Inclusive Agenda

Dedicate the Decade to Women

Seven decades of Federal Republic made India sterner stuff. Optimists invariably look at the half full glass while pessimists see the other half that is empty. But in the other half lie the challenges and opportunities. This retrospect becomes necessary in the backdrop of the latest Oxfam Report on Inequality released on the eve of Davos World Economic Conference that just concluded, putting India in somewhat bad light.

India always proved its might and solidarity in every type of crisis. From Bengal famine and pestilence to fighting Pakistan, from Bhuj earthquake to Tsunami, continual floods of Brahmaputra, Ganges, and Godavari the huge diversity of the nation did not come in the way of overcoming all the crises.

India’s growth and poverty reduction with by far the second largest population in the world, has contributed even to reducing global inequality. Famous economist Surjit S. Bhalla is the first to differ from the international wisdom and establish that ‘if poor defined as fraction of population in 1980, then for each 10% rise in consumption by the non-poor, consumption by the poor rose by 18%. Millennium Development Goals (headcount ratio) target of less than 15% poor by 2015 was reached quite ahead and only 10% of the developing world was poor. Such reduction, however, has no parity when it came to reduction of inequalities.

World Development Report 2000/2001 mentioned: the average income in the richest 20 countries is 37 times the average in the poorest 20 – a gap that doubled in the previous 40 years.

Union and State Governments have independently and together evolved schemes benefitting the poor and absolute poverty in India declined substantially. Poverty levels have gone down in India from 50% in 1993-94 to 23% in 2016-17 in rural areas and in urban areas correspondingly from 32% to 13%. The unrecognized fact is that even rural infrastructure in terms of roads constitute 72% of the road length of the country. These developments need not lead us to complacence as there is lot more ground to cover.

Oxfam Report 2020 highlighted two aspects: the gap between the rich and the poor and even among poor, gender inequality. 2153 persons had more wealth than 4.6bn people. Report on India omits to mention the political constituency that is full of billionaires. If the perverse subsidy regime has to be reversed, it should start from this constituency in favour of poor women of the country.

The wide divergence is attributed however to the underpaid and unpaid care work of women in homes. The Report patently ignored the intangible contribution of women in India – a culture of caring for home and bringing up the family to prosperity.

V.V. Giri, the fourteenth child of the family became the President of India and he married a SC woman who was also a poet. While this is not to mention that there was virtue in big family, upbringing of the child to the expectation of the Mother is still sacred in many a Indian home. Mother is the first teacher in the home. Monetising her ‘care’ is the value she creates for the human resource.

During the last three decades, influenced by globalization and imbibing western culture, the otherwise high value and culture of Indian youth suffered such care. Indian women demonstrated in the past a unique balance between home and work, whether in rural or urban areas. This balancing act is at the core of the ‘care’. The feminist and human values argued by the Oxfam report needs a relook at least in India. It is not right to belittle the role of Mother.

My Mother, who gave birth to six sons and six daughters, though studied only class V, studied the Indian epics Mahabharat and Ramayana, Bhagavatham and Bhagavadgita apart from several books in Telugu literature and learnt English with her children. She always used to say with pride that her contribution to the GDP of the country was substantial and lay in the NRI remittances of her two sons who went abroad and the grandchildren working in the Information Technology sector abroad, her other sons and daughters traveling throughout India at different points of time in the year either on leisure holiday or pilgrimage. The progeny of my parents is 100 and half of them are working in different parts of the globe. She brought us up when my father started his income at Rs.23 per month in 1936 of British India to Rs.250 per month on the day of retirement in 1974!!

Measuring women’s contribution to India’s GDP terming as one of the lowest in the world at 17% needs correction as GDP hides more than what is revealed. The issue, it rightly says, at one point is not just limited to women’s participation in the workforce alone.

Violence against women is another aspect that has been widely reported both in the Report and outside. There is also regional difference and across the castes in such reports. Dalit women were invariably the target and mostly in northern and western India compared to the rest of India.

Villagers invariably debate on the need for girls getting engaged in wedding at the age of 15-16 to provide security to them. It is not so much the unpaid care work of women that is the source of violence and to support such argument citing Krishnaraj report of 1990-91 EPW is perhaps a travesty of the current trend.

