The instrumental harms of inequality: (Live Mint, Editorial)
From monopolistic market structures to poor public health outcomes, inequality can cause harm in a number of domains of everyday living.
Causes of inequality
|The main causes of inequality are:
Low labour productivity implies low rate of economic growth which is the main cause of poverty and inequality of the large masses of people. In fact, inequality, poverty and unemployment are interrelated. Since sufficient employment could not be created through the process of planned economic development, it was not possible to increase the income levels of most people.
During inflation, few profit earners gain and most wage earners lose. This is exactly what has happened in India. Since wages have lagged behind prices, profits have increased. This has created more and more inequality. Moreover, during inflation, money income increases no doubt but real income falls. And this leads to a fall in the standard of living of the poor people since their purchasing power falls.
3. Tax Evasion:
In India, the personal income tax rates are very high. High tax rates encourage evasion and avoidance and give birth to a parallel economy. This is exactly what has happened in India during the plan period. Here, the unofficial economy is as strong as (if not stronger than) the official economy. High tax rates are responsible for inequality in the distribution of income and wealth. This is due to undue concentration of incomes in a few hands caused by large- scale tax evasion.
4. Regressive Tax:
The indirect taxes give maximum revenue to the government. But they are regressive in nature. Such taxes have also created more and more inequality over the years due to growing dependence of the Government on such taxes.
5. New Agricultural Strategy:
No doubt, India’s new agricultural strategy led to the Green Revolution and raised agricultural productivity. But the benefits of higher productivity were enjoyed mainly by the rich farmers and landowners. At the same time, the economic conditions of landless workers and marginal farmers deteriorated over the years. Most farmers in India could not enjoy the-benefits of higher agricultural productivity. As a result, inequality in the distribution of income in the rural areas has increased.
What are the consequences of inequality
- GDP-Inequality can be harmful for the prospects of an increase in national income. Because the poor spend the bulk of their income on necessities, the marginal propensity to consume out of income is higher for the poor than it is for the rich.
- Market-The concentration of wealth and income in the hands of a few is conducive to a market structure that is monopolistic or oligopolistic. Monopolistic pricing, as is well known, is associated with deadweight losses in welfare.
- Inequality can interfere with the efficiency of an economy. economists like Hugh Dalton, Tony Atkinson, Serge-Christophe Kolm and Amartya Sen have associated a measure of inequality with the efficiency, or welfare, loss occasioned by inequality.
- Inequality is often both the source and the consequence of economic domination by one group of people over another. The theme of inequality and conflict has been well addressed in the works of economists such as Debraj Ray, Joan-Maria Esteban and Anirban Mitra, when they speak of polarization, and of strife organized around religious divisions. The ghettoization of the Muslim community in Gujarat after the events of 2002, and the attempt at nullification of the community’s economic status, is a case in point.
- Health-Inequalities of income and wealth have a way of spilling over into other domains, such as health. Economic inequalities are known to have stress and demoralization effects on workers. Inequality can thus dampen productivity, and so earning potential, and so productivity again in a vicious cycle.
- Education:The instrumentally positive impact of equality on efficiency is highlighted by a measure of “effective literacy” advanced by the economists Kaushik Basu and James Foster. They postulate that literacy is something like a public good, such that a literate person confers external literacy benefits on other members of her household.
Central control out, subjective aspects in: why new wetlands Rules are different: (Indian Express, Explained)
- The Ministry of Environment, Forests and Climate has rolled out new Wetlands Rules 2017.
- The new rules will dilute the rules of 2010 version.
What are Wetlands?
- Wetlands are areas where water covers the soil, or is present either at or near the surface of the soil all year or for varying periods of time during the year, including during the growing season.
- Wetlands may support both aquatic and terrestrial species.
- Wetlands vary widely because of regional and local differences in soils, topography, climate, hydrology, water chemistry, vegetation and other factors, including human disturbance.
- It is to be noted that there are 115 wetlands officially identified by Central Government and of those 26 are identified as wetlands of international importance under Ramsar Convention.
How are wetlands important for the ecosystem?
- Wetlands important for primary products such as pastures, timber and fish and support recreational and tourist activities.
- Wetlands help reduce the impacts from storm damage and flooding, maintain good water quality in rivers, recharge groundwater, store carbon, help stabilise climatic conditions and control pests.
- Wetlands reduce the risk of flooding by slowing down the movement of floodwaters along rivers and releasing water over time.
