Headline : India can learn agri-policy lessons from China Editorial 25th Oct’19 FinancialExpress
India and China have similar challenges in agriculture:
- India and China are the most populous countries in the world, having a population size of 1.35 billion and 1.39 billion, respectively, in 2018.
- With limited arable land [about 120 million hectare (m ha) in China, and 156 m ha in India], both face the challenge of producing enough food, fodder, and fibre for their population.
Followed many similar methods to increase output:
- Both have adopted similiar methods to get more food from limited land, including:
- Modern technologies in agriculture, starting with High Yielding Variety (HYV) seeds in the mid-1960s
- Use of more chemical fertilisers
- Increased irrigation cover
- China’s irrigation cover is 41% of cultivated area, and India’s is 48%.
- As a result of this irrigation, China’s total sown area is 166 m ha compared to India’s gross cropped area of 198 m ha.
But China produces more output than India:
- Even with much lesser land under cultivation, China produces agricultural output valued at $1,367 billion—more than three times that of India’s $407 billion.
Lessons for India from China in agriculture:
- There are three important lessons for India, if it is to catch up to the levels achieved in China.
I) Increased spending on Agriculture Knowledge and Innovation Systems
- Agriculture studies have revealed that the highest impact is from investments in agriculture Research and Education (R&E).
- China spends more:
- China spends a lot more on agriculture knowledge and innovation system (AKIS), which includes agri R&D, and extension.
- China invested $7.8 billion on AKIS in 2018-19, amounting to 5.6 times the amount spent by India ($1.4 billion).
- Presently, India invests just about 0.35% of its agri-Gross Value Added (GVA) whereas China spends 0.8%.
- India needs to spend more:
- For increasing total factor productivity, India needs to increase expenditure on agri-R&Dwhile making the Indian Council for Agricultural Research (ICAR) accountable for targeted deliveries.
- Note: Better seeds that result from higher R&D expenditures generally demand more fertiliser. China’s fertiliser consumption in 2016 was 503 kg/ha of arable area compared to just 166 kg/ha for India, as per World Bank estimates. Consequently, China’s productivity in most crops is 50 to 100% higher than India’s.
II) Better incentive structure to farmers through agri-marketing reforms
- The incentive structure, as measured by Producer Support Estimates (PSEs), is much better for Chinese farmers than Indian ones.
- The PSE concept measures the output prices that farmers get in relation to free trade scenario, as well as input subsidies received by them.
- The PSE concept is adopted by 52 countries that produce more than three-fourths of global agri-output.
- China’s PSE much higher to India:
- For Chinese farmers, PSE was 15.3% of gross farm receipts during the triennium average ending (TE) 2018-19.
- For the same period, Indian farmers had a PSE of -5.7%.
- In a way, this reflects that Indian farmers had been net taxed, not subsidised, despite high amounts of input subsidies.
- Due to restrictive trade and marketing practices in India:
- This negative PSE (support) comes due to restrictive marketing, and trade policies that do not allow Indian farmers to get free trade prices for their outputs.
- This negative market price support is so strong that it exceeds even the positive input subsidy support the government gives to farmers through low prices of fertilisers, power, irrigation, agri-credit, crop insurance, etc.
- China’s experience that high MSPs do not work:
- India can take a leaf out of Chinese bad experience from high MSPs.
- China, in fact, used to give procurement prices to farmers that were much higher than even international prices.
- The result was massive accumulation of stocks of wheat, rice, and corn that touched almost 300 million metric tonnes (MMT) in 2016-17 (see graphic).
- As a result, they had to incur large expenditure for withholding these stocks without much purpose.
- Having learnt lesson, China dropped the price support scheme for corn, and in fact, have been gradually reducing support prices of wheat, and rice.
- India should learn from China and move away from high MSPs:
- Indian government has been trying to jack up minimum support prices (MSPs) for 23 crops.
- As a result, India’s stock situation in July 2019 was 81 MMT as against a buffer stock norm of 41 MMT.
- India needs to reduce the gamut of commodities under the MSP system, and keep MSPs below international prices.
- Else, India will also suffer from the same problems of overflowing granaries as China did.
