the country. FDI flows to only a few sectors which many other sectors have remained neglected despite being opened to FDI long ago. Besides, FDI flows to already developed regions which have good infrastructure. For instance, the north-eastern region of the country has been able to attract only a small percent of the total FDI inflow. This has led to growth in regional and sectoral inequalities.

Myth 4: FDI does not create Balance of Payment (BoP) problems - This is also wrong to assume, as over time, the investing companies start transferring their profits and when they eventually quit the country, huge amount of funds have to be repatriated.

To conclude, FDI needs to be used very cautiously.

Saturday, September 14, 2013

Raising growth rate of Indian agriculture

Agriculture sector in India continues to be the key sector in terms of its share of livelihood, its contribution to GDP, its role in industrial development and in ensuring food security for the nation.

Indian agricultural sector, however, continues to grow below 4 percent annually. In the 11th Five Year Plan(2007-12), the average annual growth of agriculture and allied sector was 3.6 percent, below the targeted 4 percent.

How can the growth rate of agriculture sector be raised?

a) Land Reforms - They are a time-tested method of raising productivity in agriculture. Land Reforms ensure that the farmers are incentivised to make improvement on their farms and raise productivity.

b) Consolidation of Land Holdings - In India, the rapidly increasing population coupled with the law of inheritance has led to a subdivision of land holdings resulting in smaller and fragmented land holdings, thereby, making it difficult to adopt mechanized farming. Consolidating them can ensure that mechanized farming takes place and leads to greater productivity.

c) Infrastructure - Lack of storage, marketing, credit facilities, irrigation facilities etc. often lead to lower-than-optimal agricultural growth. Developing infrastructure will surely improve our prospects for a fast growing agriculture sector.

d) Research - Investment in research to develop seeds which are both high-yielding and climate-resistant needs to be stepped up.India fairs badly in terms of yield of crops like wheat, rice, pulses, etc. Besides, India is becoming highly vulnerable to climate change. Unpredictable weather patterns adversely affect crops and the resultant output.

e) Diversification of Agriculture - Diversification of agriculture into allied activities like horticulture, animal husbandry, poultry and fisheries will raise income for the poor and thereby generate rural prosperity and contribute to agricultural growth.

f) Reforms in Marketing - Poor marketing affects both the producers and the end-consumers. Reforms in marketing will help in modernizing the supply chain. Efforts should be made for direct marketing of farm produce to the end-consumer by eliminating the intermediaries. This will ensure better prices to the farmers and also keep food inflation under check.

g) Sustainable agriculture - There is a need to adopt green techniques to agriculture, for instance, by substituting the use of fertilizers with compost. Failing to do so will lead to degradation of our environment and destroy our prospects for the future.

Indian agriculture has a vast untapped potential. Appropriate strategies will undoubtedly help in realizing this potential.

Friday, September 13, 2013

Higher Education in India

India's higher education system is the third largest in the world, after US and China. Though India has a vast network of higher educational institutions, no Indian university figures in the list of top 100 universities of the world. The quality of our graduates has also been questioned by academicians and experts alike.

What does our higher education system lack?
a) Resources - Despite the recommendations of various education commissions to raise the fund allocation for education to 6 percent of GDP, the government has not raised it to even 4 percent of GDP.

b) Quality research - Indian educational institutions, especially the technical ones, do not focus on quality research. It is this reason that graduates from our top institutes migrate abroad to do research work.

c) Innovative atmosphere - Indian institutions often lack the requisite innovative atmosphere which can lead to generation of technologies and can ensure greater indigenous content in our industries. This is very important also from the view of India's huge dependence on technology imports.

d) Job-related skills - Failure to provide job-related skills and mainstreaming skills education with that of the traditional education is also a huge problem of our system. This results in generation of graduates who are not well-equipped to handle the industrial needs appropriately.

e) Soft Skills Development - Students often fail to acquire soft skills, presentation and interpersonal skills which often leads to poor performance at their work-setting.

Keeping these constraints in mind, appropriate interventions need to be designed so that our institutions produce graduates who prove their mettle in whatever fields they venture into. 

Thursday, September 12, 2013

Infrastructure Financing

Lack of infrastructure has long been cited as the biggest impediment to India's economic growth. Infrastructure includes services such as power, transport, communication, education, health, drinking water supply and sanitation.