- Wetlands support agricultural activities by providing a source of water for irrigation and livestock and for domestic consumption.
- Wetlands also support sustainable forestry.
Wetlands(Conservation and Management Rules), 2017:
- According to the new rule, the wetlands has a different definition.
- It is described as an area of marsh, fen, peatland or water; whether natural or artificial, permanent or temporary, with water that is static or flowing, fresh, brackish or salt, including areas of marine water the depth of which at low tide does not exceed six metres, but does not include river channels, paddy fields, human-made water bodies/tanks specifically constructed for drinking water purposes and structures specifically constructed for aquaculture, salt production, recreation and irrigation purposes.
- As per the new rules, the court said that 2, 01,503 wetlands in the country would continue to be protected by the government.
- These wetlands had been identified using ISRO’s satellite imagery, after which the apex court had asked the Centre to inventories, protect and notify them in consultation with state governments.
- The new rules stipulate in setting up of State Wetlands Authority in each State/UTs headed by State’s environment minister and include range of government officials.
How are the new Rules different from the 2010 rules?
- The 2010 Rules listed six points describing protected wetlands but the new Rules have done away with them.
- The new Rules instead state that wetlands are limited to and do not include wetlands under forest and coastal regulation zones.
- They apply to (a) wetlands categorised as “wetlands of international importance” under the Ramsar Convention and (b) wetlands as notified by the central government, state government and UT administration.
- Restriction on activities in wetlands now no longer includes reclamation.
- The Rules provide no timelines for phasing out solid waste and untreated waste from being dumped into wetlands.
- Under ‘Restrictions of activities in wetlands’, the new Rules say conservation and management would be in accordance with the principle of ‘wise use’ as determined by the Wetlands Authority.
- This ‘wise use’ is nothing but the maintenance of ecological character, achieved through implementation of ecosystem approaches, within the context of sustainable development.
- The 2010 Rules said that any person aggrieved by the decision of the Authority (CWRA) may prefer an appeal to the National Green Tribunal within a period of sixty days from the date of such decision. This provision does not exist in the 2017 Rules.
Effects of developed and developing countries policies
Dhaka defends China’s OBOR project: (The Hindu)
- Bangladesh Foreign Secretary Shahidul Haque holds a view that countries must not become isolated in the name of sovereignty. He emphasized on the putting sovereignty issue behind and put economic benefits in front seat.
- The statement is a counter to India’s tough position against China’s One Belt, One Road (OBOR) Initiative during a discussion on Asian connectivity projects.
What is China’s One Belt, One Road (OBOR) Initiative?
- Considered as Chinese President Xi Jinping’s ambitious project, OBOR focuses on improving connectivity and cooperation among Asian countries, Africa, China and Europe.
- The action plan was approved by the Chinese state council in 2015. The “Belt” seeks to create a land route from China to Europe. The “Road”, strangely enough, hopes to create a maritime route from China to the Mediterranean through the Indian Ocean.
- The Belt, which plans to connect east and west overland across the Eurasian landmass, envisions three routes: from China to Europe via Central Asia; from China to the Persian Gulf and the Mediterranean via West Asia; and from China to South East Asia and South Asia.
- The main crux is to grow land routes as well as maritime routes.
Why is the policy significant to China?
- The policy is significant for China since it aims to boost domestic growth in the country.
- OBOR is also touted as a part of China’s strategy for economic diplomacy.
- Considering China’s exclusion from G7, OBOR policy might just provide China an opportunity to continue its economic development.
- OBOR could help earn higher returns on surplus savings or capital exports and it could provide a new source of external demand.
- It could use the excess capacities in railways, steel, metals and cement, to provide work for their construction companies, while using their experience of infrastructure projects.
- It is a stepping stone for China’s aspirations of global leadership by creating a rival to the transatlantic economic area with the US at its apex.
What is India’s position on OBOR?
- India is strictly not in favour of OBOR initiative.
- The main reason behind India’s opposition towards the policy is the China-Pakistan Economic Corridor (CPEC), which is a part of OBOR.
- Recent Chinese reports claim that following the launch of CPEC in Pakistan, the country has received investments worth more than $46 billion.
- India has put sovereignty issues and raised objections over CPEC projects in Pakistan-occupied Kashmir (PoK).
- It poses a major security threat to India as Beijing is trying to encircle New Delhi by undertaking construction projects in the neighbouring countries under the guise of connectivity purposes.