- Marketing reforms are necessary in India:
- To improve this situation, large-scale agri-marketing reforms (APMC and Essential Commodities Act) need to be carried out.
III) Implementation of single direct income support scheme:
Single input subsidy scheme in China:
- China has combined its major input subsidies in a single scheme that allows direct payment to farmers on a per hectare basis, and has spent $20.7 billion in 2018-19.
- This gives farmers freedom to produce anything, rather than incentivising them to produce specific crops.
- Inputs are priced at market prices, encouraging farmers to use resources optimally.
India offers heavy input subsidies apart from direct benefits:
- India spent only $3 billion under its direct income scheme, PM-KISAN, in 2018-19.
- On the other hand, it spent $27 billion on heavily subsidising fertilisers, power, irrigation, insurance, and credit.
- This leads to large inefficiencies in their use, and has also created environmental problems.
India needs to consolidate subsidies into a single scheme:
- It may be better for India to also consolidate all its input subsidies and give them directly to farmers on a per hectare basis, and free up their prices from all controls.
- This would go a long way to spur efficiency, and productivity in Indian agriculture.
- If India needs to learn these three lessons from China, i.e., to invest more in agri-R&D and innovations, improve incentives for farmers by carrying out agri-marketing reforms, and collapse input subsidies into direct income support on a per hectare basis.
- Through this, India can benefit its farmers and put agriculture on a high growth trajectory.
GS Paper III: Indian Economy
Section : Editorial Analysis
Headline : An independent fiscal watchdog for Parliament Editorial 21st Sep’19 TheHindu
Access to all of good quality analysis on economic, fiscal or financial matters is important for democracy:
- For an effective democracy, it is important for our electorate and the representatives to have an independent, non-partisan source for these hard facts and evidence.
- This is particularly important for our Parliament, which controls where and how money flows into our government and our country.
- But besides the few Ministers privy to expertise from the civil service, most parliamentarians do not benefit from timely access to good quality analysis on economic, fiscal or financial matters.
Need a non-partisan body like Parliamentary Budget Office (PBO) in India:
- A non-partisan body needs to be appointed with expertise in budgetary, fiscal and economic matters.
- Regardless of a majority or minority government, this body serves parliamentarians equally and without prejudice.
- This body exists in many countries around the world, usually called as Parliamentary Budget Offices (PBOs).
Work of PBOs:
- These bodies help shape the debate and discourse around the state of the nation’s finances and the fiscal implications of significant proposals.
- The work done by PBOs helps drive smarter, more focused debate in the media and with our electorate.
- Besides costing policies and programmes, PBOs provide significant and sometimes the sole source of information on fiscal and economic projections.
- Another data point, different from the government’s, generated by an independent, non-partisan office, helps the parliamentarians to ensure that these projections and estimates continue to be reliable enough for them to make decisions on.
Example of how this body will be useful:
- In the recent time, the Rafale deal controversy in India resulted from uncertainty regarding the true lifecycle costs of the aircraft bought.
- If parliamentarians could access analysis, information and research about defence costing from a PBO (like they do in Canada), they could hold the government to account in case of any discrepancies.
Will there be conflict with the office of CAG?
- A question that arises is the necessity of such an office when we already have an auditor general (CAG).
- However, an Auditor General’s role is to provide retrospective audits and analysis of the financial accounts and performance of government operations. These audits are often focused on the day-to-day goings on of government, and often hone in on the performance of the civil service.
- On the other hand, the PBO provides prospective, forward-looking economic and fiscal projections, as well as policy costings.
- This distinguishes PBO it from an auditor general, which provides useful information, but only after the fact.
Examples of PBO like institutions internationally:
- Internationally, offices like PBO have been established across the world.
- The most prominent such office is the Congressional Budget Office in the United Stateswhich provides impartial advice to both the houses of the legislature.
- Offices in the Netherlands, Korea, Australia and the United Kingdom have also been established for varying lengths of time.
- PBOs are also making an appearance in emerging economies in Sub-Saharan Africa and Southeast Asia.
- Wider role in some countries:
- In some countries, including Australia, the Netherlands, and most recently, Canada, PBOs have also been playing the role of costing electoral platforms during an election campaign.
- In this period, PBOs provide independent cost estimates of electoral platform measures to political parties.
