Giving MSMEs the right push Editorial 13th Sep’20 FinancialExpress

Giving MSMEs the right push Editorial 13th Sep’20 FinancialExpress

Importance of MSME sector:

  • The MSME sector contributes approximately 40% to the GDP and generates employment for 114 million Indians, comprising about 93% of the total labour force of the country.

This sector under severe stress:

  • Over the last few years, economic distress has hurt the sector on several counts, and this has only gotten exacerbated by the Covid pandemic.
  • All India Manufacturers Organisation (AIMO) suggests that 35% MSME businesses are now beyond recovery.
  • The sector is staring at massive unemployment, which will only to worsen the unemployment problem in the country.

Package for MSMEs under Atmanirbhar Bharat:

  • The government revealed its commitment to revive the MSME sector in its Rs 20,000 crore economic stimulus package for Atmanirbhar India, including a Rs 10,000 crore fund to finance equity infusion.
    • The objective of the Rs 10,000 crore Fund of Funds scheme is to help MSMEs with growth potential at a time when they are facing severe shortage of equity and low revenues. 
  • The government also has Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector impacted by the economic slowdown triggered by COVID-19.
    • However, credit guarantee has a limited appeal as only 15% of the credit requirement is fulfilled through formal financial channels.

But this itself is not enough:

  • A major problem with the MSME sector is that 86% of the enterprises are unregistered, while 71% of the workers have no contracts.
  • Therefore, opening new lines of credit may not be adequate to revive the sector.
  • It was noticed that the sanctioned loans are not being availed and utilised by enterprises in the absence of strong demand and consumption.

Need to create an enabling environment for MSMEs:

  • The UK Sinha-led expert committee on MSME in 2019 highlighted the need to create an enabling environment for MSMEs.
  • It proposed several long-term solutions to ensure financial sustainability.
  • However, a holistic MSME policy rests on the ability to overcome some historical barriers.  

This needs help to overcome historical issues in the MSME sector:

  • Timely payments for their goods and services:
  • The inability to receive timely payments in return for the goods and services, and slim profit margin is a nagging issue for the sector.
  • An urgent solution is the payment of dues.
  • More loan cannot resolve the limited working capital problem as it would unnecessarily increase the debt burden, which, in turn, would put pressure on the already thin profit margins.
  • Need a mechanism for this:
    • A new regime could be brought, with options such as:
      • Discounting for early clearance of dues by their principals or
      • All supplies being made against advance payments or
      • Creating a hold in the bank which gets released right after receipt of supply from the MSME supplier
    • Only an incentive-based mechanism will work.
  • Lower cost of capital:
    • The average cost of capital is still high, at around 13%, compared to agriculture.
    • It is challenging to generate reasonable returns in the near future to pay back loans, and it could takes years for demand to fully pick up.
    • To help MSMEs avail capital at sub-5% rates, lending institutions must reduce transaction costs.
  • Improve competitiveness:
    • Historically, a lack of internal competitiveness in the industry has reduced the urgency for innovation within the sector, despite the ‘Make in India’ and ‘Startup India’ campaigns.
    • This requires support to reorient production lines and investments in R&D.
  • Creating a global market:
    • The sector has been unable to channelise a global market for products and services.
    • Further, the current crisis has drastically contracted export-led growth opportunities as importing nations adopt a protectionist policy.
    • With the global demand at an all-time low, consumers are not compelled to make non-essential purchases.
    • As per a survey, about 97% of MSME respondents expect to be affected as the business is focused on essential goods.
    • Leverage e-commerce channels:
      • A sustained push through e-commerce channels can enhance the scope of domestic goods and services with low transaction and intermediation cost.
      • It will also help eliminate the middleman and reduce cost of doing business, an important factor in the survival of small businesses.

Conclusion:

  • India now has the opportunity to leverage its technological prowess in enhancing the competitive advantage that we already have in the export of IT/ITes products and services.
  • With new business paradigms evolving with the rise of IT, AI and communication-based businesses, MSME’s should be encouraged to harness this through the right kind of policy push.
  • The government must adopt a comprehensive approach to revamp the MSME ecosystem.