- For its political differences and strategic concerns, it is imperative for India to not budge from its position as it would count as a submissive acceptance of the CPEC.
If India sets to join OBOR, what are its potential benefits?
- India and China need to ensure that their differences on political questions do not prevent both sides from advancing economic cooperation, something both countries have struggled to lately.
- The Modi government may need to consider the future of its Pakistan policy, because the possibility of India benefiting from regional connectivity by land would entail a measure of normalized ties with Islamabad.
- It can be a great boost for employment and labor movement prospects for India, which is facing chronic unemployment crisis in Eastern part which can be truly unlocked by this initiative.
- India can join the maritime trade route with China and help solve its crude oil needs.
- The landlocked north can have two vent-out ports in forms of Indian side and even Pakistan side creating economic prosperity in the process.
How should India counter OBOR?
- India should upgrade internal connectivity.
- India should modernize connectivity across its land and maritime frontiers with neighbouring countries.
- India should work with countries like they did with Japan and multilateral institutions to develop regional connectivity in the Indian Subcontinent and beyond.
- India’s vision document on ASIS- AFRICA GROWTH CORRIDOR can be a good front.
- India Japan have launched their own infrastructure development projects to balance OBOR- GREAT WALL.
Beyond business as usual: (The Hindu, Editorial)
The 14th edition of India-EU Summit will take place in New Delhi today.
- The EU will be represented by Donald Tusk, President of the European Council, and by Jean Claude Juncker, President of the European Commission. India will be represented by Prime Minister Narendra Modi.
- The summit with India will mark the 55th anniversary since the establishment of EU-India diplomatic relations.
The 14th summit will focus on concrete priority actions for the strategic bilateral partnership in the following areas:
- Leaders will take stock of the implementation of the EU-India agenda for action 2020 endorsed last year and will call for further progress.
- In the area of security, EU and India leaders will discuss how to further enhance cooperation on counter-terrorism and maritime security.
- Science and Technology and innovation
- Reforming the multilateral architecture to prevent the rise of isolationist, unilateral and authoritarian forces.
- On trade and investment, leaders will review the state of play and next steps towards relaunching negotiations for a free trade agreement (FTA).
- They will also welcome the launch of an investment facilitation mechanism for EU investors in India, and the strong engagement of the European Investment Bank in India.
- Europe will support India’s ambitious goals through investment and expertise in green buildings, renewable energy, waste management and air pollution.
- The two sides will also discuss domestic cyber policy landscape, and Internet governance, mechanism on bilateral cooperation and possible cooperation at various international fora and regional fora.
- Apart from the above areas they will also discuss possible collaboration for the 5th Global Conference on Cyber Space to be held in New Delhi from November 23-24.
- At the summit, the EU and India will discuss some of the most pressing global challenges.
- Leaders are expected to call for enhanced cooperation within the G20 in order to achieve strong, sustainable and balanced growth.
- India and EU share core values, commercial interests and a desire to tackle climate change.
- In addition, the EU and India will stress their commitment to the Paris Agreement and the sustainable development goals.
- EU and India leaders will also exchange views on migration and refugees. They will discuss the Rohingya crisis as well as the work on global compacts for migration and for refugees.
- Terrorism to cooperating on cyber security and digital.
Foreign and security policy:
EU and India leaders will discuss the latest developments in their respective wider neighbourhoods. This includes among others:
- the situation in the Korean peninsula
- the latest developments regarding Ukraine
- the state of play in Afghanistan
- EU-India cooperation in the Indian Ocean area and Africa
How can India and Europe further deepen their partnership?
- On September 13, 751 parliamentarians from 28 states resolved that the EU-India partnership “has not yet reached its full potential,” and called on Brussels and New Delhi to “strengthen their efforts in promoting effective, rule-based multilateralism”.
- Address security challenges with “respect for international law and cooperation among democratic states.”
- Delhi has accelerated outreach efforts in the Baltic and Central and Eastern Europe region, where China’s formidable Belt and Road Initiative (BRI) is changing the balance of power and threatening European unity.
- For the EU, the challenge is to openly recognize that beyond mere economic and transactional interest, democratic India makes for a much more attractive and sustainable partner than China.
- India needs to open its market to European goods, services and investment.
- India also have to invest in greater coordination security cooperation with Europe in overlapping spheres of influence.
- Converging interest to ensure Eurasian connectivity plans that are multilateral, and also financially and environmentally sustainable.
