📰 Centre plans NRC exercise all over the country: Amit Shah
Home Minister says there will be no bias, and survey will be repeated in Assam.
•The process to make a National Register of Citizens (NRC) will be carried out across India, Home Minister Amit Shah said in the Rajya Sabha on November 20 and whenever it is done, the exercise will be repeated in Assam, he added.
•He was replying to a question by Congress MP from Karnataka Syed Nasir Hussain. “The Home Minister while speaking in Kolkata recently had said that all those names which didn’t figure in the NRC, belonging to Hindu, Sikh, Jain and Christian community need not worry. My question is whether under NRC citizenship can be granted to certain communities and exclude the Muslims,” Mr. Hussain said.
•Mr. Shah said, “I think the member is confused between NRC and Citizenship Amendment Bill. NRC has no provision to exclude any person of any religion. All Indian citizens will be included irrespective of their religion.”
•As a supplementary, nominated MP Swapan Dasgupta asked whether the government will make a distinction between illegal migrants and non-citizens? “NRC was undertaken as per the Supreme Court directive. The process will be carried out across the country. No one irrespective of their religion should be worried. NRC doesn’t discriminate against any Indian citizen on the basis of religion. It is just a process to get everyone on the NRC and whenever it is done it is only obvious that it will repeated in Assam too,” Mr. Shah added.
•Trinamool Congress MP Sukendu Sekhar Ray pointed out that 11 lakh Hindu Bengalis were excluded from NRC in Assam and will they be granted citizenship without waiting for the Citizenship Amendment Bill. Mr. Shah said the government accepts that refugees — Hindu, Buddhists, Jain, Christians, Sikhs and Parsis — who left Pakistan, Bangladesh and Afghanistan due to religious atrocities should get Indian citizenship. And which is why the government will bring a Citizenship Bill, he added.
•Congress MP Ripun Bora said 19.6 lakh persons have been dropped from the NRC. It’s been four months since the list was published but the process of appeal has not yet started. The Home Minister said that in Assam, people whose name has not figured in the draft list, have the right to go to the Tribunal. “Tribunals will be constituted across Assam. If any person doesn’t have the money to approach tribunals, then the Assam government will bear the cost to hire a lawyer,” he said.
FTAs can ensure market access to only the right quality products at competitive prices
•India’s decision not to join the Regional Comprehensive Economic Partnership (RCEP) has led to an avalanche of write-ups, editorials and interviews. Most looked at the effect of the decision around four issues: exports, investments, integration into the global value chain (GVC) and domestic industry. Let us use another source for insights — experiences countries have had with free trade agreements (FTAs).
Impact on exports
•First, do FTAs lead to an increase in exports? Few economists have argued that by not signing the RCEP, Indian exporters would miss on exporting to RCEP countries. They forget that India has FTAs with the Association of Southeast Asian Nations (ASEAN), Japan, South Korea, and three-fourths of the bilateral trade already happens zero duty. India also has a small preferential trade agreement with China.
•But the mere signing of an FTA does not guarantee an increase in exports. If import duty in the partner country is high, there is a likelihood of an increase in exports by 10% when this duty becomes zero. But chances of exports increasing are low if import duty of the partner country is low at 1-3%. From this count, FTAs are of no use for exporting to Singapore, Hong Kong, as regular (Most Favoured Nation) import duties are zero. FTAs with Malaysia, Japan, Australia, New Zealand, Brunei, etc. benefit few product groups only as more than 60% of imports into these countries happen at zero duty for all countries. There is little additional market access. Most critics have missed this detail.
•But even the high import duties coming down to zero through the FTAs do not guarantee exports. Japan reduced duty from 10% to zero for Indian apparels through an FTA in 2011. But India’s apparel exports to Japan have nosedived from $255 million in 2010 to $152 million in 2018. Blame it on Japanese non-tariff barriers to trade (NTBs) such as special sourcing requirements. But NTBs are generally not negotiated in FTAs. Countries have to resolve these bilaterally. To summarise, FTAs cut import duties, but this is only one of many factors that decide if exports will increase.
Investment flow
•*Does a lower import duty regime help in getting significant investments? Most experts have argued in its favour. Let us look at evidence from the automobile industry in Australia and India. Australia, in 1987, produced 89% of the cars it used. It protected the car industry through a high 45% import duty. But the share of locally produced vehicles came down as the duties were reduced. Today, Australia imports nearly all cars as tariffs came further down to a 5% level. Most manufacturers such as Nissan, Ford, General Motors, Toyota, Mitsubishi, etc. which produced cars in Australia shut shop.
•But, India could attract significant investments in the car sector on account of high import duties. This resulted in the development of an indigenous car and auto component industry. Now, with the car industry maturing, India can think of lowering import duties to promote competition.