Importance:

GS Paper III: Indian Economy

Electrifying India’s transport Editorial 7th May’19 TimesOfIndia

Headline : Electrifying India’s transport Editorial 7th May’19 TimesOfIndia

Details :

Rapid urbanization and transport problems:

  • India’s urban population will nearly double in the next decade.
  • More than half a billion people will live and work in Indian cities.
  • Travel within and between cities will grow exponentially.
  • This rapid growth poses several social, economic and environmental challenges.

Converting this into opportunities:

  • To convert these challenges into opportunities, India needs to prioritise shared and public modes of transportation and turn to new sunrise industries (like electric vehicles) that can help combat pollution, reduce congestion, strengthen energy security and also create jobs.

 

Initiatives aimed at transforming India’s mobility system:

  • Recently, the Union government approved two initiatives:
    • Fame-II: The second phase of the Faster Adoption and Manufacturing of Electric Vehicles scheme
    • National Mission on Transformative Mobility and Battery Storage

Focus on electrification:

  • Both these actions signal India’s commitment to transforming its mobility system, with focus on electrification as the primary technology pathway to achieve this transformation.
  • This focus presents India with a powerful opportunity to emerge as a leader in clean, connected and shared mobility solutions, battery manufacturing and renewable energy integration.
  • Renewably supplied electricity can deliver long-term, fixed cost power supply for mobility services throughout the economy, and solar energy can become a transportation fuel.

Benefits:

  • Energy security: From the perspective of energy security and competitive advantage too, new mobility solutions will reduce oil import costs, lower trade deficits, and limit vulnerability to oil supply disruptions and process shocks.
  • Environmental benefits: Shared, connected and clean mobility solutions will deliver a host of environmental benefits, including cleaner air so Indian citizens can breathe more easily.

 

Future of mobility in India:

  • Addressing the Global Mobility Summit, the Indian Prime Minister outlined a vision for the future of mobility in India based on 7Cs.
  • These 7 Cs include: Common, Connected, Convenient, Congestion-free, Charged, Clean and Cutting-edge.

Steps to achieve these objectives:

  1. Focus on shared electric transportation:
  • India’s per capita car ownership is quite low with fewer than 20 vehicles per 1,000 persons (5% of the people), as compared to 900 per 1,000 in the US and 800 per 1,000 in Europe.
  • India’s low per capita car ownership affords it the chance to pursue a different model from the western world.
  • Our emphasis must be on shared, connected and electric transportation.
  1. Focus on EVs in two and three wheelers segments: 
  • Two and three wheelers constitute almost 80% of India’s domestic automobile sales.
  • India must leverage this and provide impetus to electrification of these two segments to provide size and scale to India’s e-mobility efforts.
  1. Push public transportation:
  • India must push for public transportation to become the preferred mode of travel.
  • At present, India has only 1.2 buses per 1,000 people, which is far below the benchmarks of developing nations.
  • Only 63 of the 458 Indian cities have a formal city bus system and 15 cities have a bus or rail based mass rapid transport system.
  • Public transport must become the core focus area for municipalities and state governments.
  1. Creating an ecosystem for EVs:
  • As we shift from Internal Combustion Engine vehicles (which have 2,000 components) to Electric vehicles (which have 20 components), India must create a unique ecosystem to encourage and ensure Make in India as far as possible.
  • This would require measures, including Phased Manufacturing Programme (PMP) across the entire value chain, and an efficient fiscal and tax structure.
  • This ecosystem should also be able to attract global OEMs for manufacturing.
  1. Promote battery manufacturing:
  • Batteries account for almost 40% of the total purchase cost of EVs today.
  • Domestic battery manufacturing is a massive market opportunity for India to rapidly enable the transition to EVs.
  • India has the opportunity to pursue manufacturing of both battery cells and packs while importing only raw materials.
  • With this, India can capture nearly 80% of the total economic opportunity.
  • New battery technologies, like solid-state lithium ion batteries, sodium ion batteries and silicon-based batteries, are under development.
  • India needs to vigorously pursue research and development in these areas and have a clear roadmap for manufacturing on a mega scale.
  1. Creating charging infrastructure:
  • India’s cities must build charging infrastructure to remove worries over the range the EVs can travel.
  • The existing network of our marketing oil companies must be fully utilised to ensure charging facilities in urban areas and highways.

