Economic Development - 4 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

India Calls for Permanent Solution for Public Stockholding

Why in News?

At the 13th ministerial conference of the World Trade Organization (WTO), India emphasized the necessity of a permanent solution for public stockholding aimed at ensuring food security.

Key Points Highlighted by India

• Broadening Focus of WTO: India advocated for the WTO to broaden its scope beyond merely addressing the interests of agricultural exporters. The organization should concentrate on fundamental issues such as food security and livelihood sustainability.
• Developing Country Needs: India contended that public stockholding programs are vital for developing nations to secure food for their populations, particularly for vulnerable groups. Current WTO provisions allow some flexibility for developing countries, but these are temporary. India is pushing for a permanent solution that recognizes their developmental needs.
• G-33 Nations Support: Recently, the G-33 group of countries reiterated the right of developing nations to utilize the Special Safeguard Mechanism (SSM) to manage major import surges or sudden price drops.
• Call for Level Playing Field: India underscored the need for a fair environment in international agricultural trade, particularly benefiting low-income and resource-poor farmers globally. India highlighted the significant disparities in domestic support provided to farmers, noting that subsidies in some developed countries can be up to 200 times those in developing nations.
• India's Membership Role: As a member of the WTO, India has called for a definitive resolution regarding public stockholding.

What is Public Stockholding?

About: Public stockholding involves governments purchasing, storing, and distributing food grains. India and several other nations employ this system to ensure food security for their citizens.

Advantages:

• Food Security: Public stockpiles serve as a buffer against food shortages caused by droughts, crop failures, or market disruptions, maintaining food availability during crises.
• Price Stabilisation: Governments can release stocks to stabilize prices during shortages, preventing sharp price spikes that can adversely affect low-income consumers.
• Supporting Farmers: By purchasing grains at guaranteed minimum support prices, governments provide income security to farmers, encouraging agricultural production.
• Social Welfare Programs: Stockpiled food can be allocated for social welfare initiatives, supplying subsidized food to vulnerable groups facing food insecurity.

Disadvantages:

• Fiscal Burden: Maintaining extensive stockpiles can be costly for governments, straining public finances and limiting resources for other developmental needs.
• Market Distortion: Subsidized grains may depress market prices, discouraging private sector investments in agriculture and affecting overall production efficiency.
• Spoilage and Waste: Improper storage can lead to significant spoilage and waste, undermining the effectiveness of public stockholding.
• Corruption Risks: The management of public stockpiles is prone to corruption and mismanagement, leading to inefficiencies within the system.
• International Trade Issues: Practices related to subsidized stockpiling can lead to tensions in international trade, as some countries argue these distort fair market competition. For example, Thailand has accused India of using its public rice stockpiles, intended for domestic food security, to gain an unfair edge in exports.

What is the WTO Agreement on Agriculture?

• Overview: The WTO Agreement on Agriculture (AoA) consists of international regulations established during the Uruguay Round of trade negotiations, effective since 1995. Its aim is to enhance fair trade in agricultural products.
• Reducing Trade Barriers: The AoA encourages member nations to lower tariffs, quotas, and other restrictions on agricultural imports.
• Domestic Support: It governs the types and levels of subsidies that governments can provide to their agricultural producers.
• Market Access: The AoA promotes improved market access for agricultural exports by reducing import barriers.
• Agriculture Subsidy Limits: According to WTO norms, agricultural subsidies for developing countries should not surpass 10% of the value of agricultural production. However, developing nations benefit from certain protections.
• Peace Clause: Under the Peace Clause of December 2013, WTO members agreed not to challenge any breaches of the subsidy ceiling by developing countries in dispute settlement forums. India has exceeded its rice subsidy limits multiple times, necessitating the invocation of this 'peace clause.'

Reforms in Multilateral Development Banks

Why in News?

Recently, the UN Secretary-General emphasized that reforming multilateral development banks (MDBs) will be a significant agenda item at the upcoming Summit of the Future, which will take place during the UN General Assembly in September 2024.

What are Multilateral Development Banks?

