Tuesday, November 19, 2013

Why India cannot become a superpower soon?

India is a developing country. It seems to be catching up with the biggest economies of the world, increasing at a fast rate. From IMF to World Bank, everyone seems to be convinced that India will become a superpower by 2050s. But we should not get deceived by their sugar-coated words before examining the truth ourselves.

Wait a second. So, is India not going to become a superpower soon? Before deciding the answer yourself, let’s look at some hard facts about India’s youth and its education system-

Utter Neglect of Talent in India – India has a population of over 1.2 billion. Naturally, talent is abundant in our population. But how many are able to express their talent? The answer is ‘very few’. This is because the avenues are limited. How often do we see a talented tennis player in our backyard rise to his potential? You would often end up seeing them doing clerical work in some office after 20 years.  Despite having so much talent in so many sports, Indians fare poorly in Olympics or any other international tournament. This is not just a case in sports. You can recall a talented harmonium player, a guitarist, an entrepreneur, etc. Almost all bear the same fate.

Employment for youth – If one were to look at the employment opportunities for youth in India, they are again limited. Most of the jobs that fresh college graduates can get in the public sector are at the clerical level. Jobs are also being created by the private sector but most of such jobs are often in the lowest levels of the hierarchy. The coveted civil services exam is open to just a handful of young graduates. So, what can the youth do? They are either forced to do an MBA to get a serious job in the private sector that pays sufficiently or they will have to migrate from India to other countries if they are intellectually and financially capable enough. Or else, they end up unemployed without finding a job of their choice.

Elite nature of our higher education system – In India, education is being seen as a “good-return” investment rather than a service. As more and more private players are entering in the education “business”, the cost of education is increasing and access is getting limited. Poor students cannot even dream of getting admission in such colleges. With government colleges taking only limited admissions and their quality getting degraded by the day, the poor really don’t stand a chance. The facts are clear on this. Our enrollment ratio is just around 15 percent in higher education, starting from over 95 percent in primary education. So, why has enrollment declined so rapidly? Again, the reason is clear.

Lack of creativity in our classrooms – How often do you find a teacher talk about something that gets you to think? More often than not, they will be busy covering the syllabus which in itself is so designed that many lose interest in between. The output is known to all of us. Our system ends up producing followers rather than leaders, who cannot challenge the status-quo. How many Indians dream of doing something big? The answer again is ‘very few’.

These are just some of the harsh truths that India is facing at present. Instead of thinking about the nature of education and prospects for its youth, the country is marching forward, probably thinking that it will soon become a superpower. But no edifice can rest firm without a strong base and the youth of today are the future of tomorrow who will have to carry forward India’s growth story. If India fails its youth, soon it will fail too.

Friday, October 4, 2013

Index of Backwardness - Raghuram Rajan Panel

India is one of the fastest growing economies of the world. But, it does not mean that all States and all regions in India are growing equally fast or that all States are at an equal stage of development.

Why is there such a regional imbalance?
Regional Imbalances can be both natural and man-made. Natural imbalances are due to differences in resource endowments of different areas. Man-made imbalances are, however, created over a long period of time due to several reasons such as wrong policies of the State government, inappropriate infrastructure development, low focus on human development etc.

In India, what has emerged after five decades of Independence is that Eastern and Northern States form a separate category of States that lag in levels of development than the western and southern states. These differences have accentuated in the post-reforms period.

What are the consequences of such regional disparities?
Regional Disparities present host of problems. Some of them are -
a) The most common and visible problem is the demand for separate Statehood by different groups in several States.
b) There are demands of greater fund devolution by the Union to the States that are backward.
c) There are problems of migration, and resultant crowding in developed regions and causes several problems like shortage of housing, water, rise in crimes etc.

How to deal with this?
In India, the government is conscious of the rising disparities among States and regions among States. The condition of backwardness is taken into account when devolution of taxes takes place on the recommendation of Finance Commission by the Union to the States. The Government also has a separate Backward Grants Fund which is used to fund projects in backward areas. It also provides various subsidies to companies undertaking development projects in backward regions.

The voices for giving more funds to backward States by the Union has come to the center-stage of national politics. Some States want that the whole methodology of fund devolution should be comprehensively changed and a new indicator should be created that reflects the reality of backwardness. In view of such demands, the government constituted a panel headed by Raghuram Rajan to chalk out an indicator of relative backwardness of States.

After few months of deliberation, the panel suggested an index of backwardness based on equal weightage to ten different parameters. On this index, Goa came out to be the most developed State while Odisha and Bihar occupying the bottom two positions.

Should government implement the recommendations?
It would not be easy for the government to push through them because they will require enormous political will to get implemented.
However, the index of backwardness is important. It is the duty of the Union to ensure that all States grow equally and have sufficient opportunities for development. In the post-reforms era, the States that have earlier been better-off in terms of infrastructure and human development have been able to attract investment easily while the backward States could not attract much investment. In such a scenario, recognizing backwardness holistically and correctly is very important so that greater funds can be given to States that lag behind and enable them to come up to the level of other developed States. Failing to do so will only give rise to other socio-economic problems.

Tuesday, October 1, 2013

Rural Development

Around 70 percent of India's population lives in rural areas. A rural area is often characterized by an agrarian society, conservative mindset, heavy population pressure on land etc.

Rural Development refers to improving the quality of life of people living in rural areas. This means a holistic development in terms of social and economic parameters.

Why is rural development important?
a) It will lead to an overall development of the economy - Since rural areas are inhabited by millions of people, their prosperity will generate greater demand for manufactured goods and services.

b) It will generate jobs in rural areas - Disguised Unemployment seems to be a major constraint in the development of rural areas. With rural development, enough jobs are expected to be generated which will tackle this problem.

c) It will lead to reduction of poverty - Rural areas are home to a large number of poor of India. Rural Development will of course lead to reduction in poverty by generation of greater employment opportunities.

d) It will solve the problem of haphazard rural to urban migration - If sufficient jobs are created in the rural areas, then the migration of people from rural to urban areas will also be contained. This will indirectly tackle the problems emerging out of rapid urbanization in India.

Various schemes are in place to encourage the development of rural areas. Some of the most important ones are the MGNREGA, IAY, etc.

The fund allocation for rural development has seen a tremendous increase with every subsequent Five-Year Plan. Despite this, the conditions have not improved significantly.

How to achieve rural development?
a) Improving Infrastructure - Both physical and social infrastructure are lacking in rural areas. Improvement in infrastructure will lead to greater agricultural productivity as well as encourage manufacturers to establish industries there.

b) Human Development - Education and Healthcare are the key to human development. This will make them more employable as well as unleash their entrepreneurial potential.

c) Greater thrust on food processing - Food Processing industries are particularly suitable for rural areas and have great employment potential. Besides, the source of raw material is also available close-by.

d) Proper Implementation of Centrally-Sponsored Schemes - Implementation of schemes has been lackadaisical which has resulted in wastage of enormous funds without making the desired impact. Schemes need to be properly introduced and properly implemented.

With these measures, we can hope to see changes in the profile of our villages soon enough.

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.