IAS Gyan

Daily News Analysis


9th May, 2020


Slower growth and a tighter fiscal

Various Growth prospects of India:

- Various institutions have assessed India’s growth prospects for 2020-21 ranging from 0.8% (Fitch) to 4.0% (Asian Development Bank).

- The International Monetary Fund (IMF) has projected India’s growth at 1.9%, China’s at 1.2%, and the global growth at (-) 3.0%.

The actual growth outcome for India would depend on:

- The speed at which the economy is opened up;

- The time it takes to contain the spread of virus,

- The government’s policy support.

Growth prospects:

- There was a sustained fall in the saving and investment rates with unutilised capacity in the industrial sector.

- In 2019-20, there was a contraction in the Centre’s gross tax revenues in the first 11 months during April 2019 to February 2020, at (-) 0.8%.

- In 2019-20, which would serve as the base year, India may show GVA growth of about 4.4%, as the fourth quarter number is likely to be revised downwards on account of the adverse impact of the virus on economic activities.

- The IMF’s GDP growth estimate for 2019-20 is at 4.2%.

- GVA is divided into eight broad sectors.

Calculation of Growth:

- We divide the output sectors in four groups.

- In group A, we consider two sectors that have suffered only limited disruption — namely agriculture and allied sectors, and public administration, defence and other services.

- In the case of agriculture, Rabi crop is currently being harvested and a good monsoon is predicted later in the year.

- The public and defence services have been nearly fully active, with the health services at the forefront of the COVID-19 fight. For the group a sectors, it may be possible to achieve 90% of the 2019-20 growth performance.

-  We consider the group that is likely to suffer maximum disruption (Group D). This includes, trade, hotels, restaurants, travel and tourism under the broad group of “Trade, Hotels, Transport, Storage and Communications”.

- This sector may be able to show 30% of 2019-20 growth performance.

- Group B comprises four sectors, which may suffer average disruption showing 50% of 2019-20 growth performance. These sectors are mining and quarrying, electricity, gas, water supply and other utility services, construction, and financial, real estate and professional services.

- In the last group (Group C), we place manufacturing which has suffered significant growth erosion in 2019-20. It is feasible to stimulate this sector by supporting demand.

- Considering these four groups together, a GVA growth of 2.9% is estimated for 2020-21. Realizing this requires strong policy support, particularly for the manufacturing sector which has a weight of 17.4%.

- It is also based on the assumption that the Indian economy may move on to positive growth after the first quarter. In the first quarter, GVA growth will be negative.

Monetary policy support

- Monetary policy initiatives undertaken so far include a reduction in the repo rate to 4.4%, the reverse repo rate to 3.75%, and cash reserve ratio to 3%.

- The Reserve Bank of India has also opened several special financing facilities.

- These actions will have a positive impact on output only after the lockdown is lifted.

Fiscal Policy Support:

- Cash-constrained central and State governments have taken expenditure reducing measures by announcing a freezing of enhancements of dearness allowance and dearness relief.

- This may result in savings of Rs. 37,000 crores for the Centre and about Rs. 82,000 crores for the States, together amounting to 0.6% of GDP.

- With lower petroleum prices, fertilizer and petroleum subsidies may be reduced. These expenditure cuts are contemplated to keep the fiscal deficit under some control.

Fiscal stimulus can be of three types:

- Relief expenditure for protecting the poor and the marginalised;

- Demand-supporting expenditure for increasing personal disposable incomes or government’s purchases of goods and services, including expanded health-care expenditure imposed by the novel coronavirus,

- Bailouts for industry and financial institutions.

- The Centre had earlier announced a relief package of Rs. 1.7-lakh crores of which the additionally was only Rs. 65,000 crores, since it included a frontloading of the budgeted expenditures.

Fiscal Deficit

- The Centre’s budgeted fiscal deficit of 3.5% of GDP may have to be enhanced substantially to make up for the shortfall in budgeted revenues;

- Account for a lower than projected nominal GDP for 2020-21, and provide for a stimulus.

- Thus, the Centre’s fiscal deficit may increase to 6.0% of GDP.

- Expenditure on construction of hospitals, roads and other infrastructure and purchase of health-related equipment and medicines require prioritization. These expenditures will have high multiplier effects.

- Similar initiatives may be undertaken by the State governments which may also enhance their combined fiscal deficit to about 4.0% of GDP to account for 3.0% of GDP under their respective Fiscal Responsibility Legislation/Law and to provide for the shortfall in their revenues and some stimulus.