The demand for infrastructure has always outpaced its supply ever since Independence. This is mainly on account of the inadequate resources allocated for infrastructure. Infrastructure projects face two big difficulties - a high investment requirement and a long gestation period. As a result, financing these projects has become a major headache for Indian economy.

Why is infrastructure development important?
a) It raises the growth potential of the economy
b) It leads to inclusive growth
c) It can ensure a planned and sustainable urbanization
d) It leads to human development

Traditionally, development of infrastructure has been the prerogative of the public sector but given the increased fund requirements, the public sector is keen to involve the private sector to supplement the efforts of the public sector on the one hand and to bring greater efficiency on the other. This has resulted in formation of Public-Private Partnerships (PPP) for joint development of infrastructure.

The 12th Plan has envisaged a requirement of US$1 trillion for infrastructure development over the period of 2012-17. It also believes that around half of this will come from the private sector.

The government has also permitted setting up of Infrastructure Debt Funds (IDFs) which will use innovative mechanisms to fund infrastructure projects via debt. Besides, India Infrastructure Finance Company Limited (IIFCL) is also expected to support infrastructure projects.

These efforts are in the right direction and they need to be supplemented by some other strategies.

What else can be done for financing infrastructure?

a) Insurance, Provident and Pension Funds need to be mobilized for development of infrastructure. Because of their long horizon, they are the most suitable for financing infrastructure projects. In fact, many developed countries have successfully used these funds for sufficing their infrastructure resource requirements.

b) Consolidation of the banking sector into a three-or-four tiered structure can also prove useful. It may result in the formation of 3-4 large banks at the apex which will have deeper pockets and a wider clientele. These funds can be successfully employed in financing infrastructure projects.

c) Greater resource generation by the public sector is also very important. This will entail reforms in Tax Administration which can raise India's tax-to-GDP ratio.

d) Finally, delay in clearing of infrastructure projects needs to be avoided. It not only raises time and cost requirements, but also depresses investors' sentiments. Delays can lead to a decline in private investment which would be detrimental to India's interests as present.

An all-out effort needs to be made to gather resources for infrastructure development so as to ensure a long-term inclusive growth of the Indian economy.

Tuesday, September 10, 2013

Economic Growth

Economic Growth is measured terms of increase in volume of production of goods and services in an economy. The commonly used indicator of economic growth is rise in Gross Domestic Product (GDP).

Debates around considering GDP as the sole criteria for measuring improvement in well-being of the people have been intense. Two schools of thought have emerged around this. One schoos firmly believes in the 'trickle-down' effect, that is, let economic growth take place, the benefits will eventually trickle down to the vulnerable and marginalized sections of the society as well and thereby, lead to their well-being.

The other school of thought thinks that GDP is not a sufficient condition for the overall well-being. They give empirical evidence in the form of growing inequalities in the Indian economy, slow reduction of poverty, rise in unemployment, faster exploitation of natural resources etc. in the post-reforms period when Indian economy witnessed rapid economic growth.

Is the idea of GDP really flawed?
The answer to this question would be a 'No'. GDP growth is important because greater GDP growth will mean greater production which would mean greater income and employment, thereby leading to inclusiveness and reduction in poverty. Besides, it would lead to a greater revenue for the government in the form of more taxes, which can be used to finance social sector schemes of the government more effectively.

In the Indian context, rapid growth has not been accompanied by an equivalent rise in standard of living of masses despite the economy developing rapidly.
This is due to the following reasons -
a) The fruits of the growth have not been equitably distributed. It seems that a major chunk of benefits have been cornered by a small section of society. This can be easily seen in the rise in inequalities in the post-reforms period.
b) The 'trickle-down' effect in the Indian context is working very slowly, if at all its working.
c) Poor Governance can also be cited as a major factor in this. Poor Governance leads to corruption which destroys the economic prospects of improving well-being for the masses. Despite myriad social welfare programmes of the Indian state, the condition of the poor has not improved. This suggests that the implementation of such schemes have been poor.

A small mention needs to be made in the context of growing environment degradation owing to rapid exploitation of natural resources due to rapid economic growth. Market forces of supply and demand have led to a scramble for resources, made them priceless and led to their increased exploitation.

Thus, the idea of GDP needs to be refined to reflect the ground realities as well. Economic Well-being is not totally separated from social and environmental well-being. A GDP growth that is more equitable and environment friendly is the need of the hour. The government will have a major role to play in this through proper redistribution of resources.

