Gist of EPW June 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. A Quantitative Assessment of the EU–India Free Trade Agreement
2. Can growth be sustained?
3. Caste Census and Its ‘Consciousness’

1. A Quantitative Assessment of the EU–India Free Trade Agreement

Context

This article examines the viability of the Free Trade Agreement between India and the European Union post-Brexit.

Brexit

• In June 2016, the United Kingdom (UK) through a referendum, decided to exit from the European Union (EU).
• The UK formally and officially withdrew from the EU on 31st January 2020 which is termed “Brexit”.
• Brexit has had an impact not only on Europe and developed economies but also has impacted the developing and emerging world.
• Brexit has caused volatility in financial markets and had a significant impact on the Indian economy as the EU is the biggest market for Indian exports. 
• Further, Brexit has also added new challenges to the already existing ones in the negotiations of the India-EU Free Trade Agreement (FTA).

Read more about – Brexit and its impact on India

India-EU Free Trade Agreement

• India and the EU have been negotiating a broad-base FTA since 2007.
  • FTA is still not established because of a lack of mutual consensus on various issues.
• The major blockades to an FTA have been India’s restrictive trade policy and stringent regulatory framework regarding foreign direct investment (FDI), greenhouse gas emissions, nuclear energy, farming subsidies, regulation of the financial sector, tariff and non-tariff barriers, and technology transfer. 
• There have also been differences between the EU and India in sectors such as dairy, textiles, beverages, and automobiles. 
  • The import duties for these products are relatively high in India and the reduction of import tariffs will significantly impact these sectors. 
• Further, the EU has ­imposed a ban on over 700 drugs clinically tested by an Indian drug company.
• The EU has urged India to establish a strict ­intellectual property protection regime which requires India to compromise on its public health.
• India has urged the EU to address the issues with the movement of professionals which includes complex rules on work and visa permits.

India-EU bilateral trade and impact of FTA

• India was the EU’s ninth biggest trading partner, with overall bilateral trade worth $89.55 (2016-2017).
  • Out of this, India’s exports accounted for $47.20 billion and imports worth $42.36 billion.
  • The EU–­India bilateral trade in services was $32.25 billion in 2016 wherein India’s exports accounted for $16.61 ­billion and Indian imports accounted for $15.64 billion.
• Agriculture: India has a trade surplus with the EU in agri-food products. However, the growth in agricultural trade has been slower when compared to other sectors. 
  • India’s top exports: India’s major exports to the EU include agri-food products such as edible fruits and nuts, shrimp, prawns, molluscs, cashew nuts, grapes, coffee, tea, spices, rice, tobacco, etc. 
  • India’s key imports from the EU: Whey, vegetable seeds, lactose syrup, chocolate, spirits, whiskies, vinegar, etc.

India-EU FTA post Brexit

• The UK alone constituted about 20% of the total exports to the EU from India in 2016.
  • Reports suggest that an FTA between India and the EU (the 27-nation bloc, excluding the UK) will have a varied economic impact compared to when the UK was a member of the EU. 
• Reports suggest that India’s balance of payment (BoP) has been positive with the UK since 2004 but has been on the deficit side with the 27 other countries of the EU between 2000 and 2015.
• Further, India has failed to increase its share of Agri exports to world markets as the tariff rates are very high in India for agricultural and allied products and processed foods. 
  • As the ­average import tariff rates are low in the EU compared to India, an FTA between the two would result in more significant changes in production efficiency in India compared with small changes in the EU.
• Import tariffs are much higher in India as compared to the EU and the proposed FTA would eliminate duties on 90% of the tariff line, this will result in imported products being cheaper than the ones in the domestic market causing a “trade diversion” effect.
• India is one of the world’s biggest markets for liquor, which is also highly protected by tariffs. The lowering of the tariff on liquors under an FTA after Brexit will impact the revenues of India substantially.
• Further, the loss of revenue to India on account of the elimination of duties is estimated to be higher post Brexit ($9.07 billion) than when the UK was still a member of the EU ($8.56 billion).
• Studies have revealed that an FTA with the EU when the UK was a member would have ensured greater welfare and more positive trade gains for India as compared with the situation when the UK is not a member.

Conclusion

• India – EU FTA will help in liberalisation and opening up of the market of India which will help in increasing the effici­ency of production due to increased competition. 
• However, studies have also suggested that opening the agricultural sectors under an FTA would result in a deterioration of welfare gains and also the FTA between the EU and India would yield less positive trade and welfare gains to India post-Brexit especially, for consumer, industrial, and capital goods.
• This requires India to have a more liberal trade policy with the UK.

2. Can growth be sustained?

Introduction:

A bleak picture of economic growth was presented by the National Statistical Office(NSO) as per the provisional estimates of the annual national income for 2021–2022 and the quarterly estimates of the gross domestic product (GDP) for the fourth quarter(Q4). 