•Most investments are a result of the package such as tax cuts, cheap land, power, etc. offered by the host country. If a country is not the most efficient economy, some level of an import wall helps in getting external investments. Without an import wall, many firms may shift production to the more efficient FTA partner countries for exporting back to the home market. But the quality of investments increases as a country moves towards becoming a more efficient economy. Such countries are in an ideal position to become manufacturing and services hubs.
•Third, do FTAs ease entry into GVCs? Most commentators have lamented that by not signing RCEP, India will miss becoming part of GVCs. It is not so simple. Actual value chain activities are time critical. And a country cannot become a significant part of such value chains unless it has efficient ports, customs, shipping, roads and a regulatory compliance infrastructure. GVC production also requires harmonisation of product and quality standards.
•For these reasons, FTAs alone do not make a country part of a value chain, which will be disrupted if a shipment is delayed or is of non-standard quality. ASEAN, Japan and Korea constitute the core of the Asian regional value chain. But despite FTAs with these countries, India has a weak presence in the electronics, machinery or apparels value chains.
•Four, is Indian industry protectionist? Consider the impact of reducing import duty on an engine from 20% to zero for an FTA partner. Cheaper imports may replace products from domestic industries. But, if the duty on a product is low at say 3%, the local industry may not care much about the duty elimination through any FTA. Countries that have reached this stage are comfortable doing FTAs with fewer worries.
Steps to have an effect
•An FTA’s possible impact on the economy or exports is subject to many caveats. The FTAs can ensure market access to only the right quality products made at competitive prices. Improvement in firm-level competitiveness is a must. The government can help by ensuring lower duties on raw materials and intermediates than on the concerned finished products. It can set up an elaborate quality and standards infrastructure for essential products. Most countries regulate imports through such requirements and not through tariffs.
•Finally, about India turning inward. India ranks higher than the U.S., Japan, and China in the trade openness ratio, the globally accepted measure. The ratio is the sum of all imports and exports as % of GDP — India (43) is more open than the United States (27), Japan (35), and China (38).
📰 Senseless: On nationwide NRC
A nationwide extension of NRC is bizarre, and a repeat of it in Assam illogical
•Home Minister Amit Shah’s announcement of a proposal for a nationwide National Register of Citizens (NRC) is worrisome on several counts, not the least of which is the apparent inability to learn from the experience of carrying out the humongous exercise in Assam. The government, he said, would also re-introduce the Citizenship Amendment Bill (CAB) in Parliament that envisages the grant of Indian citizenship to all refugees from minority communities in Bangladesh, Pakistan and Afghanistan. In all three nations Muslims are in a majority, and therefore, the Bill effectively denies benefit to Muslim minorities from other neighbouring countries, including Myanmar where Rohingya Muslims face persecution. Along with the promised combination of the NRC and CAB, the Home Minister announced that the NRC process would “naturally” be conducted in Assam again with the rest of the country. Interestingly, this comes just days after Ranjan Gogoi, who supervised the NRC process, demitted office as Chief Justice of India. Clearly, the Assam proposal will be in defiance of the Supreme Court, which directed the entire NRC registration specific to Assam through all its tortuous details. There is still no clarity on what the end results mean for the 19 lakh plus people who find themselves outside the NRC, potentially stateless and at risk of “deportation” to Bangladesh, which refuses to acknowledge, let alone accept, them. Given that the NRC process in Assam was rooted in the specificities of the 1985 Assam Accord, and as the government never tires of saying, a court-mandated process, extending it to the entire country is both illogical and bizarre. Flawed it might have been, but the NRC exercise, overseen by the Supreme Court, involved the active participation of the Central and State governments. For the government to repeat the exercise merely because the numbers thrown up are politically inconvenient for the ruling BJP, makes no sense at all. If there is a lesson from Assam, it is that there is no right way of going through a process such as the NRC.
•Like the CAB, which pointedly discriminates against Muslims, and is loaded against the right to equality and equal protection before the law as enshrined in Article 14 of the Constitution, there are genuine fears that a nationwide NRC will target Muslims. Details of how such an exercise will be carried out are, of course, not yet known. In the case of Assam, there was a cut-off date — March 25, 1971 — after which all foreigners as per the Assam Accord were to be “detected, deleted and expelled in accordance with law”. Presumably, the Centre will come out with a cut-off for the nationwide NRC, but it will be an arbitrary one. Given the dangers that lurk within such exercises, the government would do well to abandon the nationwide NRC-CAB combination. Indians can certainly be spared this pain.
