The HINDU Notes – 18th May 2020 - VISION

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Monday, May 18, 2020

The HINDU Notes – 18th May 2020

πŸ“° Centre throws open all sectors to private players

MGNREGA gets Rs. 40,000 crore in FM’s fifth tranche

•The Centre has agreed to demands from States to hike their borrowing limits from 3% to 5% of their GDP in light of the COVID-19 crisis, but on the condition that they implement specific reforms.

•The fifth and final tranche of the Atmanirbhar Bharat Abhiyan stimulus package, announced by Finance Minister Nirmala Sitharaman on Sunday, also included an additional Rs. 40,000 crore allocation for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), and a new policy welcoming private companies into every sector of industry, while limiting public sector enterprises to strategic sectors only. Corporate enterprises were also offered some relief via changes to the Insolvency and Bankruptcy Code (IBC) and the Companies Act.

•The total package amounts to almost Rs. 21 lakh crore by the Centre’s accounting, but is heavy on credit-related measures, including Rs. 8 lakh crore worth of liquidity enhancing measures by the RBI. Some analysts felt that this amounted to double counting as the credit guarantee schemes to support small companies and non-banking finance companies would also tap into the RBI’s measures.

•“The final picture shows that of the Rs. 20.97 lakh crore stimulus package — which amounts to 9.8% of GDP — only Rs. 2.2 lakh crore can be traced as direct additional budgetary cost to the Central exchequer, while another Rs. 1.55 lakh crore relates to already budgeted expenditures,” said Ernst and Young chief policy adviser D.K. Srivastava, who is also on the Advisory Council for the 15th Finance Commission.

•“The remaining 85% comes from the RBI’s liquidity announcements, credit guarantee schemes and insurance schemes, apart from the structural reforms which are not really stimulus or relief measures.”

•The decision to allocate Rs. 40,000 crore to the MGNREGA scheme in addition to the Rs. 61,000 crore allocated in the Budget was widely welcomed, as a measure that will support rural livelihoods at a time when returning migrants swell unemployment in the villages.

πŸ“° Discontinue free power for farmers, says Centre

DBT a condition for higher borrowing

•Tamil Nadu and other States have been advised by the Central government to discontinue their schemes of free electricity for farmers and instead adopt direct benefit transfer (DBT).

•This is one of the conditions attached to the permission given to the States to increase their borrowing limit.

•The States have been given time till March 2021 to rollout the DBT. By December 31, 2020, each State should implement it at least in one district, according to a communication sent by the Department of Expenditure in the Union Ministry of Finance to the State governments on Sunday.

•The genesis of the free power scheme for farmers in Tamil Nadu can be traced to the AIADMK government’s decision to cover small and marginal farmers in September 1984. Six years later, the DMK government extended it to “big farmers too.” Only twice in all these years did the State attempt to change it, but the bid met with failure. A total of 21.4 lakh farm connections are enjoying free power. Although the Centre permitted States to hike borrowing limit by 2% in the fiscal deficit-Gross State Domestic Product (GSDP) ratio, they enjoy the benefit only if they implement the reforms recommended by the Centre, at least in three out of four areas.

•There is also an untied component – 0.5%. If the State governments do not follow the Centre’s prescription on the DBT for the farm sector, they would not be eligible to raise the borrowing limit by 0.15%, which forms part of the overall figure of 0.25% for the power sector reforms.

•There are three other areas — “one nation, one ration card,” ease of doing business and reforms in urban local bodies/utilities. Each of the four areas carries a weight of 0.25% each. If a State implements the Centre’s stipulations in the three out of the four areas, it will get 0.5% additionally.

•There are two other components in the power sector reforms — reduction in aggregate technical and commercial (AT&C) losses and narrowing the gap between the Average Cost of Supply (ACS) and the Average Revenue Realisation (ARR), which is Rs. 2.21 per unit in the case of Tamil Nadu. The additional borrowing limit of 0.1% has been earmarked for the two components.