Availability of resources:

- On the demand side, the Central (6.0%) and State governments (4.0%) and Central and State public sector undertakings (3.5%) together present a total public sector borrowing requirement (PSBR) of 13.5% of GDP.

- Against this, the total available resources may at best be 9.5% of GDP consisting of excess saving of the private sector at 7.0%, public sector saving of 1.5%, and net capital inflow of 1.0% of GDP3.

- The gap of 4.0% points of GDP may result in increased cost of borrowing for the Central and State governments.

- This gap may be bridged by enhancing net capital inflows including borrowing from abroad and by monetizing some part of the Centre’s deficit.

- Monetization of debt can at best be a one-time effort. This cannot become a general practice.

Reference: https://www.thehindu.com/todays-paper/tp-opinion/slower-growth-and-a-tighter-fiscal/article31539411.ece


Shaping India’s response in a global hinge moment

Development in World

- We are today in a new geopolitical situation, caused primarily by the rise of China, India and other powers — Indonesia, South Korea, Iran, Vietnam — in a crowded Asia-Pacific.

- Rapid shifts in the balance of power in the region have led to arms races and to rising uncertainty, also fuelled by the unpredictability, disengagement and the transactional “America First” attitude of United States President Donald Trump.

- China-U.S. strategic contention is growing, uninhibited so far by their economic co-dependence.

- As China seeks primacy in a world so far dominated by the U.S., the world faces a destabilising power transition, which may or may not be completed.

Indian Response:

- Some Indians are so worried by what they see as an unstoppable China that they advocate that India enter into an alliance with the U.S.

- It has been the pursuit of strategic autonomy for India.

- In this disorganized and unentertained world, India should retain the initiative and not get entangled in others’ quarrels

- Need calls for creative diplomacy and flexibility, adjusting to the fast-changing balance of power and correlation of forces around us. An alliance seems to be exactly the wrong answer.

- The Doklam crisis of 2017 is only the most recent example that shows that no one else is ready to deal with India’s greatest strategic challenge — China. It saw a tepid reaction from the rest of the world.


The China question

-  The big question, of course, is how to handle China.

- One possibility is to engage China bilaterally to see whether the two countries can evolve a new modus vivendi, to replace the one that was formalised in the 1988 Rajiv Gandhi visit.

- The more India rises, the more it must expect Chinese opposition, and it will have to work with other powers to ensure that its interests are protected in the neighborhood, the region and the world.

- The balance will keep shifting between cooperation and competition with China, both of which characterize that relationship.

- The important thing is the need to rapidly accumulate usable and effective power, even while the macro balance will take time to right itself.

- It would require a high-level strategic dialogue between the two sides about their core interests, red lines, differences and areas of convergence.

- The U.S. is an essential partner for India’s transformation.

- But it is withdrawing from the world, less certain as to how it will choose to deal with China.

- Certainly, it will no longer be the upholder of international order, economic or political, and seems to have tired of that role.

Double opportunity awaits

-  In India’s case, confusion extends to it being not just about the ultimate goal India’s foreign policy should pursue but also over the best means to achieve them.

- Indians seem to mistake controlling the narrative with creating outcomes, which is the real task of foreign policy.

- Prime Minister Narendra Modi has declared a goal of India to be a ‘Vishwa guru’, or world teacher, which is still a long way away when it is an importer of knowledge and technology.

- Nor is it clear that this status will actually contribute to transforming the lives of India’s citizens, though it might satisfy the ego.

- Tactically, China-U.S. contention — which is structural and, therefore, likely to continue for some time with a paradigm shift away from cooperation to increasing contention, despite temporary deals and “victories” declared by one or both — opens up opportunities and space for other powers.

- Both China and the U.S. will look to put other conflicts and tensions on the back burner while they deal with their primary concern, the other.

- Today, India is more dependent on the outside world than ever before.

- It relies on the world for energy, technology, essential goods like fertilizer and coal, commodities, access to markets, and capital.

- When you add the new security agenda and the contested global commons in outer and cyberspace and the high seas to India’s traditional state-centered security concerns, you can see why there is greater worry or a sense of insecurity.

Way Forward:

- India risks missing the bus to becoming a developed country if it continues business and politics as usual, or tries to imitate China’s experience in the last 40 years.

- It needs to manage its internal social and political churn better.

 - The most important improvement that India needs to make concerns its national security structures and their work — introducing flexibility into India’s thinking and India’s structures.

Reference: https://www.thehindu.com/todays-paper/tp-opinion/shaping-indias-response-in-a-global-hinge-moment/article31539413.ece


Contempt for labour

- The interests of labourers and workers are once again set to be sacrificed.

