📰 Ban proposed on sale, ads of junk food in school
FSSAI releases draft regulations
•Aimed at enabling children to eat and grow healthy, the Food Safety and Standards Authority of India (FSSAI) on Tuesday released draft regulations titled Food Safety and Standards (Safe Food and healthy diets for School Children) Regulations, 2019.
•“At the heart of these regulations is a fundamental idea to make it clear what is healthy for children and what is not,’’ said a senior FSSAI official.
•One of the important regulations proposed is that foods high in fat, salt and sugar (HFSS) cannot be sold to children in school canteens/mess premises/hostel kitchens or within 50 m of the school campus.
•Schools should adopt a comprehensive programme for promoting healthy diets among children. The school campus should be converted into ‘Eat Right School’ focussing on local and seasonal food and no food waste as per the specified benchmarks.
•According to studies, about 8% of schoolchildren are obese. FSSAI has also proposed that children have to be encouraged to consume balanced diet in the school as per the guidelines issued by the National Institute of Nutrition. “Nutritionists, dieticians may be engaged by the school to assist in the preparation of menu periodically. Also it has been proposed that there should be regular inspection of school premises where safe, healthy and hygienic food should be served to students,’’ noted FSSAI.
•The FSSAI has invited suggestions and objections from stakeholders within 30 days.
Acute Respiratory Infections affect children the hardest, say experts
•Acute Respiratory Infections (ARI) accounted for 69.47% of morbidity last year which was the highest in the communicable disease category leading to 27.21% mortality. Andhra Pradesh, Gujarat, Karnataka, Kerala, Tamil Nadu, Uttar Pradesh and West Bengal reported a large number of patients and fatalities due to ARI as per the National Health Profile-2019, which was recently released by the Union Health Ministry.
•According to World Health Organisation, acute respiratory infection is a serious ailment that prevents normal breathing function and kills an estimated 2.6 million children annually every year worldwide. Indians face the double burden of heavy air pollution in addition to the high rate of ARI which hits children the hardest, said experts here.
•Doctors explained that the high level of air pollution would be an additional burden to the already high rate of ARI that the country is facing. “When you breathe in polluted air, particles and pollutants penetrate and inflame the linings of your bronchial tubes and lungs. This leads to respiratory illness such as chronic bronchitis, emphysema, heart disease, asthma, wheezing, coughing and difficulty in breathing. Children seem to be most vulnerable to the harmful effects of air pollution,’’ noted Samantha Castellino, consultant paediatrician, Surya Hospitals, Mumbai.
•Archana Dhawan Bajaj, gynaecologist, Nurture IVF Centre said: “The current level of air pollution poses a high risk to pregnant women and the baby. The foetus receives oxygen from the mother, and if she is breathing polluted air, it can increase the health risk of unborn babies. Pregnant women in the first trimester need to be more careful as risk increases and pollution can cause a medical condition called intrauterine inflammation. Prenatal exposure to pollutants increases risk of pre-term delivery and low birth weight, factors that can lead to developmental disabilities later on.’’
•Manav Manchanda, senior respiratory specialist, Asian hospital, Faridabad noted that children are particularly susceptible as they “breathe through their mouths, bypassing the filtering effects of the nasal passages and allowing pollutants to travel deeper into the lungs.” “Children may ignore early symptoms of air pollution effects, such as an asthma exacerbation, leading to attacks of increased severity,’’ he explained.
📰 Could join RCEP if demands are met, says Piyush Goyal
But decision to stay out is final for now: Commerce Minister
•The decision to not join the Regional Comprehensive Economic Partnership (RCEP) is final for now, but if the other countries agree to India’s demands, then negotiations and talks are possible in the future, Commerce Minister Piyush Goyal said on Tuesday.
•Prime Minister Narendra Modi had on Monday announced that India would not be joining the regional trade pact since the RCEP agreement, in its current form, did not take into account all of its demands to secure the interests of its domestic industries.