📰 In variance with the official growth story
Surveys, including the recently leaked one on consumer expenditure, point to the economy’s dire state
•How fast has India grown lately? And, what are the yardsticks on which the country’s performance is being measured? These have remained contentious questions. Following the last decade’s boom, the economy was slowing after 2011-2012, but apparently turned around under the National Democratic Alliance (NDA) regime. Until very recently, the government claimed the economic success was based on a consumption-led growth model, as against investment-led growth in the previous decade.
•In early 2015, the Central Statistics Office (CSO) released a new series of National Accounts with the base year of 2011-2012, replacing the earlier series with 2004-2005 as the base year. This is a routine exercise for any statistical office. Surprisingly, however, the annual GDP growth rates were distinctly higher in the new series compared to the old series: the growth rate for 2013-2014 went up sharply from 4.8% in the old series to 6.2% in the new series. Similarly, the manufacturing sector growth rate for 2013-2014 moved up from (-)0.7% to (+)5.3%. The revised estimates drew widespread scepticism as they were out of line with economic correlates, such as bank credit growth, industrial capacity utilisation and growth in fixed investments, all of which showed a downward trend.
‘Expansion’ after note ban
•The height of dissonance was for 2016-2017 when, due to the demonetisation of high-value currency notes, output and employment contracted by most professional and popular accounts. Yet, surprisingly, the official figures showed domestic output expanding by 8.2% during the year — the highest in a decade — to the dismay of most observers and international agencies. Dismissing the criticism, the CSO claimed that the new estimates were kosher as, the agency said, they were based on: first, the latest global templates for estimating GDP; second, improved methods; and third, much larger data sets.
•Defending the higher growth estimates, the government contended that traditional surveys had failed to capture output and employment generated in the newer platforms and digital economy (such as through Ola and Flipkart), and the outcomes of various micro- and industry-specific initiatives such as MUDRA and UDAN.
•Further, increase in membership of social security measures such as Employees’ Provident Fund (EPF) and Employees’ Social Insurance (ESI) were taken as credible evidence of high employment growth flowing from output expansion, and of formalisation of the economy (with desirable social security provisions for workers). But the evidence provided did not cut much ice since the organised sector accounts for at best 15% of the national workforce, leaving out rural and urban informal sectors.
•It was, however, not possible to obtain economy-wide measures of the employment and household consumption, as the government had scrapped the National Sample Survey Office (NSSO)’s time-tested five-yearly household surveys (which combined both). The Periodic Labour Force Survey (PLFS) that replaced the NSSO’s Employment, Unemployment Survey (EUS) was conducted in 2017-2018, and a separate household consumer expenditure survey was canvassed in the same year.
•The PLFS’s results — initially leaked last year, but officially released in May this year — showed some disturbing trends. First, they revealed that unemployment rate had risen to 8.3% of the labour force, the highest in over 40 years. Second, the results showed that, for the first time ever, employment level had declined: between 2011-2012 and 2017-2018, the estimated fall in employment was in the range of 6.6 million to 15.5 million (depending on varying assumptions about the population growth rates).
•Third, the survey demonstrated that wage rates had stagnated both in rural and urban areas. The government, however, rejected these estimates, arguing that the PLFS data are not strictly comparable to the (earlier) EUS data — a claim rubbished by most knowledgeable statisticians.
•Common sense would suggest that such widespread distress in the labour market would reduce private consumption. This was precisely what the leaked consumer expenditure surveys’ data showed: monthly per capita consumer expenditure had fallen for the first time since 1972-73. Further, between 2011-12 and 2017-18, the monthly per capita consumer expenditure in real terms (adjusted for inflation) had fallen by 3.7%, from ₹1,501 in 2011-2012 to ₹1,446 in 2017-2018. Over the six years, there was a decline in expenditure in rural areas by 8.8% and a marginal rise of 2% in urban areas. The government scrapped the consumer expenditure survey data, as they were at variance with the administrative data.
•Thus, the best available, up-to-date, nationwide sample surveys tell a consistent story of the economy being in a dire state. They demonstrate that there have been unprecedented job losses, wages have stagnated, and per capita consumer expenditure has either stagnated or fallen. By implication, poverty rates (measured by an absolute level of consumption translated in money terms) are likely to have gone up. This is the clearest nationwide evidence we can get on the economy being in distress in the current decade.
Changes in methodology
•Yet, the official GDP estimates show a respectable level of 5%-6% average annual growth rate in the past few years, though the rate is declining. The divergence raises the question: are the numbers really plausible given that macroeconomic parameters in the labour market and private household consumption have slumped? There seems to be something amiss in the GDP estimates, closing the loop where we began: GDP growth rates seem over-estimated on account of the questionable changes in methods and use of unverified data sets. In reality, the output growth has probably been far lower than the official estimates — as shown by statistical exercises to validate the official GDP estimates.