•Besides, the reforms in urban local governance include revision of property tax rates and user charges for water and sewer connections. The deadline for the revision is January 15, 2021. This is another area that is regarded by those in power, regardless of the party, as a “hot stove.” For years together, the rates and user charges have remained untouched in the State, despite recommendations of the successive State Finance Commissions in this effect.

•The State government has no problem in dealing with “one nation, one ration card” (ONOR) and the ease of business doing. As a matter of principle, it decided to implement the ONOR, which was, on an experimental basis, launched in two districts in January. As for the other, the State has a law which can be strengthened to cater to the Centre’s stipulations.

•If Tamil Nadu is able to make use of the additional limit fully, it can go up to about Rs. 1.04 lakh crore at the fiscal deficit-GSDP ratio of 5%. For the current year, the State government’s plan for net borrowing is about Rs. 62,000 crore at the ratio of 2.84%. There is an indication that it may borrow Rs. 25,000 crore - Rs. 30,000 crore more.

πŸ“° Getting India back to the Afghan high table

New Delhi’s Afghan policy needs changes and must include openly talking to the Taliban and all other political groups

•If India’s foreign and security policy planners had anticipated developments in Afghanistan they would have pursued nimble approaches, seeking to establish open connections with all its political groups, including with those perceived to be in Pakistan’s pocket. Instead, they continued to rigidly cling to Afghanistan President Ashraf Ghani even as his equities diminished with each passing month. This, despite his becoming the winner of the presidential elections held in September last year but whose contested results were declared five months later.

Cut to the quick

•Inexplicably, Prime Minister Narendra Modi congratulated Mr. Ghani for winning the elections, in December 2019. At that stage, the Afghanistan election commission had only announced the preliminary results and most countries maintained a discreet silence. It took the commission two months more to declare Mr. Ghani as President-elect, a result that was rejected by Mr. Ghani’s main rival, Abdullah Abdullah. It led to two simultaneous swearing-ins; both Mr. Ghani and Mr. Abdullah took oath as President. It is true that the international community ultimately supported Mr. Ghani but qualified it with an insistence that he enters into a real power-sharing agreement with Mr. Abdullah. That agreement has just been reached. It will inevitably further weaken Mr. Ghani.

•How has Mr. Ghani reciprocated India’s such unqualified backing? His clear and public response came last month in a manner. It could only have been disappointing to Indian decision makers. The United Nations Secretariat organised a meeting on Afghanistan where it invited the six current physical neighbours of Afghanistan—China, Pakistan, Iran, Turkmenistan, Uzbekistan and Tajikistan. In addition, invitations were extended to the United States, Russia and the Ghani government. Obviously, Mr. Ghani did not condition his participation on India’s inclusion. He should have done so if only for the constructive role New Delhi has played in Afghanistan’s reconstruction since the Taliban were ousted from the country in 2001-2002 after 9/11. Also, for consistently supporting him.

•If Indian policymakers had adequately pondered on Mr. Ghani’s stance they would have recalled his position on India in the immediate aftermath of assuming the leadership of the National Unity Government brokered by the Americans in September 2014. He had then relegated India to the fourth concentric circle of five in importance to Afghan interests. Hence, it is not surprising that he did not bat adequately for India to become part of the meeting called by the UN. Indeed, if all his fine words of India’s importance to Afghanistan were actually true, he would have lobbied and ensured India’s participation.

Point man’s blunt talk

•So much for Mr. Ghani. What truly cut India more to the quick was the U.S. going along with India’s absence. So much for the personal chemistry of the leaders of the two countries. The day after the meeting, Zalmay Khalilzad, the U.S. point man on Afghanistan and the architect of the Taliban deal, spoke to India’s External Affairs Minister S. Jaishankar to assuage hurt sentiments. But the balm of good words cannot obscure the basic fact that the U.S. acts to promote its interests in Afghanistan. It obviously expects that if in doing so Indian interests are exposed, India will protect them as best as it can.