•“If the 15 nations make a sincere effort to resolve our concerns, to give us confidence, and help us balance the trade inequality, then I think every nation should talk with their friends,” Mr. Goyal said at a press conference. “We are not making enemies with anybody; relations are strong with all the countries involved.”
•“But for the present, it is a final decision to stay out of RCEP and should the other countries come up with better offers which are in India’s interests, in the interests of India’s industry, and the people’s interests, we will discuss it with our industry,” the Minister added.
•Mr Goyal said India would be open for discussions and negotiations if its demands are met, especially those that will strengthen Indian industry, give it more scope for growth, and open better markets without allowing an indiscriminate surge of imports and balancing the trade deficits that India has with the other countries.
•According to the Minister, India had stood firm on a few issues such as making the Rules of Origin stricter, updating the base duty rates to those that were prevalent in 2019 rather than those imposed in 2014, and implementing an auto-trigger mechanism to clamp down on imports from a particular country if they see a sudden surge.
•The RCEP grouping was to be the largest such trade agreement, and would have included the 10 members of the Association of Southeast Asian Nations (ASEAN), China, India, Australia, New Zealand, Japan, and South Korea.
📰 Down, but still a potent terror force
There is reason why India should keep vigil over developments in West Asia that concern the Islamic State
•The U.S. President’s announcement last week of the death of the Iraqi-born Islamic State (IS) leader Abu Bakr al-Baghdadi in the Idlib Province of northwest Syria has drawn worldwide attention. Baghdadi is said to have blown himself up using his ammunition-laden vest when pursued into a tunnel by U.S. special forces. This dramatic incident reminds us of the elimination in 2011 — and as a U.S. operation again— of the Saudi-born Osama bin Laden. This perpetrator of violence and hatred was also hunted down in Abbottabad, Pakistan and liquidated by the Americans.
The lives of the terror chiefs
•A study of the lives of these two leaders makes for interesting reading and is a prerequisite to understanding the nuances of Islamist extremism. The parallels and contrasts are striking. Osama bin Laden was the older of the two and was from an affluent business family. Baghdadi had a modest economic background and was from a family of farmers. But both had a religious streak and a university education with somewhat modest attainments. Both were dastardly, vengeful and stood for disruption and chaos. Violence came naturally to both, except that bin Laden seemed more rational in the choice of his targets.
•Baghdadi, unlike bin Laden, was not a household name in the U.S. This stands to reason because Baghdadi did not attempt anything spectacular on the scale of 9/11, which was an act that transformed the lives of millions around the world and especially within the U.S. Baghdadi’s vision was narrower and one that confined itself initially to West Asia, particularly Iraq and Syria. While he exploited the opportunity created by bin Laden and retreating into a shell to escape American operations, it is interesting to speculate whether he would ever have acquired his prominence and notoriety had bin Laden been alive. The al-Qaeda and the IS operated independently although not always at cross-purposes. They, however, never complemented each other. The IS came into existence after bin Laden became nearly moribund. It believed in spectacular action and did not get bogged down to theory or ideology.
•Osama bin Laden never spoke in terms of sovereignty or territory. His appeal favoured a fanatic ideology which considered all non-Muslims as infidels who needed to be dealt with utmost severity. His was a macrovision that was partly airy. In contrast, Baghdadi was down to earth and materialistic, and believed in the power of control over geographic territory and the full use of the state apparatus with all its resources, including oil, the black gold, to spread and perpetuate the IS’s message. This, as well as his near infatuation with the gross exploitation of women, stood out and distorted whatever bin Laden had stood for. There was hardly any sense in the frenzy which earned Baghdadi more foes than friends. This is why there was wild jubilation in parts of Iraq and Syria (the IS operated here with unprecedented ruthlessness driven mostly by Baghdadi, and where a large number of families lost their breadwinners or children) when the IS experienced losses. An interesting sidelight was Baghdadi’s concern for his own security, something that was ridiculously obsessive. His fear psychosis scaled to the extent that he never had mobile communications lest his location be compromised. He hired men from a sect that disliked him because he distrusted his own kith and kin; ultimately it was his innermost circle that betrayed him.
