9 PM Daily Brief – May 14th ,2020

9 PM for Main examination

GS-2

1. What are the Changes required to address the disparities after the pandemic?

GS-3

2. How stimulus will help MSME?
3. Revival of Indian economy in post-COVID era
4. Atmanirbhar Mission (Self- Reliant India)

9 PM for Preliminary examination

FACTLy

1.What are the Changes required to address the disparities after the pandemic?

Source: The Indian Express

Syllabus: GS 2-Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Context: The COVID-19 pandemic will be brought under control one day. There are talks of addressing the root causes that led to the vulnerabilities that have come to the fore during the pandemic. It seems that a fundamental aspect of the future will be to ensure livelihood security and living in harmony with nature.

Local empowerment of disadvantaged for fast forwarding development:

• Empowerment: The have-nots becoming empowered enough to find their own solutions would be a far more effective approach to addressing human deprivation than relying on the vendor-buyer transactions between haves and have nots.
• Balance between nature and human needs: The balance between meeting the development needs of all humans and the sustainability of mother earth will depend on solutions determined through science and technology (S&T).

The Credible Pandemic Management Plan should work on:

It should be a global action plan with pre-defined roles and actions at various levels going down to a locality.

1. Extremely dense population:
   1. Attractive jobs: To use our demographic dividend and knowledge technologies to quickly create attractive jobs in rural areas that make villages not only self-sufficient but net exporters.
   2. Capacity Building: To focus on education and skilling of the youth in rural areas which would build their capacity to earn livelihood in fields that go beyond the traditional concept of rural jobs, is necessary.
   3. Broadening of Schemes: To support rural youth wanting to transition to new-age jobs in addition to government schemes that encourage rural entrepreneurship.
   4. Bridging rural-urban gaps: To relieve high habitation density in urban areas to faster economic growth.
2. Current economic Models widen Disparities:
   1. To focus on people at grass root level: Agriculture, public health and rural education are crucial to the elimination of vulnerabilities.
   2. Investments at grassroot level: Currently they are significantly below the accepted benchmarks. For example, our health sector boasts of global competence to the extent of making India a health tourism destination but remains near the bottom of the table.
   3. Neutralizing market forces: We need such policies to reduce disparities created by market forces.
3. Pricing principles based on the true cost of value addition:
   1. Focus on value addition: The transactions along the value chain should be restricted only to those who add value.
   2. Non exploitative Arrangement: By Leveraging modern technologies and creative business formats particularly to the grass roots producers and the consumers.
4. Balanced Land use pattern:
   1. Optimum Distribution of Land: For habitat and food for humans as well as animals, industry and other economic activities including infrastructure, energy, forest cover and water management.
   2. Holistic approach: Agriculture, water, energy and environment are heavily connected and need to be deal in a holistic manner.
5. Holistic Education System:
   1. Enabler of Demographic Dividend: Education merits maximum attention and is necessary to leverage the opportunities of the knowledge era.
   2. Importance of Technology: Technology is of crucial importance to address the issue of quality as well as access to education.

Way Forward

To make villages the engines of national development, we need to connect modern knowledge and research to benefit from knowledge era. The education system should enable outreach for technology, capacity building and livelihood enhancement for rural areas.

2.How stimulus will help MSME?

Source: The Indian Express

Syllabus: GS 3-Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Context: Finance Minister Nirmala Sitharaman announced some details of the Atmanirbhar Bharat Abhiyan economic package for relief to Medium, Small and Micro Enterprises (MSMEs) for dealing with COVID-19 crisis.

Credit Risk route:

• Instead of directly infusing money into the economy or giving it directly to MSMEs in terms of a bailout package, the government has resorted to taking over the credit risk of MSMEs.
• Benefit: It should help the formal banking system meet the credit demand of the MSME sector.

What are credit guarantees?

