Gist of EPW April Week 5, 2023

The Economic and Political Weekly (EPW) is an important source of study material for IAS, especially for the current affairs segment. In this section, we give you the gist of the EPW magazine every week. The important topics covered in the weekly are analysed and explained in a simple language, all from a UPSC perspective.

TABLE OF CONTENTS

1. The Future of Inclusive Growth
2. Current Inflation in India
3. AUKUS- Implications for India
4. Understanding fair compensation
5. Technocratic Subversion of MGNREGA
6. Minimum Export Price Caps on Agri exports

1. The Future of Inclusive Growth

• As per OECD (Organisation for Economic Co-operation and Development), inclusive growth is economic growth that is distributed fairly across society and creates opportunities for all.
  • It creates an equal opportunity scenario for all parts of society. Inclusive growth creates an opportunity to reduce poverty in society and increase well-being. The inclusive growth approach takes a longer-term perspective.
  • Elements of inclusive growth are skill development, financial inclusion, technological advancement, economic growth and social development. 

Image: Pillars of inclusive growth

Source OECD

Inclusive Growth and India: 

• The economic growth in India has been accompanied by rising income inequalities, markedly after the reforms of 1991–92.

• • The agriculture-led economic growth will be significantly more inclusive and reduce income inequalities, compared to that based on other strategies of growth, like focusing only on the trade liberalisation and non-agriculture sectors.

A Model for Inclusive Development: Based on Agriculture and Ancillary Activities

• Equitable growth can be achieved by following agriculture-led economic growth and preventing leakages in the economy that constrain the benefits of growth from reaching low-income people.
• The agricultural income increases with accelerated growth in output, farmers spend proportionately more of their incomes on non-tradables which creates a multiplier effect and the real wages in the economy increase, causing a reduction in income inequality.
  • An increase in agricultural production has a significantly higher impact on employment and hence real wages in the non-tradeable/unorganised sector as compared to the growth based on non-agricultural tradable sectors. This process results in reducing income inequalities.
• An underutilised potential of the livestock sector relates to its use for biogas. The biogas potential in India is 28 to 45 billion cubic metric tonnes every year against the utilisation of only about 2 billion cubic metric tonnes.
  • They compared this with the spread of biogas in China where it is at least 10 times faster than India. Ironically, China learned about this technology 70 years back from India.
• There is also another issue of the cow-slaughter ban affecting the livestock sector in terms of value added to farmers, and affecting the fragile rural social fabric, increasing social inequality. 
  • The report projects at least a 7% increase in meat consumption in the state based on an income elasticity of 0.99; this income elasticity is for all households and the analysis needs to be disaggregated by the caste groups.
  • At present, the per capita meat consumption in India is the lowest in the world. However, as people continue to increase meat consumption, it will skyrocket and dominate the world market.
• Investment in research is a necessary and sufficient condition for the growth of agricultural production. 
  • The government should allocate at least 1% of agriculture’s GDP to its research and extension. At present, less than 0.3% of agriculture’s GDP is allocated to research. 
• As the incomes of farmers increase, they could substitute imported goods for traditional local non-tradable goods. 
  • For example, before the green revolution, in rural India, soda water bottles with a marble on the top were very cheap and popular. After the green revolution, farmers started substituting them with imported Coca-Cola. When such substitution of tradable for non-tradable goods occurs, the linkage effect gets diluted, further affecting wages and poverty reduction.

If agricultural growth will take place at an accelerated rate, the leakages in the linkage of agriculture with the non-tradable sector will pose a binding constraint on poverty alleviation and inclusive development.

2. Current Inflation in India

Introduction:

• Inflation has always been an important policy concern throughout the world and especially so in the developing world.
• Since 1960, India has experienced several bouts of inflation from moderate to alarmingly high rates.
• From 2015 to 2019, inflation remained low and some believed that flexible inflation targeting had succeeded.
• However, inflation exceeded 5% in February 2020 (6.62%) and remained high, reaching 7.79% in April 2022.

Reasons behind:

• The upturn in Indian inflation coincided with the outbreak of the Covid19 pandemic  and a steep rise in international prices of several commodities—especially crude oil (from $58 per barrel in 2019 to $76 per barrel by June 2021 and ultimately escalating to $107 per barrel in June 2022)
• The rising global prices of semiconductors, and copper also contributed to the inflationary trend in India and globally.
  • Turf wars between US and Chinese semiconductor companies triggered an upward trend in semiconductor prices in 2021, affecting global supplies.
  • The Ukraine crisis and Russia’s control over key inputs of the semiconductor industry, namely palladium and neon, caused semiconductor prices to rise steeply (nearly 9.7%) in 2022.
• Inflation in India was not unique as global trends were also inflationary. In the US, inflation stood at 8.6% in May 2022, which was significantly higher than the 2.3% average rate observed from 1991 to 2020.