•The fine diplomatese of the Ministry of External Affairs statement of the conversation between Mr. Khalilzad and Mr. Jaishankar and National Security Adviser Ajit Doval in Delhi on May 7 cannot override the blunt message conveyed by the U.S. official in his interview to this newspaper, “‘India should talk directly to Taliban, discuss terror concerns directly’,” (The Hindu, Inside pages, ‘Interview, Zalmay Khalilzad’, May 9, 2020). He noted that despite India’s contributions to Afghanistan’s economic development — and these are undeniably significant covering large parts of the country, and are popular — as well as its long history of contacts with that country, it does not have a place in international diplomacy on Afghanistan. As Mr. Khalilzad put it: “But when it comes to international efforts, India yet does not have a role that it could.” He patronisingly added that the U.S. wants India to have a more active role in the peace process.

•Clearly, as the most significant power in the region, India should have ensured that it had a place on the table and should have devised ways to achieve that end. This is especially so because Afghanistan impacts on India’s interests, especially its security concerns. The question that India’s security and foreign policy decision makers should therefore ask themselves is this: why did the powers not consider India’s participation vital to the present peace-making efforts, especially when the U.S.-Taliban deal was concluded leading to a possible new stage in Afghanistan’s evolution?

The Taliban and Pakistan

•Mr. Khalilzad offered first a clue. He followed it up with what is the obvious reason. He said, “I do think engagement between India and all the key players in Afghanistan, not only in terms of the government but also in terms of the political forces, society and the Afghan body politic is appropriate….” Responding to a question of groups in Afghanistan targeting India he said, “I believe that dialogue between India and the Taliban are important, and it would be important that issues of concerns like this [terrorism] are raised directly.” Taking Mr. Khalilzad’s views in their entirety, it is clear that he feels that by avoiding open contacts with the Taliban, India has reduced its role in international diplomatic efforts.

•That the U.S. is currently crucially dependent on Pakistan for the successful implementation of its Taliban deal aimed at securing as orderly a withdrawal as possible from what is a major strategic reverse for the world’s pre-eminent power is not in doubt. Mr. Khalilzad’s positive words for Pakistan make it clear. More significant is his comment, “Our strong position is that there shouldn’t be [terror] sanctuaries on either side of the Afghan-Pakistan border….” This is in sharp contrast to U.S. President Donald Trump’s earlier focus only on Taliban sanctuaries in Pakistan.

•In such a situation, it was essential for India to have maintained its strong links with the Afghan government, built and supported its traditional Afghan allies — perhaps this was discreetly resumed — but also establish open lines of communication with the Taliban. This was especially because they were informally conveying that India should not consider them as Pakistan’s puppets and also because they had gained international recognition. Contacts and discussions do not mean acceptance of their ways or that their professions of not being Pakistan’s stooges should not have been tested.

Echo from the past

•It is sad that despite all that India has done in Afghanistan over the past 18 years since the Taliban were ousted from Kabul in 2001, it finds itself on the margins of international diplomacy on Afghanistan. It is reminiscent of the time in the 1990s when, at Pakistan’s insistence, India was considered a problem and kept out of crucial global forums on Afghanistan. It did not matter then because along with Iran and Russia, it kept the resistance to the Taliban going through Ahmed Shah Masood. Mr. Ghani is no Masood and there are no countries on the horizon which are really opposed to the Taliban acquiring a major place in the Afghanistan’s formal power structures.

•India needs to take corrective diplomatic action even at this late stage, and even in the time of COVID-19. It must begin openly talking to the Taliban and with all political groups in the country. It must realise that its Afghan policy needs changes.

πŸ“° Labour rights are in free fall

By suspending labour laws, States are exploiting the unique opportunity provided by the national lockdown

•As India slowly attempts to lift its nationwide lockdown, under compulsion of reviving the economy, labour rights are disappearing at an astonishing pace. Uttar Pradesh, Madhya Pradesh and Gujarat, which are States ruled by the Bharatiya Janata Party, took the lead in suspending crucial labour laws for varying lengths of time.

Undemocratic introduction

•This strategy visualises effecting an economic turnaround through improvement of India’s rank in the “ease of doing business” index, thereby attracting foreign direct investment (FDI) and enthusing domestic private capital. Flexible labour and environmental laws are key instruments through which improvement in ranking is sought (incidentally, India’s rank jumped from 130 in 2016 to 63 in 2019).