Way forward – India should consider having a PBO:
- Legislatures across the world have witnessed an increasingly stronger executive try to wrest away its rightful power of the purse.
- The amount of information parliamentarians need to scrutinise in Budget documents has exponentially increased and a PBO would assist parliamentarians in this process of scrutiny.
- As the process toward the Union Budget 2020 has already kicked off, it would be relevant for parliamentarians to examine the case for a PBO more deeply.
GS Paper II: International Relations
Section : Editorial Analysis
Headline : A road map to transforming India’s energy Editorial 30th Aug’19 HindustanTimes
- Forty years ago, India barely had a car manufacturer, was way behind in the space race, and had an insignificant IT sector.
- Today, India is the world’s fourth largest car manufacturer, and is set to become only the fourth country to land on the moon.
- These achievements should be applauded, but India is just getting started.
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India should play a significant role the energy sector:
- India today has a golden opportunity to play a prominent role in global energy as well.
Energy and economic development:
- Energy and economic development have been deeply intertwined.
- Access to affordable and reliable energy is fundamental to reducing poverty, improving health, increasing productivity, enhancing competitiveness and achieving social justice.
- In the last 30 years, India’s GDP has increased nearly tenfold, while the energy consumption over that period grew nearly 400% (with around 8% last year).
India to overtake China in energy consumption:
- By some estimates, global energy demand seems set to increase by a third.
- By some estimates, India will overtake China as the largest growth market for energy by the mid-2020s.
- This is significant, given that around 30% of the Indian population does not have access to modern sources of energy.
Concerns over emissions:
- More energy consumption tends to lead to more emissions.
- By 2040, India’s share of global emissions seems set to rise from around 7% to 13%, despite the great ambition shown from the government to address climate change.
Dual challenge of increasing energy needs and reducing emissions:
- More energy to improve lives, but with fewer emissions to help address climate change — is what we call the dual challenge.
India can play a leading role in addressing the dual challenge:
- India has the entrepreneurialism, ingenuity and a can-do attitude as well as the tools to reset its energy mix with the low-carbon fuel and power, and reimagine energy.
Ways to achieve this:
- Developing India’s domestic gas production:
- Good for economy:
- There exists huge opportunity with natural gas, in which India has a domestic resource potential of more than 100 trillion cubic feet (Tcf), which includes conventional, unconventional, and yet-to-find gas.
- This resource base has the potential to meet up to 50% of anticipated demand for gas through to 2050.
- So, developing India’s domestic gas production will help reduce energy imports, enable more investment and create jobs.
- Good for environment:
- Natural gas also has a lower carbon intensity per unit of energy than coal in power generation, and offers significant benefits for air quality.
- Longer term, natural gas can be used to produce hydrogen, and decarbonised using carbon capture, use and storage (CCUS).
- Ramping up renewables:
- There is also a big opportunity in renewables, where there are large untapped solar and wind resources.
- Cost of renewables is becoming increasingly competitive with fossil fuels.
- As such, these renewable resources could be further maximised to meet the three to four-fold power demand growth expected in India by 2050.
- They would progressively displace coal in electricity generation, which is important as coal emits about twice as much carbon emissions than gas.
- Decarbonising mobility:
- There is a third opportunity with vehicle electrification and the substitution of liquid fuels with CNG or LNG.
- Costs of light-duty electric car (on a total cost of ownership basis) could converge with conventional vehicles from 2035, and EVs (two and three-wheeler) are close to cost parity today.
- CNG is already competitive in medium and heavy-duty vehicles and LNG is attractive for long-distance trucking.
- Driving digital innovation:
- India also has opportunity in digital innovation, which could help to optimise the energy system and reduce energy demand by as much as 18% by 2050.
- There are opportunities in the field of transport, through autonomous vehicles, ride-sharing and intelligent traffic management systems.
- There are opportunities in buildings (through smart homes), in industry (through connected devices and advanced analytics), in transmission and distribution (though smart grid technologies) etc.
- With these initiatives, India could position itself as a leader in the energy transition.