Other steps:

  • Innovation: India must therefore explore newer models of swapping batteries and pay as you go, and facilitate startups that are innovating and disrupting status quo in mobility.
  • Capacity building: Our IITs and engineering institutions must also include courses on new technologies as an essential component of their curriculum.
  • Policies by states: States must drive uptake of these solutions by dynamic models of charging a fee for polluting combustion vehicles, while providing rebates on electric vehicles, and tightening norms of fuel efficiency across vehicle segments.

 

Conclusion:

  • Forecasts indicate that EVs prices will drop and can reach price parity with ICE vehicles by 2024.
  • A recent report by Morgan Stanley has highlighted that half of India’s car fleet will be EVs and half of all miles driven will be on shared platforms by 2040.
    • This is on account of rapid spread of digitisation and mobile telephony and low per capita car usage in India.
  • This new sunrise area can emerge as the biggest catalyst of clean environment, lower trade deficit and new jobs for India.

 

Importance:

GS Paper III: Indian Economy

 

Related question:

India has committed to transforming its mobility system, with focus on electrification as the primary technology pathway to achieve this. Suggest steps towards achieving this transformation.

Section : Editorial Analysis

The distinction between plan and non-plan expenditure in budget had created schools without teachers and hospitals without doctors. In the light of this statement, discuss major issues pertaining to plan and non-plan distinction. Approach

The distinction between plan and non-plan expenditure in budget had created schools without teachers and hospitals without doctors. In the light of this statement, discuss major issues pertaining to plan and non-plan distinction.

Approach

Introduce with the abolition of the plan and non-plan classification

Highlight the major issues like focus on plan expenditure, excessive union control etc.

Conclude appropriately

Model Answer :

The Union budget 2017-18 discarded the Plan and Non-Plan expenditure classification. The relevance of plan and non-plan expenditure was lost after the abolition of the Planning Commission. Earlier, the Rangarajan committee had also recommended to abolish this distinction.

Major Issues:

The union government control and micro-management of the plan model has led to excessive focus on ‘plan expenditure’ while non-plan items such as maintenance were neglected.

Once the capital assets or the posts are created under plan expenditure, the assets/posts and maintainance are shifted to the non plan side of budget and are often neglected with little allocation. As a result, this distinction is said to have created schools without teachers and institutions without employees.

The States resented the tied nature of funds made available by Planning Commission. In the context of fiscal federalism, this distinction was an obstacle for achieving the goals of co-operative federalism.

The ARC report has also pointed out that, the Plan and Non-Plan divide runs too deep and it was difficult to give a comprehensive idea about resource availability to the departments at an early stage of budget development.

While the Ministry of Finance is charged with the responsibility of maintaining aggregate fiscal discipline, the allocation of resources was in accordance with strategic priorities determined largely by the erstwhile Planning Commission and the line departments were held accountable for the efficient and effective use of resources. Hence funds allocated did not match policy priorities and often the spending did not produce the intended results.

Conclusion:

The policy regarding what should get classified as plan expenditure and what should get classified as Non-Plan expenditure has lost clarity. Also, with fragmented distinction, it became difficult not only to ascertain cost of delivering a service but also to link outlays to outcomes. Outcomes and outputs of programmes depend on total expenditure, Plan and Non-Plan put together. Hence doing away with the distinction was a much needed step.

Discuss the advantages and risks of crypto-currencies like the Bitcoin.

Discuss the advantages and risks of crypto-currencies like the Bitcoin.

Approach

Introduce with the concept of cryptocurrency

Discuss its advantages

Highlight the risks

Conclude with the government’s position that they have been outlawed

Cryptocurrency is an electronic or digital currency that works on a peer-to-peer basis without the need for a trusted third party such as a governmental agency, bank etc. Cryptocurrencies have gotten impressive following over the last few years and many believe that they will offer serious competition to national currencies issued by central banks.

