Gist of EPW July Week 2, 2019

The Economic and Political Weekly (EPW) is an important source of study material for Civil service Exam, especially for the current affairs segment. In this section, we give you the gist of the EPW magazine every week. This article gives one insights into the criticism of Budget 2019, challenges; and a new development model for new economy.

Aspirants would find this article very helpful while preparing for the IAS Exam.

1. Ideas and Ideal in a Budget


The 2019 national budget has been widely commented upon by several leading economists and commentators who have subjected it to a critical analytical scrutiny.

Critics About the Budget

  1. The Bud has followed the age-old precedent of accommodation of competing interests, even though this is affected with several contradictions.
  2. Although the central government claims that it focuses on pro-poor reforms, at the operational level, the allocations in the budget have also been made keeping in view the appeasing of certain social groups, such as the SC, ST and the middle classes.
  3. The budget has increased taxation on the super-rich, like those earning 2 crore, to contribute to the growth of the economy, it still has to persuade the corporate sector for investment of resources.
  4. Measures, such as crop insurance schemes designed for farmers a, in its ultimate sense would benefit the private insurance companies. Such insurance has hardly provided any relief to the farmers.

What Gave the Budget Socially Progressive Character?

  1. The kind of announcing of diverse proposals and schemes in the budget are like ones announced by governments which had marginal majority and were always under the pressure of political as well as social demands for increased social spending.
  2. It is in this sense that the budget exercise acquires, by default, a socially progressive character.


  1. This compulsion to announce diverse proposals and schemes could be understood in terms of a government’s ever present anxiety to keep its electoral support intact, at least in the case of some social groups.
  2. The government also needs to assure private interests/players of political stability which is necessary for attracting investments and capital accumulation.
  3. Such measures does produce layers of equality but over time it is bound to aggravate intra-group and inter-group inequalities which need to be controlled by continuously making such spheres competitive and expanding their social base.
  4. The Indian economy has not been able to create such spheres and this is obvious from the fact that 93% of jobs are available only in the informal sector.
  5. The government’s and market’s inability to create the competitive sphere has led job seekers to bring the aspirational pressure on a few competitive spheres such as the civil services, professional courses and government sectors.
  6. Obviously, only a few can access and have the privilege to occupy such spheres. The growing demand for the reservation quota, therefore, reinforces the skewed nature of the ideal of competition.

Way Forward

  1. Subsidies are not a substitute for inequality; in fact, such measures perform the function of enabling people to cope with distress only in the short run.
  2. Compensating for the effect rather than eliminating structural anomalies is always instrumentally rational for any government which is compelled to address the question of basic inequalities that are created by the market.
  3. Compensation becomes a standard by which the government can assess the values of the victim or the compensation seeker.
  4. The government should address and eliminate the conditions that eventually lead to the demand for compensation. For example, the government has to take several serious and sincere measures to remove the distress condition of the farmers.
  5. Compensation arguably is the logical outcome of the government’s failure to address the conditions that give rise to the demand for compensation at the first instance.
  6. Apart from other things, the budget seeks to use the libertarian idea of compensation to achieve its aim of postponing the realisation of the liberal ideal that has a bearing on the need to create more attractive and sought-after spheres of competing opportunities.

2. A New Development Model for the New Economy


  1. The new economy needs a development model that is people-centric, not production-driven.
  2. Emphasis, therefore, must be on the development of human capital.

People-Centric Development Model

  1. A people-centric development model recognises that a country can only gain wealth sustainably by increasing the amount its citizens can charge the world’s consumers for their skills, talent and service.

Education in Developmental Model

  1. Education is at the heart of this development, but it is learning in the widest sense. Beyond formal schooling, education in this sense embraces skills training, on-the-job experience, exposure, travel and lifelong learning.
  2. It is education that is not only sensitive to new trends but also, future-proofed by empowering citizens with the ability to adapt as demand changes.
  3. Our approach to learning must naturally feed innovation. We must have a national system of innovation that dovetails with our national educational system.

