Editorial Simplified: The Shape of an Urban Employment Guarantee| GS – III


Relevance: GS Paper III (Economy)


Theme of the Article

Such a programme will not only improve worker incomes but also have multiplier effects on the economy.


Why has this Issue Cropped Up?

India is in the midst of a massive jobs crisis. The unemployment rate has reached a 45-year high (6.1%) in 2017-18.


The Job Crisis

  • The unemployment problem is especially aggravated in India’s cities and towns.
  • Aside from unemployment, low wages and precarity continue to be widespread.
  • In urban India the majority of the population continues to work in the informal sector.

India’s Towns Ignored

  • India’s small and medium towns are particularly ignored in the State’s urban imagination.
  • Both State and Central governments tend to treat towns as “engines of growth” for the economy rather than spaces where thousands toil to make a living.
  • Programmes such as the Swarna Jayanti Shahari Rozgar Yojana (1997) that included an urban wage employment component have made way for those focussed on skilling and entrepreneurship.
  • National-level urban programmes such as the Smart Cities Mission and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) only benefit only a few towns.
  • Most ULBs ( urban local bodies ) are struggling to carry out basic functions because of a lack of financial and human capacity. Further, with untrammelled urbanisation, they are facing more challenges due to the degradation of urban ecological commons.

Way Forward

  • We need new ways to promote the sustainable development of India’s small and medium towns.
  • It is worthwhile considering to introduce an employment guarantee programme in urban areas. Along with addressing the concerns of underemployment and unemployment, such a programme can bring in much-needed public investment in towns.
  • In Madhya Pradesh, the new State government has launched the “Yuva Swabhiman Yojana” which provides employment for both skilled and unskilled workers among urban youth. Such programmes can be emulated by other States as well.
  • ULB should receive funds from the Centre and the State at the beginning of each financial year so that funds are available locally. Wages would be disbursed in a decentralised manner at the local ULB.
  • Urban employment programme should not come at the expense of MGNREGA but rather the two should go hand-in-hand.
  • Urban informal workers with limited formal education can undertake standard public works such as building and maintenance of roads, footpaths and bridges for a guaranteed 100 days in a year, at ₹500 a day.
  • “Green jobs” can be provided which include the creation, restoration/rejuvenation, and maintenance of urban commons such as green spaces and parks, forested or woody areas, degraded or waste land, and water bodies.
  • Further, a set of jobs that will cater to the “care deficit” in towns by providing child-care as well as care for the elderly and the disabled to the urban working class should be included.
  • Unemployed youth with higher education can assist administrative functions in municipal offices, government schools, or public health centres, and for the monitoring, measurement, or evaluation of environmental parameters.
  • Strong transparency and accountability structures — disclosure of information, periodic social audits, public hearing, timely grievance redressal for workers should be employed.

Conclusion

An urban employment guarantee programme not only improves incomes of workers but also has multiplier effects on the economy. Hence, the time is ripe for an employment guarantee programme in urban India.


 

Editorial Simplified: Passing ASAT| GS – III


Relevance: GS Paper III


Theme of the Article

ASAT is no substitute for the long overdue policy debate on India’s security challenges in outer space.


Introduction

India has become only be the fourth country to test an ASAT weapon after the US, Russia and China.


ASAT Tests by other Nations

  • The first ASAT tests by Washington and Moscow go back to the 1960s.
  • China tested its first ASAT weapon in 2007.

India Lags Behind

  • All three national which have done ASAT tests have stepped up their work on space weapons since.
  • Beijing and Moscow are said to be close to deploying space weapons.
  • In the US, President Donald Trump has announced the intent to create a space force that can fight wars in the dark yonder.
  • India has a long way to catch up.

Analysing India’s ASAT Test

  • India’s ASAT test targeted a satellite in a low earth orbit of 300 km.
  • It builds on its already demonstrated missile defence systems.
  • India has had ASAT capabilities for long previous governments had denied permission to develop and test them.
  • The test conducted is more about Delhi’s changing approach to space weapons than a great technological breakthrough.
  • One ASAT test based on modest technologies, however, is no substitute

India’s Earlier Stand on ASAT Tests

  • Although space has become an arena for great power jousting and the technology to build space weapons has advanced rapidly, India argued in international forums against the weaponisation of outer space.
  • Despite the growing dependence of India’s armed forces on communication and reconnaissance satellites, the civilian leadership has resisted the development of effective higher defence structures to manage the emerging space threats.