During the last three decades, self-help group movement has substantially gained traction in empowering women economically. Economic empowerment for sure is the best way of providing sustainable intervention in women development.

Of course, what needs correction certainly is to make sure that ‘40% of 15-18 year-old-girls go to school. Empowering women will be empowering the nation. It is this context that calls for reservation to women in every field to move to one-third of the population irrespective of caste or creed in the place of all existing reservations. Once this happens, women in SCs, STs, backward castes, and OBCs will automatically fall in the reserved category and would rectify the societal imbalance. If this decade is dedicated to women, 71^st Republic Day 2020 will write the future history differently.

*The Author is an economist and the views are personal. Published in Telangana Today on 25.01.2020

Vision 2030: Unfinished Agenda that is fair, just and egalitarian

The 71st Republic Day makes me reflect on the unfinished agenda for growth before the nation and a vision for the next decade. It is one thing to set a quantitative goal post and quite another to move higher on a qualitative agenda.

 

Such a qualitative goal requires more inclusivity and higher sensitisation than what we have at present. 

 

As a citizen, I would like to dream of an India, where peace and tranquility prevail; where transparency in governance exists in all fields; where there would be 100% food security and 100% self-sufficiency for food; where market forces do not devour the poor and the weak in society. 

 

India should be a country where better water and farm management would lead to better employment and least migration to urban and metropolitan areas from the rural areas; where population growth would not stand as an impediment for further growth of the economy; where all the employables get fully employed and the less employables would be endowed with appropriate skills and knowledge for full employment; where there is free entry and exit for firms in the economy with no parasites. 

 

Also it should be a country where women can walk freely even at midnight anywhere in the country; where values of life fall in tune with the culture and ethos of the nation and where the digital divide between the rural and urban vanish; where information asymmetry and moral hazard do not exist and where all the sectors of the economy realize their mutual dependence to their mutual benefit and the growth rate of the economy would move to a double digit figure as a matter of practice. 

 

I recall what Swami Ranganadhananda said once: “I look forward to the day when rural people stop easing themselves in public and start eating in public.” 

 

The statement is profound and carries with it an agenda for action: provision of good sanitation, safe drinking water, crossing the caste and other societal barriers and food within the reach of all. 

 

Fortunately, during the last few years, the Swachh Bharat mission has taken the open-defecation-free (ODF) areas close to 80-90% in several cities, although a lot remains to be done in many rural areas. 

 

Aspirational Districts program would similarly make several lagging districts to come to the forefront. Still, a lot needs to be done for an ODF India and safe drinking water being universally available. This calls for a synthesis between social and economic budgeting.

 

The barriers to realising such a vision would be:

• Fragmented political will;

• High population growth;

• Poverty and low level of literacy;

• Inadequate resources;

• Weak financial sector mired in unrecovered corporate debts and frauds;

• Poor governance;

• Improper structural plans;

•  Institutionalization and harmonization of legal aspects to set up monitoring systems.

• Deficiencies in implementation.

 

Some of our strengths recognized worldwide are:

 

• A middle class estimated at 350 million out of a total population of over 1.2 billion providing a stable market;

• The second largest English-speaking scientific, technical and executive manpower in the world;

• An abundant supply of raw materials;

• An extensive rail and road network;

• A stable political system based on parliamentary democracy;

• A common legal system with English as the court language;

• India is emerging as a major market and investment destination;

• The dramatic economic reforms initiated in 1991 have left a wide canvas of positive thinking and affirmative action.

• India is one of the top five in the world’s growing economies even after this temporary slowdown (5% of gross domestic product (GDP) at the end of FY2020).

• The sweeping change from unorganized to organized ways of doing businesses with the introduction of the goods and services tax (GST), Real Estate Regulatory Authority (RERA) and the Insolvency and Bankruptcy Code (IBC).

• An ardent desire to pursue financial inclusion agenda and 

 

Another major strength is India’s ability to respond to crises:

 

When there was a crisis in meeting the food requirements against the backdrop of colonial misrule, with severe famine and large patches of drought, we fought it out valiantly through the green revolution and made India self-reliant in food; we are now on the threshold of food exports. When we had a crisis in foreign exchange, we ably steered through. 