What lies ahead
•As it happened when bin Laden was killed there is now a big question mark over the future of the IS. Terrorism experts have been engaged in serious debate by assessing the absence of Baghdadi on the IS. The specific question that has been raised is about who would lead the IS from this point onwards. Particularly engaging has been the news within days of Baghdadi’s death, of another death — of his potential successor, Abu Hassan al-Muhajir, having died in a security force operation. But experts are equally impressed by the swift appointment of one Abu Ibrahim Hashimi al-Quraishi as the new replacement; there is practically nothing known about him.
•The question that remains unsatisfactorily answered is whether the quality of leadership makes such a lot of difference to a movement that thrives solely on an individual’s spirit of vengeance and does not call for any extraordinary organising capacity. The short audio clipping that was released announcing the appointment warned the U.S. of severe reprisal for Baghdadi’s killing. It is therefore reasonable to believe that Iraq and Syria are in for a turbulent time. The partial withdrawal of U.S. troops from northern Syria has already complicated the situation, leading to the escape from custody of a number of IS prisoners and their families.
•The IS’s new leadership may be expected to make an intense appeal to its cadres not to become demoralised after the elimination of Baghdadi and remind them of the immediate task of scaled up revenge against the remaining American forces. One may not expect any immediate attrition in the IS’s ranks which are spread over a wide area encompassing most of West Asia and parts of Asia and Africa. The basic structure would comprise what are known as Wilayats headquartered in a number of provinces in each country.
Closer home
•India has enough reason to be apprehensive about the developments in West Asia. The alert by the Home Ministry to the States of the possibility of ‘lone wolf’ IS attacks across the nation is worrying. The MHA is especially apprehensive about attacks on high dignitaries. In this context, the raids by the National Investigation Agency in Tamil Nadu and elsewhere suggest an IS presence in the country. This is not fearmongering if one considers how a few misguided Indian youth crossed into Iraq in the early days of the IS to fight for jihad. Most were disillusioned in quick time and a few returned home with horror stories of the state of IS camps. But there is reason to believe that others have stayed back and could be the dangerous part of IS’s core.
•The tasks before security agencies are two-fold: to keep a close eye on the returnees so that they do not lapse into mischief and allow themselves to be used as ‘sleeper cells’; and to assist the authorities in deradicalisation as well as checking new recruitment to the IS. Both are difficult tasks that require enormous community alertness and swift communication with security agencies.
📰 A victory for the dairy sector
The government should remain guarded against the temptations of free trade agreements like RCEP
•India’s withdrawal from the Regional Comprehensive Economic Partnership (RCEP) is a major victory for the farmer’s organisations, trade unions, associations of small and medium industrial producers and civil society groups, which had organised widespread agitations against the free trade agreement. The Indian government has bowed to their demands. In this article, I attempt to discuss why joining the RCEP would have proven suicidal for India’s dairy sector.
•The key fear of the dairy sector was that tariff clauses for agriculture in the RCEP are much more severe compared to the existing World Trade Organization (WTO) agreement. While the WTO allows a country to fix tariffs up to a certain maximum, or bound tariff, for a given commodity line, the RCEP binds countries to reduce that level to zero within the next 15 years. Currently, India’s average bound tariff for dairy products is about 63.8% while its average applied tariff is 34.8%.
A self-sufficient sector
•India’s dairy sector provides livelihood to about 70 million households. A key feature of India’s dairy sector is the predominance of small producers. In 2017, if the average herd size in a dairy farm was 191 in the U.S., 355 in Oceania, 148 in the U.K. and 160 in Denmark, it was just 2 in India. Yet, due to Operation Flood after the 1960s, India’s contribution to world milk production rose from 5% in 1970 to 20% in 2018. Today, India is largely self-sufficient in milk production. It does not import or export milk in any significant quantity.
•If we consider global milk trade, developed countries account for 79% of the total world export of milk. Major players are the U.S., the EU, Australia and New Zealand. A country like New Zealand exports 93% of its milk production. On the other hand, developing countries account for 80% of the world’s total milk imports. Though India is self-sufficient in milk production, China imports about 30% of its milk requirement.