•Such thinking forms the core of the ‘Make in India’ programme; therefore, elements of labour law dilution are already visible in the four labour codes aimed at consolidating 44 central labour laws (these are on wages, industrial relations, social security and occupational safety, health and working conditions). However, what is surprising is the undemocratic manner, by promulgating ordinances and notifying rules, in which labour rights are suspended without tripartite discussion.

•The continuity in direction of policy, although more vigorously pursued now, is obvious: for instance, consider the extension of a work day up to 12 hours. It is argued that this would address the problem of labour shortages at a time when social distancing is the norm. Interestingly, draft rules on the Code on Wages, 2019 already proposed extension of a workday by one hour (from eight to nine hours) when the novel coronavirus pandemic was nowhere on the horizon. Further, even though working hours are extended, there is no provision for overtime pay in Madhya Pradesh and Gujarat (although such provisions are available in Uttarakhand, Haryana, Rajasthan and Himachal Pradesh).

Shades of an agenda

•Next, take the U.P. ordinance that shockingly exempts employers from complying with the Minimum Wages Act 1948. However, the Code on Wages, 2019 makes a distinction between national minimum wage (calculated on the basis of an objective formula) and national floor wage (without providing a methodology to calculate it). This was done on purpose, for the minimum wage calculated by a government-appointed committee in 2018 was ₹375 per day, whereas, the national floor wage in the same year was a mere ₹176 per day; however, State governments, under the wages code, are directed to set their minimum wages only above the national floor wage. Thus, States, vying for private investments, would essentially consider the national floor wage, and this in effect would dilute the idea of minimum wage.

•Additionally, the U.P. ordinance also exempts employers from complying with the Industrial Disputes Act 1947. Therefore, employers can hire and fire workers at will; however, employers even now are allowed to offer “fixed-term” employment without any restrictions on the number of renewals. Hence, firms hardly face any problem in adjusting their workforce.

•Now check the M.P. ordinance which exempted factories employing less than 50 workers from regular inspections and allowed third-party inspections. Again the wages code severely eroded the inspection mechanism by snatching away the power of inspectors to conduct surprise checks. Even when violations in law are detected, they are mandated to advise, provide information and facilitate employers to comply with the law; in fact, they are now called inspector-cum-facilitator.

•The M.P. ordinance further states that for new establishments, provisions guiding industrial dispute resolution, strikes/lockouts and trade unions would cease to operate. This is in line with the Industrial Relations Code, 2019, which proposes to raise the membership threshold of a trade union from 15% to 75% of the workforce in an establishment, for it to be recognised as the negotiating union.

•Therefore, it seems the novel coronavirus pandemic simply provided a window to aggressively fulfil the long-term agenda of diluting labour rights. This becomes evident from the length of suspension of these labour rights — which vary from 1,000 days (M.P.) to three years (U.P.). Surely there is no basis to expect that the impact of the lockdown will stretch for so long and it appears that State governments are competing to project themselves to be investor-friendly.

•But will such suspension of labour rights, aimed at reducing labour cost, stimulate private investment and ensure recovery? Past experience does not inspire confidence. The Reserve Bank of India, for some time now, has single-mindedly designed policies that reduce the cost of borrowing capital, but this has clearly failed to unleash animal spirits. Further, reductions in corporate tax in September 2019 made no impact in boosting private capital and reviving growth in subsequent quarters. Actually, banking on private investment for economic recovery when the economy is wrapped in acute uncertainty is essentially futile. This is easy to understand: for example, home buyers, once uncertain about completion of a housing project, will never evince interest even if flats are offered at dirt-cheap rates accompanied by additional benefits. Private agents wait and watch for a predictable environment before committing their money and, therefore, cannot be the principal agent for guiding an economy caught in a downward spiral.