 

Most of the natural calamities – recurring floods in several States or hard-hitting recurring cyclones in Andhra Pradesh (AP), Assam, West Bengal, Bihar, Tamil Nadu, earthquakes of Latur in Maharashtra or Bhuj in Gujarat; the Tsunami of 2004 in Tamil Nadu -- have been ably handled with domestic resources.

 

Gross inadequacies are noticed in terms of value addition due to inadequate attention to crop specific infrastructure and post-harvest technologies like pre-cooling, cold storages with assured power at uniform voltage, price hedging operations, and market reforms in the farm sector. 

 

Some States have initiated special studies in this regard to prioritize their investments in these areas and deploy the needed resources. The impacts of these initiatives would be felt in due course. However, there is a regulatory overhang in India with more than twelve Union ministries, corresponding state ministries, laws framed by the Union government with rules framed by the state governments for implementing them. 

 

Still, due to the several food control orders governing the production and trade of those commodities and crops into which the farmers would like to diversify, the farmer, rural industry and farm trade are virtually strangulated. While there is an awakening in respect of these areas, the speed of reforms and actions in these areas deserve urgent attention.

 

Farmers benefit from more accurate weighing, faster processing time, and prompt payment, and from access to a wide range of information, including accurate market price knowledge, and market trends, which help them decide when, where, and at what price to sell. E-NAM has not fully absorbed the e-Choupal model.

 

Farmers selling directly to ITC Ltd through an e-Choupal typically receive a higher price for their crops than they would receive through the mandi system, on an average about 2.5% higher. The total benefit to farmers includes lower prices for inputs and other goods, higher yields, and a sense of empowerment. The e-Choupal system has had a measurable impact on what farmers chose to do. The system also provides direct access to the farmer to information about conditions on the ground, improving planning and building relationships that increase its security of supply. Farmers Producers Organizations (FPO) are gaining ground, albeit slowly. FPOs need clusterisation to derive greater advantage. 

 

Every Law should stand the test of the Constitution and stakeholder consultation a priori and should be subject to regulatory impact assessment at the beginning of the first Parliament session of the year.

 

Increased urbanisation during the last five decades has not diminished the rural space significantly. Comprehensive connectivity of village complexes providing economic opportunities to all segments of people remains unfulfilled. 

 

The integrated method that will bring prosperity to rural areas envisages four types of connectivity: physical connectivity through quality roads and transport; electronic connectivity through telecom with high bandwidth fibre optic cables; knowledge connectivity through education, skill training for farmers, artisans and craftsmen and entrepreneurship programmes, where the future roadmap of economic growth lies. 

 

It is not so much globalisation that is important as global competitiveness that is the need and healthy growth of manufacturing micro, small and medium enterprises (MSMEs), empowering women and reordering the subsidy regime in all the fields. We have no room for complacence. 

https://www.moneylife.in/article/vision-2030-unfinished-agenda-for-an-india-that-is-fair-just-and-egalitarian/59226.html

 

Banking reforms the Budget should not miss

Banking Reforms the Budget should not miss

Former President of India, Pratibha Patil, in her address to the Lok Sabha on 4^th June 2009 said: “Our immediate priorities and programmes must be to focus on the management of the economy that will counter the effect of global (domestic) slowdown by a combination of sectoral and macrolevel policies.” She laid emphasis on accelerating growth that is ‘socially and regionally more inclusive’. 

The objective of overall policy in India is accelerated inclusive growth with macroeconomic stability. This approach is likely to reverberate in the ensuing Budget Session.

FM needs to give a measured response to the imperative outlined. In order to take the States on board, she may announce clearance of all the dues on GST to the States once the present audit of GST concludes. She may also like to give a new financial sector reform agenda to resolve the existing imbroglio. A few of the available options will be the focus of this article.

FM is at crosshairs between fiscal austerity and enhancing public spending to stimulate growth. Discomfort lies in the worst performance of Public Sector Banks (PSBs) and failure of NBFCs. While the RBI is balancing inflation and growth objectives, the recently released Financial Stability Report re-emphasis on the need for ‘good governance across board’, improving the performance of PSBs and the necessity to build buffers against their disproportionate operational risk losses.