•Thus, some of the major players in the global milk trade are in the RCEP region. About 51% of the global trade of milk, 45% of the global trade of skimmed milk powder (SMP), 38% of the global trade of butter oil, 35% of the global trade of cheese and 31% of the global trade of butter takes place in the RCEP region. This is why Australia and New Zealand, deprived of the lucrative markets in the U.S. after the demise of the Trans Pacific Partnership (TPP), have had a deep interest in the RCEP agreement.
Growth of MNCs
•Over the last 25 years, Indian policy has consciously encouraged the growth of private milk companies. Milk cooperatives, which played a major role during Operation Flood, are no more seen as engines of growth. Policy has also favoured the entry of multinational dairy corporations into the Indian dairy sector, through joint ventures, mergers and acquisitions.
•Multinational milk firms have opened shop in India in the hope that the Indian dairy sector would soon be opened up. For instance, the Swiss firm Nestlé was the largest private purchaser of milk in India in 2019. The French milk firm Lactalis entered India in 2014 and has taken over Tirumala Milk Products in Hyderabad, Anik Industries in Indore, and Prabhat Dairy. Another French firm, Danone, has invested ₹182 crore in the yoghurt brand Epigamia. New Zealand’s Fonterra Dairy has a 50:50 joint venture with Kishore Biyani’s Future Consumer products.
•In other words, multinational dairy firms had been building a strong presence in India even prior to the RCEP talks. At present, these firms are forced to buy milk from Indian farmers. The reason is that the applied tariff for dairy products in India is about 35%. The bound tariff would have fallen to zero if the RCEP had come into effect. It would have then been far more profitable for firms to import milk from New Zealand or Australia rather than buy it from Indian farmers. The sale price of milk received by Indian farmers would have fallen sharply.
•The export price of SMP from New Zealand is about ₹150 per kg. The domestic price of SMP in India is about ₹300 per kg. An average dairy farmer in India receives ₹30 per litre of milk. According to estimations made by Amul, if free imports of SMP from New Zealand are permitted, the average price for milk received by an Indian dairy farmer would fall to ₹19 per L.
•The unit cost of milk production is relatively low in countries like New Zealand because of extensive grazing lands (which reduce feed costs), mechanised operations and the advantages of economies of large-scale production, and the high productivity of milch animals (about 30 L/day). In addition, New Zealand government policy has consciously helped its major company, Fonterra, to become the dairy giant that it is. Fonterra, which controls 90% of the New Zealand milk market and one-third of world trade in milk, is feared even by large American and European dairy firms. A key demand of American dairy firms during the TPP negotiations was that New Zealand should break up and end the monopoly of Fonterra.
False arguments
•Two arguments were raised in favour of India signing the RCEP. First, it was argued that India would soon become a milk-deficient country and be forced to import milk. Hence, it would be better if India enters the RCEP today rather than later. Forecasts from Niti Aayog show that this argument is wrong. In 2033, India’s milk production would rise to 330 MMT while its milk demand would be 292 MMT. Thus, India is likely to be a milk-surplus country by 2033.
•Second, it was argued that the quantity of milk imports from New Zealand to India are unlikely to exceed 5% of their total exports. As a result, its impact on Indian prices would be insignificant. This too is a false argument. As data put together by Amul show, 5% of New Zealand’s exports in this sector is enough to flood India’s domestic market. It is enough to account for 30% of the Indian market for milk powders, 40% of the Indian market for cheese, and 21% of the Indian market for butter oil. These numbers are significant, and enough to ensure that Indian dairy prices plummet.
•If there are 70 million households dependent on dairy in India, the corresponding number is just 10,000 in New Zealand and 6,300 in Australia. Reasoned analysis shows the socio-economic costs of India becoming a party to the RCEP agreement. India’s farmer’s organisations did well to keep the government on a short leash this time. On its side, the government would do well to be guarded against the temptations of joining such free trade agreements in the future. It should also begin work on correcting the imbalances of existing free trade agreements.