• Loans to MSMEs are given against property (as collateral) because often there isn’t a robust cash flow study available.
• Low availability of loans during the Corona crisis: Property prices are expected to fall and this inhibits the ability of MSMEs to seek loans. It also means that banks are less willing to extend loans.
• Assurance to banks: It assures the bank that its loan will be repaid by the government in case the MSME falters. For instance, if the government provides say a 100% credit guarantee up to an amount of Rs 1 crore to a firm, it means that a bank can lend Rs 1 crore to that firm; in case the firm fails to pay back, the government will make good all of Rs 1 crore.
• Bad Government finances: This pandemic has meant that government revenues will come under further pressure. For instance, experts are already talking of a GDP contraction of 5% to 10% in the current financial year. That will result in a revenue loss of anywhere between Rs 5 to 7 lakh crore.
• Issue of NPAs:Banks suspect that any new loans will only add to their growing mountain of non-performing assets (NPAs).
• Why the Credit Guarantee method? Banks had the money but were not willing to lend to the credit-starved sections of the economy while the government itself did not have enough money to directly help the economy.

What is the amount of credit guarantee provided to MSMEs? For those MSMEs which were running fine until the Covid-19-induced lockdown, the government has provided a credit guarantee of Rs 3 lakh crore.

• Emergency Credit Line: It is like an emergency credit line and for MSMEs that have an already outstanding loan of Rs 25 crore or those with a turnover less than Rs 100 crore.
• Tenure of loans: The loans will have a tenure of 4 years and they will have a moratorium of 12 months (that is, the payback starts only after 12 months). The loan should be taken before October 31, 2020.

Why Rs 3 lakh crore?

• Hope for recovery of loan: According to Hetal Gandhi, Director, CRISIL, the total outstanding loan to MSMEs by the banking and NBFC sector would be around Rs 16 to 18 lakh crore. Assuming that 80% of these loans are working capital loans where there would be a 20% incremental funding needs, that gives an amount of approximately Rs 3 lakh crore.
• Need extra money: Since these MSMEs were able to pay back before the crisis, there is no reason why they cannot after the crisis with some extra money.

What are the other measures?

• Subordinate debt scheme: A Rs 20,000 crore scheme which will allow loans to MSMEs that were already categorised as “stressed” or struggling to pay back. In this case, the government’s guarantee is not full, but partial.
• Another measure: The creation of a fund with a corpus of Rs 50,000 crore to infuse equity into “viable” MSMEs, thus helping them to expand and grow. The government intends to put in Rs 10,000 crore and get others like LIC and SBI to fund the remaining amount.
• Change in definition of MSMEs: Now MSMEs will be judged on turnover and there will be no difference between a manufacturing MSME and a services MSME. It will help because “turnover” is the more efficient way to identify an MSME and it also allows a lot of firms, especially in the services sector like mid-sized hospitals, hotels and diagnostic centres to be eligible for benefits as an MSME.

How far will these measures help?

• Dealing with Liquidity problems: They will most likely have a significant impact in helping MSMEs pay salaries and keep their heads above the water even as the economy slows down.
• Reach of scheme: This measure is expected to help as many as 45 lakh MSMEs. These are likely to be the medium and small enterprises, which employ almost 40% of all employees — although these enterprises themselves are very few in number (just about 0.5% of all MSMEs).

Are there any drawbacks to resorting to credit guarantees?

• Moral hazard: Such a guarantee leaves no incentive for either borrower to pay back — he has nothing to lose — or for the lender — the banker is assured of payback from the government so why should he bother to check if the borrower is deserving or not.
• Better option: A more prudent option would have been a split (say an 80%-20%) wherein the government assures to pay back only 80% of the new loan.

Way Forward

This is a welcome move which will increase liquidity for both distressed businesses and cash-starved workers and will provide a boost to the economy. But at the same time, it is quite likely that the government will have to start shelling out money in the next financial year when MSME NPAs rise once the moratorium is over.

3.Revival of Indian economy in post-COVID era

Source – The Hindu , The Hindu

Syllabus– GS -3- Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Context – Due to COVID impact, IMF slashed India’s growth rate for FY 21 to 1.9% from 5.8%

Immediate steps to revive economy:

1. Food and cash transfers – As lockdown has forced 122 million out of jobs and thus it has dampened the incomes as well as demand.