Issue of timing

•Finally, consider the timing of labour rights suspension. Although industry associations and government are projecting these changes as necessary for enticing FDI relocating from China, this is only a cover for the unique opportunity provided by the lockdown. In other times, such a violent attack on the fundamental rights of workers would lead to widespread protests and massive strikes. Both instruments are toothless now; protests are prohibited by lockdown rules and strikes are meaningless when production days are lost anyway. However, this exposes the authoritarian nature of the state, and every section of society must come together to protect the rights of workers. This is essential for destroying the rights of one section of society makes the rights of other sections of society vulnerable as well. For example, the plight of migrant workers will now spread to the working class as a whole, and industrial accidents such as the ones in Bhopal and Vishakhapatnam could engulf larger sections of society. It is time we see these interconnections and resist unitedly.

πŸ“° Where is health in the stimulus package?

A part of the relief funding must be used to seize the opportunity and invest in universal health coverage

•India can pause and breathe a sigh of relief in its efforts to contain the spread of the coronavirus. Though the situation varies across States, at the end of the first innings, the country seems to have an advantage.

•Our bowlers have done well to limit the COVID-19 score and flatten the curve. Credit for containing the spread of the virus should go to our frontline medical and health workers in government who literally rushed in where angels fear to tread to save people’s lives. Putting aside threats to personal safety, family interests, and stigma, selfless government health workers across the country are the ones who are leading the charge.

•We shouldn’t however forget that the pitch conditions aren’t favourable to the Indian players. Even before COVID-19, India was staring at a serious economic slowdown. India's GDP growth for 2019-20 was lowered to 4.1% from 5% projected by several agencies before the outbreak of the virus. Recent reports predict that the impact of COVID-19 might reduce GDP growth rate to 1.1% or even lower in the current financial year. Unemployment has been growing since January 2020 when the first cases of coronavirus emerged. According to the Centre for Monitoring Indian Economy, India’s unemployment rate at the end of May 16, 2020 was staggeringly high at around 24%.

•The second reason why the pitch isn’t in India’s favour is because our healthcare delivery system in most States is extremely fragile. One wonders, for instance, whether Bihar can handle the consequences if the virus begins to spread with the return of millions of migrant workers back to the State. Many other States also face a similar plight given the poor state of primary healthcare facilities.

Restoring livelihoods

•During this innings break, discussions on the strategy to win the match have been focusing on ending the lockdown, reviving economic activities, restoring livelihoods, addressing concerns of hunger and starvation, stimulating small and medium enterprises, and enhancing farm incomes. The package of ₹20-lakh crore, equivalent to about 10% of India’s GDP, announced by the Prime Minister on May 12, is expected to restore the livelihoods of millions of migrants and other workers who have lost their jobs and also enable entrepreneurs and businesses to get re-started.

•Some elements of the stimulus package have been announced. Others might follow. While it is too early to comment on the impact of these announcements, one should not forget that the fear factor in reviving employment and business is real. Economic desperation might leave poor workers with no choice but to return to work. But many of them are truly worried about getting infected. Businesses are also genuinely concerned about the collapse of demand and shutting down of retail outlets. Equally disconcerting for them are the difficulties in and consequences of not adhering to conditions set by the government. They are worried about the unpredictability of government’s actions and policy revisions. This could well be a reason why, according to recent reports, in the midst of the long-term structural shift from China, companies prefer to relocate manufacturing to countries in the Association of Southeast Asian Nations (ASEAN) region, and not India.

•In all this, the silence around health is disturbing. While economic stimulus packages are essential, the match cannot be won without urgently and immediately stepping up investments in health.

Strengthening public health

•Dealing with the COVID-19 pandemic has brought out the critical importance of the public sector in health provisioning. However, stuck at around 1.15% of GDP for well over a decade, the low level of public spending on health is both a cause and an exacerbating factor accounting for the poor quality, limited reach and insufficient public provisioning of healthcare. Despite this, the public health system has risen to the challenge so far. The Union and State governments seem to have found the financial resources to provide an emergency response to deal with the pandemic. With agility and speed, orders have been placed for PPEs, ventilators, testing kits, and other supplies needed to detect and treat COVID-19 patients. It is possible that resources allocated for other health programmes are being diverted to deal with the COVID-19 pandemic. The opportunity cost of such diversion of funds could be high. Media reports point out, for instance, that people’s access to routine maternal and child health as well as family planning services in parts of the country has been negatively impacted. Also, many States are simply not in a position to deal with a second wave of infections. The pandemic has exposed a hard truth: most private healthcare providers seem to be incapable of and unwilling to help even during a national crisis. And India’s private sector in health is sizable. According to recent figures, the private sector accounts for 93% of all hospitals, 64% of all hospital beds, and 80-85% of all doctors. Rapidly declining revenues and sharply eroding profits are leading to the closure of many private hospitals. Only a few private providers have come forward to extend support to the government.