📰 Safe, for now: On India opting out of RCEP
India has its reasons to stay out of RCEP, but tariff walls cannot remain high
•India eventually decided to play it safe by pulling out at the last minute from the Regional Comprehensive Economic Partnership (RCEP) which was finalised by 15 countries in Bangkok on Monday. The pressure mounted on the government and the Prime Minister by interest groups, ranging from farmers, small industries and traders, to political parties across the board, surely played a major role in the decision to stay out of the grouping. The country had little choice but to exit after its safeguard requests were not conceded. On the one side was the looming figure of China in the group and that country’s desperate need to find newer markets for its products in the backdrop of its trade dispute with the U.S. That India runs a massive bilateral trade deficit of $53 billion with China and the fact that China has not taken satisfactory efforts to whittle down the deficit certainly were major inputs in India’s decision. Second, India’s experience with countries with which it has signed free trade agreements till now is not exactly a happy one. Though trade has increased post-FTA with South Korea, ASEAN and Japan, imports have risen faster than exports from India. According to a paper published by NITI Aayog, India has a bilateral trade deficit with most of the member countries of RCEP. More importantly, while exports to RCEP countries account for just 15% of India’s total exports, imports from RCEP countries make up 35% of the country’s total imports. Given this, it is obvious that in the immediate context the country had more to lose than gain from joining RCEP.
•India’s request for country-specific tariff schedules was rejected early in the negotiations. So was its suggestion of an auto-trigger mechanism to check a sudden surge in imports from particular partner countries. India also argued for stricter rules of origin, and rightly so too, but this too failed to pass muster. Movement of professionals was another area that saw an impasse. Given these, there was little chance of the political leadership agreeing to join the bloc. Policymakers must have reasoned that India has active FTAs with most members of the RCEP except China, Australia and New Zealand and there will be no economic impact. However, the fallout of India’s decision is that it has burnished its image as a protectionist nation with high tariff walls. With a market of 1.3 billion people, there is bound to be more pressure on India to open its gates. The smart way to handle this is to initiate reforms on the export front, bring down costs in the economy and, simultaneously, increase efficiencies. India cannot miss out on being a part of global supply chains and this can happen only if tariff barriers are reduced. And the best way to balance the effect of rising imports is by promoting exports. Tariff walls cannot be permanent.
📰 Economic slowdown will lighten India’s carbon burden
Carbon dioxide emissions are poised to grow at their slowest since 2001 due to a slower growth in coal-based power generation, finds study
•There’s a silver lining to India’s economic slowdown. Carbon dioxide emissions are poised to grow at their slowest — a 2% rise from last year — since 2001, according to an analysis published in Carbon Brief, a site that tracks emission and carbon dioxide trends.
•The rise in C02 emissions from India sees wild swings — from 7.7% in 2014 to 3.5% the next year and then back to 7.8% in 2018. This is the first time that emissions are expected to grow below 3% from the previous year.
•“Our analysis, based on data from various Ministries responsible for electricity, coal, oil, gas and foreign trade, shows that emissions increased by 2% in the first eight months of the year, a lower rate than any annual increase since 2001,” said the research note by Lauri Myllyvirta, an energy and pollution analyst with the Centre for Research on Energy and Clean Air and Sunil Dahiya, analyst and campaigner with GreenPeace East Asia.
•Mr. Dahiya told The Hindu that though the analysis was restricted to August, the remaining months were unlikely to change the year’s trend. “Coal generation trends are unlikely to change given the lack of demand and the contribution of renewables.
•“Slower growth in coal-based power generation will also benefit the country’s air quality efforts, as essentially all coal-fired power plants lack pollution controls commonly required in, say, the EU and China,” the analysts projected.
Rise in renewables
•Industrial coal use fell dramatically in 2017 because of a slowdown in the construction sector and bounced back in 2018. “The combined total of coal sales from state-owned mines to consumers outside the power sector and imports of coking coal and coke fell 14% in 2017 and rose 15% in 2018. But it increased by just 3% in the first eight months of 2019,” the analysis noted.