• About: MDBs are global financial institutions established to support economic and social development projects in developing nations. They are created through the collaboration of multiple countries, pooling resources and sharing governance.
• Origins: These banks emerged after World War II, aiming to rebuild war-torn countries and stabilize the international financial system.
• Objectives: Unlike commercial banks that aim for profit maximization, MDBs focus on developmental goals, including the eradication of extreme poverty and the reduction of economic disparity. They often provide loans at minimal or no interest, along with grants for projects in areas like infrastructure, energy, education, and environmental sustainability.
• Major MDBs: Key institutions include the World Bank Group, Asian Development Bank, African Development Bank, European Bank for Reconstruction and Development, and Inter-American Development Bank.

What are the Key Challenges Related to MDBs?

• Resource Constraints: MDBs frequently face limitations in the capital available for lending, which can hinder their capacity to finance large-scale projects, especially given the increasing global demands.
• Adapting to Global Challenges: The world confronts complex issues such as climate change, pandemics, and technological disruptions. MDBs have yet to fully incorporate these challenges into their strategies to effectively address them.
• Decision-Making Issues: The current voting mechanisms in some MDBs tend to favor developed nations, prompting developing countries to advocate for a greater influence in decision-making processes that reflect their unique needs. Concerns also exist regarding the transparency and accountability of MDB operations, which are vital to prevent corruption and mismanagement.
• One-Size-Fits-All Approach: Uniform lending conditions, such as standard interest rates and repayment terms, can be unsuitable for diverse economies in the global south, which have varying financial landscapes.

What Reforms are Necessary in Multilateral Development Banks?

• Financing Climate Action: MDBs have an essential role in mobilizing resources for climate change initiatives in developing nations. This could include establishing dedicated climate finance facilities, issuing green bonds, and creating innovative risk-sharing instruments for renewable energy projects.
• Knowledge Sharing & South-South Cooperation: MDBs should enhance knowledge exchange among developing countries, connecting those facing similar challenges and promoting collaboration on effective development strategies.
• Graduation Strategies: As middle-income nations progress, it is crucial to develop clear strategies that allow them to transition from concessional loans to market-rate financing, thereby freeing up resources for lower-income countries that require ongoing support.
• Social and Environmental Safeguards: Strengthening safeguards is necessary to ensure that MDB-funded projects do not cause adverse social or environmental impacts while promoting sustainable and inclusive development.

India in Trade Deficit with Top Trading Partners

Why in News?

Recent official data indicates that India is experiencing a trade deficit with 9 out of its top 10 trading partners, including China, Russia, Singapore, and South Korea, in the fiscal year 2023-24. A trade deficit arises when the value of a country's imports exceeds that of its exports, encompassing both physical goods and services.

What is the Current Status of India’s Trade Deficit?

• India's overall trade deficit decreased to USD 238.3 billion in the last fiscal year from USD 264.9 billion in FY 2021-22.
• Trade deficits with Russia, South Korea, and Hong Kong rose in the last fiscal year compared to 2022-23, while the gaps with the UAE, Saudi Arabia, Indonesia, and Iraq narrowed.
• China has become India's largest trading partner, achieving $118.4 billion in two-way trade in 2023-24, surpassing the United States, which was the leading partner in the previous two years.
• In 2023-24, India had a trade surplus of $36.74 billion with the United States and also maintained surpluses with the UK, Belgium, Italy, France, and Bangladesh.
• India has established free trade agreements with four of its primary trading partners – Singapore, the UAE, South Korea, and Indonesia (as part of the Asian bloc).

What are the Reasons Behind India’s Trade Deficit?

• Reliance on Energy Imports: India imports over 85% of its crude oil, making its economy susceptible to global oil price fluctuations, which significantly affect the trade deficit.
• Dependence on Key Inputs: Certain sectors, like pharmaceuticals and semiconductors, rely heavily on imported raw materials, increasing import costs. For example, the pharmaceutical industry sources a large amount of Active Pharmaceutical Ingredients (APIs) from China.
• Lower Exports of Manufactured Goods: The amount of manufactured goods exported from India often does not match imports due to lower manufacturing capabilities and competitiveness compared to countries like China and the US.

What are the Key Impacts of the Trade Deficit on the Indian Economy?

