Gist of EPW December Week 2, 2022

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 analyzed and explained in a simple language, all from a UPSC perspective.

TABLE OF CONTENTS

1. Global Hunger Index 2022
2. Remittances Reach $100 Billion
3. China and the US in Nepal
4. Drug Price Control in India

1. Global Hunger Index 2022

Details:

• India’s ranking in the Global Hunger Index (GHI) has declined since 2016. However, its GHI scores’ trend looks more or less flat with the lowest value recorded in the year 2020. 
• It should be noted that between 2016 and 2022, India ranked 100th or below on the GHIs (except in 2020).

• During the same time span, the GHI ranking and scores of India’s counterparts in South Asia showed improvements.
• Scores of countries like Bangladesh, Nepal, Sri Lanka, and Pakistan improved, whereas India’s score slightly slipped, leading to a visible decline in India’s ranking on GHI 2022.

• Moreover, the slip of India on GHI 2022 should not be seen in isolation; perhaps it confirms a trend of worsening hunger, espe­cially in the urban areas of India.
• The Government of India (GoI) has time and again questioned the reliability of undernourishment data collected through the Gallup survey solely.
• It is advised that the government should use a better explanation to defend itself. For instance, ranking is a relative indicator and is affected not just by India’s performance but also by the performance of other countries. This implies that its ranking can be impacted if other countries have improved their performances, even if India’s absolute position is unaltered.

For more information on GHI, read here: Global Hunger Index [Latest 2022 Report] Government’s Arguments: The Government’s arguments in terms of methodological doubts are:

• The GHI defines hunger in terms of other variables than just the lack of food.
• Three out of the four indicators pertain to children and thus cannot be considered to represent the entire population.
• The prevalence of undernourishment (PoU) is estimated using the Gallup opinion poll on a very small sample.

Analysis of the arguments:

• The first two arguments put forth by the government appear to be technically valid. For instance, the under-five mortality rate (U5MR) can be attributed to social and environmental factors apart from lack of nutrition.
• Similarly, all indi­cators except PoU measure hunger among children. But, the idea of the GHI is to provide a broad and comprehensive context and trend on hunger, with the lack of adequate calorie intake being just one aspect of it.
• As hunger is associated with both lack of enough food (quantity) and a lack of adequately nutritious food (quality), it is retrograding to assess India’s hunger scenario exclusively in terms of the quantity of food intake.
• It should be noted that child malnutrition reflects the poor growth of a major section of the population. A society cannot claim to be “free from hunger,” if its children are inadequately nourished.
• Furthermore, child nutrition considerably shapes human capital formation.
• The third argument is that the Gallup survey is based on a small sample of only 3,000 adult participants and is considered to be small and not representative. It should be noted that except for the PoU, all other data for GHI are obtained from government or government-endor­sed sources like the National Family Health Survey of India (NFHS).
• Moreover, Undernourishment (PoU), or the proportion of the population below the minimum dietary energy (calorie consumption) required for a healthy and active life, is obtained from the Food and Agriculture Organization (FAO).
  • This in turn is obtained from three parameters like average dietary ­energy consumption (DEC), the inequality in access to dietary energy (CV), and the minimum dietary energy requirement (MDER), having one-third weight each. 
• It is inferred that more than 80% of India’s rank is based on its performance on child stunting, child wasting, and U5MR measured by government data.

For more information on malnutrition, read here: What is Malnutrition – Types, Impacts, Causes Indicators of GHI:

• Stunting, U5MR, Wasting, and PoU:
  • Despite a steady decline in the prevalence of child stunting, the magnitude of the decline is very low. For instance, child stunting declined by just 2.9 percentage points between 2015-16 to 2019-20. 
  • U5MR has ­decreased considerably, but at 4.19, it is higher than Bangladesh (2.9) and  Nepal (2.8) as per the GHI report 2022. 
  • However, the prevalence of wasting among children has been unacceptably high in India. According to some reports, child wasting stands at 19.3%. This implies that India is among the countries with the highest levels of child wasting.
  • Moreover, undernourishment increased from 15.2% to 16.3% between GHI 2015 and GHI 2022.
  • It should be noted that the percentage decline in wasting is smaller in urban areas than in rural areas.
  • Though in terms of percentage points, wasting has declined in urban India, the absolute number of both stunted and wasted children has increased.
  • During the span of 2004–05 and 2015–16, the number of stunted children in urban ­India increased by nearly 6,72,055. The number of wasted children during the same period rose by around 7,70,931.
  • The increase in stunted and wasted children was about 14,40,905 and 4,95,470 from 2015–16 to 2019–20.
  • The constant increase was not reported from rural India over the last 15 years indicating a gradual shift of hunger to urban India.
  • Trends of Child Wasting across different states:
    • In several states, child wasting has increased both in rural and urban areas. Some examples are Andhra Pradesh, Gujarat, Goa, Assam, Jammu and Kashmir, etc.
    • In many states, the increase is higher in urban areas like Goa, J&K, Nagaland, Punjab, UP, and West Bengal.
    • Though the prevalence of wasting has decreased in rural areas, it has increased in the urban areas of some states like Odisha, Uttarakhand, Tripura, Chhattisgarh, and Arunachal Pradesh. This might be attributed to greater absolute addi­tion to the urban population.