•Not addressing weaknesses in the public health delivery system can thwart all efforts at reviving the economy. State governments need to be prepared as the worst maybe yet to come.

•This is the time then to seize the opportunity and invest in universal health coverage (UHC) by reversing the financial neglect of public healthcare. Nearly every country in the world that has achieved anything like UHC has done it through the public assurance of primary healthcare.

•Announcing a new ‘health investment plan’ (as part of the stimulus package) is the urgent need of the hour. At least 1% of GDP out of the stimulus package should be earmarked for improving the country’s health infrastructure and strengthening public health service delivery. And up to 70% of the additional expenditures should be ring-fenced for primary healthcare and further strengthening health and wellness centres, primary health centres and community health centres. Only then can State governments be better prepared to face a second round of the pandemic. Investing in health, apart from improving people’s well-being, is also essential for accelerating and sustaining India’s economic growth.

•If cricket is a game of chance, so is the match against COVID-19. What the immediate future holds for India in terms of the spread of the virus is not known. As is said of matches, ‘it ain’t over till it’s over.’ There is only one way to win this match and establish a self-reliant and prosperous India: seize the opportunity and step up investments in public health across the country.

πŸ“° Farm gate in focus: On amending Essential Commodities Act

Move to amend the Essential Commodities Act is fraught with risks

•The Centre’s objective of using the COVID-19 crisis to usher in an Atmanirbhar Bharat saw Finance Minister Nirmala Sitharaman focus Friday’s tranche of announcements on farm sector reforms. The centrepiece was a ₹1-lakh crore fund to finance agriculture infrastructure projects at the farm gate and produce aggregation points. Given that the lack of adequate cold-storage facilities continues to extract a high price on farmers and the agrarian economy by way of post-harvest losses, especially in perishables, the targeted outlay is a welcome step. The decision to channel the funds to agricultural cooperatives, farmer producer organisations, rural entrepreneurs and start-ups is also encouraging as it lays the onus of creating the appropriate infrastructure or logistics solution largely on the principal beneficiaries, the farmers themselves. The Minister also unveiled a ₹10,000 crore scheme to promote the formalisation of micro food enterprises. Suggesting a cluster approach focused in different regions on signature produce, Ms. Sitharaman said the goal was to assist unorganised enterprises in scaling up food safety standards to earn the products certification and build brand value. The package, though, may be more beneficial in the longer term than providing any immediate relief from the lockdown-exacerbated distress in the rural hinterland.

•Crucially, the Minister also announced three reform proposals that are ostensibly aimed at enabling better price realisation for farmers by removing restrictions and facilitating enhanced marketing freedom. These include amendments to the 1955-vintage Essential Commodities Act that would effectively hollow out the legislation by deregulating cereals, pulses, oilseeds, edible oils, onions and potato. While the Economic Survey, in January, had recommended jettisoning the “anachronistic” Act, the law has nonetheless remained a vital tool in the government’s armoury for protecting consumers from irrational volatility in the prices of essentials by tamping down on black marketeers and hoarders. While the Act’s provisions do have scope for an overzealous bureaucracy to harass even an honest exporter, who may have paid a fair price to the farmer and stocked produce for shipment overseas, total deregulation for foodgrains is fraught with the risk of future inflationary food price spikes. The other two proposals are also of concern. While one seeks to bypass the APMC regime through a central law that would allow farmers the freedom to sell across State borders, the other proposes a framework for farmers to enter into pre-sowing contracts that would purportedly help assure them of offtake volumes and prices. Both the changes, once enacted, could privilege market forces without necessarily safeguarding food security. Surely, it would be in no one’s interest to throw the baby out with the bathwater.