Government measures to control inflation:

With focus on supply side:

• On 21 May 2022, the Union finance minister announced a series of measures to control the price level in sensitive sectors.
• To address the fuel sector, the government implemented an excise tax cut of rupees 8 per litre on petrol and rupees 6 per litre on diesel.
• The government also granted a subsidy of rupees 200 per cylinder (for up to 12 cylinders per year) under the Ujjwala Yojana. 
• Additionally, to reduce the price of steel and plastic products, the government decreased the import duty on key raw materials and inputs for the steel and plastic industry and imposed an export duty on some steel products, along with an increase in the export duty on iron ore and concentrates, which is expected to bring down the price of steel.
• To tackle food inflation, the government has announced ­duty-free imports of 20 lakh tonnes of crude soybean and crude sunflower oil. 
• To maintain food security and control food inflation, a restriction on sugar exports to 100 lakh tonnes and a complete ban on wheat exports were implemented.
• This excessive focus on the supply side of the inflation problem, however, delayed the official recognition of the overwhel­ming role played by the demand side, in particular the role of deficit spending accommodated by expansionary monetary policies.

Stimulating Aggregate Demand in the Pandemic:

• In response to the COVID-19 pandemic, the government introduced the Atma Nirbhar package on May 12, 2020, amounting to 20 trillion rupees or about 10% of the country’s annual gross domestic product (GDP), as a significant demand stimulus effort.
• This was supplemented by the Pradhan Mantri Garib Kalyan package amounting to `1.70 lakh crore. There were also several measures targeted specifically at micro, small and medium enterprises (MSMEs). 
• Synchronously, the RBI (2021) undertook a strong expansionary mode.
  • Graduated repo rate reduction from 5.15% to 4% and sim­ultaneously (with a view to incentivise bank lending).
  • Several measures (conventional as well as non-conventional) were introduced to ease liquidity in the system. Prominent among these were dollar swaps ($2.71 billion), targeted long-term repo operations (TLTROs) of three-year tenor, etc.
  • Additionally, in order to augment fiscal resources, the limit on ways and means advances (WMAs) to all states (and union territories) were enhanced in two stages (of 30% and 60%) from their existing levels on 31 March 2020, while that for the union government was raised from `1.2 trillion to `2 trillion.
• Large-scale labour migration, interruption of raw ­materials supply and some shift in private expenditures to pharma and medical services, all contributed to a sluggish res­ponse of aggregate supply to the massive stimulus. 
• In such a situation, the liquidity overhang was absorbed by asset markets especially the equity markets and to some extent real estate.

Policy Implications:

• The current inflation is mainly attributed to supply shocks and policymakers have largely followed this diagnosis until recently.
• Recent data suggests that the combination of fiscal and monetary policies implemented in 2020 and 2021 has ignited inflationary fires, and higher inflation may become the new normal.
• The massive stimuli under the Atma Nirbhar and other packages ballooned the fiscal deficit, affecting inflation through four channels: the monetized part of the deficit, the consumption channel, inflationary expectations, and public debt as a percentage of GDP.
• Fiscal deficits also have an adverse impact on inflationary expectations, and the rise in public debt as a percentage of GDP sends a strong inflationary signal.
• The belief that above-normal inflation can be tolerated for some time to forestall a recession may backfire by jeopardising the central bank’s credibility as an inflation fighter and bringing about the exact outcome it aimed to avert.
• If inflation targeting is to succeed, the RBI should respond to inflationary pressures as soon as leading indicators, such as asset prices, point in that direction.
• The supply-side measures are not entirely ineffective,however, they need to be combined with measures addressing the demand side to effectively address inflation.
• While supply-side measures are necessary to break inflation hysteresis, they need to be supplemented quickly and strongly with measures addressing the aggregate demand side, especially the reining in of the fiscal deficit and absorption of excess liquidity in the market.

3. AUKUS- Implications for India

Introduction

• AUKUS is a trilateral security arrangement between Australia, the United Kingdom (UK), and the United States (US).
• It aims to promote a free and open Indo-Pacific that is both secure and stable.
• It was in the news due to a joint statement by the three countries, China’s objection to the group, and the anti-AUKUS group in Australia.
• It is suggested that India should use the QUAD to garner support in the context of its nuclear submarine programme.

