14th May – Editorials/Opinions Analyses

Contents

1. Provide income support, restore jobs
2. Which sectors depend on imports, and which do not?
3. Heed the difference: Strategies to exit lockdown
4. Nirbharta Starts at Home

PROVIDE INCOME SUPPORT, RESTORE JOBS

Focus: GS-III Indian Economy

Why in news?

• States such as Madhya Pradesh, Uttar Pradesh and Gujrat have scrapped Labour laws as a move to bring about reforms to attract new investors who are looking to exit from China.
• Employers’ associations have urged the central government to do away with most labour rights to address temporary labour shortages.
• The abrogation of labour laws raises many constitutional and political questions.

Click Here to read all about Labour Laws in India and the recent Labour Law reforms

Deterring Worker Retention

• Income support to workers to retain them in their places of work has been lacking.
• Migrant labour will be critical to restore production once the lockdown is lifted.
• Instead of encouraging workers to stay back or return to cities by ensuring livelihood support and safety nets, State governments have sought to strip workers of their fundamental rights, which will deter them from considering to continue working.

This is the time to Provide Income Support and Restore Job

• There are no inherent shortages at the moment as the inflation rate remains moderate.
• Agricultural produce is rotting in farms for lack of transport.
• Industrial production is held up as migrant workers have fled for their lives.
• The slowdown is due to lack of demand, not of supply, as widely suggested.
• With massive job and income losses after the lockdown, aggregate demand has totally slumped, with practically no growth.
• Therefore, the way to restart the economy is to provide income support and restore jobs.
• This will not only address the humanitarian crisis but also help revive consumer demand by augmenting incomes.

What will be the effect of scrapping labour laws?

• Scrapping labour laws to save on labour costs will actually reduce wages, lower earnings (particularly of low wage workers) and reduce consumer demand.
• Further, it will lead to an increase of low paid work that offers no security of tenure or income stability.
• Presently, over 90% of India’s workforce is in informal jobs, with no regulations for decent conditions of work, no provision for social security and no protection against any contingencies and arbitrary actions of employers.
• Abrogation of labour laws will free more employers from the Formal sector obligations they currently hold for ensuring the job security, health, and social protection of their workers.
• It will increase informal employment in the formal sector instead of encouraging the growth of formal work.

Way Forward

• Surely, India’s complex web of labour laws, with around 47 central laws and 200 State laws, need rationalisation.
• However, now more than ever before, reforms need to maintain a delicate balance between the need for firms to adapt to ever-changing market conditions and workers’ employment security.

-Source: The Hindu

WHICH SECTORS DEPEND ON IMPORTS, AND WHICH DO NOT?

Focus: GS-III Indian Economy

What sectors heavily depend on imports

• Electrical equipment such as smartphones and computers are a key part of India’s import bill.
• Around 88% of the components used by the mobile handsets industry are imported from countries like China.
• Over 60 per cent of the country’s medical devices are imported as well.
• Other products heavily imported into the country are cells and modules used by the country’s solar power industry.

What sectors partially depend on imports?

• India’s pharmaceutical industry is capable of making finished formulations without depending entirely on imports.
• The country is currently trying to encourage domestic firms to make these key ingredients, known as fermentation-based APIs, as India imported around Rs 249 billion worth of key ingredients (40% of domestic consumption), including fermentation-based ingredients in FY19.
• Medical devices like ventilators also rely on imports of several crucial components.
• Some auto manufacturers depend on imports for various components, while the country’s electric vehicles industry is dependent, “to a large extent” on Chinese imports.
• Local dyestuff units in India are also heavily dependent on imports.

Sectors that are already self-reliant

• India is not as dependent on imports for some textile components like yarn.
• The country does have the capacity to domestically make critical medical products like hot water bottles, mercury thermometers, hypodermic needles, wheelchairs and patient monitoring display units.

Issues with scaling up production in import dependent sectors

• The manufacture of some of the key products that India imports such as semiconductors, displays and other very capital-intensive electrical equipment may not be possible soon as manufacturing these requires large, stable sources of clean water and electricity.
• They also need a high degree of policy certainty as these require high upfront investments.
• Indian firms can however begin producing less sophisticated components if certain policy measures are taken.
• A key issue holding back manufacturing in the country and a lack of flexibility in labour laws, high costs and low availability of land and high cost of electricity.

-Source: Indian Express

HEED THE DIFFERENCE: STRATEGIES TO EXIT LOCKDOWN

Focus: GS-III Disaster Management

Introduction

• The two imperatives, of extending the lockdown to reduce the rise in number of COVID-19 cases and relaxing lockdown to increase economic activity, might seem conflicting.
• But the key to resolving the impasse lies in recognising that different states have different needs and demands, and they should be given a greater say in decisions on which areas to open up and how after May 17.