Monday, September 9, 2013

Food Waste - Time to think

Food Waste refers to the food that is thrown away by household, restaurants and food-bazaars. Despite the ugly truth that many Indians die of hunger everyday, colossal amount of food is wasted.

Food waste is not just the waste of food but also the waste of natural resources that are spent in producing it like land, water, etc. making it an unsustainable practice.

At a time where food security is at the forefront of policy makers' agenda, it is needed that awareness about the issue of food waste needs to be increased. Many people in the society just don't care about its deleterious effects. This mindset needs to change.

What can be done?
a) Greater awareness is obviously the key here. It is necessary that people adopt this intrinsically. Government should actively promote campaigns on mass-media highlighting this issue.
b) In large ceremonies like wedding, food is often wasted in huge amounts. This needs to be avoided by planning the ceremonies properly and well in-advance.
c) At the individual level, each of us should take as much as we can eat and don't waste food unnecessarily.

Such small changes can go a long way in enhancing food security and promoting sustainable development. 

Energy Scarcity

India is the 4th largest consumer of energy in the world after US, Russia and China (2013). As the economy moves on a path of faster-growth, demand for energy is set to increase substantially.

India depends on coal to meet over half of its energy requirement with the remaining being met by crude oil, natural gas, hydro-power, and wind and solar energy. Demand for energy is increasing from all sectors, while its supply has not been able to keep up with the demand. To meet the demand, it largely depends on imports. In such a situation, any slight imbalance in the global prices of such imports can upset India's external sector. Besides, since energy prices are subsidised in India, the fiscal health is also impacted severely.

Such a situation would need strict measures to ensure that energy scarcity doesn't become a drag on the Indian economy.

How to mitigate this problem?
a) Investment in creation of technologies that seek to tap solar and wind energy in a sustainable and cost-effective manner would be a perfect solution to crush the problem of energy scarcity in its entirety.
b) Minimize losses during transmission and distribution of power would also tackle this problem to some extent.
c) Promoting public transport can reduce the demand for petrol and diesel which has risen owing to rapid proliferation of private vehicles on Indian roads.
d) A rational pricing policy for energy can incentivise economic usage of scarce energy resources.
e) Above all, becoming more energy efficient is another technique that can be suitably applied to tackle the issue. This will require greater awareness among users, households and industries alike. Labeling of equipment such as AC, cars and other high energy consuming equipment, incentivising industries to go green etc. can go a long way in saving energy.

Overcoming the challenge of energy scarcity will go a long way in sustaining India's economic growth in the long-run.

Sunday, September 8, 2013

Land Reforms

In simple terms, land reforms refers to the distribution of land in the favour of 'tiller of the soil'. Land Reforms were started in India post-Independence to improve the productivity of agriculture and make an equitable distribution of land keeping in view the socialist vision of society.

The land reform programme had several components - abolition of intermediaries, ceiling of land holdings, provision of security of tenure for peasant-tenants etc. It was realized that transferring land to the tiller would incentivise them to make improvement on their land, thereby raising the productivity of land.

However, it succeeded only to the extent of abolition of intermediaries. Ceiling legislation could not register much success owing to loopholes in legislation. The programme gradually faded out after Green Revolution was introduced which made India self-sufficient in food grains.

In recent times, land reforms have again appeared to the forefront as the gains from Green Revolution seem to be fading out.

Need for Land Reforms
In India, 70 percent of the population resides in rural areas with majority depending on land-based activities for their livelihood. In fact, rural poverty in India is interlinked with landlessness. The landless are highly vulnerable to exploitation. Effective land reforms can bring out a decrease in the magnitude of landlessness and consequently, rural poverty. Based on the premises of equity and increased agricultural productivity, they have the potential to enhance the food security of the nation.

Article 39(b) of the Indian Constitution directs the Indian State to ensure that the ownership and control of material resources of the community are so distributed so as to subserve the common good. So, the Indian State is under an obligation to ensure that distribution of land is more equitable.