Conclusion

Delhi’s explicit demonstration of space weapon capabilities is welcome, but it must be part of a clearly articulated military space doctrine that identifies India’s political objectives and technological goals in outer space and the strategy to realise them.


 

Editorial Simplified: Maximum Gambit| GS – III


Relevance: GS Paper III (Economy)


Why has this Issue Cropped Up?

The Congress party has promised to transfer ₹6,000 a month to poor households if it comes to power. This  income transfer scheme has been named Nyuntam Aay Yojana (NYAY).


The Hurdles to Implementation of a Proposed Scheme like NYAY

  • The fiscal expenditure, to transfer ₹72,000 every year to the poorest 20% of the approximately 25 crore Indian households, would be ₹3.6 lakh crore.
  • This amount is twice the estimated amount set aside for food subsidy and five times that for fertilizer subsidy in the 2019-20 Union Budget.
  • There is also the additional problem of the identification of the poor — the Socio-Economic and Caste Census of 2011 is the most comprehensive exercise for this, but it has been riven by reliability and authenticity issues and has only been partially released to the public as yet.
  • By having an inbuilt provision of targeting the beneficiaries, NYAY can fall short as other programmes have, such as the targeted public distribution system.

Not an Unsound Idea

  • The idea behind NYAY is not entirely unsound. An unconditional transfer of a specified minimum income support to the poor will go a long way in helping address immediate needs related to health, education and indebtedness.
  • A large section of the targeted poor would include landless workers and marginal farmers in rural areas, and unemployed youth in families engaged in menial labour in urban areas.
  • Besides shoring up income to meet such basic needs and pushing wages upwards, the transfer scheme can help spur demand and consumption in rural areas in particular.
  • A section of the beneficiaries could withdraw themselves from employment but this could be mitigated by the expected overall spur in demand in the economy through consumption, and by the rise in real wages consequent to the shrinking of the labour market.
  • Limited cash transfers in the form of direct farm income support in States such as Telangana and Odisha have helped ameliorate agrarian crises. This was the reason why the central government came up with the PM-KISAN Yojana as a countrywide scheme.

Conclusion

A massive programme such as NYAY requires much more homework for its implementation. A dole is not a magic bullet; it can only be one among a clutch of robust and prudent welfare policies.


 

Editorial Simplified: Another Look at Fiscal Transfers| GS – III

Relevance: GS Paper III (Economy)


Theme of the Article

The time has come to amend the Constitution to fix the proportion of shareable taxes for the States.


Introduction

It is well known that the efficiency of a government depends on, among other factors, its structure. In large countries, it has been felt that only a federal structure can efficiently meet the requirements of people from different regions.


Fiscal federalism

  • Fiscal federalism is the economic counterpart to political federalism. Fiscal federalism is concerned with the assignment on the one hand of functions to different levels of government, and with appropriate fiscal instruments for carrying out these functions on the other.
  • It is generally believed that the Central government must provide national public goods that render services to the entire population.
  • An important question in fiscal federalism is the determination of the specific fiscal instruments that would enable the different levels of government to carry out their functions. This is the ‘tax-assignment problem’.

Mobile and Benefit Taxes

  • It is generally argued that the de-centralised levels of government should avoid non-benefit taxes and taxes on mobile units. This implies that the Central government should have the responsibility to levy non-benefit taxes and taxes on mobile units or resources.
  • Building these principles into an actual scheme of assignment of taxes to different levels of government in a Constitution is indeed very difficult. Different Constitutions interpret differently what is mobile and what is purely a benefit tax.
  • For example, in the United States and Canada, both Federal and State governments have concurrent powers to levy income tax. On the contrary, in India, income tax is levied only by the Central government though shared with the States.

Taxation in Indian Constitution

  • The Indian Constitution lays down the functions as well as taxing powers of the Centre and States.
  • The issues relating to the correction of vertical and horizontal imbalances have been addressed by every Finance Commission.
  • However, Central transfers to States are not confined to the recommendations of the Finance Commissions. There are other channels such as those through the Planning Commission until recently as well the discretionary grants of the Central government.