Strategy to open-up according to the Central Government

• The Union home ministry allowed the resumption of economic activities in districts that had not seen a single COVID-19 case in the last three weeks of April, the green zones, permitting markets to re-open, factories and industrial units to resume operations, and e-commerce in non-essential items to re-commence.
• The ministry also relaxed the lockdown in non-hotspot districts, the orange zones, continuing with stringent restrictions in the districts with high caseload, the red zones.

Opposition to this view by states

• Some states opposed this district-centred containment approach at the outset.
• Arguments were made that the district-wise formula is impractical for densely-populated areas.
• Pleas were made asking for the authority to slot areas into red, orange and green zones be delegated to states.

Conclusion

• A major lesson from the nearly two-month-long battle against the coronavirus is that the country’s demographic, economic, and cultural diversities do not allow for a one-size-fits-all approach.
• Successful strategies to take on the pathogen have relied on and responded to the local officials’ knowledge of regional specificities.
• The exit strategy should be based on the understanding that these officials are attuned to the situation on the ground.

-Source: Indian Express

NIRBHARTA STARTS AT HOME

Focus: GS-III Indian Economy

Introduction

• The first instalment of the Rs. 20 Trillion (Lakh Crores) package of measures announced by the finance minister on 13^th May 2020 is an important major step towards keeping the economy afloat (instead of revive).
• Not all of the Rs. 20 Lakh Crores constitute extra fiscal expenditure.
• They include extra expenditures, loans, loan guarantees and other forms of commitments by the government and the Reserve Bank of India (RBI).

What is promised in the First Tranche? (Already given in Current Affairs)

Part I of the overall package, focuses on the availability of credit to enterprises, especially in the micro, small and medium enterprise (MSME) category, so that they remain afloat till the economy gets into genuine revival mode.

MSMEs

• For MSMEs, the package allocates ₹3 trillion for collateral-free loans.
• The loans have a four-year tenure with no payments due for one year.
• It also allocates ₹20,000 crore for subordinate debt aimed at helping currently stressed MSMEs.
• The announcements are Part I of the overall package and focus largely on MSMEs principally because this is where employment is concentrated.

NBFCs and similar institutions

• Another major component of the package focuses on non-banking financial companies (NBFCs), housing finance companies (HFCs) and microfinance institutions (MFIs).
• The government proposes to launch a ₹30,000 crore special liquidity scheme for these companies.
• The measure will supplement the actions by RBI to enhance liquidity.
• The government intends to give partial credit guarantee on loans worth ₹45,000 crore to NBFCs and HFCs that, in turn, offer credit to MSMEs.
• Under the scheme, GoI will bear the first 20% of loss incurred on such loans.

Power Distribution Companies

• The package infuses some ₹90,000 crore in liquidity into Power Distribution Companies.
• These funds come in the form of loans to be guaranteed by state governments.

Reducing taxes: Demand side measures

• The rates of tax deduction at source (TDS) and tax collection at source (TCS) are to be cut by 25% for the remainder of the current fiscal year.
• The due date for the collection of income-tax for FY2020 has been extended to November 30, 2020.

Changing Definition of MSMEs

• GoI proposes to change the definitions of MSMEs. The revision will allow larger enterprises in each category.
• This may encourage enterprise in each category to grow larger without fear of losing the benefits provided in its category.
• The government has also decided to exclude foreign companies from bidding for government contracts of ₹200 crore or less. This, too, is meant to give MSMEs more room.

Sell Localism, but Globalise

• The PM’s address emphasised self-sufficiency and localisation, yet it implied this was linked to global prosperity.
• Global prosperity in the last century was created by a huge expansion of global trade and investment.
• Economist Paul Krugman, in The Age of Diminished Expectations, wrote, ‘Productivity isn’t everything, but, in the long run, it is almost everything.’
• Competitive markets create a relentless search for improved productivity that spurs economic growth and prosperity.
• It means specialising in, and exporting, what you can do best, while importing the rest.
• Aiming for self-sufficiency regardless of competitiveness, will lead to productivity falling behind others who globalise — the story of Jawaharlal Nehru vs Lee Kuan Yew.
• Some analysts estimate that Indian GDP will be –5% or worse in 2020-21. The consequent revenue collapse will take the combined Centre-state deficit to 11-12% of GDP.
• Some Economists have argued that a public health splurge of ₹75,000 crore a year in testing, tracing and isolating the 1-3% of infected cases is the right path.

Labour Law Reforms: Way Forward

• While India needs reforms for labour flexibility, it also needs International Labour Organisation (ILO)-compatible laws safeguarding workers’ health and grievance mechanisms.
• A hire-and-fire approach must be accompanied by unemployment insurance and retraining.
• Suspending labour laws for 3-4 years will not attract sceptical foreign investors. They will seek a permanent change in laws.

Land Reforms: Way Forward

• India needs land reforms for quick acquisition, for making tenancy simple and popular so that leasing can be used to consolidate small uneconomic plots into large viable farms.
• The current racket of extorting large sums for converting agricultural into non-agricultural land must be stopped by declaring large areas permission-free.

-Source: Economic Times