Impact of Covid-19:

• COVID-19 has likely worsened the situation due to food price spikes caused by supply chain disruptions.
• According to FAO (2020), the pandemic has impacted the entire urban food system.
• It is found that both the quantity and quality of urban food consumption have deteriorated.
• As per a study during April–June 2022 across three cities in Bihar and Jharkhand, more than 90% of the respondents stated that their household food condition has not gone back to pre-COVID-19 levels.
• Similarly, multiple surveys in the country display the deterioration in food security, specifically among landless farmers, informal workers, and migrants.

Conclusion:

• Though the absolute rise in urban stunting and wasting began almost ten years back, the pandemic has certainly exacerbated the challenge.
• India’s GHI ranking offers a unique opportunity to broaden the food and nutrition agenda that explicitly accommodates the urban dimension.

2. Remittances Reach $100 Billion

Context: As per the World Bank’s latest Migration and Development Brief named “Remittances Brave Global Headwinds”, remittances to India are expected to reach a record level of $100 billion in 2022.

Introduction:

• Global remittances are expected to cross $794 billion in 2022 as compared to $781 billion in 2021 and further to $815 billion in 2023. 
  • Trends indicate a 4.9% in 2022 as compared to 10.2% in 2021, which was the highest since 2010. 
• Out of the total $794 billion, $626 billion worth of remittances were sent to low- and middle-income countries. 
• In low- and middle-income countries, remittances have become a larger source of external finance even when compared to foreign direct investment (FDI), official development assistance (ODA), and portfolio investment flows. 
• In 2021, India received about $89.4 billion and is expected to become the first ever country to reach the $100 billion mark.
• The other countries with the largest remittances are Mexico ($60 billion), China ($51 billion), the Philippines ($38 billion), and Egypt ($32 billion). 

Reason behind the growth:

• The rise in migration to Organization for Economic Co-operation and Development (OECD) countries, which increased by 22% in 2021 and is predicted to continue in 2022, is a major factor in the increase in remittances.
• The stimulus programmes to support the economy of the United States (US) and the European Union during the epidemic are other factors that increased international remittances.
  • This helped to better the employment situation and led to an increase in the incomes of migrant workers.
• Post-pandemic reopening, revival and recovery of various sectors in home countries. 
• Further, there seems to be an increased determination among migrant workers to help their families back home in the post-pandemic recovery phase.

Image Source: knomad.org

Trends in India’s Remittances:

• India is expected to receive $100 billion in remittances in 2022. 
• As per the World Bank’s report, India’s remittance will grow 12 per cent from 7.5 per cent in 2021, resulting in a $100 billion flow as compared to $89.4 billion in 2021. 
• India’s improvements are noteworthy because, during the past few years, it has regularly received around a tenth of all remittances received worldwide.
• The remittances into India have increased from $54 billion in 2009–10 to $100 billion. However, the share of remittances in India’s gross domestic product (GDP) is still a low 3% as compared to that in neighbouring countries like Nepal, Bangladesh, and Pakistan. 
• But remittances remain a significant source of foreign exchange and continue to provide foreign exchange to almost cover half the merchandise trade deficit. 
• As per a recent study by the Reserve Bank of India, Maharashtra which accounts for more than a third of the remittances, has now surpassed Kerala and emerged as the biggest beneficiary of remittances. 
• Kerala, Tamil Nadu, and Karnataka now account for about a quarter of all remittances, down from about half previously. 
  • The migration of white-collar jobs to advanced countries and the dramatic rise in the migration of low-skilled labour from Uttar Pradesh, Bihar, Odisha, and West Bengal to the GCC states are both contributing factors to this.
• The United Arab Emirates (UAE), the US, and Saudi Arabia now account for almost half the non-resident Indians (NRIs). The other major countries with a sizable share of NRIs include Oman, Kuwait, the UK, Canada, and Qatar in that order. 
• Furthermore, the modifications made to immigration laws in developed nations like Germany and Australia to encourage skilled migration would only hasten these developments. 
• Overall, remittances will continue to be a significant source of inflows of foreign currency and will shield the economy from any fluctuations in the inflows of foreign investment.