- India could help address the dual challenge of increasing energy needs and reducing emissions:
GS Paper III: EconomySection : Editorial Analysis
Headline : MSME loans: Delay in disbursal of loans to MSMEs
- The union finance minister held a meeting with MSME representatives to devise plans for this critical sector.
- The MSMEs representatives highlighted problems faced by the sector, and made certain demands for the revival of the sector.
- She also asked industry representatives to send their response to the U K Sinha committee over the next three-four days,indicating that the recommendations would be implemented quickly.
Problems afflicting the MSME sector:
- Limited loan disbursal by banks even after sanctioning under 59 minutes scheme: As against loans sanctioned in just 59 minutes by PSBs through an online lending marketplace called psbloanin59minutes, only 10 per cent is being disbursed by banks.
- Long delays in settlement of dues by the government departments and PSUs
- Access to credit: Despite 70 per cent guarantee from the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the firms have not been able to secure loans from banks in many cases.
- The issue of VAT refunds not being transferred to GST regime by states.
- It has undermined the MSMEs’ ability to sustain their business cycles, liquidity-starved micro, small and medium enterprises (MSMEs).
Key Demands of the MSMEs representatives:
- Revise the turnover/investment-related definition of MSMEs upwards. The definitions, where a firm with Rs 5 crore investment is classified as ‘small’ while investment over Rs 5 crore are ‘medium’, were brought in 2006 and have since become dated due to inflation.
- Exemption from capital gains tax for the sector if gains are reinvested in business.
- Rationalization of penalty for late filing on Ministry of Corporate Affairs as it is same for large and small companies.
Significance of the MSME sector:
- MSMEs are the backbone of the Indian economy, contributing nearly 45% in the manufacturing sector, 30 per cent of the GDP and 49 per cent of country’s exports. They are key engines of job creation and economic growth in developing countries.
- MSME sector is also the second largest employer, next only to agriculture. Over 6 crore MSME units provided employment to about 11 crore people (NSSO, 2016).
12 Historic decisions by government for the MSME sector
About: PSBLoansIn59Minutes Scheme
- Under the scheme, MSMEs registered under the Goods and Services Tax are eligible for loan up to Rs 1 crore in just 59 minutes from public sector banks (PSBs) through an online lending marketplace called ‘psbloanin59minutes’.
- This objective of the scheme is to reduce the time and effort required to secure credit from PSBs, thus easing the life of an entrepreneur.
Need for the Scheme:
- The difficulties in getting a loan from PSBs stem from unwillingness of the ground-level staff to even accept the loan application.
- Even after a loan is approved, the high turnaround around time for the disbursal remains a challenge.
Scheme saw huge response:
- The demand for such a portal is validated by both the large number of applications (around 1.31 lakh) received within two months of its launch.
- As against loan sanctioned in 59 minutes scheme, only 10 per cent loans have disbursed by banks.
Way Forward for the 59 minutes scheme:
- There is a need of deeper integration of the portal with banks’ processes.
- The credit approval process should capture the existing liabilities of the borrower so that there are no disputes on quantum of credit to be sanctioned.
- The availability of other resources such as land/technology with the borrower should also be assessed before sanctioning term loan for a new asset.
- On the policy front, the norms for takeover of loans among lenders should be relaxed.
About: UK Sinha committee
- RBI constituted the expert committee on MSMEs to study the problems faced by MSMEs, identify the causes, and propose long-term solutions for the economic and financial sustainability of the MSME sector.
- This includes the review the current institutional framework in place to support the MSME sector, studying the global best practices with respect to MSMEs.
- The creation of a distressed asset fund to assist MSMEs units in clusters.
- The creation of a government-sponsored Fund of Funds of Rs. 10,000 crore to support venture capital and private equity firms investing in MSMEs.
- Amendments to the Act to address the sector’s bottlenecks like access to credit and risk capital, prioritizing market facilitation and ease of doing business.
- SIDBI should deepen credit markets for MSMEs in underserved districts and regions.
- It suggested to fix a timeline of 7-10 days for disposal of applications..
- It had suggested for greater adoption of technology-facilitated solutions to many of the problems encountered by the MSME sector.
Mrunal Handout10: EF3_BoP2_Organizations
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Handout 16: – EF6_P1_Census_Health_Edu_Poverty_Batch1