- The protection of international legal principles such as the freedom of navigation or the development of regulatory frameworks that foster scientific and technological innovation under the rule of law.
- Cooperation in research and innovation, by facilitating research opportunities and increasing research collaboration between the EU and India.
- Both the sides need the highest standards of data protection. This will help to protect citizens’ rights online and also make it easier for businesses on both sides to work together by exchanging personal data freely and securely.
- There is need to pool our knowledge and resources to tackle common threats of terrorism, radicalisation and cyber crime.
- The European Union and India are natural partners. Every year, millions of Europeans come to India to discover this great country’s many marvels. There is even a local cricket team in my native Luxembourg, made up largely of Indian players.
- India is one of the world’s fastest growing economies; the EU is the world’s biggest open market and the world’s second largest economy.
- As the world’s two largest democracies, it is now time for Europe and India to infuse their relationship with a liberal vision for a transformed global order
Indian Economy. Planning, Growth and Employment
Norms to curb fund diversion mooted: (The Hindu)
SEBI panel proposes that audit committees must monitor flows to unlisted units.
- Audit committees should monitor the flow of funds to unlisted subsidiaries, including those established overseas.
- The audit committee should also review the utilization of funds of the listed entity infused into unlisted subsidiaries, including foreign subsidiaries.
- Among recommendations related to the role of independent directors, the panel sought disclosure of the expertise of the directors being appointed, and capping the maximum number of directorships to seven by April 2020.
Rules for listed entities:
- Listed entities should put in place proper regulatory framework while sharing unpublished price-sensitive information with promoters or any other significant shareholders.
- Listed companies should also be required to have at least six directors on the board with a minimum of 50% representation of independent directors — including one woman director.
- Enhanced disclosure requirements related to abrupt resignation of independent directors and auditors should be put in place.
Why recommendation is important?
- The recommendation assumes significance in the wake of SEBI’s January order barring Vijay Mallya and six other entities from the securities market after a probe found that funds were diverted from United Spirits to group companies, including Kingfisher Airlines.
- It would strengthen corporate governance; implementation would require fundamental changes on multiple fronts.
Does India need a bullet train?: (The Hindu, Editorial)
The Mumbai-Ahmedabad bullet train was launched recently in India and has been a reason of lot of debate with some saying that it is a vanity project which has little or no justification on the grounds of economic viability or public service.
Other Countries experience with bullet train(High Speed Rail)
- Japan’s pioneering Shinkansen, which connects Tokyo to Osaka, passes through the biggest industrial and commercial centres, caters to almost 50% of Japan’s population, and carries more than 150 million passengers annually.
- South Korea’s Seoul-Busan HSR caters to almost 70% of the population, yet struggles with viability.
- France’s fabled Paris-Lyon HSR service has had to periodically receive substantial subsidies.
- the U.S. is tentatively initiating a San Francisco-Los Angeles corridor, and is still unsure about the densely populated industrial-commercial Philadelphia-Boston-New York-Washington DC corridor.
- Turkey’s Ankara-Istanbul HSR line is the only example from a middle-income country, and the jury is still out on its viability.
Why bullet train is not feasible for India ?
- The main problem is viability, given the huge costs involved.
- The Mumbai-Ahmedabad HSR costs around Rs. 1 lakh crore. Estimates in the project report by the Indian Institute of Management, Ahmedabad show that at least 1 lakh passengers at fares of Rs. 4,000-Rs. 5,000 would be required daily for the project to break even
- The air fares between the two cities are around Rs. 2,500.
- Many business analysts have pointed out that the repayment amount will amount to Rs. 1.5 lakh crore over 20 years allowing for exchange rates and comparative inflation leading to outflow of forex
- Subsidies appear inevitable. Subsidies for agriculture, education and healthcare are being reduced, but subsidies for the rich seem unproblematic.
- over 90% of rail passengers in India travel by sleeper class or lower class for thousands of kilometres.
Why India is moving ahead with HSR project
- There are a lot of commercial and industrial establishments in this region. As a result, this sector will witness benefits and increase economy of scale in the region
- Reduce travel time to 2hr
- This corridor will also take some passenger load off the existing Mumbai-Ahmedabad line, thereby creating passenger capacity for towns which are not served by the high speed rail link.
- This Project has “Make in India” & “Transfer of technology” objectives. Therefore lead to skill development
- This project will also open up new venue of employment
|About bullet train
Is India missing out on global trade recovery?: (Live Mint, Editorial)
- The Asian Development Bank states that when the rest of Asia has witnessed an impressive rise in merchandise exports, Indian exports have remained weak.