• Benefits:
  • A trade deficit isn't inherently negative if it involves importing raw materials or intermediate products, as this can enhance manufacturing and exports.
  • In the short term, higher imports can provide a wider variety of goods and services to consumers, improving living standards.
  • Currency depreciation resulting from a trade deficit can make Indian exports cheaper and more competitive internationally.
  • It may stimulate domestic businesses to innovate and enhance efficiency to compete with imports, leading to job creation in export-oriented sectors like logistics and packaging.
• Challenges:
  • Heavy reliance on imports can hinder domestic innovation and production, limiting the availability of locally produced goods.
  • A significant trade deficit can cause job losses in sectors heavily impacted by imports, such as textiles, where cheaper imports from Bangladesh have led to industry shutdowns.
  • A persistent trade deficit might weaken the rupee, making imports costlier and affecting government revenue from export duties.
  • To finance the deficit, India may need to increase borrowing from foreign sources, raising external debt and interest payments, which could deplete foreign exchange reserves and signal economic instability to investors.

What Measures can be taken to Control the Trade Deficit?

• Trade Agreements: Negotiating FTAs with key partners can lower tariffs and other barriers, enhancing the competitiveness of Indian exports. For instance, the India-UAE CEPA aims to reduce tariffs on over 80% of trade, potentially boosting exports in textiles, pharmaceuticals, and agriculture.
• Improving Export Infrastructure: Investing in infrastructure, such as modernizing ports and logistics networks, can streamline export processes and lower transportation costs.
• Import Substitution: The government should promote domestic alternatives to imported products through public procurement policies and campaigns for locally made goods. For example, advocating for domestic steel usage in government projects can reduce steel imports.
• Rationalizing Imports: Analyzing import data can help identify unnecessary luxury goods that could be replaced with local products. For example, discouraging the import of certain electronics through higher tariffs can encourage domestic production.
• Skilling the Workforce: Investing in skill development can create a workforce equipped to meet modern industry needs, boosting domestic production and reducing import dependence.
• Managing Currency and Debt Levels Effectively: The RBI should strategically manage the rupee's exchange rate to favor exports while minimizing excessive depreciation. Additionally, the government should focus on fiscal consolidation to lessen its debt burden, creating a stable environment for domestic industries.

Conclusion

It is essential to understand that there is no universal solution to the trade deficit issue. The effectiveness of various measures will depend on multiple factors, including the nature of trade partners, the types of imports and exports, and the global economic climate. The Indian government must carefully evaluate the situation and implement a combination of strategies to effectively manage the trade deficit and foster sustainable economic growth.

Farm Loan Waivers in India

Why in news?

Farm loan waivers have become a common promise during elections in India, especially in states with significant agricultural sectors. While these debt relief initiatives provide temporary relief to farmers, they do not address the underlying issues contributing to agrarian distress.

What are Farm Loan Waivers?

• Farm loan waivers refer to government initiatives that forgive certain agricultural loans, relieving farmers of repayment obligations to alleviate financial distress.
• These waivers are often announced during election campaigns to gain favor with the farming community.
• The government typically absorbs the outstanding debts of farmers by allocating funds to banks and financial institutions.
• Farmers encounter various challenges, such as disputed land ownership, dwindling groundwater supplies, poor soil conditions, rising costs of inputs, and low crop yields.
• Due to insufficient guaranteed earnings from their crops, many farmers resort to borrowing from banks or private lenders at high-interest rates.
• While loan waivers offer short-term relief, they do not provide a sustainable solution to the problems faced by farmers.

Implementation of Waivers:

• During crop failures or natural disasters, governments may waive penalties, reschedule loans, or eliminate outstanding loans entirely.
• The financial burden is absorbed by the government budget rather than the banks.
• Waivers may be selective, determined by the type of loan (short-term, medium-term, long-term), categories of farmers, or loan sources.

How Do Farm Loan Waivers Affect Farmers and Governments?

