Gist of EPW June Week 2, 2019

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.

 

1. The Bubble of ‘Benign’ Inflation

Inflation which is low and consistent is termed as Benign Inflation.

Background

  • The 2019 general elections were perhaps the first of a kind in India that did not have “inflation” amongst the electoral agenda.
  • This is because over the past five years inflation, especially the headline inflation rate, in this country has been restrained and checked.

Stats

  • From 2014 till April 2018, the year-on-year inflation rate—estimated as the rate of change of the consumer price index (CPI)—declined steeply from 6.65% to 2.42%.
  • But what potentially has given legitimacy to the numerical value of these estimates is the concept of the “permissible” range of 2%–6% of inflation, as provided by the inflation targeting framework of the Reserve Bank of India (RBI).

Relationship between inflation and economic growth

  • The macroeconomic (policy) discourse on the relationship between inflation and economic growth recognizes the significance of a “threshold level” of inflation.
  • Though there is a consensus that inflation above the threshold limit hurts economic growth, empirical evidences of the effect of low inflation rate on growth are mixed yet predominated by instances of either positive or insignificant consequences.
  • Given such evidences alongside the RBI’s mandated inflation range, the current hike in CPI-based inflation in India, even if to its five-month high of 2.92% in April 2019, can still be considered “benign” in the RBI’s parlance. So much so that the RBI could slash down its policy rate to 5.75% from 6% in a quick succession within three months.
  • The objective is to stimulate private investment and consumption expenditure so that the gross domestic product (GDP) growth can be revived from its current low of 5.8% to reach the 2019–20 target of 7%, notwithstanding the consequences of such circumspect tactics of economic growth on wider socio-economic objectives.

Is CPI a better indicator of Inflation?

  • Conceptually, the CPI is a better indicator of inflation for guiding monetary policy decisions than the WPI, because it captures retail inflation.
  • But technically, the RBI’s inflation targeting apparatus have little impact on the CPI wherein food and beverages have a combined weightage of almost 46%.
  • And much of the food price inflation/deflation in India is driven by supply-side issues—such as the fluctuation in the brent crude oil prices in the global market and/or the variability of domestic crop production—over which the RBI has little control.

RBI should introspect on these parameters

Given that the benignity of the consumer prices is a matter of chance, an inflation rate, even within the RBI’s legislated mandate, may not be as innocuous for the consumers as it appears to be.

  • First, because it is driven by food inflation, which, measured in terms of the WPI, has hit a 33-month high of 7.4%, primarily led by the sequential acceleration of the prices of key food items. On a year-on-year basis the pulses inflation is hovering at 14%, while that of cereals is at 8.5%.
  • Second, the meteorological department is not very optimistic about the abundance of the southwest monsoon, implying a looming risk of underproduction and further price hike.
  • And third, due to geopolitical uncertainties oil prices might exceed the current low of $60 a barrel, thereby exerting upward pressure on the food prices.

Conclusion

  • Alternatively, the farmers’ ability to benefit from such price surge will depend upon the state’s ingenuity in managing the food economy.
  • The Govt should adopt a holistic approach for development management in practice by temporarily not chasing on its growth fetishism

2. New Reservation Policy

Context

  • Is the reservation policy earmarking a 10% quota for the economically weaker sections of the “general category” empirically founded and justifiable?’
  • An analysis of 445 premier higher education institutions finds that this section of students already had about 28% of representation—that is, close to three times the proposed 10% quota.

Intent of the Policy

  • The recent reservation policy brought about by introducing an amendment to the Constitution intends to reserve 10% of the total seats in higher education institutions, both private and public, and in government jobs exclusively for the EWS belonging to the general category
  • Considering the economic condition as the sole basis for reservation, this policy uses two criteria to define eligibility:
    • Annual household income: the limit is fixed at ₹ 8 lakh per annum
    • Asset ownership: the limits are somewhat different in rural and urban areas.
  • The rationale underlying the proposed reservation policy is that the EWS from the general category remained “excluded from attending the higher education institutions” in India “due to their financial incapacity.”

Issues on the intent of the policy

  • The criteria, seemingly is wide in range and reach, may not help insulate the proposed policy from the ills that blight the welfare schemes in India—the errors of wrong inclusion and wrong exclusion
  • Estimates suggest that as high as 80% to 95% of the general category households will be eligible for this quota.
  • Thus, the above EWS criteria are prone to the error of wrong inclusion rather than addressing exclusion.
  • Importantly, ₹ 8 lakh as cut-off is higher than the eligibility criteria adopted by many states and education institutions in India.
  • As many as 80% of households from the general category are economically weaker despite their social advantage.

Sources for analysis

  • To analyse the representation of economically backward students in the higher education institutions in India, the data submitted by 445 higher education institutions to the MHRD for the NIRF, 2018 has been used.
  • Since 2016, the NIRF ranks higher education institutions in India based on their performance on five parameters.
  • Data is available, inter alia, on the total number of students studying in all years of all programmes, and the number of students from “economically backward class” (EBC) for both undergraduate and postgraduate programmes.

Analysis of the issues raised on intent

  • The graph presents the share of EBC students who were enrolled at NIRF-ranked institutions in 2016–17.
  • Of the total students enrolled in all the 445 NIRF-ranked institutions in 2016–17, about 28% (4.55 lakh) belonged to the EBC.
  • A disaggregated analysis of NIRF-ranked institutions into eight different categories reveals that the share of EBC students varies from 13% in architecture institutions to 33% in colleges.
  • Except for architecture and medicine, the share of EBC students stands at almost double in all other categories of institutions, from the proposed 10% quota.
  • Thus, it is evident that the EBC students have already secured about three times the number of seats under the proposed quota of 10%, without any reservation in higher education institutions.
  • This is despite the fact that the income criterion at ₹ 5.5 lakh per annum used by most of these institutions is lesser than the proposed criterion of ₹ 8 lakh per annum.
  • In each of these eight categories of institutions, it is further examined as to how many have less than 10% and more than 20% of the share of EBC students.
  • About two-thirds (66%) of all NIRF-ranked higher education institutions already have more than 10% of EBC students from the general category
  • As high as 50% of the institutions already have more than 20% of EBC students from the general category.
  • Note that the number of architecture, law, management and medical institutions present in NIRF rankings was much smaller as compared to engineering institutions or universities.
  • One possible reason for the under-representation of EBC in these four types of institutions that have emerged as highly competitive in recent years could be the high costs involved.
  • This includes coaching costs for preparation for the entrance tests as well as the high fees charged by these institutions.
  • When classified further on the basis of public and private higher education institutions, the representation of EBC students remains broadly the same as the overall pattern
  • What is interesting is that close to 70% of the private institutions ranked by the NIRF have more than 10% of EBC students.
  • Further, 56% of the privately owned NIRF-ranked institutions have more than 20% of EBC students.
  • These NIRF-ranked private institutions could be charging a relatively higher fee compared to the non-ranked private institutions. Despite such a higher fee, the share of EBC students of general category is not as less.

Conclusion

  • The analysis reveals that the EBC students from the general category have about 28% share in 445 NIRF-ranked higher education institutions in India. This is close to three times the proposed 10% quota.
  • This suggests that the EBC students from the general category already have a reasonable share without any reservation in premier higher education institutions in India.
  • If the share of EBC students in these premier institutions is as high as 28%, their share is likely to be more in non-ranked institutions which might be charging a relatively lower fee.
  • Hence, the possible impact of the proposed reservation policy is likely to be lesser in the higher

For more EPW articles, read “Gist of EPW”