- The revival of business and economic activity after weeks of forced closure is indeed a key objective to be achieved.


Labor reforms:

- Madhya Pradesh has embarked on a plan to give a boost to business and industry by allowing units to be operated without many of the requirements of the Factories Act — working hours may extend to 12 hours, instead of eight, and weekly duty up to 72 hours.

- It appears the State has used Section 5 of the Act, which permits exemption from its provisions for three months, in the hope that the Centre would approve such suspension for at least a thousand days.

- Uttar Pradesh has approved an ordinance suspending for three years all labour laws, save a few ones relating to the abolition of child and bonded labour, women employees, construction workers and payment of wages, besides compensation to workmen for accidents while on duty.

- Reports suggest that several States are following their example in the name of boosting economic activity.


- However, this exemption can be given only during a ‘public emergency’, defined in a limited way as a threat to security due to war or external aggression.

- Changes in the manner in which labour laws operate in a State may require the Centre’s assent.

- One hopes the Centre, which is pursuing a labour reform agenda through consolidated codes for wages, industrial relations and occupational safety, health and working conditions, would not readily agree to wholesale exemptions from legal safeguards and protections the law now affords to workers.

- The attitude of the ruling class towards labour remains one of utter apathy, bordering on contempt. Why else would a government relieve factories of even elementary duties such as providing drinking water, first aid boxes and protective equipment? Or suspend requirements such as cleanliness, ventilation, lighting, canteens, restrooms and crèches?

Reference: https://www.thehindu.com/todays-paper/tp-opinion/contempt-for-labour/article31539404.ece


NGT directs LG Polymers to deposit Rs. 50 crores


- The National Green Tribunal (NGT) directed LG Polymers India to deposit an initial amount of Rs. 50 crores for the damage caused by the gas leak at its plant in Vishakhapatnam.



Action of NGT:

- Constituted a five-member fact-finding committee, to be headed by a former judge of the Andhra Pradesh High Court, to probe the incident.

- The Committee may specifically report:

- On the sequence of events,

- Causes of failure and the persons and authorities responsible,

- The extent of damage to life, human and non-human, public health and the environment, including water,

- Steps to be taken for compensation of victims and restitution of the damaged property and environment and the cost involved.


About NGT:

-   National Green Tribunal Act, 2010 is an Act of the Parliament of India, which enables creation of a special tribunal to handle the expeditious disposal of the cases pertaining to environmental issues.


-   The Principal Bench of the NGT is in New Delhi.

-    It has regional benches in Pune (West), Bhopal (Central), Chennai (South) and Kolkata (East).

-    Each Bench has a specified geographical jurisdiction in a region.

-    The Chairperson of the NGT is a retired Judge of the Supreme Court, head quartered in New Delhi. Other Judicial members are retired Judges of High Courts.

-    Each bench of the NGT will comprise at least one Judicial Member and one Expert Member.

-    The Tribunal has powers to review its own decisions. If this fails, the decision can be challenged before the Supreme Court within ninety days.

-     It does not take complaints pertaining to Wildlife Protection Act.


-     Effective and expeditious disposal of cases relating to environmental protection

-     Conservation of forests and other natural resources including enforcement of any legal right relating to environment

-     Giving relief and compensation for damages to persons and property and for matters connected therewith or incidental thereto.

-     The Tribunal is mandated to make and endeavour for disposal of applications or appeals finally within 6 months of filing of the same.

-     The Tribunal shall not be bound by the procedure laid down under the Code of Civil Procedure, 1908, but shall be guided by principles of natural justice.

Reference: https://www.thehindu.com/todays-paper/ngt-directs-lg-polymers-to-deposit-rs-50-crore/article31539518.ece


Inter-State ration card portability usage very low: Food Minister

Food ministry data:

- Although 60 crores people are now potentially covered under the Centre's ration card portability scheme, interstate usage has been very low so far, with only about 200 inter-state migrants making transactions per month since the lockdown began.

- Even pre-lockdown, it was only 800 transactions per month, out of the 22 crores ration cards making transactions each month.

- Intra-state usage has been somewhat higher.

- In April, 1.05 crores people used their ration cards at a different ration shop within their own district.

- So far, 17 States and union territories have joined the portability scheme, and another three States are likely to join by June.

- The portability scheme could not work without biometric authentication using electronic point of sale machines.

One nation one ration card:

- It will enable beneficiaries to procure ration from any fair price shop.

- These ration card will be linked to Aadhar number.

- It will prevent duplicacy of the ration cards.