Effects on Farmers:

• Waivers provide immediate relief to farmers burdened by debt, particularly after poor harvests caused by natural disasters.
• Critics argue that these waivers can foster a culture of non-repayment, where farmers expect future waivers, potentially undermining credit discipline.
• After waivers are implemented, banks may tighten credit availability, which can hinder farmers' ability to invest in subsequent crop cycles.
• A report from the Comptroller and Auditor General (CAG) indicated that the 2008 waiver scheme benefited many ineligible farmers while neglecting deserving small and marginal farmers.

Implementation Challenges:

• According to a 2022 SBI study, only half of the beneficiaries from nine farm loan waivers declared by state governments since 2014 received the promised write-offs.
• Maharashtra had a relatively high implementation rate, while Telangana had the lowest.

Effects on Governments

Negative Impacts:

• The most immediate consequence is the strain on government finances; waiving loans results in a significant loss of revenue that could be allocated to other social programs or infrastructure projects.
• A NABARD report noted that the 1990 ARDR scheme cost the central government Rs 7,825 crores, forcing states to borrow more from the RBI to cover their share of the waivers.
• Extensive loan waivers can lead to increased government borrowing, raising interest rates and inflation, which can destabilize the economy.
• Additionally, waivers often fail to address fundamental agricultural issues, such as low crop prices and insufficient infrastructure, providing only temporary relief.

Positive Impacts:

• Farm loan waivers can shift funds from debt repayment to other productive areas, enabling farmers to reinvest in their agricultural practices.
• Farmers can buy better inputs to enhance productivity and diversify into other agricultural ventures like poultry, dairy, or horticulture for additional income.
• Governments that implement loan waivers may gain political support from the large farming population. A NABARD study from 1987 to 2020 found that of the 21 state governments that announced waivers before elections, only four faced electoral defeat.

What are the Alternatives to Farm Loan Waivers?

• Increased Public Investment in Agriculture: Allocate a larger share of budgetary resources for agricultural development, focusing on irrigation, electricity, storage, and transportation.
• Ensure farmers have easy access to quality, affordable agricultural inputs such as seeds, fertilizers, and pesticides.
• Enhance investments in agricultural research to develop drought-resistant and high-yield crop varieties and improve farming techniques.
• Strengthen and expand agricultural extension services to inform farmers about modern practices and technologies, especially in remote regions.
• Incentivize Crop Diversification: Encourage farmers to grow a broader range of crops by expanding price support and procurement to include oilseeds, pulses, fruits, and vegetables.
• Implement supportive policies that promote water-efficient crops adapted to local conditions to enhance sustainability.
• For example, Punjab is facing severe groundwater depletion and soil degradation due to over-reliance on urea, primarily growing wheat and rice due to government procurement.
• Direct Income Support Schemes: Introduce direct income support schemes, such as PM-KISAN and the Kisan Credit Card scheme, to replace loan waivers, ensuring efficient fund distribution through direct benefit transfers (DBT) and Aadhaar-based identification.
• Market Reforms and Access: Improve the functioning of Agricultural Produce Marketing Committees (APMCs) to reduce middlemen exploitation and ensure farmers receive a fair share of consumer prices.
• Encourage the use of the Electronic National Agriculture Market (e-NAM) platform for online trading, connecting farmers directly with consumers.
• Farmer Producer Organizations (FPOs): Facilitate the formation of cooperative societies among farmers to benefit from bulk purchasing of seeds and fertilizers, reducing costs and improving deals.
• These organizations can also collaborate on marketing efforts to sell their produce for better prices.
• Risk Mitigation Strategies: Provide affordable crop insurance schemes to protect farmers from financial losses caused by natural disasters or unexpected events.
• Implement crop insurance based on weather parameters to help mitigate risks associated with unpredictable weather patterns.

Understanding the Draft Digital Competition Bill: Key Proposals and Implication

Why in news?

The Draft Digital Competition Bill aims to establish a regulatory framework for digital markets in India, focusing on preventing anti-competitive practices among large tech companies.

Growing need for an ex-ante framework

Regulating Market Abuse in the Digital World

• Regulating market abuse after it happens in the digital realm is not the best approach.
• Digital businesses benefit from cost advantages related to production scale and scope.
• This means that as the number of units produced increases, the cost per unit decreases.
• Similarly, as the range of services offered increases, the overall production costs decrease.
• This drives digital enterprises to expand rapidly compared to traditional market players.
• Network effects play a crucial role in this growth - the more users a digital service has, the more valuable it becomes.
• A more forward-thinking approach involves preemptive laws that anticipate potential antitrust issues and outline restricted areas beforehand.