How to carry out land reforms in the Indian context?
a) Enormous political will is the key to success of this programme as has been witnessed earlier that State Government that were more committed have been able to push through it.
b) Grassroots-level participation is needed in boundary demarcations, opinion recording and complaints resolution
c) Civil Society can be actively engaged in transfer of technology and promotion of entrepreneurship in our villages
d) Safeguards need to be put in place to ensure that the distributed land is protected from land grabs
e) The distributed land needs to be productive and government must provide for a comprehensive package of support services such as credit, market access, infrastructure facilities along with the land reforms

Land Reforms need to be pursued vigorously so that gains in productivity can be accrued from it as well as leading to an equitable distribution of land resulting in reduction of rural poverty and greater rural prosperity. 

Saturday, September 7, 2013

Food Security

Food Security refers to physical and economic access, at all times, to sufficient, safe and nutritious food for people to meet their dietary needs for an active and healthy life.

A country grappling with hunger and malnutrition like India needs to put special emphasis on food security. India is a unique case in the sense that despite maintaining buffer stocks of several tonnes of foodgrains, people of the country die due to hunger. This happens due to two reasons -
a) Lack of adequate marketing and warehousing which leads to a lot of wastage
b) Insufficient purchasing power of the rural and urban poor

India has put in place a system of Public Distribution System (PDS) that allows poor people to get subsidized foodgrains from Fair Price Shops (FPS). However, it suffers from defects such as leakages, duplicate beneficiaries etc.

Taking note of the seriousness of the problem of hunger, India enacted the Food Security Bill which seeks to give subsidised grains to 67 percent of the population (including 75 percent rural and 50 per cent urban).

How will it help?
a) Poor will get insulated from food inflation
b) RBI can now be free to focus exclusively on "core inflation" which deciding its monetary policy
c) It will lead to human development which is a prerequisite to economic development

How it can harm?
a) It will raise the cost of food subsidy to 1.25 percent of GDP from the current 0.9 percent of GDP
b) It may distort agricultural market - To enforce food the provisions of the Bill, the government will need to procure more foodgrains, which may see a rise in the Minimum Support Prices of those grains, thus incentivising their production while no such incentive will exist for other crops. In such a situation, production of other agricultural may decline.
c) It may also lead to food inflation

Overall, it is a positive move but India will need to guard against the pitfalls of the Bill. It will also need to revamp its PDS and correctly identify the beneficiaries. 

Inclusive Growth

Inclusive Growth has become a buzzword in the political discourse of India. Simply put, inclusive growth refers to a process of growth in which people from all walks of life benefit significantly from the process.

Inclusive Growth should result in reduction of poverty and elimination of disparities -social, economic and regional. The 12th Plan is titled "Faster, More Inclusive and Sustainable Growth", hence, bringing the debate on inclusive growth to the forefront. In the Indian context, it has been realized that the rapid rate of growth achieved in the post-reforms period has not been inclusive.

Poverty in India continues to be a major socio-economic problem as it was in 1950. The rate of poverty reduction has not been very fast in the post-reform period as was expected. Regional Disparities have increased with foreign investment flowing more to regions that are already more developed. In such a scenario, inclusive growth is the need of the hour.

How can we achieve inclusive growth?
Some strategies that can work in the Indian context are ->
a) Growth in Agriculture - Agriculture in India continues to be a key sector with more than half of the population engaged in it. However, its share in national income has been declining over the years. In such a situation, growth in agriculture will ensure greater prosperity to our farmers, will further enhance the demand for industrial products and services, thereby providing impetus to our industrial and services sector.

Growth in agriculture can be achieved through strict implementation of land reforms, better infrastructure and proper marketing.

b) Increase Expenditure on Education - Education is the key to alleviating poverty as it enhances employability. The public expenditure on education has not yet crossed 4 percent of GDP when several education commissions have, from time to time, said that it needs to be hiked to atleast 6 percent of GDP. RTE needs to be implemented more strictly, and supported by increase in secondary and tertiary education capabilities to absorb the students emerging out of primary schools

c) Increase Expenditure on Health - Poverty and Health are interlinked. Poor Health can bring even the non-poor to poor category. The public expenditure on health is low at just over 1 per cent of GDP. This needs to be raised to atleast 3 percent of GDP as has been recommended from time to time by various committees.

d) Governance - Now, this is something that is very crucial for inclusive growth. Poor governance leads to less than optimum outcomes of the outlays. Red Tapism and Delay also contribute to poor investor sentiment ultimately affecting investment and production. The system needs to get rid of corruption which poses huge economic costs and affects the poor adversely.

Though India's growth in the past decade has been able to benefit the poor to some extent, it certainly needs to be made more inclusive.