• • Food Corporation of India reported 77 million tonnes of food grain –For every individual providing 10 kg of free food grains per month for a period of six months which would ensure food security.
  • Cash transfer via JAM (JAN-DHAN-ADHAR) – Providing every household with ₹7,000 per month for a period of three months to ensure boost in demand.

2. Revamping MGNREGA work – For migrant workers who returned to their native places and for boosting local market affected due to slowbalisation.

• • Expanding its definition – Along with unskilled and manual labor, adding skilled work
  • The 100-day limit per household – Workhas to be provided on demand without any limit to all adults
  • Permissible workmust include – agricultural and construction work, work in rural enterprises and in care activities needs to be included.

3. The urban focus – Introducing an Urban Employment Guarantee Programme, to serve diverse groups of the urban unemployed, including the educated unemployed. Permissible work under this program –

• • Work in the MSMEsto ensure labour supply for the MSMEs and empowerment of vulnerable sections.

4. The ‘care’ economy – pandemic has underscored the extreme importance of a public health-care system. Thus, we need to take following steps:

• • ASHA and Anganwadi workers– Treating them as regular government employees and give them proper remuneration and associated benefits, and greatly expand their coverage in settlements of the urban poor.
  • Care work, including of old, disabled and ailing persons, educational activities, and ensuring public services in slums.

5. Mobilizing Resources– To increase public revenue:

• • Internal resource- A 2% wealth tax on the top 1% of the population and 33% inheritance tax – To reduce inequality as well as increase revenue.
  • External Resource– A fresh issue of special drawing rights by the International Monetary Fund.

Way Forward  – The new revival package along with suggested reforms has the ability to provide basic, universal, justiciable, fundamental economic rights: the right to food, the right to employment, the right to free public health care, the right to free public education and the right to a living old-age pension and disability benefits.

4.Atmanirbhar Mission (Self- Reliant India)

Source : The Hindu

Syllabus– GS-3 – Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Context – New India in post-corona world is getting vocal about local

About  Atmanirbhar Mission

1. Definition –It’s the socio-economic change intended to make India self-reliant in terms of producing goods and services. Total amount of Rs 20 lac crore or 10% of GDP has been allocated to achieve the mission. Self-reliance is different from being self-centered – India thus considers the challenges whole world is facing due to COVID and is willing to cooperate to overcome this crisis.
2. Pillars – Self-reliant India will stand on five pillars:

• • Economy, which brings in quantum jump and not incremental change;
  • Infrastructure, which should become the identity of India;
  • System, based on 21st century technology driven arrangements;
  • Vibrant Demography, which is our source of energy for a self-reliant India; and
  • Demand, whereby the strength of our demand and supply chain should be utilized to full capacity

3. Significance–

• • COVID Impact– The supply chain and global manufacturing controlled by Chinese economy got disrupted due to COVID. Thus there is a need to become self-reliant for essential goods and service like N95 masks, ventilators etc.
  • Capitalizing Demographic dividend – India has entered in the period of demographic dividend from 2018 and thus working age population has increased which needs to be employed at home.
  • Consumption-oriented Domestic Market – With India (1.37bn) set to surpass China (1.43bn) in becoming country with largest population by 2027, it also provides for increasing domestic demand which can be catered with locally produced goods.
  • Premature De-Industrialization – India shifted directly from agriculture (contributes 16% to GDP) to service (54% to GDP) based economy and thus industrial sector (30% to GDP) was bypassed unlike Eastern Tiger Economies which harnessed their manufacturing sector.
  • Ease of doing business and associated reforms– Goods and services tax, International arbitration center in New Delhi, Single window clearance system are the among many other reforms to boost investment in nation.
  • Compassionate Capitalism principle – This is not a rejection of globalisation, but a call for a new form of globalisation — from profit-driven to people-centric which takes into account the needs of labors, vulnerable and have nots.

Way forward– The slowing down economy as well as weaker forces of globalization demands a new path for the NEW INDIA. ATMANIRBHAR MISSION is a bridge for transforming into NEW INDIA which need balancing the interest of capital as well as labor to be effective and efficient.

9 PM for Preliminary examination

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