9 PM Daily Brief – May 19th ,2020

9 PM for Main examination

GS-2

1. Whether the conditions for borrowing by states put forward by centre are correct during Pandemic?
2. Probing the origins of the COVID-19.

GS-3

3. What are the solutions to the problems plaguing Indian agriculture?
4. Analysis of Atmanirbhar mission
5. Issues with Atmanirbhar mission

9 PM for Preliminary examination

FACTLy

1.Whether the conditions for borrowing by states put forward by centre are correct during Pandemic?

Source: The Indian Express

Syllabus: GS 2-Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.

Context: The State governments have been struggling due to reduction in their revenues following the near halt in economic activities because of the lockdown. Several state governments urged the Centre to relax the fiscal deficit limits imposed on them by the FRBM Act.

Fiscal deficit targets for states:

• The Fiscal Responsibility and Budget Management Act (FRBM Act), 2003, establishes financial discipline to reduce fiscal deficit of Central government.
• To ensure that the States too are financially prudent, the 12th Finance Commission’s recommendations in 2004 linked debt relief to States with their enactment of similar laws. The States have since enacted their own respective Financial Responsibility Legislation, which sets the same 3% of Gross State Domestic Product (GSDP) cap on their annual budget deficits.

Borrowing Power of State:

• Constitutional Power: States have the authority to borrow under Article 293 (1) of the Constitution.
• Consent of Central Government: The central government exercises control through Article 293 (3) which requires state governments that are indebted to the Centre to seek its consent before borrowing.

Decision by Central Government with respect to borrowing of States:

• Increase in Limit: The center raised the borrowing limit of state to 5 per cent of GSDP (Gross State Domestic Product), up from 3 per cent before.
• Benefit: Allowing states to borrow an additional Rs 4.28 lakh crore this year will provide them the resources to fight the COVID19 pandemic and will help them maintain their budgeted expenditure allocations.

Conditions for Borrowing by states:

Problems in Conditions:

• Imposing conditions for availing these additional borrowings may not be the wise approach in the current situation. As they don’t have much options for revenues.
• Cut back on spending during Pandemic: If some states may not be able to carry out the reforms, they will be ineligible to borrow more. Thus, they will be forced to cut back on their spending. Government spending is the only engine that can drive the economy currently.

Way Forward

States need to be assured of adequate resources to fight the corona pandemic. For which they need additional borrowing capacity. The conditions imposed on the additional borrowings should be eased to allow more fiscal space.

 2.Probing the origins of the COVID-19.

Source: The Indian Express

Syllabus: GS 2-Important International institutions, agencies and fora- their structure, mandate.

Context: The international attention is fixed on the question of an inquiry into the origin of the coronavirus and the WHO’s response to it. Australia is working with the European Union to promote a resolution at this week’s World Health Assembly (WHA), which brings ministers from all the member states of the WHO.

Resolution at WHO calls for:

• Scientific investigation: A scientific investigation into the origins of the virus.
• Impartial Evaluation: It calls for an “impartial, independent and comprehensive” evaluation into the international response to the corona pandemic.

International narrative against China’s handling of Pandemic:

• Wide support: The wide-ranging support for the resolution amidst the vocal Chinese opposition is impressive.
• Enough teething: It is said to have enough teeth to dig deep into the issues raised by the corona crisis.
• Changing dynamics: China had full control over the corona narrative on the issues involved till a few weeks ago. But the Trump administration’s aggressive questioning of China’s role in spreading the virus and its accusation that the WHO was complicit in keeping the world in the dark had not gone down well.
• Diplomatic setback: Some observers see a unanimous approval of the resolution (if approved) as a diplomatic setback for Beijing, since limiting the demands for an external inquiry has been a major political priority for Beijing.

Controlling narrative by China:

• Extensive diplomacy: China’s success in quickly getting things under control at home and its expansive mask diplomacy seemed to give Beijing an upper hand at the WHO.
• Chinese influence: China’s growing control in the developing world and bilateral economic levers against major developed countries appeared to insure against any serious international questioning of its handling of the virus.