Arguments in favor of sustained growth:

• As per the statistics, the GDP growth in 2021–22 has bounced back to 8.7% after the 6.6% decline in the previous fiscal. 
• It is also argued that the size of the GDP at 147.35 lakh crore in 2021–22 is 1.5% higher than in 2019–20, highlighting that the economy has bounced back to the pre-pandemic levels in a single year
• Moreover, the pickup was extensive, with seven out of the eight segments of the economy (except for trade, hotel, transport, and communications) recovering back to the pre-pandemic level.

Arguments against the sustained growth:

• Even though the statistics show a positive trend, the quarterly growth rates have constantly deteriorated from 20.1%  to 4.1% in a span of one year.
• It is also said that this improvement in the GDP is notional because the real per capita income is 91,481 in 2021 which is 0.7% lower than the 2018–19 figure.
• This in turn signifies that the quality of life and the overall well-being of citizens is still lagging by at least four years, which is a substantial setback to a standard of living.

Causes of Concern:

Trends in important indicators and from important segments of the economy signal increasing distress that can stall or even derail the recovery. Some of the indicators reflecting this are:

• Private Consumption:
  • The quarterly growth of private final consumption expenditure at constant prices has dropped from a high of 14.4% to just 1.8% over the last four quarters.
  • This resulted in the share of private consumption spending slipping sharply.
  • Moreover, this dip is unlikely to be compensated by the government expenditure as the relative size of the union budget has shrunk sharply in the previous two years.
• External Sector Demand:
  • Quarterly statistics show that the growth of exports of goods and services has dipped by more than half over the year. 
  • Further, the war in Europe will aggravate these negative trends.
• Inflation:
  • Three Measures of inflation:
    • Consumer Price Index(CPI) measures trends in prices of a few important consumer goods and services
    • Wholesale Price Index(WPI) measures trends in wholesale prices of goods. 
    • GDP deflator measures the overall changes in the prices of all the goods and services in the economy
  • The GDP deflator (as per the national income number), shows inflation has more than doubled to 10.8% in 2021–22, the highest level since 1991. 
  • Moreover, this double-digit inflation has been sustained across all four quarters of the year, and 
  • This would thus have a domino effect on the real per capita income, consumption and exports
  • The wide disparity in the GDP deflators in different segments is also brought to fore significantly impacting the terms of trade and the sectoral and overall growth rates.
  • The GDP deflators show a slower increase in agriculture prices (7.3%) as compared to manufacturing goods prices (12.1%) or the prices in the overall economy (10.8%). This is a sharp contrast to earlier trends when the terms of trade were moving in favor of agriculture.
  • The shift in terms of trade against agriculture will have serious consequences for the rural population further impacting rural incomes and consumption, further eroding the standards of living, accentuating the shrinking consumption demand, and stalling the overall recovery..
• Sharp slowdown in some critical sectors:
  • The construction sector growth has slumped to 2%.
  • The manufacturing sector output has also deteriorated.

Conclusion:

 With both engines of the economy—domestic and external demand-losing momentum sustaining the recovery is becoming a major challenge for the policymakers. The effect of these structural challenges on the recovery will be further aggravated by the shift in the monetary policy stance. With the prices in the economy surging to record highs, the Reserve Bank of India is bound to continuously raise interest rates.

3. Caste Census and Its ‘Consciousness’

Introduction:

It was the caste census that gave the Dalits a precise number of five crore population; they had been condemned to live under the banner of untouchables. The census thus played an important function by helping the tormented masses to approximate their social experiences to a concrete figure. It further helps caste groups to move towards a valid social identity. 

Benefits of caste census:

• Historically (in the late 19th and early 20th centuries) the deprived sections found caste descriptions given in the then census as the most useful medium to discover their identity and the reason for their status.
• It cognitively empowers the lower strata and makes them capable to differentiate themselves from the upper caste and analyze their relative deprivation.
• The census also plays an important role in the realization of the marginalized castes that they are not alone in facing the social stigma and many others exist in the country with a similar fate.
• A new type of political and social imagination was enabled through the census exercise that became comprehensible to the Dalit section and the Other Backward Classes (OBCs) through communicative mediums like periodicals, journals, and newspapers.
• Thus, the caste census has historically played a crucial role in suggesting different modalities of imagining the nation.

Arguments against caste census:

• It is argued that the caste-based census would perpetuate regressive social consciousness.
• The demand for opportunity would increase with the caste consciousness.
• Moreover, the people’s dependence on the state that controls the redistributive mechanisms of the nation would also increase.

Arguments in favour of caste census:

• The exploitative structures of the past and the factors that renew forms of caste consciousness cannot be found without a census exercise.
• Also pushing for the view that the caste census is regressive might lead to a belief that it is the administrative exercise that perpetuates caste consciousness.
• This argument juxtaposes the postcolonial argument which also claimed that caste enumeration done by the colonial state did create a caste awareness and knowledge of the social wrongs.

Conclusion:

The caste census provides grounds for the social indexing of a country. The standard for evaluation of oneself as well as the collective group should exist within the administration itself. The country should have ethical stamina and social confidence to confront its caste realities. The government should also make sincere efforts to improve them. The caste census should be perceived as an exercise of revealing existing social evils rather than a problem itself.

Read previous EPW articles in the link.

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