For detailed, read here: AUKUS Trilateral Partnership, Implications for India, Significance of AUKUS

Details

• It is argued that AUKUS is meant to counter Chinese naval power in the South China Sea and the Indian Ocean Region (IOR).
• The critics of AUKUS in Australia say that AUKUS would erode the sovereignty of Australia, forcing it to stand against China even if not in its self-interest.
• China argues that the deal is against the Nuclear Proliferation Treaty (NPT) regime.

Features of the New Agreement

• Integrated civilian and military personnel training starting in 2023.
• Forward deployment of the US and UK submersible ship nuclear (SSNs) to Australia from 2027 for the purpose of training Australian navy personnel.
• Sale of three Virginia-class submarines to Australia. It should be noted that the US has its own domestic difficulties in increasing production.
• Delivery of the first UK-built AUKUS-SSN to Australia in the late 2030s.
• Delivery of the first Australian-built AUKUS-SSN in the early 2040s.

Associated Concerns

• It should be noted that the design and production of nuclear submarines are extremely complicated and requires technologically world-class competent organization.
• There were various issues in earlier projects such as the Collins-class submarine programme of the Australian Navy. Some of the lessons learned were:
  • It is important to involve builders, maintainers, operators, and the technical community in the initial design phase.
  • The design team was not aware of the operating environment of Australia.
  • It is important to analyze future issues with foreign suppliers when designing the submarine.
  • Unrealistic contracts due to delays in design and construction.
  • Establish integrated logistic support in the design phase.
  • Ensure training facility in the initial contract.
  • Develop a human resource for operational, technical, and shore support aspects.
• It is argued that submarine-building activity is primarily available with industrial complexes in the U.S. and the U.K. and Australia lacks it.

AUKUS and Implications for India

• It is suggested that India will become a strategic appendage of the US and its strategic autonomy will be impacted.
• It might bring India into direct conflict with both Russia and China.
  • It should be noted that adopting a tough anti-China stance is not feasible because of great disparities in economic and military strengths.
• Despite having a technology transfer of the Scorpene project, India does not have the adequate capability to build conventional submarines.
• It is often criticized that foreign assistance in the nuclear submarine programme makes India hostage to foreign interference.
• Indian Navy’s obsession with aircraft impacts the indigenous SSN project.
• Notably, India has the third largest defence budget in the world (after the US and China). However, the share of capital expenditure is low.

Way Ahead:

• There is a need for serious operational analysis of the utility of aircraft carriers versus SSNs.
• India should focus on other domains like unconventional tactics and emerging technologies.
• India should be wary of AUKUS as it can curtail India’s strategic autonomy.
• It should utilize the platform design and technologies developed for the SSBN to fast-track the SSN project.

4. Understanding fair compensation

Context 

The only legal defense used by anyone impacted by land acquisition to contest the state’s power is still fair compensation. By critically analyzing the amendments to the land acquisition acts and comprehending the various approaches taken by the legislature and the judiciary for determining a “fair” market value of the land, the issue of fair compensation is examined through the theoretical lens of Rawls’s conception of “justice as fairness” Even though several approaches are used to calculate this value, it is still true that they are unable to change India’s land markets.

About Land Acquisition, Rehabilitation and Resettlement Act (LARR)

• The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act (LARR) is a law passed by the Government of India in 2013. 
• The act replaced the earlier Land Acquisition Act of 1894, which was widely considered outdated and inadequate in addressing the needs of farmers and other landowners.
• The Mains features of the act are: 
• The government may buy private land for a variety of “public purpose” initiatives that are specifically defined.
• Land acquisition: 80% of the affected families must consent for a private project. 70% of the affected families must consent for the PPP project. Then land can be purchased.
• Social impact assessment: Under SIA, it is even necessary to get the approval of the artisans, workers, share-croppers, tenant farmers, etc. whose (sustainable) means of subsistence will be impacted by the specified project.
• Compensation: Amount paid in accordance with market prices four times the rural market rate twice in an urban setting. Even if they don’t own any land, impacted craftsmen, small business owners, fishers, etc. will receive a one-time payment.
• Private entities: If the government purchases the land for a private corporation, that corporation will be in charge of providing relief and rehabilitation for the impacted population. For owners of SC/ST community, there is an additional rehabilitation package.
• Protective measures: State governments must establish up dispute resolution for seven years, the chairman must be a district judge or attorney.

Also read: Objectives of Land Reforms in India

Drawbacks:

• The Central Act of 2013 was introduced to put citizens’ antecedent fundamental right to subsistence into action. 
• It guarantees that livelihoods won’t be taken away unless 

1. a social impact assessment determines that it is in the public interest and 
2. the affected citizens receive rehabilitation. 