Deeper issues that impact functioning of WHO:

1. Developing new international norms: To increase the obligations of states and the powers of the WHO in facilitating early detection and notification of pandemics. This will involve finding ways to bridge the contested notions of state sovereignty and collective security.
2. Question of funding: Over the decades, the WHO has become ever more reliant on voluntary contributions from governments and corporations rather than assessed contributions from the member states. This is going to leave the WHO rather vulnerable to pressures.
3. WHO is trying to do too many things:The WHO’s initial successes came when it focused on a few objectives like combating malaria and the elimination of small pox. A limited agenda might also make the WHO a more effective organization.

Way Forward

Any current effort to understand the origin and spread of the COVID-19 virus will be handy to develop a long-term strategy to deal with future pandemics. It necessarily involves a Sustained engagement with Beijing and other powers.

3.What are the solutions to the problems plaguing Indian agriculture?

Source: Livemint

Syllabus: GS-3- Agriculture: transport and marketing of agricultural produce and issues and related constraints

Context: The government announced a few farmer-friendly reforms as part of the financial relief package.

Possible solutions for the Indian agriculture Sector:

1. Securing livelihood:The agriculture sector employs more than 50% of total workforce in India. Securing livelihood farmers by increasing their incomes is important to reduce poverty and farmer distress.The government’s proposal to double the income of farmers by 2022 is a welcome step.  This would require action in the following fronts:

• • improve technologies by strengthening the seed sector and knowledge dissemination system,
  • agricultural diversification in favour of high value commodities
  • development of value chains
  • Ensuring minimum support price

2. Strengthening other sectors:A major problem crippling the agricultural sector is disguised unemployment. It is important to strengthen other sectors, especially the manufacturing sector to generate employment.  This would help raise standard of living of farming families.
3. Addressing regional and local needs:India has rich agro-climatic diversity. Thus, a one-in all policy is not suitable to address the challenges across regions. Government policies should thus adhere to regional and local needs.
4. Strengthening agricultural markets: It is important to strengthen the functioning of Agricultural Produce Marketing Committees (APMCs). Production and marketing centres should be linked and supplements to APMCs should be set up near farms through PPP.
5. Credit to tenant farmers: In India, most farmers are tenant farmers with no access to credit. It is important to ensure credit delivery to tenant farmers. Kalia scheme of Odisha government and PM-KISAN of the central government are welcome initiatives.
6. Addressing land fragmentation: Small size of land holdings and land fragmentation is major issue in Indian agriculture.  Land pooling and cooperative farming should be encouraged to address the issue.

Conclusion: The Indian agriculture sector has immense potential to drive economic growth and its high time to revive and boost the sector with local solutions and revamping policies.

4.Analysis of Atmanirbhar mission

Source – Indian Express

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

Aim of Mission – Self-reliance and economic empowerment

Sector wise Distribution of Rs 20 lakh crores

Agriculture package – Rs 1.63 lakh crore includes farm-gate and aggregation point infrastructure, fisheries, animal husbandries, and others (animal vaccination, micro food enterprises).

 Non-bank liquidity package – Rs 5.94 lakh crore includes MSMEs, NBFCs, MFIs, housing finance companies, power discoms, and others (PF, tax relief).

Migrant and farmer package – Rs 3.16 lakh crore includes concessional credit via kisan credit card, farmer working capital, affordable housing, and others (food, street vendors and microloans).

Welfare and health package – Rs 1.85 lakh crore includes women and pensioner benefits, MNREGA, emergency health response, and others (food, financial security).

RBI’s liquidity measures –  Rs 5.24 lakh crore includes two phases of targeted long-term repo operations, CRR cut, marginal standing facility limit increase, refinancing facilities, and mutual fund special liquidity facility.

Advantages

1. Impact on fiscal deficit– In current fiscal year, fiscal deficit will not be affected much however it is expected to rise in subsequent fiscal years.
2. Promoting private sector’s participation – The mission aims to promote new public-private partnerships and do away with the monopolies of public sector. This in turn will pave way for efficient utilization of resources, better competition and innovation.
3. Becoming part of global supply chain– Manufacturing of goods, especially essential ones, will make India self-reliant in times of crises when supply chain gets disrupted. Also export from India will get boost which will reduce current account deficit.