Advantages:

No Third-party Interruptions – Governments, banks and other financial intermediaries have no way to interrupt user transactions or place freezes on Bitcoin accounts. As a result, users experience a greater degree of freedom than with national currencies.

Very Low Transaction Fees – Since Bitcoin transactions have no intermediary institutions or government involvement, the costs of transacting are kept very low. This can be a major advantage for travelers and MSME sector.

Real time – Additionally, any transfer in Bitcoins happens very quickly, eliminating the inconvenience of typical authorization requirements and wait periods.

Transparency – With the block chain, all finalized transactions are available for everyone to see (however personal information is hidden) and anyone can verify the transaction, which also means the currency cannot be manipulated.

User Anonymity – Bitcoin purchases are discrete and cannot be traced back to the one holding them.

Risks posed by these Currencies:

Risk and Volatility – There is no underlying or backing of any asset for these currencies and their value seems to be a matter of speculation. Huge volatility in their value has been noticed in the recent past.

Cyber Security Threat – These are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc.

Outside the regulatory zone – These are being traded on exchange platforms set up in various jurisdictions whose legal status is unclear. Hence, the traders are exposed to legal as well as financial risks.

Source of Money Laundering and Terror financing – Due to anonymity, black money can proliferate easily and terror funding becomes easy.

Conclusion:

Due to the security risks and lack of government oversight, cryptocurrencies, including Bitcoins, have been outlawed in India. The Union Finance minister said that the government does not consider cryptocurrencies as legal tender and will take all measures to eliminate use of these cryptoassets in financing illegitimate activities, or as part of the payment system. However, the government would explore the use of blockchain technology (underlying the cryptocurrencies) to add muscle to the digital economy

Quiz- Q15. The summation of the value of final goods and services produced in each sector of an economy during a particular year is:

Q15. The summation of the value of final goods and services produced in each sector of an economy during a particular year is:

A. Net Domestic Product

B. Gross National Product

C. National Income

D. Gross Domestic Product

Answer: D

Exp: The value of final goods and services produced in each sector during a particular year provides the total production of the sector for that year. And the sum of production in the three sectors gives what is called the Gross Domestic Product (GDP) of a country. Gross national product (GNP) is an estimate of total value of all the final products and services produced in a given period by the means of production owned by a country’s residents. GDP takes into account all output produced within a country’s borders regardless of who owns the means of production.

Effects of Globalization on Indian Culture and Society

Effects of Globalization on Indian Culture

Globalisation has affected what we eat and the way we prepare food (Mcdonaldization), what we wear , purchase etc( Walmartization).

There is trend toward homogenization of culture with similar food habits, dressing pattern, music, news , TV programs, movies etc. However, there is also increasing tendency toward Glocalization of Culture.

Glocalization refers to mixing of Global with Local. Eg Foreign TV channels like Star, Sony , Cartoon Network use Indian languages.

Other Effects:-

1. Development of Hybrid Culture– Due to increase exposure to different cultures, there emerge a 3rd culture or hybrid culture. It accept the change and preserve the tradition in social and cultural life.

2. Language– Globalization give rise to increased use of English with people becoming more bilingual and multilingual than before. On the other hand, over emphasis on English leads to decline and even extinction of various language. Eg BO

3. Religion– Globalization leads to changes in the religion and practices. Now, secular aspect of religion like honesty, non violence, brotherhood are promoted. There is also increasing commodification of various religious practices with rise of sects and cults.

4. Festivals– There is general trend toward decline in ritual aspect of culture and growth of secular festivals. Eg Father’s day.

Effects of Globalization on Indian Society

1. Marriage– With Globalization, there is increasing trend toward civil marriage over ritual marriage, love marriage over arranged marriage. Inter caste and inter religious marriages are also increasing.

2. Family– Globalization has increased the pace of transformation of families from Joint families to either Nuclear families or Extended families. Due to declining Joint family system, Elderly population suffers from isolation, powerlessness and depression.

3. Education– Globalization catalyses the rate of literacy. It also increases investment in education and global education system. However there is more and more commercialization of education.