None of the recent bank mergers added to her comfort. Hence there is need to look at the unfinished earlier reform agenda suggested by various Committees since 1991 and announce either a Reform Agenda or appointment of a High-Level Committee with a specific timeframe for actionable agenda that could stonewall criticism against the PSB failures, bank frauds and twin balance sheet problems. 

The issues surrounding banking are not peripheral.

The moral hazard consequence of banks receiving bailout is worrisome now and therefore, she may refrain from any further bailout announcement. Stress in the NBFCs and Cooperative banking seemed to have forced re-look at the Financial Resolution and Deposit Insurance Bill, 2017. While the Bill proposes to establish a Resolution Corporation to monitor the health of the financial providers on an ongoing basis, the bail-in by depositors and stakeholders is worrisome.

Increasing stress in various buckets of assets stands unabated and calls for a surgical strike. Banks’ credit origination risks need urgent evaluation. It is important to relook at the universal banking model the country adopted aping the west. Customer preferences and customer rights have taken a back seat.

Market-led reforms of the past have replaced social banking with profit-banking objective. 2025 $5trn GDP target should look at more efficient performance of banking as key to its achievement. There is a need for reconciling satisfactorily the dilemma of policies appropriate for short term with those suitable for the long term.

Governor, RBI in a recent address indicated that he would like to look at the priority sector categorization afresh to ensure that it delivers the intended. This assumes greater importance in financial inclusion agenda as efforts hitherto like Jandhan, Mudra etc could make only numerical and not qualitative advances. Provision of adequate and timely credit to the rural areas in general and agriculture, micro and small enterprises and weaker and vulnerable sectors, remained a major challenge for Indian banks for decades.

Direct credit programmes in Korea, Japan in 1950s and 1980s revealed the need for narrowly focused and nuanced programmes with sunset clauses delivered the results. The problem with directed credit is essentially three-fold: First, pricing at its true market level, second, avoidance of the persons who are not credit-constrained, and third, selection of focused areas and regions without political interference in undefined democracy.

Credit discipline and equity, the twin principles of credit dispensation suffered a systemic failure with politically motivated loan write-offs in several States. Both farm and micro and small enterprises require credit with extension, handholding, monitoring and supervision as key deliverable. This calls for out-of-the-box thinking.

While there has been broad recognition that increasing supply to cope with the rising demand through diversified lending institutions like small finance banks, and NBFCs of various hues, ever-increasing demand to cope with new technologies, low labour productivity, and absence of aggregators structurally to resolve the pricing of produce at the farmer’s doorstep, are all issues that require comprehensive solutions. Resources should not fall short of the requirement for such effort. Budget 2020-21 should make a bold and strategic announcement regarding the direction of investments in farm sector supportive for responsible credit flow. FM would do well to avoid announcing any crop loan targets and leave it to the RBI’s priority sector reformulation.

Supply-side issues cannot be adequately and appropriately addressed without institutional reforms focusing restructuring NABARD and giving a new mandate consistent with the future goals of the economy. SIDBI the second surviving DFI is living on interest arbitrage and enjoying the munificence of the Finance Ministry to the detriment of the sector it was intended to protect and promote. This also begs either closure or restructuring.

As regards governance of banks, the unattended reforms of Narasimham Committee -II deserve attention: Removing 10% voting rights; reducing the legally required public shareholding in PSBs from 51 to 33 percent; improving the Boards qualitatively with well-defined independent and functional directors’ roles.

Since the FM already announced that she is exploring the amendment to the Cooperative Act to skip the duality of regulation of cooperative banks by both the Registrar of Cooperative Societies and RBI, she would be going one step further in eliminating similar duality between her Department of Banking and RBI in so far as the PSBs are concerned, particularly because the RBI created separate Departments of Supervision and Regulation and College of Supervisors to improve the supervisory skills of RBI personnel.

the Hindu Business Line, 16.1.2020 https://t.co/eNEANVcaW8?amp=1

Uion Budget 2020 worrisome

Hardly the time for a tight fisted Budget 2020-21

FM in her second year of budget presentation has very unenviable task in performing a balancing act. GST revenues are looking southwards and the input tax credit, the key for success of GST is mired in data upload controversy and hostile inverted duty structure. Markets do not seem to worry about this going by the forward movement of indices, blowing against the wind.