Reasons for the sustained inward remittance flows in India:

• The movement of highly skilled employees to established economies like the US and the United Kingdom (UK), who together now account for a fifth of migrants, has gradually surpassed the flow of low-skilled migrant workers, working in the informal sector in the Gulf Cooperation Council (GCC) countries.
  • The share of remittances from the U.S., the U.K. and Singapore has improved from 26% to 36% between 2016-17 and 2020-21, whereas the share from GCC countries has declined from 54% to 28%.
  • The U.S. (with a share of 23%), displaced Saudi Arabia as India’s top source country for remittances.
• This structural change has made a huge impact during the pandemic as Indian migrants in high-income countries worked from home and also benefited from large fiscal stimulus packages, and in the post-pandemic phase, wage hikes and record-high employment levels have led to a gradual growth in remittances.
• Additionally, the migrant workers in the GCC countries also benefited from the direct support measures undertaken in these countries to check the increasing inflation.
• The report also expects the Indian migrants to have taken advantage of the depreciation of the Indian rupee as compared to the U.S. dollar which might have also increased their remittances.

Road Ahead:

• The report expects the growth in remittances to decline by about 2% in 2023 with an increase in inflation and the hardening of the monetary stance in advanced economies.
• The growth in remittances is estimated to decline from 3.5% in 2022 to 0.7% in 2023 in South Asian countries.
• The shift in demand for labour in the international markets will now further consolidate these trends. This is because the demand for medium-skilled workers is now more than a third faster than for low-skilled workers. 
• The demand for labour would also decrease as the construction activities in Qatar on account of the FIFA World Cup have also ended. 
• Despite this global trend, remittances to India are expected to grow by 4% in 2023 as a large percentage of Indian migrants are earning relatively high salaries in developed countries and their salaries are expected to be more resilient than those of lower-wage migrants in GCC countries.

3. China and the US in Nepal

Context: Recent developments show, both China and the U.S. continue to increase their presence and influence in Nepal.

China’s Presence in Nepal:

• The bilateral relationship between Nepal and China is defined by the Sino-Nepalese Treaty of Peace and Friendship signed on April 28, 1960, by the two countries. 
• Though initially unenthusiastic, Nepal has been of late making efforts to increase trade and connectivity with China. 
• Chinese investment in Nepal has already reached millions of yuan. 
• Further, Nepal is a part of the Belt and Road Initiative (BRI) of China which has consequently led to massive infrastructure projects in Nepal and the development of transportation facilities.
• Nepal has started accessing the internet from China. The commercial operation of the Chinese bandwidth project now ends Nepal’s sole dependence on India for internet bandwidth. It is considered a loss for India, both revenue-wise and strategically.
• Nepal’s eagerness to engage with China has been largely misinterpreted as Nepal’s strategy to acquire more from India. However, the current approach fits perfectly in Nepal’s long tradition of pursuing a diversified foreign policy and partners, taking advantage of its key geostrategic position.

U.S.’s Presence in Nepal:

• The United States (US) has also been increasing its influence and involvement in Nepal. 
• The United States and Nepal have signed a trade and investment framework agreement, providing a forum for bilateral talks to enhance trade and investment, discuss specific trade issues, and promote more comprehensive trade agreements between the two countries. 
• Both countries also signed the Millennium Challenge Corporation (MCC) agreement.
  • MCC is an innovative and independent U.S. foreign assistance agency that is helping lead the fight against global poverty.
  • MCC forms partnerships with developing countries that are committed to good governance, economic freedom and investing in their citizens.