Trends in Distribution of Tax Receipts

  • In 2010-11, in the combined revenue receipts of the Centre and States, the share of the Centre was 64.68%. After transfer, the share came down to 40.20%.
  • In the case of the States, their share before transfers was 35.32%. After the receipts of transfers the share of States went up to 59.80%. Thus the shares got reversed.
  • In 2016-17, the share of the Centre after transfers was 33.37% and that of the States was 66.63%. In the case of total expenditures, the share of the Centre in 2014-15 was 41.14% and that of the States was 58.86%.

New Developments

  • The Fourteenth Finance Commission has broken new ground in terms of allocation of resources.
  • One of its major recommendations has been to increase the share of tax devolution to 42% of the divisible pool. This is a substantial increase by almost 10 percentage points.
  • The commission has argued that this does not necessarily affect the overall transfers but only enhances the share of unconditional transfers.

The Encroachment by Centre

  • It is true that Centrally sponsored schemes, which have ballooned in recent years, may have ‘encroached’ on the territory of States.
  • Today, the Central government is held responsible for everything that happens, including, for example, agrarian distress. In viewing the responsibilities of the Centre and States we must take a broader view than what is stipulated in the Constitution.

Unconditional Transfers

On the allocation of unconditional transfers, two questions arise.

  • The first is to determine the total transfers that need to be made, while the second is whether all transfers must be done by the Finance Commission alone.
  • The Planning Commission was replaced by the NITI Aayog, which was simply a think-tank with no powers of resource allocation. In this context perhaps what the Fourteenth Finance Commission did was justifiable.

Way Forward

  • Perhaps the time has come for the Constitution to be amended and the proportion of shareable taxes that should go to the States fixed at the desired level.
  • The shareable tax pool must also include cesses and surcharges as these have sharply increased in recent years. Fixing the ratio at 42% of shareable taxes, including cesses and surcharges, seems appropriate.
  • Another possible route is to follow the practice in the U.S. and Canada: of allowing the States to levy tax on personal income, with some limitations. Since one of the concerns is that resources do not match functions, this may be a way out.
  • The levy by the Centre and States together should be reasonable. Also once this power is given to the States, the transfers from the Centre need adjustment. As far as India is concerned, this is an area which needs a fuller study. Adoption of any one of these alternatives will avoid friction between the Centre and the States.
  • The ability of bringing about equalisation across States in India has limitations. The relatively richer States have feel ‘cheated’ because of the overuse of the equity criterion. An appropriate balancing of criteria is needed.

Gist of Editorials: Harmonising NBFCs | GS – III


Relevance : GS Paper III ( Economy)


Why has this issue cropped up?

The RBI recently spoke about harmonisation of the various categories of NBFCs.  

Categories of NBFCs in India

  • Of the more than 10,000 NBFCs operating in India, 95 per cent are non-deposit taking.
  • The others include asset financing, micro-finance, and core investment companies.

Problem with categorisation of NBFCs

Too many categories increase compliance cost for the industry and monitoring cost for the regulator.

Harmonization

  • RBI will  now recognise only two categories, NBFCs and CICs.
  • It will effects future growth and business direction of NBFCs.

The issues that need to be addressed

The key questions that the RBI should address are:

  • Should we have the same set of regulations for all NBFCs ?
  • How can RBI enforce prudential risk measures for each asset class?
  • Should banks and NBFCs operate under equitable regulations?

Way forward

  • Separate regulations for each activity will increase compliance cost.
  • There is a need to differentiate between assets based on inherent risks.
  • A risk weight mechanism based on the expected losses is the need of the hour.
  • Allow the poor to monetize their meagre gold assets better by doing away with the cap.
  • Gold loans by NBFCs do not get the priority sector lending status. This needs to change.
  • While the RBI is the lender of last resort for banks, the NBFCs currently do not have any such institutional mechanism.

Gist of Editorials: Safety Nets | GS – III


Relevance : GS Paper III ( Economy)


President  promulgated the Banning of Unregulated Deposit Schemes Ordinance.

The ordinance bars all deposit schemes in the country that are not officially registered with the government.

How will the ordinance help?

  • Savings of low-income Indian households may get some protection now.
  • Greater legal protection can be offered for those depositors with inadequate financial literacy.