The Concept of Ownership

  1. However, a well-educated and healthy citizenry is insufficient. That development model works to a point, but then it hits diminishing returns.
  2. To break out of the middle-income trap, ownership also matters.
  3. The average person has no real assets and is just one natural disaster, one illness, one lost job away from tipping into poverty.
  4. As their lives are brimming with risk, they act in ways that appear risk averse, unwilling to take a chance or uninterested in change.
  5. It is also true that when there are no safety nets, some are driven to more desperate measures. Those are the minority.
  6. To grasp opportunities and take risks, most need safety nets, buffers and assets to fall back on, not more encouragement and lectures.
  7. Ownership matters to a country’s development for various reasons.

An Example of Ownership

  1. If a robot that can do everything that a common man can do is invented and he or she can own that robot. Then robot will go out to work every day while people sit at home and spend time.
  2. John Maynard Keynes thought that by 2030, our principal societal economic problem would be: what to do with the copious amounts of leisure time and how to replace the purpose to life that comes from work. He was wrong.
  3. Because, if that robot is owned instead by Apple, Microsoft, Google or Facebook, then technology is not common man’s aid, but threat.
  4. Then people will have to work longer hours for less and pursue the ever shrinking space of those activities that the robot does not presently occupy.
  5. The difference is not technology. The key is not whether one is educated or not. The difference is ownership.
  6. Technology is not the threat to labour, ownership is. Amartya Sen taught us something very similar about famines: they are not about the availability of food, but about entitlement to food. Ownership matters.

US – Style of Industrial Policy

  1. From the mid-1940s to the 1970s, industrialisation was powered by oil. Seven transnational oil companies, known as the Seven Sisters, controlled oil reserves.
  2. Today’s seven sisters, are the big-five tech firms: Apple, Alphabet, Microsoft, Amazon and Facebook. They are the five most valuable listed companies in the world, with a total market capitalisation of around $3 trillion.
  3. And they have almost half a trillion dollars of cash lying around waiting to be deployed.
  4. How? By investing in innovation? No. The cash lies in a bank account waiting to be used to snap up any emerging competitor.
  5. Facebook owns Instagram. Microsoft owns Skype, and the list goes on.
  6. It is not by coincidence either, that these five firms are all American and that each of them have huge financial and technology support from the Defense Advanced Research Projects Agency (DARPA) of the United States (US) Department of Defense.
  7. This is industrial policy US-style and it is all about ownership of the fuel of the new economy.

Way Forward

  1. The government’s development strategy then must not just be about lifelong learning opportunities, but on opening up of new pathways to ownership to the dispossessed.
  2. Also supporting the local ownership of data and the technologies of the new economy and acquiring ownership of the big tech firms. There are a variety of paths and beachheads. And technology can help.
  3. Creating the right regulatory environment for new financial instruments that tap into ordinary savers and entrepreneurs, like peer-to-peer lenders, must become a priority. Technology makes these firms easier to establish.
  4. The government can support access by requiring all companies who win a government contract to have some element of common ownership, such as a proportion of shares owned by peer-to-peer lenders, credit unions, small shareholders or employees.
  5. And labour and ordinary savers should pool their savings to acquire ownership in the commanding heights of the new world economy; the big five tech firms are all publicly listed.
  6. All of the savings of all worker pension funds in the world could own majority stakes in these big five tech firms, if they wanted.
  7. Changing ownership of the big five, guiding their management and investment and switching where the dividends go, would make a transformative impact on the way technology drives development.
  8. Technology should also be used to improve access to economic opportunity. If the only way to get a government licence or process goods through a port is to queue up for days, lobby a minister or pass a favour, opportunities will be narrow.
  9. Delay and randomness are the boulevards that lead to corruption and elitism. Let the technology-enabled government lead to swift, predictable and transparent decisions and access, investment and growth will follow.

For more EPW articles, read “Gist of EPW


The above details would help candidates prepare for UPSC 2020.

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