Effects of Globalization on Indian Economy

Effects of Globalization on Indian Economy

1. Liberalization– main features of liberalization policy were:- (i) General reduction in role of state in economic governance. (ii) Withdrawal by state from many economic sectors and its replacement by the private sectors. (iii) Decline in the public sector spending in basic and key industries like banking, insurance and other PSUs. (iv) Decline in the state’s role in provision of public social services like education , housing and health.

2. Privatization– It largely means selling of publicly owned assets to private owners. Indian government adopted various measures such as abolition of license raj, scrapping of MRTP and FERA, disinvestment in PSU etc with the aim of privatization of Indian economy.

3. Globalization of Financial Market– There has been progressive liberalization of controls on financial flows and market leading to increase FDI, FII, etc. It centre around the movement of capital , of which FDI is major form.

4. Role of WTO as International Trade Regulatory Body– India’s increase participation in rule based system in the governance of international trade is the result of its increased foreign trade. It helped to ensure more predictability in trade rules and benefits of features like MFN/ National Treatement etc for its export.

5. Increased penetration of MNCs and TNCs– It results into creation of more job opportunities, improved technologies and improved revenue to state (by way of Corporate taxes etc).

6. Infrastructure Development– Globalization warranted for the world countries, faster and large scale development of infrastructure. It was to ensure and facilitate industries and trade in order to become more competitive in world market.

7. Expansion of Information and Communication Technology– Rapid development of I.T. in different areas of governance, economy, education, banking, etc has improved productivity. Augmentation of I.T. also results in phenomenal growth of “outsourcing” of services. Eg BPO, KPO, back office operations etc.

FASTags:

  • FASTag is a device that employs Radio Frequency Identification (RFID) technology for making toll payments directly from the prepaid or savings account linked to it.
  • It is affixed on the windscreen of the vehicle and enables to drive through toll plazas, without stopping for cash transactions.
  • The tag can be purchased from Tag issuers and if it is linked to the prepaid account, then recharge/ top up can be made as per the requirement.
  • Benefits of using FASTag:
    • Cashless payment
    • Faster transit
    • Online recharge
    • SMS alerts

What is ‘Swiss challenge’ approach?

Swiss challenge method is a process of giving contracts. Any person with credentials can submit a development proposal to the government. That proposal will be made online and a second person can give suggestions to improve and beat that proposal.

  • It is a method where third parties make offers (challenges) for a project within a designated period to avoid exaggerated project costs.

Swiss model: 

The government plans to adopt the ‘Swiss Challenge’ mode to invite bids for redeveloping the stations.

How Swiss model operates? 

  • First, the government will invite developers to submit their master plans.
  • After evaluating the proposals, the selected design will be uploaded over the Ministry of Railways website.
  • Financial bids will be invited and the developer quoting the highest upfront premium to be paid to the government will win the bid.
  • However, the project developer, who had originally submitted the plan, will be given an opportunity to match the bid amount.

The government will also ensure that the developer has prior experience in the field of passenger transportation such as railway stations, airports or ports or construction experience in the core sector.

Smart Cities

what are Smart Cities?

  • A ‘smart city’ is an urban region that is highly advanced in terms of overall infrastructure, sustainable real estate, communications and market viability.
  • It is a city where information technology is the principal infrastructure and the basis for providing essential services to residents.
  • There are many technological platforms involved, including but not limited to automated sensor networks and data centres.
  • In a smart city, economic development and activity is sustainable and rationally incremental by virtue of being based on success-oriented market drivers such as supply and demand.
  • They benefit everybody, including citizens, businesses, the government and the environment.

What are the core infrastructure in a Smart City?

  • According to the documents released on the Smart Cities website, the core infrastructure in a smart city would include:
  • Adequate water supply
  • Assured electricity supply
  • Sanitation, including solid waste management
  • Efficient urban mobility and public transport
  • Affordable housing, especially for the poor
  • Robust IT connectivity and digitalisation
  • Good governance, especially e-Governance and citizen participation
  • Sustainable environment
  • Safety and security of citizens, particularly women, children and the elderly
  • Health and education