Provisions of the ordinance

  • creation of a central repository of all deposit schemes under operation
  • compensation to be offered to victims

Popular deposit schemes

  • these have helped in saving for people in the unorganised sector.
  • These were not regulated by the govt.
  • These unregulated schemes have been misused by some miscreants

The challenge posed by the ordinance

It dissuades depositors from conducting the necessary due diligence before choosing to deposit their money.

Way forward

  • proper implementation of the ordinance is needed.
  • savings of low-income households should be protected.
  • there must be checks against persons in power misusing the new rules

Gist of Editorials: Tightrope Walk | GS – III


Relevance : GS Paper II & III ( Polity & Governance & Science & technology)


A balance between free speech and curbing misinformation is proving to be a challenge .

The across the globe are demanding more aggressive intervention by internet platforms in filtering the content they host.

India’s recent intervention

Draft of the Information Technology Act 2018 mandates the platforms to remove or disable public access to unlawful information or content.

Is such an intervention justified?

  • The vague wording of the law does not provide clarity.
  • It can lead to over-compliance to avoid expensive litigation.
  • The govt is engaging in ‘censorship by proxy’ through private sector.

Problems with automated technologies

  • Incomplete or inaccurate training data
  • Further, an algorithmically driven solution is an amorphous process.

Way forward

  • crafting of mechanisms that can differentiate between false content and unlawful content.
  • users of an online platform should be encouraged to regulate the flow of information.
  • oversight and grievance redressal mechanism to address any potential violation
  • use of Application Programme Interfaces (APIs) or ‘Public Interest Algorithms’
  • community driven social mechanisms to raise awareness

Conclusion

A mix of empirical and legal analysis is needed to calibrate a set of policy interventions that may work for India today.


 

Editorial Simplified: Safety Nets| GS – III

Relevance: GS Paper III (Economy)


Theme of the article

New rules on unregulated deposit schemes need to be backed up with proper checks.


Why has this issue cropped up?

President  promulgated the Banning of Unregulated Deposit Schemes Ordinance.


What does the ordinance aim at?

The ordinance bars all deposit schemes in the country that are not officially registered with the government from either seeking or accepting deposits from customers.


How will the ordinance help?

  • The savings of low-income Indian households have traditionally remained unprotected by the government when compared to those of the more affluent economic groups. But that may change now after the promulgation of the ordinance.
  • This attempt to curb unregulated deposit schemes through an ordinance reflects a timely recognition of the need for greater legal protection to be offered for those depositors with inadequate financial literacy.

Provisions of the ordinance

  • The ordinance will help in the creation of a central repository of all deposit schemes under operation, thus making it easier for the Centre to regulate their activities and prevent fraud from being committed against ordinary people.
  • The ordinance allows for compensation to be offered to victims through the liquidation of the assets of those offering illegal deposit schemes.

Popular deposit schemes

  • Popular deposit schemes such as chit funds and gold schemes, which as part of the huge shadow banking system usually do not come under the purview of government regulators, have served as important instruments of saving for people in the unorganised sector.
  • But these unregulated schemes have also been misused by some miscreants to swindle the money of depositors with the promise of unbelievably high returns in a short period of time.
  • The Saradha chit fund scam in West Bengal is just one example of such a heinous financial crime against depositors.

The challenge posed by the ordinance

A potential risk involved when the government, as in this case, takes it upon itself to guarantee the legitimacy of various deposit schemes is that it dissuades depositors from conducting the necessary due diligence before choosing to deposit their money.


Way forward

  • While the intent of the ordinance, which is to protect small depositors, is indeed commendable, the benefits that depositors will eventually derive from the new legislation will depend largely on its proper implementation.
  • Policymakers will have to make sure that the bureaucrats responsible for the on-ground implementation of the ordinance are keen on protecting the savings of low-income households.
  • There must also be checks against persons in power misusing the new rules to derecognise genuine deposit schemes that offer useful financial services to customers in the unorganised sector.

Conclusion

The passing of tough laws may thus be the easiest of battles in the larger war against illicit deposit schemes.


 

Editorial Simplified: Harmonising NBFCs| GS – III

Relevance: GS Paper III (Economy)


Why has this issue cropped up?

The RBI recently spoke about working towards harmonisation of the various categories of NBFCs involved in credit intermediation. This is a welcome step.