Challenges in attaining economic empowerment

1. Inadequate formalization– According to ILO, nearly 81% of India’s employed population is in informal sector which is characterised by lack of social security net.
2. Premature deindustrialisation– India, directly transformed from agriculture based society to service based economy and industrial sector was bypassed with growth in industry remaining stagnant.
3. Slow urbanisation– According to Census 2011, only 31% of Indian population tin urban areas which are the economic engines of nation.
4. Insufficient financialization– A process whereby financial markets, financial institutions, and financial services gain greater influence and this also includes extent of financial inclusion of citizens.
5. No focus on skilling– According to the India Skills Report 2019-20, only 46 per cent students were found employable or ready to take up jobs in 2019.

Need of Atmanirbhar mission 2.0

1. Civil service reformwhich has become the steel cage from steel frame need reforms like lateral entry, code of ethics etc.
2. Government reform– It involves rationalizing the size of cabinet for maximum governance and minimum government.
3. 3. Financial reform– Sustainably raising credit to GDP ratio from 50 per cent to 100 per cent and increasing level of financial inclusion in formal financial institutions.
4. Urban reform– Creating 100 cities with more than a million people rather than current 52 to decongest the latter one and create new opportunities in new cities.
5. Labor reform– The regulatory cholesterol for employers and lack of security net for employees are the challenges which needs urgent reforms.
6. Skill reforms– Transforming education as well as industry-academia relation for better skilling of labor force.

Way Forward – Atmanirbhar mission 1.0 and much needed 2.0 will make India attain its economic tryst with destiny and transform it into global manufacturing hub of 21^st century.

5.Issues with Atmanirbhar mission

Source – The Hindu

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

Context – Centre has announced that the relief package under Atma nirbhar mission has fiscal cost of 10% of GDP which is being challenged by economists now.

Issues with Atmanirbhar mission

1. Actual fiscal cost .8% to 1.2% of GDP– According to leading economists and firms, the actual fiscal cost is not 10% of GDP as the relief package has more of credit guarantee and liquidity support (around 75%) and fiscal spending is very less.
   Further, it is not clear that .8% to 1.2% of GDP expenditure is over and above the Budgeted expenditure or will it be funded by expenditure cuts in the budget of FY21.

2. Major sectors not given direct stimulus– The tourism industry and automobile sector found no mention in the relief package. This affects millions employed in these sectors, the investment done as well as exports and thus affecting the overall growth of service sector-based economy.
3. Focusing on middle and long-term growth– The pandemic has been used by government for long pending and politically sensitive structural reforms and thus it will not boost demand by consumers in short run which is the need of the hour.

Implications

1. Decline in growth in FY21-The National Council of Applied Economic Research (NCAER) expects the Indian economy to contract 12.5% in 2020-21, with industry and services likely to shrink 27.1% and 8.1%, respectively. Thus, only if the government spends 3% of the GDP over and above what it promised to do in the Union Budget 2020-21, there will be positive economic growth.
2. High rate of unemployment– Since package doesn’t aims at boosting demand and is focused on supply side stimulus; there will be minimum investment by firms and thus loss of jobs. According to Centre for monitoring Indian economy unemployment rate has climbed to27.1% and 121.5 million are out of work by MAY 2020.

Suggested reforms –

1. Increasing fiscal spending – Government needs to increase its fiscal deficit target for FY21 under exception clause of FRBM Act. With more borrowing and handing it out to people under schemes like MGNREGA, there will be rise in demand which will propel private sector to invest.
2. Tax cuts – Reduced GST and other taxes will leave more capital with companies to invest once lockdown is lifted and reduction in income tax will boost demand by consumers. This demand and investment by private sector is supposed to generate more employment and thus promote growth.

Way Forward – Economist John Maynard Keynes recommended fiscal spending by government to boost Private investment and income of individuals which in turn leads to increased demand in economy. India needs both demand side stimulus in form of increased government spending and supply side structural reforms to continue with positive growth rate in coming years.

9 PM for Preliminary examination

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