What is Asian Development Bank?
- Founded in 1966, the Asian Development Bank’s primary mission is to foster growth and cooperation among countries in the Asia-Pacific Region.
- Its headquarters are in Manila, Philippines.
- It has been responsible for a number of major projects in the region, raising capital through the international bond markets.
What does the report say?
- The Asian Development Bank in its recent update noted that most of the emerging economies in the region, excluding China, are witnessing a rebound in manufacturing exports.
- Among them, even India witnessed a mild rebound in exports in August, 2017.
- 10% year-over-year growth in India’s exports in August was largely on the back of increased earnings from commodity exports such as industrial metals and petroleum products, amid a global rise in prices of these products.
Using a three-month moving average adjustment to smooth out monthly fluctuations, it has been found that India has been lagging behind most major Asian economies in merchandise exports.
Why the Indian merchandise has exports fallen?
1. The recently introduced demonetization and GST may have contributed to the exports slowdown by disrupting supply chains, hurting the small and medium scale enterprises (SMEs).
- India’s trade growth in the first quarter of 2017 financial year is 5.7%, the slowest in the past three years.
2. The decline in domestic manufacturing output has added to India’s crimping exports, and raising imports.
- Data from the commerce ministry shows that imports of machinery, transport equipment and electronics witnessed a 22% increase in the April-to-August period this year compared to the year-ago period.
3. The indirect cause for a slowdown in global trade is a slowing global economy, the breakdown of export numbers shows that it is crude oil which has fired the fatal shot.
The twin shocks of demonetization and GST may have contributed to the exports slowdown by disrupting supply chains, hurting the small and medium scale enterprises (SMEs).The decline in domestic manufacturing output has dealt a double blow to India’s external balances— by crimping exports, and raising imports. India today has a much greater reliance on imports for industrial supplies and capital goods compared to a year ago.
Hence, what is required is for India to immediately role out some fiscal and monetary policy measures to reboot the economy and revive the market sentiment.
Face the decline: (Indian Express, Editorial)
- According to the critics, demonetization halted the recovery of rural economy.
What is demonetization?
- Demonetization of currency means discontinuity of the particular currency from circulation and replacing it with a new currency.
- In the context of India, the government banned the 500 and 1000 denomination currency notes as a legal tender on 8th November, 2016.
What was the objective behind the demonetization in India?
- The government’s stated objective behind the demonetization policy are as follows:
- It is an attempt to make India corruption free and to curb black money.
- It is expected to control escalating price rise and to stop funds flow to illegal activity.
- It is an attempt to make a cashless society and create a Digital India.
What is its short term and long term effects in the economy of the country?
- India’s GDP which grew at 7.6% in FY 2015-16 has seen a drop by 0.5% to 1.5% in 2017 as per reports of various agencies.
- As for agriculture, wholesale vegetable markets have been witnessing declining demand and prices of tomatoes and other food items have fallen drastically making it economically unviable for the farmers to produce these crops.
- The withdrawal of the old currency notes had initially put pressure on the mandis; farmers were having problems in selling their produce as both the parties have to agree on the mode of payment.
- Rural economy and demonetization:
- Most critics of demonetisation have argued that it caused a decline in rural demand and contributed to a fall in agricultural prices following the good harvest in 2016.
- A sharp drop in inflation did occur and this is what contributed to whatever real wage growth took place.
- Also, nominal wage rate growth had fallen sharply after 2014 to 5 % per annum from a high of more than 15 per cent during 2008-2013.
- The trend since July 2016 in nominal wages remains the same but appears higher in real terms because inflation fell sharply from a level of 5 per cent until October 2016 to less than 2 per cent by June 2017.
1. The UN World Economic Situation and Prospects revised report projected that India will achieve an impressive 7.9 per cent GDP growth in fiscal 2018, revising upwards its January estimates when it had said India’s growth will be 7.6 per cent next year.
2. India’s tax-to-GDP ratio is quite low at 16.6% compared to other emerging economies.
- Thus, it is estimated that since more money, including black money, gets accounted for this will lead to better tax compliance owing to better targeting of income.
3. The digital initiative of the government will also result in higher indirect tax revenue for the govt. in the form of service tax.
4. Since consumer demand has slowed and consequently industrial production has declined, employment generation has been adversely impacted by the currency demonetization drive.