•Wind generation rose by 17% in the first six months of 2019 compared to the same period a year earlier, with solar up 30% and hydro increasing by 22%.
•Last year, a report by the International Energy Emissions Agency said India’s per capita emissions were about 40% of the global average and contributed 7% to the global carbon dioxide burden. The U.S., the largest emitter, contributed 14%.
•As per its commitments to the United Nations Framework Convention on Climate Change, India has promised to reduce the emission intensity of its economy by 2030, compared to 2005 levels. It has also committed to having 40% of its energy from renewable sources by 2030.
📰 Trump administration notifies UN of planned Paris climate accord exit
The United States, the world's largest historic greenhouse gas emitter, would become the only country outside the accord
•The Trump administration has formally notified the United Nations that it will withdraw the United States from the Paris Agreement, the first formal step in a one-year process to exit the global pact to fight climate change, U.S. Secretary of State Mike Pompeo confirmed on Monday.
•The United States, the world's largest historic greenhouse gas emitter, would become the only country outside the accord, a decision President Donald Trump promised to boost U.S. oil, gas and coal industries.
•“The U.S. is proud of our record as a world leader in reducing all emissions, fostering resilience, growing our economy, and ensuring energy for our citizens. Ours is a realistic and pragmatic model,” Pompeo said on Twitter.
•The State Department letter to United Nations Secretary General Antonio Guterres started the clock on a process that would be completed one day after the 2020 U.S. presidential election, on Nov. 4, 2020.
•Energy-related carbon emissions, the main greenhouse gas, spiked last year after falling for the previous three. Another report this year by state attorneys general said Trump's plans to roll back climate change regulations from vehicles to power plants could boost U.S. carbon emissions by over 200 million tonnes a year by 2025.
•Environmental groups said they hoped Trump would be defeated in 2020 by a rival who would re-join the agreement with bold new targets.
•“The next president will need to rejoin the accord immediately and commit to the rapid, wholesale clean-energy transformation the climate emergency demands, said Jean Su, energy director with the Center for Biological Diversity.
•The Obama administration signed the United States onto the 2015 pact, promising a 26-28% cut in U.S. greenhouse gas emissions by 2025 from 2005 levels.
•Trump campaigned on a promise to rescind that pledge, saying it would hurt the U.S. economy while leaving other big polluters like China to increase emissions. But he was bound by U.N. rules to wait until Nov. 4, 2019 to file exit papers.
•“What we wont do is punish the American people while enriching foreign polluters, Trump said at a shale gas industry conference in Pennsylvania on Oct. 23.
•All the top Democratic presidential hopefuls seeking to unseat Trump in next year's election have promised to re-engage in the Paris Agreement if they win. But Trumps withdrawal could still leave a lasting mark, said Andrew Light, a senior fellow at the World Resources Institute and former adviser to the U.S. climate envoy under President Barack Obama.
•“While it serves the political needs of the Trump administration, we will lose a lot of traction with respect to U.S. influence globally, he said, adding it could take time for the international community “to trust the U.S. as a consistent partner.”
•Until its formal exit, the United States will continue to participate in negotiations over technical aspects of the agreement, represented by career State Department officials.
•The United States and China, the worlds two largest carbon emitters, have recently been leading negotiations of the Paris ”rule book” that outlines transparency and reporting rules for signatories.
•Dozens of governors, mayors and other local leaders reaffirmed their vow to continue to meet Paris agreement targets in the America's Pledge initiative in the absence of federal leadership.
•Billionaire Michael Bloomberg, the U.N. Special Envoy on Climate Change, said his philanthropic organization will continue funding U.S. participation at the upcoming climate change negotiations, to be held in Madrid after Chile withdrew as host.
•“It's up to the public to deliver what Washington won't and we are,” he said.