What is Digital Competition Bill, 2024?

 About

• The bill aims to further control big digital companies, like news aggregators, to make sure competition in the online world is fair.
• It was suggested in March 2024.
• The new rule might stop major tech giants such as Google, Facebook, and Amazon from promoting their own services or using data from one business to help another.
• It includes rules to stop unfair practices before they happen.
• It plans to give severe punishments — possibly billions of dollars — for breaking the rules.

Similarity with EU's Digital Markets Act (DMA)

• This new law is like the EU's Digital Markets Act (DMA), which became fully effective earlier this year.
• DMA makes big tech companies like Alphabet, Amazon, and Apple share their services and not give preference to their own over competitors.

Nodal ministry

• The Ministry of Corporate Affairs (MCA) is managing the proposal.

What are the Key proposals of the draft digital competition Bill 2024?

List of Key Digital Services (KDS)

The list of essential digital services is outlined in Schedule I of the bill.

It includes 

• Web search engines
• Social networking platforms
• Video-sharing platforms
• Communication services
• Operating systems, web browsers, cloud services, advertising services
• Online intermediation services (encompassing web hosting, payment sites, e-commerce marketplaces, etc.)

Important Companies 

• The Bill suggests identifying specific companies as Systemically Significant Digital Enterprises (SSDEs).
• SSDEs are firms offering vital digital services in India with a notable presence and financial stability in the nation.
• Criteria for assessing if a company may be labeled as an SSDE 
• If a company provides a KDS, two tests are proposed - financial strength test and spread test (user base test).
• The quantitative benchmarks for a company to be classified as an SSDE are:
  (a) If its Indian turnover in the last three fiscal years is at least Rs 4,000 crore; or its global turnover is at least $30 billion
  (b) If its gross merchandise value in India is at least Rs 16,000 crore; or its global market capitalization is at least $75 billion
  The company's primary digital service should have a minimum of 1 crore end users or 10,000 business users.

SSDE Obligations 

• SSDEs are barred from engaging in certain practices like self-preferencing, anti-steering, and limiting third-party applications.
• They could face fines up to 10% of their global turnover if these rules are violated.

Related Digital Enterprises 

• The Bill proposes identifying associate digital enterprises (ADEs) to understand how data collected by one major technology group company can benefit others in the group.
• Entities designated as associate entities would have similar responsibilities as SSDEs, contingent on their involvement with the main company's core digital service.
• For instance, Google Maps might be considered an associate entity due to its connection with Google Search.
• The same applies to YouTube, depending on the data shared between Google Search and YouTube impacting video recommendations.

Criticism of the Digital Competition Bill 2024 

• An upfront system with its strict detailed rules might result in a huge amount of compliance work for large tech firms. This could shift their attention from creating new ideas to making sure they don't unfairly act against competition.
• Strict demands of the EU's DMA and related effects
  Experts have pointed out that due to the strict demands of the EU's DMA, the time taken to find information through Google search has surged by 4,000 percent.

Broad interpretation of what constitutes a significant platform 

• Businesses are worried about the broad interpretation — both in terms of quantity and quality — of what makes a platform significant. While the EU's DMA specifies the 'gatekeeper' entities, this decision in India's proposed law has been left to the CCI's judgment. Businesses fear this could lead to random decisions that might also impact startups.

Possible impact on smaller enterprises 

• Businesses argue that the proposed legislation could compel them to alter their platforms and reduce data sharing. This could also affect smaller enterprises that depend on these platforms to connect with a large audience.

Reforming India's Informal Labour Market

Why in News?

India's labour market is characterized by a significant informal sector, with over 400 million workers operating outside the formal employment framework. This informal workforce contributes more than half of the country's GDP. However, the dominance of lower-income and semi-skilled workers underscores the urgent need for a structural shift towards formalization and equitable opportunities.

What is the Difference Between Formal and Informal Labour Market?