•To sum up, since 2015, two distinct yet related narratives have dominated the economic discourse: one, the official GDP growth rates have been overestimated in the revised National Accounts and two, there is a lack of correlation between GDP growth rates and many macro variables. However, dismissing such scepticism, the government has maintained that the higher growth rates reported by the revised GDP series truly reflect a booming consumption-led economic growth model.
•If the leaked consumption data are true, the decline in monthly per capita expenditure in real terms between 2011-2012 and 2017-2018 puts a question mark on the official growth story. The decline in consumption is in line with the fall in employment and wage stagnation, as reported by the official PLFS data. Hence, the latest leak seems to not only question the official growth story, but also supports the contention raised about a possible overestimation of GDP growth rate in the current series on account of questionable methodological changes and introduction of unverified data sources for estimating domestic output.
📰 Nod for Industrial Relations Code Bill
Aim to simplify 3 laws covering trade unions, industrial employment and disputes
•The Union Cabinet at a meeting chaired by Prime Minister Narendra Modi on Wednesday approved the Industrial Relations Code Bill, 2019, which aims to bring together and simplify provisions of three laws covering trade unions, industrial employment and disputes.
•Announcing the decision, Finance Minister Nirmala Sitharaman said the “most important feature” of the Bill was that “fixed term employment, as opposed to contract that prevails widely today, has been given permission.”
•She said while fixed term workers would continue to be employed seasonally, for example in the textile sector where more workers are employed to fulfil big orders, they would be “treated at par with regular workers” when it comes to providing benefits.
•In a statement, the government said the Bill would pave the way for setting up a two-member tribunal for industrial disputes, instead of one, which would allow for some “important cases” to be “adjudicated jointly and the rest by a single member resulting in speedier disposal of cases.”
•The Bill would also give flexibility for exit provisions, related to retrenchment, it said.
New toll model
•The government has approved amendments proposed by the National Highways Authority of India to the Toll Operate Transfer (TOT) model of public funded National Highway projects already operational.
•Around 75 operational NH projects have been identified for potential monetisation using the TOT Model, and bundled into 10 separate bids, says a statement.
•The corpus thus generated will be used for developing, operating and managing new highways.
Taming onion prices
•The Cabinet has approved the Food and Consumer Affairs Ministry’s proposal to import 1.2 lakh tonnes of onions, in a bid to tame soaring prices in metros.
•However, Ministry officials emphasised that this was an “open-ended” proposal, which would give the Centre flexibility to acquire as much of the kitchen staple as is necessary — up to 1.2 lakh tonnes — to augment domestic supplies.
📰 Reserve Bank supersedes DHFL board
Regulator to initiate insolvency proceedings against firm, appoints former IOB CEO as administrator
•The Reserve Bank of India (RBI) has decided to supersede the board of troubled mortgage financier Dewan Housing Finance Corporation Ltd. (DHFL) and said bankruptcy proceedings would be initiated against the company.
•R. Subramaniakumar, former MD and CEO of Indian Overseas Bank, has been appointed as the administrator of the mortgage lender. RBI said the action was taken due to governance concerns and default by the entity in meeting payment obligations.
•This is the first instance of RBI superseding the board of a non-banking financial company. The government had changed the law earlier this year to give such powers to the RBI.
•Also, DHFL could be the first financial services company to face insolvency proceedings at the National Company Law Tribunal (NCLT) after the government, on Monday, issued a notification specifying the categories of financial service providers that can be taken up for resolution under the generic framework of the Insolvency and Bankruptcy Code. Till now, financial services firms were kept out of bankruptcy proceedings.
•In a statement, the RBI said it “also intends to shortly initiate the process of resolution of the company under the Insolvency and Bankruptcy... Rules, 2019 and would also apply to the NCLT for appointing the Administrator as the Insolvency Resolution Professional.”
•The mortgage lender, facing a cash crunch since last year after banks choked lending, has overall debt of Rs. 80,000 crore. Banks have exposure of Rs. 40,000 crore to the company. While efforts were made by banks for resolution, the process hit a roadblock as markets regulator SEBI did not allow mutual funds having exposure to DHFL to be a part of the resolution plan. Banks wanted to execute a plan in which all lenders to DHFL were involved. Efforts to change promoters’ control by selling significant promoter stake was also not successful.
•Banks had begun to classify loans extended to DHFL as ‘non-performing’ indicating bleak chances of a resolution. ICICI Bank, Union Bank of India, Central Bank of India and UCO Bank are some lenders that have classified the loans as NPAs. If DHFL is admitted for insolvency, banks will have to increase provisioning for the account to 50%, as in the case of other insolvency proceedings. This will hurt banks’ profitability to a large extent.
•SBI has an exposure of Rs. 7,000 crore and has already provided for Rs. 1,400 crore till the end of September.