Categories of NBFCs in India

  • Of the more than 10,000 NBFCs operating in India, 95 per cent are non-deposit taking.
  • The others include asset financing, micro-finance, and core investment companies.

Problem with categorisation of NBFCs

Too many categories increase compliance cost for the industry and monitoring cost for the regulator.


Harmonization

  • When the RBI releases the guidelines for harmonised entities later this month, it will recognise only two categories, NBFCs and CICs.
  • The effects of the harmonised regulations could have far-reaching implications for the future growth and business direction of NBFCs.

The issues that need to be addressed

The key questions that the RBI should address are:

  • Should we have the same set of regulations for all NBFCs even as they vary widely in their business focus and sources of funding?
  • How do you enforce prudential risk measures for each asset class, while preventing distortionary anomalies from arising post implementation of ‘activity based’ regulations?
  • And, should banks and NBFCs engaged in similar activities operate under equitable, non-discriminatory regulations?

Way forward

  • Separate regulations for each activity that an entity is involved in would increase compliance cost, which will hit smaller players more.
  • On activity-based regulations, there is a need to differentiate between assets based on inherent risks. Risk weights could then be prescribed based on the quality of asset and tenure.
  • A risk weight mechanism based on the expected losses considering the probability of default, the loss given default, duration and exposure at default is the need of the hour.
  • The RBI must allow the poor to monetise their meagre gold assets better by doing away with the cap.
  • Gold loans given to farmers by banks are classified as priority sector lending whereas gold loans by NBFCs do not get the benefit. Ideally, the RBI can bring all such lending into the priority sector ambit, whether the exposure is by banks directly, or indirectly through NBFCs.
  • There is also a case for considering small ticket gold loans as micro-credit and, therefore, priority sector lending.
  • Lastly, while the RBI is the lender of last resort for banks, the NBFCs currently do not have any such institutional mechanism. To protect the interests of the marginalised borrowers, the RBI should open a direct source of funds for NBFCs, even as a short-term measure till the debt market returns to normalcy.

Editorial Simplified: To Create Jobs| GS – III


Relevance: GS Paper III (Economy)


Theme of the article

To create jobs, focus on the small sector Improving the ease of doing business for small and medium business is key to job creation.


Introduction

The Indian economy is the fastest growing among all major economies in the world. However, last year the unemployment rate touched a four-decade high.


Present economic situation offers no hope to provide jobs

  • With every new generation coming in, fragmentation of farm holdings will continue and migration to urban areas will increase. A sustainable agriculture will have to make do with fewer and fewer cultivators.
  • Large-scale manufacturing projects attract big ticket investments and incorporate latest technologies. Cost of capital to cost of labour has drastically come down in recent years, thus raising the attractiveness of bringing in new technology which will kill jobs.
  • The current rise in digital technologies, automation and robotics has strengthened these trends further.
  • The government sector was once a key source of formal jobs but extensive use of contract employment and outsourcing to private firms, which also hire contract workers, has dealt a severe blow to quality jobs.
  • By far the most potent policy weapon for creating new jobs at the bottom of the pyramid which reduces distress is the rural employment guarantee programme (MGNREGA). But here also allocation as well as attention to glitches are inadequate.

How to address this crisis of joblessness?

  • The place to look for new jobs is businesses at the bottom of the pyramid and the place to begin is small units, even unincorporated ones where the business and the proprietor are financially undifferentiated. A favourable policy environment needs to be created for them.
  • The same potential for growth and job creation exists among the small-scale sector.
  • Thereafter come the small to medium size units which are incorporated and form the bottom rung of the corporate sector.
  • The maximum policy focus has to be on improving the ease of doing business for small and medium business, contrary to the focus so far on the demands of the corporate sector which wields substantial lobbying power.
  • Infrastructure for small businesses has to be available at a minimum. Without adequate and affordable power, water and access to roads, neither business nor jobs can prosper. Here local governments have to take the initiative.
  • While the job potential in agriculture and industry is limited, it is the opposite in the case of services. Accounting for the largest chunk of India’s GDP service sector jobs exist not just in urban and semi urban areas but in the countryside too. Infrastructure is needed to take these urban amenities to rural areas.
  • The one magic key to job creation is skills creation. In this the Indian administrative system has proved to be woefully inadequate. So policies and programmes are there waiting to be implemented.