• Citizens’ fundamental rights will be violated by revisions made without taking the aforementioned issues into account.

5. Technocratic Subversion of MGNREGA

Context: In recent months, MGNREGA employees from all over the nation have been peacefully protesting as a member of the NREGA Sangharsh Morcha, a national alliance of labor unions. A multitude of complaints, including late wage payments, unfavorable working conditions, and insufficient MGNREGA scheme execution, are to blame for the protests.

For details on MGBREGA, read here: MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) Notes For IAS Preparation

News in detail:

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) workers demand

1. Adequate funds for work and timely wages, 
2. Release of pending funds to West Bengal, 
3. Revocation of mandatory attendance using the National Mobile Monitoring System (NMMS) app
4. Revocation of wage payments using the Aadhaar-based payment systems (ABPS).

About National Mobile Monitoring Software (NMMS)

• In 2021, the Minister of Rural Development officially announced its debut. 
• Along with geo-tagged images, it allows for the real-time attendance tracking of employees at Mahatma Gandhi NREGA work sites.
• In accordance with the directive, the app will take “two time-stamped and geo-tagged photographs of the workers per day,” increasing “citizen oversight of the programme and possibly enabling faster payment processing.” 
• The app aids in enhancing programme citizen oversight.
• It aims to increase transparency and make sure that the initiatives are properly monitored. 
• For employees covered by the Mahatma Gandhi NREGA in all States and Union Territories, it is applicable.

Way forward

• The majority of Indians are unable to perceive and evaluate how their government is acting since the state has placed so much emphasis on “seeing” its citizens.
• According to Democratic dogma, individuals should be able to clearly “see” the state, not the other way around. If not, people’s respect for and confidence in them are at risk.
• It’s important to handle the MGNREGA corruption cases. But for that, social audits must be strengthened rather than adding to the struggles of already overworked women.
• It is important to examine the causes of ineffective fund management and take action to improve it.
• Additionally, officers who are found guilty of misusing funds should face legal action.
• By increasing awareness and making it more inclusive, the participation of women and members of underprivileged classes must increase.

6. Minimum Export Price Caps on Agri exports

Context 

• Minimum Export Price (MEP) caps on agricultural exports are a policy measure implemented by governments to regulate the minimum price at which certain agricultural commodities can be exported from a country. 
• MEPs are typically set by governments in an effort to stabilize domestic food prices, ensure adequate food supply for the local population, and safeguard the interests of consumers.
• In 2021, India had a 2.9% market share of all agricultural goods, although its share is more significant in commodities like cereals, cotton, marine goods, sugar, beverages, and spices.
• If the focus is on individual product levels, India has a very high export share of rice (35.5%), marine products (14.9%), sugar (14.9%), cotton (14.7%), and frozen bovine meat (9.3%).
• Despite these worldwide trade advantages, certain agricultural goods have a far wider, stronger, and more dynamic domestic political economy. 
• An agricultural crop like onions has the potential to topple the government because they are a necessary component of the Indian diet and consequently have a direct impact on household budgets.

Also read: Sansad TV Perspective: Episode on 18th Apr, 2022: Agri Exports: Riding High

Minimum Export Price 

• The price below which an exporter is not permitted to export the commodity from India is known as the Minimum Export Price (MEP).
• Due to rising domestic retail/wholesale prices or production disruptions, MEP is implemented.
• MEP is a type of quantitative trade restriction.
• In an effort to stop the rise in domestic prices and increase domestic supply, the government sets MEP for the chosen commodities.
• This is only meant to be in place for brief periods before being lifted as circumstances change.
• The elimination of MEP enables farmers and exporters to obtain higher and more lucrative pricing, and it would also assist in generating significant foreign cash for the nation.

Alternative to Minimum Export price 

• Imposing an export duty as an effective substitute for MEP could increase exchequer revenue and stop circumvention.
• But the choice to impose or change the rate of duty will be made by the Finance Ministry, not the Commerce Ministry.
• The Finance Ministry would have to take into account the delicate issues surrounding the export of necessary but sensitive goods like onions.
• Additionally, it must continuously monitor market trends in order to be proactive in making political judgments.

Way forward 

• The nation should develop a ‘real export surplus’ to encourage the export of agricultural commodities.
• There aren’t many commodities that are actually in surplus in India, with the exception of a small handful of items like cotton and basmati rice.
• As a result, agri export from India has frequently been essentially a currency play, where a declining rupee encourages export growth.
• Therefore, the new agri-export initiative of the Commerce Ministry should not be a stand-alone strategy that only modifies some procedural elements.
• Instead, it must be comprehensive and offer a holistic approach from farm to ship to experience long-term success. 

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