📰 Government, RBI working on realty reforms: FM
‘Sector being given much importance due to its spillover effect; alternative funds keen to work with it’
•The government is working with the Reserve Bank of India (RBI) to look at possible amendments in the laws to help the real estate sector.
•Finance Minister Nirmala Sitharaman, while addressing a capital market event on Tuesday, said that the government had not yet fully addressed the issues faced by the real estate sector, but would soon address the ‘sluggishness’ that is being faced by the sector.
•“Government of India is very keen and is working very clearly together with RBI to see how best we can, where necessary, tweak the existing blocks to help the people who are affected in this sector, which I have not really completely addressed till now,” she said, addressing market participants at the National Stock Exchange (NSE).
•The real estate sector requires a lot more attention because the sluggishness which prevails there has got to be addressed, she added while highlighting the fact that the government had been announcing various interventions since August to revive the economy in terms of consumption and demand. Interestingly, the Finance Minister further said that many funds had approached the government and were keen to work in the sector, provided proper support mechanisms were put in place.
•“There are alternative funds, which are now approaching us saying we would like to do something with you all. So long as there is some support mechanism available for reviving the real estate sector,” she said.
•Ms. Sitharaman further said that the government was giving a lot of importance to the real estate sector because it had a spill over effect on many other sectors, including core industries, and also on the vast number of middle class home buyers.
Deepening debt market
•On a different note, she said that her Ministry was working on deepening the debt market and that stock exchanges can play an active role in attracting more retail investors in the segment as currently corporates are dependent only on banks for debt and banks alone cannot service the entire requirement.
•Ajay Tyagi, chairman, Securities and Exchange Board of India (SEBI), who was also present on the occasion, said that the development of the bond market required much more attention and a unified approach by all regulators.
•“The present NPA position of banks adds urgency to such a development with a view to providing alternative route for raising debt by entrepreneurs. A deep and well-functioning bond market would further add heft to the capital market in India,” Mr. Tyagi said.
•The SEBI chairman, however, added a word of caution for stock exchanges and said that while exchanges are for-profit commercial entities, they needed to devote sufficient resources for regulatory functions and should abstain from misusing their oligopolistic position by having exorbitant and unreasonable fee structure.
📰 What makes doing business easier
The viability of a business depends on the vitality of the economy in which it is embedded
•News of a continuing improvement in India’s ranking according to the World Bank’s ‘Ease-of-doing-business’ Index appears to have come in handy for a government otherwise beleaguered by seemingly endless bad news on the economic front.
•The Finance Minister was quick to express both satisfaction and a determination to take India into the top 50 countries — it is pegged at No. 63 now among the 190 ranked according to this index. In a country where economic policy has for long remained impervious to the challenges faced by its smaller businessmen, any real attention their condition gets is to be welcomed.
Enable the self-employed
•The scale of the problem is better understood if we recognise that by far the largest number of working Indians is self-employed. Among them are our carpenters and service providers, and neither the grand industrial policy statements of the Nehru era nor Narendra Modi’s ‘Make in India’ programme appear to have realised that they need to be enabled too.
•So there is much to be said about concerns with the ease of doing business in India, no matter that the World Bank’s perception is overly based on the regulatory regime without adequate attention to infrastructure, and is embarrassingly narrow in its coverage, being confined to Delhi and Mumbai.
•Having said the ease of doing business is important, it needs to be emphasised that a business cannot flourish on its own. Its fortunes are tied to the health of the economy within which it is embedded. This proposition is best illustrated through a secular parable. Think of a businesswoman considering the establishment of a glove factory. She is aware that her workers will buy at least some of the gloves to be produced but that this is unlikely to turn a profit sufficient to cover the initial costs to set it up. This would lead her to shelve her investment plan. Imagine though that at the same time a businessman decides to actually set up a factory making cloth for export. This would encourage our businesswoman in her plans as she realises that the workers of the cloth factory will buy the remaining gloves that she will produce. She goes ahead with her investment plan and a business thrives.