Competition between China and the U.S. in Nepal:

• China condemns the practice of “coercive diplomacy” by the US. It stated that while China supports international cooperation with Nepal and welcomes all contributions to Kathmandu’s economic growth and improvement of living standards, such cooperation should be based solely on the Nepalese people’s will, and not under coercion.
• China demands clarity from Nepal on its role in the Indo-Pacific policy. Nepal’s lack of clarity on this matter has added to China’s scepticism about the MCC agreement. 
  • According to some experts, the MCC is a limb of the US military policy in the Indo-Pacific region and the U.S.’s Indo-Pacific Strategy blatantly targets China.
• With the US providing aid, fostering ambitions, and expanding its influence on China’s close neighbour, Nepal, China’s caution with respect to its growing influence is warranted.
• If the State Partnership Program (SPP) results in closer Nepal–US military ties, it is bound to have deleterious effects on Sino-Nepal relations. 
  • SPP links U.S. states with partner countries around the world to promote access, increase military capability, improve interoperability and enhance the principles of responsible governance
  • Critics in Nepal assert that ratifying the SPP would be equivalent to endorsing US’ Indo-Pacific Strategy.
• Nepal has repeatedly opposed any international agreements threatening its finely balanced relations with China and India.
• China expects reassurance from Nepal that the latter abides by the “One China ” policy, and that Tibet is an integral part of China. 
• China has also sought the surveillance of Nepal’s border, and continues to request the same. 
• Nepal has stated, time and again, that it adheres to the “One China” policy, and has reaffirmed that it considers Tibet to be a purely domestic matter of China. 
  • Nepal has also pledged to prohibit any forms of “anti-China” activity in its territory.

India’s Concerns:

• As close neighbours, India and Nepal share unique ties of friendship and cooperation. With regular exchanges of high-level visits and interactions, the two nations have further elevated their strategic relation.
• The bilateral ties came under strain after Indian Defence inaugurated a strategically crucial road connecting the Lipulekh pass with Dharchula in Uttarakhand.
• Nepal protested the inauguration of the road claiming that it passed through its territory. Later Nepal published a new political map that showed the three Indian territories – Limpiyadhura, Kalapani and Lipulekh – as part of Nepal.
• Nepal’s assent to the “One Belt One Region” (OBOR) initiative of China and the move by China to extend the rail link to its border with Nepal is viewed by India with suspicion.
• The biggest drawback of India’s foreign policy has been the failure to deliver on promises made to our partners. India has failed at times to complete the projects on time. India needs to address this delivery deficit in South Asia and IOR. 
• India has to continue its approach of delivering positive outcomes via wide-ranging developmental assistance to win the hearts and minds of the people in Nepal.

4. Drug Price Control in India

Details:

• In March 2021 the overall imports of bulk drugs and drug intermediates in India amounted to around $3.84 billion. Out of these, the major share of imports (68%) was from China.
• Moreover, during the peak of the pandemic, raw materials for various COVID-19 drugs like Ivermectin, whose ingredients are imported from China, saw a drastic increase in prices. 
• The increasing cost of transportation and packaging ­material has also contributed to the rise in input costs, as pointed out by the Indian Drug Manufacturers’ Association (IDMA).
• Though the National Pharmaceutical Pricing Authority (NPPA) lowered the price of the antiviral drug Remdesivir, the prices of other antiviral drugs used in the treatment of COVID-19 increased exorbitantly. For example, the prices of the constituents of common antibiotics like Paracetamol surged from 30% to 40%.

Drug Price Control in India:

• The Union Ministry of Health prepares a National List of Essential Medicines (NLEM) for price control. These essential medicines automatically come under the Drug (Prices Control) ­Order (DPCO). 
• According to Paragraph 19 of the DPCO 2013, the Indian government is authorized to place essential medicines under price controls. It should be noted that the definition of “essential medicines” in India is different from the WHO standards. 
• The NPPA enforces price controls in India.
  • NPPA is an independent body in the Ministry of Chemicals and Fertilisers.
• Drug manufacturers can increase the maximum retail price (MRP) of scheduled formulations annually (particularly in April) based on the Wholesale Price Index (WPI). If there is a decline in WPI, the MRP of the drugs should be reduced correspondingly.
• The DPCO followed a cost-based pricing mechanism before 2013. In the cost-based approach, the price ceiling was calculated on the basis of the manufacturing cost plus a profit margin. 
• However, after 2013, a market-based pricing mechanism was adopted.
• The number of drugs under price control has constantly expanded from 74 in 2015 to more than 857 in 2019. 
• It was claimed that the Indian government saved approximately 12,500 crores annually since the implementation of the DPCO in 2013.
• However, the Eco­nomic Survey (2019–20) highlighted that price regulation of drugs has actually resulted in an increase in the price of the regulated pharmaceutical drug when compared with an unregulated but similar drug.