- Beneficiary, who are not enrolled with Aadhar will continue to get the service with a certificate from the authority.

- Beneficiary will have to give their finger prints to procure the ration.

Reference: https://www.thehindu.com/news/national/inter-state-ration-card-portability-usage-very-low-food-minister/article31537575.ece



Rajnath opens new road to Kailash Mansarovar

Lipulekh pass: a new 80-km road in Uttarakhand, which connects close to the Line of Actual Control (LAC) and opens up a new route for the Kailash Mansarovar Yatra through the Lipulekh Pass.

- It was constructed by Border Road Organisation.

Roads to Mansovar:

- A route from Nathu La pass, which passes through Sikkim was opened in 2015.


About Border Road Organisation:

- The Border Roads Organisation (BRO) develops and maintains road networks in India's border areas and friendly neighboring countries.

- Officers from the Border Roads Engineering Service (BRES) and personnel from the General Reserve Engineer Force (GREF) form the parent cadre of the Border Roads Organisation.

- The organisation maintains operations in twenty-one states, one UT (Andaman and Nicobar Islands), and neighboring countries such as Afghanistan, Bhutan, Myanmar, and Sri Lanka.

- The BRO was formed on 7 May 1960 to secure India's borders and develop infrastructure in remote areas of the north and north-east states of the country.

Reference: https://www.thehindu.com/todays-paper/tp-national/rajnath-opens-new-road-to-kailash-mansarovar/article31539481.ece


GCC nations facing a tough fight in curbing virus spread

- An early lockdown appears to have curbed the spread, but success in battling the virus is still far away.

- The count in the six GCC nations (UAE, Saudi Arabia, Qatar, Bahrain, Oman, and Kuwait) is inching towards one lakh, with nearly 500 deaths.

About GCC:

- Gulf Cooperation Council (GCC), political and economic alliance of six Middle Eastern countries—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman.

- The GCC was established in Riyadh, Saudi Arabia, in May 1981.

- The purpose of the GCC is to achieve unity among its members based on their common objectives and their similar political and cultural identities, which are rooted in Arab and Islamic cultures.

- Presidency of the council rotates annually.

Reference: https://www.thehindu.com/todays-paper/tp-national/tp-andhrapradesh/gcc-nations-facing-a-tough-fight-in-curbing-virus-spread/article31539486.ece



Mass hatching of Olive Ridley turtles begins at Odisha’s Rushikulya rookery

- Thousands of hatchlings came out of the nests buried in sand to crawl towards the sea to start their long journey.

- On an average 80 to 100 turtles hatch from each nest.

About Olive Ridleys:

-    The name for this sea turtle is tied to the colour of its shell—an olive green hue.

-    They are currently the most abundant of all sea turtles.

-     Their vulnerable status comes from the fact that they nest in a very small number of places, and therefore any disturbance to even one nest beach could have huge repercussions on the entire population.

Mass nesting of turtles:

-     Orissa State, in the north east of India, hosts one of the world's major annual mass-nesting events of marine turtles.

-     Hundreds of thousands of olive ridley turtles come ashore to nest each year in a spectacular "arribada" (mass arrival).

About Garihmatha Marine Sanctuary:

-    Gahirmatha Turtle Sanctuary is the biggest breeding home of the sea turtles.

-    Gahirmatha is located in Orissa’s Kendrapara District.

-     Gahirmatha Marine Sanctuary is world famous for Olive Ridley sea turtles.

-     The entrance of the River Dhamra is truly the breeding place of the olive Ridley sea turtles. It has been confirmed as a world heritage site.


Reference: https://www.thehindu.com/todays-paper/tp-life/mass-hatching-of-olive-ridley-turtles-begins-at-odishas-rushikulya-rookery/article31539528.ece


U.S. pulls out Patriot missile batteries from Saudi Arabia

- The U.S. is pulling out four of its powerful Patriot missile systems from Saudi Arabia

About Patriot Missile:

- Patriot (MIM-104) is a long-range, all-altitude, all-weather air defence system to counter tactical ballistic missiles, cruise missiles and advanced aircraft.

- It is produced by Raytheon in Massachusetts and Lockheed Martin Missiles and Fire Control in Florida.

- Patriot is in service throughout the US, Germany, Greece, Israel, Japan, Kuwait, the Netherlands, Saudi Arabia, Korea, Poland, Sweden, Qatar, the United Arab Emirates, Romania, Spain and Taiwan.

Reference: https://www.thehindu.com/todays-paper/tp-international/us-pulls-out-patriot-missile-batteries-from-saudi-arabia/article31539428.ece