Creating demand
•This simple story, borrowed from the work of early development economists, shows how the viability of a business depends on the vitality of the economy in which it is embedded. The ease of doing business alone could not have helped our businesswoman had the cloth factory not been set up. And the cloth factory itself may not have been set up had its owner not been sure of the demand for his product emanating from the rest of the world. It points to the importance of what economists refer to as ‘aggregate demand’, without which neither the benignness of the regulatory environment nor the entrepreneurial capability of businessmen can make much of a difference to their fortunes.
•To put it starkly, our economic policymakers would today be making a mistake if they spend all their energy on improving the ease of doing business while ignoring the state of aggregate demand in the economy. This is suggested precisely by the fact that, when judged by the above-mentioned ease of doing business index, things have improved rapidly and significantly in recent years. India’s rank improved from 142 in 2014 to 77 in the report for 2019, and 63 for 2020. However, this has done little for private investment, which, when measured as share of GDP, has remained unchanged since 2014. And, the recent surge in India’s ranking on the ease of doing business has come at a time of a distinct slowing of growth. It appears that we would be unwise to judge the state of the economy by observing movements in the ease of doing business index.
•That the Indian economy is facing an aggregate demand slowdown is indicated by the fact that aggregate investment, as a share of GDP, peaked in 2011. Now, it is about 10% lower. There have been exhortations to the government to resort to deficit spending. This is of course the classic Keynesian recommendation in times of an aggregate demand slowdown. It recommends itself in principle, and the exhortation itself is a useful counter to the government’s self-righteous adherence to pre-set fiscal deficit targets. However, some familiarity with the experience of the last fiscal stimulus undertaken in India would be useful in the context.
Impact of fiscal stimulus
•During 2008-09, in the wake of the global economic crisis, the fiscal deficit was hiked from 2.5% to 6% of GDP, rising further in the next year. Such high increases have been rare, if at all, in India. As a result we did not encounter the steep decline in growth observed in parts of the western hemisphere. However, as soon as the deficit was taken back to levels dictated by the Fiscal Responsibility and Budget Management Act, 2003, the growth rate declined compared to what it had been before the fiscal stimulus.
•This holds an important lesson. The composition of the public spending matters for growth; increases in the fiscal deficit that take the form of a rise in public consumption rather than public capital formation can have only a temporary effect. In the two years of an exploding fiscal deficit in 2008 and 2009, public capital formation increased little.
•It is not surprising then that the significant fiscal stimulus could have no lasting impact on the growth rate of the economy. Had the unusually high increase in the deficit gone entirely to capital formation it would have both increased aggregate demand and raised the potential supply of the economy. Its growth impact would have lasted much longer.
Reasons for a slowdown
•A slowing of aggregate demand growth can take more than one form. In the textbook view it is part of the investment cycle, and deficit spending can take the economy out of it. But what we may be witnessing right now could be a demand slowing with Indian characteristics. This is related to the fact that the greater part of the population is located in a very slow-growing agricultural sector, putting a brake on consumption growth. The grimness of the situation is summed up by the dual feature that around 70% of the population is rural and in half the years of the decade since 2008, we have had zero or negative growth in crop agriculture while the non-agricultural economy has grown steadily.
•Now, as the income distribution shifts away from the overwhelming majority of the population, aggregate demand growth slows. Anecdotal evidence that luxury cars fared well during this Deepavali while sales of the most basic items of clothing did not, points to the likelihood of such an income-distributional shift having actually taken place. The recent corporate tax cut could feed a private investment surge but it could also just as well end up adding to the ongoing shift in income distribution, further lowering aggregate demand.
•When faced with an aggregate-demand growth slowdown an active macroeconomic policy is needed. Of monetary policy it seems we are doomed to see a change too little too late after years of the Reserve Bank of India having nursed a high-interest rate regime. Fiscal policy alone holds some promise but calibration would be necessary in its use. Spending must focus on the rural sector to raise agricultural yields and build the infrastructure needed to support non-farm livelihoods so that pressure on the land can be reduced. This will also expand aggregate demand. Right now the government needs to be pro-active rather than adopt a hands-off approach. Business cannot go it alone.