PSBs absorbed all the capital that the government buffeted and yet did not perform. On top, some banks have acquired the notoriety in manipulating balance sheets. Frauds have surfaced like never before to Rs.71,543cr – a rise of 74% over the previous year in the financial sector. NBFCs too joined the cry for capital or regulatory relaxations.

Through legal process – IBC, SARFAESI Act, DRT and Lok Adalats, 14.9% in 2017-18 and 15.5% in 2018-19 is the amount recovered out of the claims lodged. Recovery through IBC at 42.5% is the highest, while it is 3.5% through DRTs, the lowest, according to RBI -M&M Economic Research.

No economic recovery will be possible with a crippling banking sector like the one we have today. Some Banks having Insurance and Mutual Funds are still entrusting targets under these subsidiaries to the regular banking staff taking away their productive time for selling banking products like deposits, credit and digital services.

Creating demand in rural, semi-urban, and urban areas would occur when the people have enough money in their hands. Credit has not moved in tandem with the demand from farmers and MSMEs in manufacturing. RBI doing its job by reduction of 135 basis points in the base rate has no spread effect in retail lending market as there is no risk appetite among banks.

Knowledge in banking products and services has come down significantly among line staff and this is the reason for credit origination risk escalating to failure in repayments. Capital infusion without rectification of the basic malaise and governance, will not address the problems.

Why worry about fiscal deficit when the denominator GDP has many undisclosed data escaping entries? Several economists make mountain of mole hill while speaking about fiscal deficit. Right from the Union Finance Ministry to the regulators, all converge on the fact that the slowdown of the economy is real and need demand boosters. There were occasions when we reached around 6-6.5 percent (2008-11) of GDP and the economy registered growth thereafter.

The worry on employment growth is real. Unemployed youth hitting the streets would exacerbate the security risks. Industry, despite the skill development initiatives, bemoans that they do not find the right persons for the right job.

Sector-wise, agriculture grew 2 percent while manufacture showed less than 1%. Make in India, the flagship manufacturing initiative has not shown uptick during the last four years in continuum. Services sector too is showing decline.

Priced education and health have made increasing demands on the government. Several States and Union Government have schemes like Arogya Sri, Kutumba Sri, Ayushman Bharati etc., and yet their reach to the intended is still facing issues in payment for the services to the hospitals. Affordability is still an issue.

What should be the measures in the budget to boost employment? Which sectors need focused attention from such perspective by way of fiscal incentives? How can the States be brought on the same page as the Union Government?

The slowdown is both cyclical and structural. There should be consensus between the States and Union Government on the way forward. Union Government should release post-haste all the payments for the pending works under MNREGS.

Several States and Union Government have huge arrears to suppliers, contractors and sub-contractors for several project works that has choked the bank working capital releases and all these payments should be released to the last pie.

The paltry pension to farmers at Rs.6000 per annum should be altered to Rs.12000 per cultivator whereby even the tenant farmers would be eligible for pension payment after 60 years. Since the scheme envisages payment by the farmer between 40 and 60 years of age his/her contribution, several farmers who are of 60 and above right now, would not be benefitting from the scheme. The scheme should benefit those who are above 60 now. Adequate budgetary provision is necessary.

Budget allocation for health sector should significantly go up to a minimum of 6% of the total outlay from both the States and Union. Health infrastructure is pretty poor and needs improvement.

Education budget should target universal education up to Class 12 and this happens when teacher pupil ratio significantly improves, and school infrastructure also improves. National Education Policy shall indicate the prospect of resource allocation as well.

Ensuing Budget should convert intent into actionable allocations in the critical sectors and lay a path firmly for cleaning up the banking sector. Frustration should not be at the breaking point.

Published in the Hindu Business Line, 3.1.2020

www.thehindubusinessline.com