Comparison of Market-based and Cost-based mechanisms:

• In a market-based approach, “the ceiling price is determined by taking the simple average of prices of brands with more than 1% market share.” 
• It is alleged that there is a decline in the availability of ess­ential medicines to the common man because large brands sell their products at high prices and smaller brands are forced to increase their drug price due to the higher ceiling price. Thus, market-based price mechanisms have several unintended consequences.
• The cost-based approach incorporates the costs of manufacturing APIs, labour, packaging, and duties, apart from the profit margin. Issues associated with this approach are: 
  • Lack of adequate institutional monitoring capacity.
  • Pharmaceutical manufacturers can escape price control regulation by creating a new drug formulation with a drug on the NLEM list.

Government interventions and associated concerns:

• Government interventions have increased over time to ensure an adequate supply of drugs in the Indian market.
• However, there are several concerns associated with government interventions. For instance, 
  • A price ceiling was announced on Heparin injection (an anticoagulant drug for the treatment of ­COVID-19-induced blood clots) in February 2020 in the public interest.
  • But the prices were raised by almost 50% in July 2020, due to shortages and increasing prices of raw materials.
  • The prices of Active Pharmaceutical Ingredients increased by around 112%, thus making its production unviable.
  • Heparin was also added to the list of essential medicine list, further increasing its price.
• DPCO has also failed to address the issue of significant inter-brand price variations in marketing generic drugs. It is observed by NPPA that huge inter-brand price differences often result in severe market failure.
• The Patents Act, 1970 also contributed to controlling the price indirectly, but the number of patents issued has not considerably increased in the last decade.
• The Pradhan Mantri Bhartiya Janaushadhi Pariyojana undertaken by the Department of Pharmaceuticals intends to regulate drug prices. 
  • A medicine is priced on the principle of a maximum of 50% of the average price of the top three brands of the said medicine. 
  • However, there are several reasons for its ineffective implementation like the lack of public awareness, inadequate support, poor supply chain, and doctors not prescribing generic medicines.
• Pharmaceutical firms coordinate with each other to manipulate price controls for drugs. Moreover, the NPPA and the Department of Pharmaceuticals lack the institutional capacity to monitor the prices of drugs at the state level.

For more information on Pradhan Mantri Bhartiya Janaushadhi Pariyojana, read here: Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP)

Impact of Price Control:

• Several studies have shown that the price regulation of drugs severely impacts innovation and ­delays the availability of new drugs. It was observed that there was a 75% decline in new drug launches in India since 2011.
• There is a decrease in drug accessibility to patients.
• Price controls also have the potential to impact the profitability of pharmaceutical companies, this might result in stopping the production of drugs under price control and producing more drugs that are not covered under it.
• Some other unintended consequences are a decline in drug quality and illegal drug formulations.
  • As per the Organisation for Economic Co-operation and Development (OECD) and European Union Intellectual Property Office, India is one of the leading sources of counterfeit drugs in the world.

Way Ahead:

• A framework for effective drug price control should emphasize minimizing patients’ out-of-pocket expenditure and addressing the high prices of particular drugs.
• In a cost-based approach, transfer pricing by multinational corporations should be better scrutinized and the reliance on imports from China should also be reduced to achieve desired consequences. 
• The alternative price control approach is drug sales at subsidized prices through public sector outlets or public healthcare. For instance, the governments of Tamil Nadu and Rajasthan conduct price negotiations with drug manufacturers and distributors directly. 
• The centralized drug procurement and decentralized distribution model of the Tamil Nadu Medical Services Corporation is a viable model for price control.
• It is suggested the prices of drugs should remain unregulated.
• Some of the best practices in the world:
  • In the United States, the prices of drugs are unregulated and low-income families are provided discounted drugs through federal programmes.
  • In the United Kingdom, prices are regulated through profit controls.
• It should also be noted that approximately 80% of healthcare in India is provided thr­ough the private sector and public health expenditure is only 0.34% of the GDP. Thus, price control would not make a considerable difference in ensuring affordable healthcare.

Read previous EPW articles in the link.

EPW Week 2, Dec 2022:- Download PDF Here