What is the Current State of the Labour Market?

• Global Informal Economy: Over 60% of the global workforce and 80% of enterprises operate within the informal economy.
• More than 2 billion workers rely on informal employment for their livelihoods.
• Informal employment comprises 90% of total employment in low-income countries.
• 67% of total employment in middle-income countries is informal.
• In high-income countries, informal employment accounts for 18% of total employment.
• Between 2010 and 2016, informal work contributed approximately 40% of employment in regions like Sub-Saharan Africa, Europe, Central Asia, Latin America, and the Caribbean.
• In India, the informal labour market consists of nearly 85% of the workforce, with the majority employed as self-employed or casual labourers.
• The informal sector is responsible for generating over half of India's GDP.
• Over 94% of the 27.69 crore informal sector workers registered on the e-Shram portal earn Rs 10,000 or less per month, with over 74% belonging to Scheduled Castes (SC), Scheduled Tribes (ST), and Other Backward Classes (OBC).
• Only 25.56% of the workers belong to the General Category.
• Around 94% of registered informal workers earn Rs 10,000 or below, while 4.36% earn between Rs 10,001 and Rs 15,000.

What are the Challenges Posed by the Informal Labour Market?

• Precarious Employment: Agricultural labourers and street vendors face seasonal unemployment and low wages due to a lack of regulation and bargaining power, leading to income inequality and increased poverty.
• Sustainable Livelihoods: Ensuring sustainable livelihoods and equitable opportunities for informal workers is a significant challenge.
• Social Vulnerability: Large family sizes burden agricultural labourers, while low incomes trap home-based workers and street vendors in cycles of low social status, limiting access to social security, healthcare, and other basic rights.
• Occupational Hazards: Waste pickers and recyclers face health risks due to poor working conditions and inadequate safety measures, with child labour also prevalent in this sector.
• Institutional Challenges: Informal workers lack proper legal protection and are vulnerable to harassment by authorities.

What are the Government Schemes for Informal Labourers?

• Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
• Pradhan Mantri Shram Yogi Maan-dhan (PM-SYM)
• Atal Pension Yojana
• eShram Portal

Additional Schemes for Unorganized Workers:

• Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
• Deen Dayal Upadhyay Gramin Kausal Yojana
• Mahatma Gandhi Bunkar Bima Yojana
• Deen Dayal Antyodaya Yojana
• Pradhan Mantri Kaushal Vikas Yojana
• PM SVANidhi: Micro Credit Scheme for Street Vendors

The government is in the process of simplifying labour laws by consolidating them into four codes, which have not yet been implemented:

• Code of Wages, 2019
• Industrial Relations Code, 2020
• Social Security Code, 2020
• Occupational Safety, Health and Working Conditions Code, 2020

Way Forward

• Universal Coverage: Utilize the eShram portal and collaborate with industry associations to gradually enroll the entire informal workforce of over 400 million into social security schemes.
• Simplifying Registration Processes: Streamline registration processes for informal businesses to help integrate them and their workers into the formal economy.
• Self-help Groups (SHGs): SHGs can play a crucial role in promoting self-reliance and improving working conditions for informal workers.
• Implementation of Labour Codes: Swiftly implement the four consolidated labour codes (Wages, Industrial Relations, Social Security, Occupational Safety) to address current challenges.
• Needs-Based Support:
• Tailored Schemes: Design social security programs specific to various worker groups, including street vendors, agricultural labourers, and construction workers.
• Extend maternity benefits, accident and death compensation, education, and livelihood opportunities during lean periods for informal workers.
• Skill Development and Formalization:
• Skill Upgradation: Equip informal workers with relevant skills to enhance employability, aiding their transition into the formal sector.
• Formalization Incentives: Implement policy changes and attractive schemes to encourage the formalization of the labour market.
• Reduced GST for Employment Services: Consider employment services as "merit services" with a lower GST rate (e.g., 5% instead of 18%) to promote job creation.
• Skilling for Employability: Directly link skilling initiatives to employment opportunities.
• Grievance Redressal Mechanism: Establish an accessible and officially monitored mechanism to periodically address grievances from informal workers.